SEQUENT COMPUTER SYSTEMS, INC.
Notice of Annual Meeting of Shareholders to be Held
May 21, 1996
To the Shareholders of Sequent Computer Systems, Inc.:
The Annual Meeting of Shareholders of Sequent Computer Systems, Inc., an
Oregon corporation, will be held on Tuesday, May 21, 1996 at 3:00 pm.,
Pacific Time, at the Company's facilities at 15450 S.W. Koll Parkway,
Beaverton, Oregon, for the following purposes:
1. Electing seven directors;
2. Voting on approval of an amendment to the Company's Employee Stock Purchase
Plan;
3. Voting on approval of the selection of Price Waterhouse as the Company's
independent auditors; and
4. Transacting such other business as may properly come before the meeting.
You are respectfully requested to date and sign the enclosed proxy and
return it in the postage prepaid envelope enclosed for that purpose. You
may attend the meeting in person even though you have sent in your proxy,
since retention of the proxy is not necessary for admission to or
identification at the meeting.
By Order of the Board of Directors
Karl C. Powell, Jr.,
Chairman of the Board
and Chief Executive Officer
March 26, 1996
Beaverton, Oregon
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THIS MEETING IN
PERSON, PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE SO THAT YOUR STOCK WILL BE VOTED. THE ENVELOPE REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
SEQUENT COMPUTER SYSTEMS, INC.
PROXY STATEMENT
The mailing address of the principal executive offices of Sequent Computer
Systems, Inc., an Oregon corporation (the Company" or Sequent"), is 15450
S.W. Koll Parkway, Beaverton, Oregon 97006-6063. The approximate
date this proxy statement and the accompanying proxy form are first being
sent to shareholders is April 5, 1996.
Upon written request to the Secretary, any person whose proxy is
solicited by this proxy statement will be provided without charge a copy of
the Company's Annual Report on Form 10-K.
SOLICITATION AND REVOCABILITY OF PROXY
The enclosed proxy is solicited on behalf of the Board of Directors of
the Company for use at the annual meeting of shareholders to be held on
Tuesday, May 21, 1996. The Company will bear the cost of preparing and
mailing the proxy, proxy statement and any other material furnished to the
shareholders by the Company in connection with the annual meeting. Proxies
will be solicited by use of the mails. Officers and employees of the Company
may also solicit proxies by telephone or personal contact. Copies of
solicitation materials will be furnished to fiduciaries, custodians and
brokerage houses for forwarding to beneficial owners of the stock held in
their names. The Company has retained Chemical Mellon Shareholder Services to
assist in the solicitation of proxies from brokers and other nominees at an
estimated cost of $8,500 plus certain expenses.
Any person giving a proxy in the form accompanying this proxy statement
has the power to revoke it at any time before its exercise. The proxy may be
revoked by filing with the Company, attention Henry H. Hewitt, Secretary, an
instrument of revocation or a duly executed proxy bearing a later date. The
proxy may also be revoked by affirmatively electing to vote in person while
in attendance at the meeting. However, a shareholder who attends the
meeting need not revoke his proxy and vote in person unless he wishes to do
so. All valid, unrevoked proxies will be voted at the annual meeting.
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
The Common Stock is the only outstanding voting security of the Company.
The record date for determining holders of Common Stock entitled to vote at
the annual meeting is March 26, 1996. On that date there were 33,450,269
shares of Common Stock outstanding, entitled to one vote per share. The
Common Stock does not have cumulative voting rights.
The following table shows Common Stock ownership on March 1, 1996 by (i)
each person who, to the knowledge of the Company, beneficially owns more than
5% of the Common Stock, (ii) the Chief Executive Officer of the
Company, (iii) the other current and former executive officers of the Company
named in the executive compensation table set forth below, and (iv) all
directors and executive officers of the Company as of March 1, 1996 as a
group:
Name and Address Shares(1) Percent
Neuberger & Berman LP 2,920,600(2) 8.7%
605 Third Avenue
New York, NY 10158
Wellington Management Company 1,883,650(3) 5.6%
75 State Street
Boston, MA 02109
State Farm Mutual Automobile 1,715,950 5.1%
Insurance Company
1 State Farm Plaza
Bloomington, IL 61710
State Farm Insurance Companies 533,300 1.6%
Employee Retirement Trust
c/o Continental Bank N.A.
30 North LaSalle Street
Chicago, IL 60693
The Burridge Group, Inc. 1,684,844(4) 5.0%
115 South LaSalle St.
Chicago, IL 60603
Karl C. Powell, Jr. 439,388(5) 1.3%
John McAdam 46,500(6) *
Robert S. Gregg 63,934(7) *
Lary L. Evans 0 *
Paul J. O'Mara 80(8) *
8 directors and executive officers
as a group 860,506(9) 2.5%
- ----------------------------------
* Less than 1%.
(1) Shares are held directly with sole voting and dispositive power except as
otherwise indicated. Shares issuable pursuant to outstanding stock
options that are currently exercisable or become exercisable within 60
days of the date of this table are considered outstanding for the purpose
of calculating the percentage of Common Stock owned by such person, but
not for the purpose of calculating the percentage of Common Stock owned
by any other person.
(2) Based solely on information provided as of December 31, 1995 in a Schedule
13G filed by the shareholder. Includes 726,600 shares over which the
shareholder reports sole voting power, 2,085,000 shares over which the
shareholder reports shared voting power, and 2,920,600 shares over which
the shareholder reports shared dispositive power.
(3) Based solely on information provided as of December 31, 1995 in a Schedule
13G filed by the shareholder. The shareholder reports shared voting power
with respect to 1,077,570 shares and shared dispositive power with respect
to all of these shares.
(4) Based solely on information provided as of December 31, 1995 in a Schedule
13G filed by the shareholder. Includes 567,950 shares over which the
shareholder reports sole voting power, 2,350 shares over which the
shareholder reports shared voting power, 1,139,794 shares over which the
shareholder reports sold dispositive power, and 545,050 shares over which
the shareholder reports shared dispositive power.
(5) Includes 160,000 shares held in trust for the benefit of Mr. Powell's
family, as to which Mr. Powell has shared voting and dispositive power,
and 270,406 shares of Common Stock subject to options that are currently
exercisable or become exercisable within 60 days. Does not include shares
of Common Stock subject to options that are currently exercisable or
become exercisable within 60 days that are held for the benefit of Mr.
Powell's former wife, as to which Mr. Powell disclaims beneficial
ownership.
(6) Includes 39,000 shares of Common Stock subject to options that are
currently exercisable or become exercisable within 60 days.
(7) Includes 51,000 shares of Common Stock subject to options that are
currently exercisable or become exercisable within 60 days.
(8) Includes 80 shares of Common Stock subject to options that are currently
exercisable or become exercisable within 60 days.
(9) Includes 568,890 shares of Common Stock subject to options that are
currently exercisable or become exercisable within 60 days.
<TABLE>
ELECTION OF DIRECTORS
The Board of Directors of the Company consists of six directors who are
elected at the annual meeting to serve until the next annual meeting of
shareholders and until their successors are elected. The Company's nominees
for director are listed below, together with certain information about each of
them.
<CAPTION>
Shares of
Common Stock
Position with the held on
Company and Principal March 1, Approximate
Name Occupation Age 1996(1) percent
<S> <C> <C> <C> <C>
Karl C. Powell, Jr. Chairman of the Board, 52 439,388(2) 1.3%
Chief Executive Officer and
Director of the Company
John McAdam President, Chief Operating 45 46,500(3) *
Officer and Director of
the Company
David R. Hathaway(4)(5)(6) Director of the Company; 51 78,660(7) *
General Partner of Venrock
Associates
Robert C. Mathis(4)(5)(6) Director of the Company; 68 14,860(8) *
Chairman of Eagle Mountain
Group
Richard C. Palermo, Sr. (6) Director of the Company; 58 13,420(9) *
Consultant
Michael S. Scott Morton(4)(6) Director of the Company; 58 26,140(10) *
Professor of Management at
the Massachusetts Institute
of Technology
Robert W. Wilmot(5)(6) Director of the Company; 51 177,684(11) *
Chairman of the Board of
Wilmot Consulting, Inc.
- ----------------------
*Less than 1%.
</TABLE>
(1) Shares held directly with sole voting and sole dispositive power
unless otherwise indicated.
(2) Includes 160,000 shares held in trust for the benefit of Mr. Powell's
family, as to which Mr. Powell has shared voting and dispositive power,
and 270,406 shares of Common Stock subject to options that are currently
exercisable or become exercisable within 60 days. Does not include shares
of Common Stock subject to options that are currently exercisable or
become exercisable within 60 days that are held for the benefit of Mr.
Powell's former wife, as to which Mr. Powell disclaims beneficial
ownership.
(3) Includes 39,000 shares of Common Stock subject to options that are
currently exercisable or become exercisable within 60 days.
(4) Member of Compensation Committee.
(5) Member of Audit Committee.
(6) Member of Selection Committee.
(7) Includes 1,700 shares held in trust for the benefit of Mr. Hathaway's
family, as to which Mr. Hathaway has shared voting and dispositive power,
and 62,460 shares of Common Stock subject to options that are currently
exercisable or become exercisable within 60 days.
(8) Includes 14,860 shares of Common Stock subject to options that are
currently exercisable or become exercisable within 60 days.
(9) Includes 13,420 shares of Common Stock subject to options that are
currently exercisable or become exercisable within 60 days.
(10) Includes 26,140 shares of Common Stock subject to options that are
currently exercisable or become exercisable within 60 days.
(11) Includes 92,684 shares of Common Stock subject to options that are
currently exercisable or become exercisable within 60 days.
Mr. Powell, a co-founder of the Company, is Chairman of the Board and Chief
Executive Officer and has been a director since 1983. Mr. Powell has served
as the Company's sole Chief Executive Officer or shared the Office of
the Chief Executive with the other co-founder of the Company since the
Company's inception. From 1974 to 1983, Mr. Powell was employed by Intel
Corporation, where his most recent position was General Manager for
Microprocessor Operations. Mr. Powell served on the National Board of
Directors of the American Electronics Association from 1985 to 1986. He holds
a B.S. degree in mechanical engineering from the U.S. Merchant Marine
Academy.
Mr. McAdam, President and Chief Operating Officer, became a director of the
Company in November 1995. Mr. McAdam joined the Company in August 1989 as
U.K. Sales Director. He became U.K. General Manager in January 1991, Vice
President and General Manager of European Operations in October 1992, and
Senior Vice President of European and Asian Operations in January 1994. He
was promoted to President and Chief Operating Officer in February 1995. Prior
to joining the Company, Mr. McAdam was employed for 10 years by Data General
U.K. Ltd., serving most recently as Regional Manager, Public Sector, Finance
and Government Market. Mr. McAdam holds a degree in Computer Sciences from
Glasgow University.
Mr. Hathaway has been a director of the Company since 1983. For the last five
years, Mr. Hathaway has been a general partner of Venrock Associates, a
venture capital investment partnership. He is a director of Datalogix
International, Mitek Surgical Products, Inc. and several privately-held, high-
technology companies.
Dr. Mathis has been a director of the Company since 1985. Dr. Mathis was a
General in the United States Air Force and served as Vice Chief of Staff from
1980 to 1982. He retired from the Air Force in 1982. Dr. Mathis is
Chairman of the I Am Third Foundation, a non-profit organization serving the
disabled, which he and his wife founded in 1982. He has also served on a
number of boards and is currently Chairman of Eagle Pass Engineering,
a consulting firm, and Chairman of the Eagle Mountain Group, an international
business brokering firm.
Mr. Palermo has been a director of the Company since March 1993. Mr. Palermo
was employed by Xerox Corporation from 1965 until his retirement in March
1993, serving most recently as Senior Vice President, U.S.
Quality and Customer Satisfaction and Vice President of Marketing. He
currently serves as a quality consultant to Xerox Corporation and other
companies.
Dr. Scott Morton has been a director of the Company since 1991. Dr. Scott
Morton is the Jay W. Forrester Professor of Management at the Sloan School of
Management and was Chairman of the Faculty for the Senior Executive Program
at M.I.T. He has also served as Program Director of the Management in the
1990s Research Program and as Associate Dean of the Sloan School of
Management at M.I.T. Dr. Scott Morton is a Trustee of the
State Street Research Funds and the Metropolitan Life Series Funds.
Dr. Wilmot has been a director of the Company since 1992. Dr. Wilmot is
Chairman of Wilmot Consulting Inc., a consulting firm, and has been a
consultant to the Company since January 1987. He has also been an advisor to
the Board of Directors since November 1988. Dr. Wilmot was a managing
director of Texas Instruments, Ltd. from 1978 to 1981. From 1981 to 1985 he
was Chief Executive and then Chairman of I.C.L., Britain's major computer
company. He has founded several companies in Europe and the United States,
including Organization and System Innovations, The OASIS Group (a leading
European company engaged in re-engineering management consultancy
now a wholly owned subsidiary of Sybase Inc.) and Poqet Computers Corporation
(a palm top computer manufacturer in California now a wholly owned subsidiary
of Fujitsu Ltd.). He is a director of several privately-held, high-technology
companies in Europe and the United States.
The Board of Directors met eight times during the last fiscal year. Each
director attended at least 75 percent of the aggregate of the meetings of the
Board of Directors and the committees of which he was a member. The only
standing committees of the Board of Directors are the Audit Committee, the
Compensation Committee and the Selection Committee. The Audit Committee,
which met two times in 1995, recommends selection of independent
accountants to the Board of Directors and reviews the scope and results of
audits. The Compensation Committee, which met eight times during 1995,
reviews and establishes compensation for executive officers and considers
incentive compensation alternatives for the Company's employees. The Selection
Committee, which did not meet in 1995, seeks and makes recommendations
concerning qualified candidates to serve on the Company's Board of
Directors. Shareholders who wish to submit names to the Selection Committee
for consideration should do so in writing addressed to the Selection
Committee, c/o Robert S. Gregg, Assistant Secretary, c/o Sequent Computer
Systems, Inc., 15450 SW Koll Parkway, Beaverton, Oregon 97006.
Director Compensation
Directors who are not employees of the Company are paid an annual retainer of
$15,000 plus an attendance fee of $1,000 per day for each board meeting and
related travel expenses. Members of the Audit, Compensation and
Selection Committees receive $1,000 for each meeting attended if the meeting
is held separate from a Board Meeting. Under the Company's 1989 Stock
Incentive Plan and 1995 Stock Incentive Plan, each person who
becomes a non-employee director of the Company automatically receives an
initial option to purchase 10,000 shares of the Company's Common Stock. Each
non-employee director automatically receives additional annual
grants of options to purchase 5,000 shares, provided the non-employee director
continues to serve in that capacity. Members of the Compensation, Audit and
Selection Committees receive annual option grants for 2,000 shares for
participation on each such committee. Each option granted to a non-employee
director has an exercise price equal to 85% of the fair market value of the
Company's Common Stock on the date of grant and has a term of ten years.
Options become exercisable to the extent of 24% of the shares one year after
the date of grant and become exercisable to the extent of 2% each month
thereafter. Dr. Wilmot performs consulting services relating to the
Company's European operations (for which he is paid $1,000 per day plus travel
expenses). In 1995 he was paid $55,700 under this consulting arrangement and
received options to purchase a total of 5,333 shares of Common
Stock (with exercise prices equal to 85% of fair market value on the date of
grant). In 1995, Mr. Palermo was paid $5,000 for consulting services relating
to total quality management.
Voting
The proxies will be voted with respect to the election of the nominees in
accordance with the instructions specified in the proxy form. If no
instructions are given, proxies will be voted for the election of the
nominees. If for some unforeseen reason any of the nominees would not be
available as a candidate for director, the number of directors constituting
the Board of Directors may be reduced prior to the meeting or the proxies may
be voted for such other candidate or candidates as may be nominated by the
Board of Directors, in accordance with the authority conferred
in the proxy.
The Board of Directors recommends election of the nominees listed above.
Directors are elected by a plurality of the votes cast by the shares entitled
to vote if a quorum is present at the annual meeting. Abstentions and broker
non-votes are counted for purposes of determining whether a quorum exists at
the annual meeting but are not counted and have no effect on the
determination of whether a plurality exists with respect to a given nominee.
<TABLE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth compensation paid to the Chief Executive
Officer of the Company and the other four most highly compensated executive
officers of the Company for services in all capacities to the Company and its
subsidiaries during each of the last three fiscal years.
<CAPTION>
Long-Term Compensation
Annual Compensation (1) Awards
Name and Restricted Securities
Principal Stock Underlying All Other
Position Year Salary Bonus Other Awards($) Options(#)(2) Compensation(3)
<S> <C> <C> <C> <C> <C> <C> <C>
Karl C. Powell, Jr. 1995 $517,342 $112,868 _ _ 562,500 $ 9,587
Chairman of the 1994 $453,140 $231,101 _ _ 75,000 $ 6,616
Board and Chief 1993 $405,849 _ _ _ 35,000 _
Executive Officer
John McAdam 1995 $364,582 $ 63,754 _ $108,750(4) 155,000 $613,570(5)
President and Chief 1994 $170,010 $171,471 _ $ 49,375(6) 50,000 $121,379(7)
Operating Officer 1993 $125,800 $161,138 _ _ 10,000 $ 13,905
Robert S. Gregg 1995 $233,758 $ 34,496 _ _ 89,500 $ 4,980
Sr. Vice President of 1994 $218,341 $ 80,000 _ _ 7,500 $ 3,188
Finance & Legal and 1993 $179,500 _ _ _ 6,000 _
Chief Financial Officer
Lary L. Evans(8) 1995 $180,401 $ 30,600 _ _ 8,000 _
Former Vice President 1994 $198,962 $ 67,647 _ _ 10,000 $ 2,905
and General Manager, 1993 $174,262 _ _ _ 11,000 _
Platform Division
Paul J. O'Mara(9) 1995 $ 80,417 $ 41,013 _ _ _ $113,750(9)
Former Vice President 1994 $170,631 $ 74,821 _ _ 20,000 _
and General Manager, 1993 $139,378 $ 17,500 _ _ 7,500 _
Enterprise Division
</TABLE>
(1) Includes compensation deferred at the election of the executive under the
Company's 401(k) Plan. Under the Company's 401(k) Plan, officers and
other employees of the Company may elect to defer up to 15% of their
compensation, subject to limitations under the Internal Revenue Code.
Amounts deferred are deposited by the Company in a trust account for
distribution to employees upon retirement, attainment of age 59 to 62,
permanent disability, death, termination of employment or the occurrence
of conditions constituting extraordinary hardship. The Company did not
make any contributions for executive officers under this plan during the
last three years.
(2) Represents shares of Common Stock issuable upon exercise of nonstatutory
stock options granted under the Company's 1989 Stock Incentive Plan and/
or the 1995 Stock Incentive Plan.
(3) Represents Company contributions under the Company's deferred compensation
plan and retirement plan for a foreign subsidiary, except as otherwise
indicated.
(4) Represents the market price of the Common Stock on the grant date
multiplied by the number of shares granted. On December 31, 1995 7,500
shares of Common Stock were restricted. These shares become vested to the
extent of 2,500 shares on each of February 7, 1997, February 7, 1998 and
February 7, 1999 subject to continued employment and, once vested, will
no longer be subject to any restrictions.
(5) In 1995, in connection with Mr. McAdam's appointment as President and
Chief Operating Officer, the Company made special payments on his behalf
related to the relocation of Mr. McAdam and his family from
England to the United States. The total amount paid was $613,570, which
includes relocation expenses, the down payment on his new home, a
relocation bonus, travel costs for his family, interest, tax and
insurance payments for his new home in the US, overseas expatriate
reimbursement for property management of his home in the UK, pension
payments and reimbursements of taxes to cover the withholding due on
the above mentioned payments.
(6) Represents the market price of the Common Stock on the grant date
multiplied by the number of shares granted. These shares became fully
vested in April 1995 and are no longer subject to any restrictions.
(7) In August 1994, in connection with Mr. McAdam's appointment as Senior Vice
President, World Wide Field Operations, the Company made a special
payment to him of $100,044 in order to compensate Mr. McAdam for the
extensive travel and inconvenience to Mr. McAdam and his family, who
continued to reside in England. In addition, the Company's subsidiary
contributed an aggregate of $21,368 to retirement plans in 1994 on behalf of
Mr. McAdam.
(8) Mr. Evans resigned his position with the Company in October 1995.
(9) Mr. O'Mara resigned his position with the Company in May 1995. In
connection with his resignation the Company paid him seven months of his
base salary.
<TABLE>
Stock Option Grants in Last Fiscal Year
The following table provides information regarding stock options granted in
1995 to current and certain former executive officers.
<CAPTION>
Individual Grants
--------------------------------------------------
Percent of Potential
Total Realizable Value at
Number of Options Assumed Annual
Shares Granted to Rates of Stock Price
Underlying Employees Exercise Appreciation
Options in Fiscal Price Expiration for Option Term(2)
Name Granted(1)(2) Year per Share(2) Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Karl C. Powell, Jr. 425,000(4) 18.7% $16.63 2/07/05 $4,441,409 $11,258,662
137,500(5) 6.1% $16.63 2/07/05 $1,436,926 $ 3,642,508
John McAdam 120,000(6) 5.3% $16.63 2/07/05 $1,254,045 $ 3,178,916
35,000(7) 1.5% $19.75 7/18/05 $ 434,723 $ 1,101,674
Robert S. Gregg 74,500(8) 3.3% $16.63 2/07/05 $ 778,553 $ 1,973,577
15,000(9) * $19.75 7/18/05 $ 186,310 $ 472,146
Lary L. Evans 8,000(10) * $16.63 2/07/05 $ 99,365 $ 251,811
Paul J. O'Mara _ _ _ _ _ _
* Less than 1%.
</TABLE>
(1) Under the terms of the Company's Stock Incentive Plans, each of the
options is subject to accelerated vesting in the event of a future change
in control of the Company or the occurrence of certain events indicating
an imminent change in control of the Company. Upon such acceleration, the
optionee has the right to cause the Company to repurchase the option for
a cash amount calculated in accordance with a formula set forth in the
1989 Stock Incentive Plan. Each of the options is subject to early
termination in the event of termination of employment. Each
option terminates 12 months after termination following death or
disability and 30 days after termination for any other reason.
(2) The information set forth in this table (including exercise prices and
vesting schedules) has not been adjusted to reflect options granted in
1996 in cancellation of certain of the options reported in this table.
During 1996 the Compensation Committee granted options to employees
(including executive officers) in cancellation of options previously
granted at higher prices. The regranted options were granted at an
exercise price of $14.00 per share, which was the market price of the
Common Stock on the date of the regrant. The regranted options were
generally granted with new three-year vesting schedules, and no
credit was given for vesting under the prior grants. The Compensation
Committee regranted the options in order to restore the incentive value
of the options on an on-going basis.
(3) In accordance with rules of the Securities and Exchange Commission,
these amounts are the hypothetical gains or option spreads" that would
exist for the respective options based on assumed rates of annual compound
stock price appreciation of 5% and 10% from the date the options were
granted over the full option term.
(4) This option vests based on Company performance standards for 1995
(50,000 shares), 1996 (125,000 shares), 1997 (125,000 shares) and 1998
(125,000 shares) established by the Compensation Committee or in ten
years, subject to continued employment.
(5) This option becomes exercisable to the extent of 35,000 shares in
1995, 5,500 shares in 1996, 47,000 shares in 1997 and 50,000 shares in
1998, subject to continued employment.
(6) This option becomes exercisable in equal annual installments in 1996,
1997, 1998 and 1999, subject to continued employment.
(7) This option becomes exercisable to the extent of 12,500 shares in
1996, 12,500 shares in 1997, 2,500 shares in 1998 and 7,500 shares in
1999, subject to continued employment.
(8) This option becomes exercisable to the extent of 5,500 shares in
1996, 23,000 shares in 1997, 24,000 shares in 1998 and 22,500 shares in
1999, subject to continued employment.
(9) This option becomes exercisable to the extent of 4,000 shares in 1996,
3,000 shares in 1997, 3,000 shares in 1998 and 5,000 shares in 1999,
subject to continued employment.
(10) This option would have become exercisable to the extent of 2,000 shares
in each year commencing in 1996, 1997, 1998 and 1999, subject to
continued employment. Upon Mr. Evan's termination from the Company, the
option was cancelled.
<TABLE>
Stock Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values.
The following table indicates (i) stock options exercised by current and
certain former executive officers during 1995, including the value realized
on the date of exercise, (ii) the number of shares subject to exercisable
(vested) and unexercisable (unvested) stock options as of December 31, 1995,
and (iii) the value of in-the-money" options, which represents the positive
spread between the exercise price of existing stock options and the year-end
price of the Common Stock.
<CAPTION>
Number of Value of
Shares Subject Unexercised
to Unexercised In-the-Money
Number of Options Options
Shares at Fiscal Year End at Fiscal Year End
Acquired Value (Exercisable/ (Exercisable/
Name on Exercise Realized(1) Unexercisable)(2) (Unexercisable)(3)
<S> <C> <C> <C> <C>
Karl C. Powell, Jr. 98,000(4) $1,008,329 256,870 (exercisable) $812,505 (exercisable)
860,761 (unexercisable) $819,370 (unexercisable)
John McAdam 25,280 $ 236,485 4,000 (exercisable) $ 0 (exercisable)
220,000 (unexercisable) $ 86,000 (unexercisable)
Robert S. Gregg 29,176 $ 382,562 42,000 (exercisable) $ 36,750 (exercisable)
111,000 (unexercisable) $ 33,925 (unexercisable)
Lary L. Evans 58,179 $ 750,678 0 (exercisable) $ 0 (exercisable)
0 (unexercisable) $ 0 (unexercisable)
Paul J. O'Mara(5) 18,115 $ 162,088 80 (exercisable) $ 460 (exercisable)
7,500 (unexercisable) $ 4,687 (unexercisable)
</TABLE>
(1) Aggregate market value of the shares covered by the option, less the
aggregate price paid by the executive.
(2) The information in this table does not reflect options granted in 1996 in
cancellation of certain of the options included in this table.
(3) Calculated based on the stock price on December 31, 1995.
(4) Excludes 43,460 shares ($560,121 value realized) acquired for the benefit
of Mr. Powell's former wife and 6,822 exercisable option shares ($17,908
value) and 52,739 unexercisable option shares ($130,630 value) held for
her benefit.
(5) In connection with Mr. O'Mara's resignation, the Company extended the
vesting of certain of Mr. O'Mara's options through July 31, 1996 and
extended the exercise period to September 1, 1996.
Compensation Committee Report on Executive Compensation.
The Compensation Committee of the Board of Directors has furnished the
following report on executive compensation:
The Compensation Committee of the Board of Directors (the Committee") is
composed of three outside directors and, pursuant to authority delegated by
the Board, determines the compensation to be paid to the Chief Executive
Officer and each of the other executive officers of the Company. The Committee
also is responsible for developing and making recommendations to the Board
with respect to the Company's executive compensation policies.
The Company's objectives for executive compensation are to (i) attract and
retain key executives important to the long term success of the Company; (ii)
reward executives for performance and enhancement of shareholder value;
and (iii) align the interests of the executive officer with the success of the
Company by basing a portion of the compensation upon corporate performance.
Executive Officer Compensation Program. The Company's executive officer
compensation program is comprised of base salary, quarterly and annual cash
incentive compensation, and long term incentive compensation in the form
of stock options.
Base salary levels for the Company's executive officers are set relative to
companies of similar size in the electronics industry and other comparable
companies. There are 54 companies in the comparative group, 6 of
which are included in the S&P Computer Systems Index referred to in the table
on page 11 of this proxy statement. The companies included in the
comparative group sell electronic hardware and software and are believed to be
companies that the Company competes with in attracting and retaining
executives. Of the 54 companies included in the comparative group, 31
companies have revenues under $500 million and 23 companies have revenues over
$500 million. Base salaries for executive officers of the Company are
generally in the 50 to 75 percentile of the range of salaries of the
comparable companies in the surveys considered by the Committee. In
determining salaries, the Company also takes into account individual
experience, job responsibility and individual performance. The
Committee does not assign a specific weight to each of these factors in
establishing base salaries.
The Company's Management Incentive Plan is an annual incentive program for
executive officers and key managers based on quarterly and annual performance
of the Company and individual contributions. The purpose of
the plan is to provide a direct financial incentive in the form of quarterly
and annual cash bonuses to executives to achieve predetermined levels of
Company performance. Company performance measures and participant target
bonus amounts are set at the beginning of each fiscal year. The performance
measures for 1995 and relative importance in calculating the bonus amount were:
net income (30%), revenues (20%), economic value added (10%), customer
success ratings (20%) and employee success plans (20%). The bonus amount
based on Company performance is multiplied by an individual performance
multiplier (which can range from .75 to 1.25) reflecting
the participant's performance for the year. Target bonuses for each executive
officer were set by the Committee in relation to base salary and level of
responsibility within the Company and are generally in the 50 to 75 percentile
of the range of cash bonuses of the comparable companies in the survey
considered by the Committee. The Company's performance in 1995 resulted in
bonus amounts equal to 56% of the target bonus amounts, prior to
adjustment to reflect individual performance.
The Company's stock option program is intended as a long term incentive plan
for executives, managers and other employees broadly within the Company. The
objectives of the program are to align employee and shareholder long
term interests by creating a strong and direct link between compensation and
shareholder value. The Company's 1989 Stock Incentive Plan and the Company's
1995 Stock Incentive Plan authorize the Committee to award stock
options to executive officers and other employees of the Company. Stock
options for new employees (including new officers) are granted at an option
price equal to 85 percent of fair market value of the Company's Common Stock
on the date of grant. Options are granted to new officers at a discount from
market as an additional incentive for new officers to join the Company. In
most cases new officers will forfeit significant stock options or other
benefits from a prior employer. Options granted to existing officers and
employees are granted at fair market value of the Common Stock on the date of
grant. Initial stock options become exercisable to the extent of 24 percent
of the shares one year after the date of grant and to the extent of two
percent of the shares each month thereafter. Additional grants to existing
officers and employees are generally made annually to vest at the end of the
vesting period for previously granted options. Stock options have 10-year
terms and generally terminate in the event of termination of employment. The
amount of stock option grants for an individual is at the discretion of the
Committee and depends upon the level of responsibility and position in the
Company.
Section 162(m) of the Internal Revenue Code of 1986, as adopted in 1993,
limits to $1,000,000 per person the amount that the Company may deduct for
compensation paid to any of its most highly compensated officers in any
year after 1993. The levels of salary and bonus generally paid by the Company
do not exceed this limit. Under IRS regulations, the $1,000,000 cap on
deductibility will not apply to compensation received through the exercise of
a nonqualified stock option that meets certain requirements. This option
exercise compensation is equal to the excess of the market price at the time
of exercise over the option price and, unless limited by Section 162(m), is
generally deductible by the Company. It is the Company's current policy
generally to grant options that meet the requirements of the regulations.
Chief Executive Officer Compensation. The Committee determined the Chief
Executive Officer's compensation for 1995 based upon a number of factors and
criteria. The Chief Executive Officer's base salary was determined based
upon a review of the salaries of chief executive officers for similar
companies of comparable size and complexity and upon a review by the
Committee of the Chief Executive Officer's performance and is not based on the
Company's performance. The Chief Executive Officer's 1995 salary and target
bonus amounts were set at approximately the median for salaries and bonuses
for chief executive officers of the companies in the comparative
group. The Chief Executive Officer received a bonus for 1995 based on Company
performance as measured under the Company's 1995 Management Incentive Plan
described above and his individual performance as evaluated by
the Committee.
During 1995 the Chief Executive Officer was granted options to purchase
562,500 shares of Common Stock as a part of the Company's annual option grant
program. These options were part of an ongoing program to increase the
options held by Mr. Powell which vest after 1995 to provide him with
significant ongoing incentives to remain with the Company and to further
align his long-term interests with shareholder interests. The number of shares
granted in 1995 was based on a subjective determination of the number of
shares needed in 1995 as part of this long-term program. Of the options
granted in 1995, 425,000 option shares vest based on Company performance
standards for 1995, 1996, 1997 and 1998 established by the Committee or in ten
years, subject to continued employment.
David R. Hathaway
Robert C. Mathis
Michael S. Scott Morton
Comparison of Five Year Cumulative Total Return
The following graph provides a comparison of the five year cumulative total
shareholder return on (i) the Company's Common Stock, (ii) the S&P 500 Index
and (iii) the S&P Computer Systems Index, in each case assuming the
reinvestment of any dividends.
TOTAL RETURN TO SHAREHOLDERS
REINVESTED DIVIDENDS
1990 1991 1992 1993 1994 1995
S&P Computer
Systems Index $100.00 $ 88.87 $ 65.24 $ 67.71 $ 87.44 $116.37
S&P 500 Index $100.00 $130.47 $140.41 $154.56 $156.60 $215.45
Sequent Computer
Systems, Inc. $100.00 $ 76.39 $115.97 $ 84.72 $109.72 $ 80.56
The graph assumes that $100 was invested on December 31, 1990 in Company
Common Stock, the S&P 500 Index and the S&P Computer Systems Index, and that
all dividends were reinvested.
CERTAIN TRANSACTIONS
During 1995 Sequent leased an airplane (the Airplane") from a corporation
owned by Karl C. Powell, Jr. (the Corporation"). The Airplane is leased by
Sequent pursuant to a three-year lease ending on September 30, 1996
and providing for monthly airplane lease fees of $50,000. Under the lease,
Sequent is responsible for all maintenance expenses, storage expenses and
insurance premiums relating to the Airplane. The terms of this lease
including the monthly fees, are believed to be more favorable to Sequent than
the rates that would be charged by an unrelated lessor to lease a comparable
airplane, and, based on Sequent's usage of the Airplane, are also less than
the amounts Sequent would pay to lease a comparable airplane on an hourly
basis. When the Airplane is not being used by Sequent, Sequent is permitted
to sublease it. During the last fiscal year, Sequent paid $1,157,112 in lease
fees, insurance premiums, hangar fees, maintenance expenses and reserves
related to the Airplane.
PROPOSAL TO AMEND
THE EMPLOYEE STOCK PURCHASE PLAN
A total of 4,150,000 shares of Common Stock have been reserved for the
Employee Stock Purchase Plan (the Purchase Plan"). As of March 1, 1996, only
840,052 shares remained available for purchase under the Purchase
Plan. The Board of Directors believes that it is desirable for the Company to
continue to provide the opportunity for employees to acquire Common Stock
through the Purchase Plan. Accordingly, subject to shareholder approval, the
Board of Directors has adopted an amendment to the Purchase Plan reserving an
additional 1,400,000 shares for issuance under the Purchase Plan. The
following is a summary of the basic provisions of the Purchase Plan, a
complete copy of which, marked to indicate the proposed change, is attached to
this Proxy Statement as Appendix A.
Description of the Purchase Plan
The purpose of the Purchase Plan is to provide a convenient and practical
means by which employees may participate in stock ownership of the Company.
The Board of Directors believes that the opportunity to acquire a
proprietary interest in the success of the Company through the acquisition of
shares of Common Stock pursuant to the Purchase Plan is an important aspect
of the Company's ability to attract and retain highly qualified and
motivated employees.
The Purchase Plan is intended to qualify as an employee stock purchase plan"
within the meaning of Section 423 of the Internal Revenue Code of 1986, as
amended (the Code"). The Purchase Plan is administered by the Board
of Directors. The Board has the power to make and interpret all rules and
regulations it deems necessary to administer the Purchase Plan and has broad
authority to amend the Purchase Plan, subject to certain amendments
requiring shareholder approval.
All regular status employees of the Company and its subsidiaries, including
the Company's officers, are eligible to participate in the Purchase Plan.
Eligible employees may elect to contribute from 2% to 10% of their cash
compensation during each pay period. Each participant may enroll in an 18-
month offering in which shares of Common Stock are purchased on the last day
of each six-month period of an offering. A separate offering
commences on March 1, June 1, September 1 and December 1 of each year (the
Enrollment Dates"). The purchase price per share is equal to 85% of the lower
of (a) the fair market value of the Common Stock on the Enrollment Date of
the Offering or (b) the fair market value on the date of purchase.
Neither payroll deductions credited to a participant's account nor any rights
with regard to the purchase of shares under the Purchase Plan may be
assigned, transferred, pledged or otherwise disposed of in any way by the
participant. Upon termination of a participant's employment for any reason
other than death, retirement or disability of the participant, the payroll
deductions credited to the participant's account will be returned to the
participant. Upon termination of the participant's employment because of
death, retirement or disability, the payroll deductions credited to the
participant's account will be used to purchase shares on the next purchase
date. Any remaining balance will be returned to the participant or his or her
beneficiary. As of March 1, 1996, there were 2,209 employees of the Company
eligible to participate in the Purchase Plan and 1,507 employees
participating.
Federal Income Tax Consequences
The Purchase Plan is intended to qualify as an employee stock purchase plan"
within the meaning of Section 423 of the Code. Under the Code, no taxable
income is recognized by the participant with respect to shares purchased
under the Purchase Plan either at the time of enrollment or at any purchase
date within an Offering.
If the participant disposes of shares purchased pursuant to the Purchase Plan
more than two years from the Enrollment Date and more than one year from the
date on which the shares were purchased, the participant will
recognize ordinary income equal to the lesser of (1) the excess of the fair
market value of the shares at the time of disposition over the purchase
price, or (2) 15% of the fair market value of the shares on the Enrollment
Date. Any gain on the disposition in excess of the amount treated as ordinary
income will be capital gain. The Company is not entitled to take a deduction
for the amount of the discount in the circumstances indicated above.
If the participant disposes of shares purchased pursuant to the Purchase Plan
within two years after the Enrollment Date or within one year after the
Purchase Date, the employee will recognize ordinary income on the excess of
the fair market value of the stock on the purchase date over the purchase
price. Any difference between the sale price of the shares and the fair
market value on the purchase date will be capital gain or loss. The Company
is entitled to a deduction from income equal to the amount the employee is
required to report as ordinary compensation income.
The federal income tax rules relating to employee stock purchase plans
qualifying under Section 423 of the Code are complex. Therefore, the
foregoing outline is intended to summarize only certain major federal income
tax rules concerning employee stock purchase plans. Purchases Under Plan
The following table indicates shares purchased under the Purchase Plan during
the last fiscal year and since the inception of the plan in 1987 by certain
current and former executive officers, by all executive officers as a group
and by all employees (excluding executive officers) as a group:
Shares Purchased Shares Purchased
in 1995 since 1987
Name Dollar Number Dollar Number
and Position Value(1) of Shares Value(1) of Shares
Karl C. Powell, Jr. $0,004,397 1,498 $0,0189,175 22,167
John McAdam $0,004,143 1,687 $0,0092,568 13,393
Robert S. Gregg $,0018,548 2,529 $0,0121,414 15,450
Lary L. Evans $0,003,297 1,492 $0,0078,878 10,024
Paul J. O'Mara $0,000,000 0 $0,000,0000 0
All Current Executive
Officers (3 persons) $0,027,088 5,714 $0,0408,871 51,010
All employees, excluding
executive officers $3,185,851 570,709 $20,214,402 3,142,124
(1) Dollar Value" equals the difference between the price paid for shares
purchased under the Purchase Plan and the fair market value of the
shares on the purchase date.
Recommendation by the Board of Directors
The Board of Directors recommends that the amendment to the Purchase Plan be
approved. The proposal must be approved by the holders of at least a majority
of the shares of Common Stock present or represented by proxy and
entitled to vote at the annual meeting. Abstentions have the effect of no"
votes in determining whether the amendment to the Purchase Plan is approved.
Broker non-votes are counted for purposes of determining whether a
quorum exists at the annual meeting but are not counted and have no effect on
the results of the vote. The proxies will be voted for or against the
proposal, or an abstention, in accordance with the instructions specified on
the proxy form. If no instructions are given, proxies will be voted for
approval of the amendment to the Purchase Plan.
APPROVAL OF SELECTION OF AUDITORS
The Board of Directors has selected Price Waterhouse as the Company's
independent auditors for the current fiscal year and is submitting the
selection to the shareholders for approval. Price Waterhouse has audited the
financial statements of the Company since incorporation. Proxies will be
voted in accordance with the instructions specified in the proxy form. If no
instructions are given, proxies will be voted for approval of the selection
of Price Waterhouse as independent auditors. Representatives of Price
Waterhouse are expected to be present at the annual meeting, will have the
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who own more than ten percent of
the Common Stock to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ( SEC"). Executive
officers, directors and beneficial owners of more than ten percent of the
Common Stock are required by SEC regulation 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 they have complied with
the relevant filing requirements, the Company believes that all Section 16(a)
filing requirements applicable to its executive officers and directors were
complied with during the last fiscal year ending on December 31, 1995, except
that Lary L. Evans (formerly an executive officer of the Company) was late in
filing two reports (reporting two transactions) with the SEC and Karl C.
Powell, Jr. was late in filing one report (reporting one transaction) with the
SEC.
DISCRETIONARY AUTHORITY
While the Notice of Annual Meeting of Shareholders provides for transaction
of such other business as may properly come before the meeting, the Board of
Directors has no knowledge of any matters to be presented at the
meeting other than those referred to herein. However, the enclosed proxy
gives discretionary authority in the event that any other matters should be
presented.
SHAREHOLDER PROPOSALS
Any shareholder proposals to be considered for inclusion in proxy material for
the Company's 1997 annual meeting must be received at the principal executive
offices of the Company not later than December 7, 1996.
By Order of the Board of Directors
Karl C. Powell, Jr.
Chairman of the Board
and Chief Executive Officer
March 26, 1996
APPENDIX A
SEQUENT COMPUTER SYSTEMS, INC.
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
PURPOSE
The purpose of the Sequent Computer Systems, Inc. Employee Stock Purchase Plan
(the Plan") is to provide a convenient and practical means through which
employees of Sequent Computer Systems, Inc. (the Company") may participate
in stock ownership of the Company. The Company believes the Plan will be to
the mutual benefit of the employees and the Company by creating a greater
community of interest between the Company's stockholders and its employees
and by permitting the Company to compete with other companies in obtaining and
retaining the services of competent employees. The Company intends that the
Plan shall constitute an employee stock purchase plan" within the meaning of
Section 423 of the Internal Revenue Code of 1986. Further, the
Company intends that the Plan shall satisfy the requirements of Rule 16b-3
under the Securities Exchange Act of 1934.
ARTICLE II
DEFINITIONS
The following terms, when capitalized, shall have the meanings specified below
unless the context clearly indicates to the contrary.
2.1 Account shall mean each separate account maintained for a Participant
under the Plan, collectively or singly as the context requires. Each Account
shall be credited with a Participant's contributions, and shall be charged for
the purchase of Shares. A Participant shall be fully vested in the cash
contributions to his or her account at all times. The Plan Administrator may
create special types of accounts for administrative reasons, even though the
Accounts are not expressly authorized by the Plan.
2.2 Beneficiary shall mean a person or entity entitled under Section 7.2 to
receive shares purchased by, and any remaining balance in, a Participant's
Account on the Participant's death.
2.3 Board of Directors shall mean the Board of Directors of the Company.
2.4 Code shall mean the Internal Revenue Code of 1986, as amended from time
to time.
2.5 Committee shall mean the Committee appointed by the Board of Directors in
accordance with Section 8.1 of the Plan.
2.6 Compensation shall mean the total cash compensation (except as otherwise
set forth below) paid to an Employee in the period in question for services
rendered to the Employer by the Employee while a Participant. Compensation
shall include the earnings waived by an Employee pursuant to a salary
reduction arrangement under any cash or deferred or cafeteria plan that is
maintained by the Employer and that is intended to be qualified under
Section 401(k) or 125 of the Code. An Employee's Compensation shall not
include:
(a) severance pay;
(b) hiring or relocation bonuses;
(c) pay in lieu of vacations or sick leave.
2.7 Common Stock shall mean the common stock, par value $.01 per share, of
the Company.
2.8 Company shall mean Sequent Computer Systems, Inc., an Oregon corporation.
2.9 Custodian shall mean the investment or financial firm appointed by the
Plan Administrator to hold all Shares issued pursuant to the Plan.
2.10 Custodian Account shall mean the account maintained by the Custodian for
a Participant under the Plan.
2.11 Disability shall refer to a mental or physical impairment which is
expected to result in death or which has lasted or is expected to last for a
continuous period of twelve (12) months or more and which causes the Employee
to be unable, in the opinion of the Company and two independent physicians, to
perform his or her duties as an employee of the Company. Disability shall be
deemed to have occurred on the first day after the Company and two
independent physicians have furnished their opinion of Disability to the Plan
Administrator.
2.12 Employee shall mean an individual who renders services to his or her
Employer pursuant to a regular-status Employment relationship with such
Employer. A person rendering services to an Employer purportedly as an
independent consultant or contractor shall not be an Employee for purposes of
the Plan.
2.13 Employer shall mean, collectively, the Company and any Subsidiary, or
any successor entity that continues the Plan, or all such entities
collectively. All Employees of entities which constitute the Employer shall
be treated as employed by a single company for all Plan purposes; except that:
(a) No person shall become a Participant except while employed by an entity
which is an Employer;
(b) A Participant shall cease to be a Participant if he or she transfers to an
entity which is not an Employer and ceases to be employed by an Employer;
(c) An Employer shall cease to be an Employer for purposes of the Plan, and a
Participant who is an employee of such an Employer shall cease to be a
Participant, upon the happening of any event or the consummation of any
transaction which causes such Employer to cease being an Employer, as defined
above; and
(d) Amounts paid by entities other than the Employer shall be ignored in
determining Compensation under the Plan.
In contexts in which actions are required or permitted to be taken or notices
to be given, the Employer shall mean the Company or any successor corporation.
2.14 Employment shall mean the period during which an individual is an
Employee. Employment shall commence on the day the individual first performs
services for the Employer as an Employee and shall terminate
on the day such services cease, except as determined under Article XI.
2.15 Enrollment Date shall mean the first day of each Offering.
2.16 ESPP New Account Form shall mean the form provided by the Company on
which a Participant shall elect to open an account with the Custodian and
authorize the delivery to the Custodian of all Shares issued for the
Participant's Account.
2.17 Offering shall mean any one of the separate overlapping 18-month periods
commencing on March 1, June 1, September 1, and December 1 of each calendar
year under the Plan; provided, however, that the first Offering shall
commence on the date set by the Plan Administrator as the Enrollment Date for
the first Offering and shall continue for 18 months thereafter.
2.18 Participant shall mean any Employee who is participating in any Offering
under the Plan pursuant to Article III.
2.19 Payroll Deduction Authorization Form shall mean the form provided by the
Company on which a Participant shall elect to participate in the Plan and
designate the percentage of his or her Compensation to be contributed to
his or her Account through payroll deductions.
2.20 Plan shall mean this document.
2.21 Plan Administrator shall mean the Board of Directors or the Committee,
whichever shall be administering the Plan from time to time in the discretion of
the Board of Directors, as described in Article IX.
2.22 Purchase Date shall mean the last day of each of the sixth, twelfth and
eighteenth months of the Offering.
2.23 Retirement shall mean a Participant's termination of Employment on or
after attaining the age of 65 or after the Plan Administrator has determined
that he or she has suffered a Disability.
2.24 Share shall mean one share of Common Stock.
2.25 Subsidiary shall mean any corporation, association or other business
entity at least fifty percent (50%) or more of the total combined voting
power of all classes of stock of which is owned or controlled directly or
indirectly by the Company or one or more of such Subsidiaries or both.
2.26 Valuation Date shall mean the date upon which the fair market value of
Shares is to be determined for purposes of setting the price of Shares under
Section 6.2 (that is, the Enrollment Date or the applicable Purchase
Date). If the Enrollment Date is not a date on which the fair market value may
be determined in accordance with Section 6.3, the Valuation Date shall be the
first day after the Enrollment Date for which such fair market value
may be determined. If the Purchase Date is not a date on which the fair
market value may be determined in accordance with Section 6.3, the Valuation
Date shall be the first date prior to the Purchase Date on which such
fair market value may be determined.
2.27 Vested shall mean non-forfeitable.
ARTICLE III
EMPLOYEE PARTICIPATION
3.1 Participation. Subject to the provisions of this Article III, an Employee
may elect to participate in the Plan effective as of any Enrollment date, by
completing and filing a Payroll Deduction Authorization Form as provided
in Section 4.1. As of each Enrollment Date, the Company hereby grants a right
to purchase Shares under the terms of the Plan to each eligible Employee who
has elected to participate in the Offering commencing on that Enrollment Date.
3.2 Requirements for Participation.
(a) A person shall become eligible to participate in the Plan on the first
Enrollment Date on which he or she first meets all of the following
requirements; provided, however, that no one shall become eligible to
participate in the Plan prior to the Enrollment Date of the first Offering
provided for in Section 2.17:
(i) The person is an Employee of the Employer;
(ii) The person's customary period of Employment is for more than twenty (20)
hours per week;
(iii) The person's customary period of Employment is for more than five (5)
months in any calendar year.
(b) Employees who are also directors or officers of the Company may
participate only in accordance with Rule 16b-3 under the Securities Exchange
Act of 1934, as in effect from time to time.
(c) Any eligible Employee may enroll or re-enroll in the Plan as of the
Enrollment Date of any Offering by filing timely written notice of such
participation, subject to the following provisions:
(i) In order to enroll in the Plan initially, an eligible Employee must
complete, sign and submit to the Company the
following forms:
(A) Payroll Deduction Authorization Form. Any Payroll Deduction Authorization
Form received by the Company no later than 5:00 p.m. on the Enrollment Date
of the Offering will be effective on that Enrollment Date.
(B) ESPP New Account Form. The ESPP New Account Form must accompany the
Payroll Deduction Authorization Form submitted for enrollment in the Plan.
Any ESPP New Account Form received by the Company no later than 5:00 p.m. on
the Enrollment Date of the Offering will be effective on that Enrollment Date.
(ii) A Participant may re-enroll in the Plan as of any Enrollment Date by the
submission of a new Payroll Deduction Authorization Form and, if applicable,
an ESPP New Account Form required to open a Custodian Account. If a
Participant is participating in an Offering at the time of re-enrollment,
such re-enrollment shall constitute withdrawal, effective as of such
Enrollment Date, from the ongoing Offering and simultaneous
enrollment in the new Offering commencing on the Enrollment Date. If the
Enrollment Date coincides with a Purchase Date of an ongoing Offering, the
funds that have been credited to the Participant's Account as of such
Purchase Date may at the Participant's election either be applied to the
purchase of Shares under the ongoing Offering from which the Participant is
withdrawing, or returned to the Participant if the Participant has given 15
days' notice to the Company in accordance with Section 7.4. If the Enrollment
Date does not coincide with a Purchase Date under the ongoing Offering, all
funds credited to the Participant's Account as of the Enrollment
Date will be returned to the Participant in accordance with Section 7.4.
(iii) Absent withdrawal from the Plan pursuant to Section 7.4, a Participant
will automatically be re-enrolled in the Plan on the next Enrollment Date
immediately following the expiration of the Offering of which he or she is
then a Participant.
(d) An Employee may participate in only one Offering at any one time.
(e) A Participant shall become ineligible to participate in the Plan and shall
cease to be a Participant when any of the following occurs:
(i) The entity of which the Participant is an Employee ceases to be an
Employer as defined in Section 2.13.
(ii) The Participant ceases to meet the eligibility requirements of Section
3.2(a).
3.3 Limitations on Participation.
(a) No Employee may obtain a right to purchase Shares under the Plan if,
immediately after the right is granted, the Employee owns or is deemed to own
Shares possessing five percent (5%) or more of the combined voting
power or value of all classes of stock of the Company or any parent or
Subsidiary of the Company. For purposes of determining share ownership, the
rules of Section 425(d) of the Code shall apply and Shares that the Employee
may purchase under any options or rights to purchase, whether or not Vested,
shall be treated as Shares owned by the Employee.
(b) No Employee may obtain a right to purchase Shares under the Plan that
permits the Employee's rights to purchase Shares under the Plan and any other
employee stock purchase plan of the Company or any parent or
Subsidiary of the Company to accrue at a rate which exceeds $25,000 in fair
market value of Shares (determined as of the Enrollment Date ) for each
calendar year of the Offering. This section shall be interpreted to permit an
Employee to purchase the maximum number of Shares permitted under Section
423(b)(8) of the Code and regulations and interpretations adopted thereunder.
(c) The maximum number of Shares that an Employee may purchase in an Offering
shall not exceed 10,000 Shares, no more than one-third of which may be
purchased on any Purchase Date with respect to that Offering.
3.4 Termination of Participation. Unless Section 7.2 applies, a Participant
whose participation is terminated in accordance with Section 3.2(e) shall
have the rights provided in Section 7.1.
3.5 Voluntary Participation. Participation in the Plan shall be voluntary.
ARTICLE IV
PAYROLL DEDUCTIONS
4.1 Payroll Deduction Authorization. An employee may contribute to the plan
only by means of payroll deductions. A Payroll Deduction Authorization Form
must be filed with the Company's stock administration department no later
than 5:00 p.m. on the Enrollment Date as of which the payroll deductions are
to take effect; provided, however, that a Payroll Deduction Authorization
Form that effects a withdrawal and simultaneous re-enrollment may be filed at
any time on or before the Enrollment date.
4.2 Amount of Deductions. A Participant may specify that he or she desires to
make contributions to the Plan at a rate not less than two percent (2%) and
not more than ten percent (10%) of the Participant's Compensation during
each pay period in the Offering, or such other minimum or maximum percentages
as the Plan Administrator shall establish from time to time. Such
specification shall apply during any period of continuous participation in the
Plan, unless modified or terminated as provided in Section 4.5 or as otherwise
provided in the Plan. If a payroll deduction cannot be made in whole or in
part because the Participant's pay for the period in question is insufficient
to fund the deduction after having first withheld all other amounts deductible
from his or her pay, the amount that was not withheld cannot be made up by
the Participant nor will it be withheld from subsequent pay checks.
4.3 Commencement of Deductions. Payroll deductions for a Participant shall
commence on the Enrollment Date of the Offering for which his or her Payroll
Deduction Authorization Form is effective and shall continue
indefinitely, unless modified or terminated as provided in Section 4.5 or as
otherwise provided in the Plan.
4.4 Accounts. All payroll deductions made for a Participant shall be credited
to his or her Account under the Plan. Following each Purchase Date, the Plan
Administrator shall promptly deliver a report to each Participant setting
forth the aggregate payroll deductions credited to such Participant's Account
during the preceding six months and the number of Shares purchased and
delivered to the Custodian for deposit into the Participant's Custodian
Account.
4.5 Modification of Authorized Deductions.
(a) A Participant may,
(i) prior to the commencement of each Offering in which he or she will be a
Participant, and
(ii) on not more than one occasion during each such Offering, increase or
reduce the amount of his or her payroll deduction effective for all
subsequent payroll periods, by completing an amended Payroll Deduction
Authorization Form and filing it with the Company's stock administration
department in accordance with Section 4.1; provided, however, that no
modification in a Participant's payroll deduction shall cause such
Participant's contribution to be less than two percent (2%) or more than ten
percent (10%) of such Participant's Compensation during any pay period.
(b) A Participant may at any time discontinue his or her payroll deductions,
without withdrawing from the Plan, by completing an amended Payroll Deduction
Authorization Form and filing it with the Company's stock administration
department. Previous payroll deductions will then be retained in the
Participant's Account for application to purchase Shares on the next Purchase
Date, after which the Participant's participation in the Offering will
terminate.
(c) For purposes of this Section 4.5, an amended Payroll Deduction
Authorization Form shall be effective for a specific pay period when filed 15
days prior to the last day of such period.
ARTICLE V
CUSTODY OF SHARES
5.1 Delivery and Custody of Shares. Shares purchased pursuant to the Plan
shall be delivered to and held by the Custodian.
5.2 Custodian Account. As soon as practicable after each Purchase Date, the
Company shall deliver to the Custodian the full Shares purchased for each
Participant's Account. The Shares will be held a Custodian Account
specifically established for this purpose. An Employee must open a Custodian
Account with the Custodian in order to be eligible to purchase Shares under
the Plan. In order to open a Custodian Account, the Participant must
complete an ESPP New Account Form and submit it with the enrolling
individual's stock administration office no later than the Enrollment Date of
the Offering as of which the enrollment is to take effect; provided, however,
that an ESPP New Account Form that effects a change in the status of the
Custodian Account may be filed at any time during participation in the Plan.
5.3 Transfer of Shares. Upon receipt of appropriate instructions from a
Participant on forms provided for that purpose, the Custodian will transfer
into the Participant's own name all or part of the Shares held in the
Participant's Custodian Account and deliver such shares to the Participant.
5.4 Statements. The Custodian will deliver to each Participant a quarterly
statement showing the activity of the Participant's Custodian Account and the
balance as to both Shares and cash. Participants will be furnished such
other reports and statements, and at such intervals, as the Custodian and Plan
Administrator shall determine from time to time.
ARTICLE VI
PURCHASE OF SHARES
6.1 Purchase of Shares. Subject to the limitations of Article VII, on each
Purchase Date in an Offering, the Company Shall apply the amount credited to
each Participant's Account to the purchase of as many full Shares that
may be purchased with such amount at the price set forth in Section 6.2, and
shall promptly deliver such Shares to the Custodian for deposit into the
Participant's Custodian Account. Payment for Shares purchased under the Plan
will be made only through payroll withholding in accordance with Article IV.
6.2 Price. The price of Shares to be purchased under Section 6.1 on any
Purchase Date shall be the lower of:
(a) Eighty-five percent (85%) of the fair market value of the Shares on the
Enrollment Date of the Offering; or
(b) Eighty-five percent (85%) of the fair market value of the Shares on the
Purchase Date.
6.3 Fair Market Value.
(a) The fair market value of the Shares on any date shall be equal to the
closing price of such Shares on the Valuation Date, as reported on the NASDAQ
National Market System or such other quotation system that supersedes it.
(b) If (a) is not applicable, the fair market value of the Shares shall be
determined by the Plan Administrator in good faith. Such determination shall
be conclusive and binding on all persons.
6.4 Unused Contributions. Any amount credited to a Participant's Account and
remaining herein immediately after a Purchase Date because it was less than
the amount required to purchase a full Share shall be carried forward
in such Participant's Account for application on the next succeeding Purchase
Date.
ARTICLE VII
TERMINATION AND WITHDRAWAL
7.1 Termination of Employment. Upon termination of a Participant's Employment
for any reason other than as set forth in Section 7.2, the payroll deductions
credited to such Participant's Account shall be returned to the
Participant. A Participant shall have no right to acquire shares upon
termination of his or her Employment.
7.2 Termination upon Death, Retirement or Disability. Upon termination of the
Participant's Employment because of his or her Death, Retirement or
Disability, the payroll deductions credited to his or her Account shall be
used to purchase Shares as provided in Article VI on the next Purchase Date.
Any remaining balance in the Participant's Account shall be returned to him
or her or, in the case of death, any Shares purchased and any remaining
balance shall be transferred to the deceased Participant's Beneficiary, or if
none, to his or her estate.
7.3 Designation of Beneficiary. Each Participant may designate, revoke and
redesignate Beneficiaries. This action shall be taken in writing on a form
provided by the Plan Administrator and shall be effective upon delivery to the
Plan Administrator.
7.4 Withdrawal. A Participant may withdraw the entire amount credited to his
or her Account under the Plan and thereby terminate participation in the
current Offering at any time by giving written notice to the Company, but in
no case may a Participant withdraw amounts within the 15 days immediately
preceding a Purchase Date for that Offering. A withdrawal under Section
3.2(c)(ii) not involving a return of funds does not require such 15-day notice
to the Company. Any amount withdrawn shall be paid to the Participant promptly
after receipt of proper notice of withdrawal and no further payroll
deductions shall be made from his or her Compensation unless a Payroll
Deduction Authorization Form directing further deductions is or has been
submitted.
7.5 Status of Custodian Account.
(a) Upon the termination of a Participant's Employment as set forth in Section
7.1, the Participant may,
(i) elect to retain with the Custodian the Shares held in the Participant's
Custodian Account. The Participant will bear the cost of any annual fees
resulting from maintaining such account.
(ii) request issuance of the Shares held in the Participant's Custodian
Account by submitting to the Custodian the appropriate forms provided for
that purpose.
(b) Upon the termination of a Participant's Employment as set forth in Section
7.2, any shares held by the Custodian for the Participant's Account shall be
transferred to the persons entitled thereto under the laws of the
state of domicile of the Participant upon a proper showing of authority.
ARTICLE VIII
SHARES PURCHASED UNDER THE PLAN
8.1 Source and Limitation of Shares.
(a) The Company has reserved for sale under the Plan [2,950,000] 4,150,000
shares of its Common Stock, subject to adjustment upon changes in
capitalization of the Company as provided in Section 10.2. Shares sold under
the Plan may be newly issued shares or shares reacquired in private
transactions or open market purchases, but all Shares sold under the Plan
regardless of source shall be counted against the [2,950,000] 4,150,000 Share
limitation.
(b) If there is an insufficient number of Shares to permit the full exercise
of all existing rights to purchase Shares, or if the legal obligations of the
Company prohibit the issuance of all Shares purchasable upon the full
exercise of such rights, the Plan Administration shall make a pro rata
allocation of the Shares remaining available in as nearly
a uniform and equitable manner as possible, based pro rata on the aggregate
amounts then credited to each Participant's Account. In such event, payroll
deductions to be made shall be reduced accordingly and the Plan
Administrator shall give written notice of such reduction to each Participant
affected thereby. Any amount remaining in a Participant's Account immediately
after all available Shares have been purchase will be promptly
remitted to such Participant. Determination by the Plan Administrator in the
regard shall be final, binding and conclusive on all persons. No deductions
shall be permitted under the Plan at any time when no Shares are
available.
8.2 Delivery of Shares. As promptly as practicable after each Purchase Date,
the Company shall deliver to the Custodian the full Shares purchased for each
Participant's Account.
8.3 Interest in Shares. The rights to purchase Shares granted pursuant to
this Plan will in all respects be subject to the terms and conditions of the
Plan, as interpreted by the Plan Administrator from time to time. The
Participant shall have no interest in Shares purchasable under the Plan until
payment for the shares has been completed at the close of business on the
relevant Purchase Date. The Plan provides only an unfunded, unsecured promise
by the Employer to pay money or property in the future. Except with respect
to the Shares purchased on a Purchase Date, an Employee choosing to
participate in the Plan shall have no greater rights than an unsecured
creditor of the Company. After the purchase of the Shares, the Participant
shall be entitled to all rights of a stockholder of the Company.
ARTICLE IX
ADMINISTRATION
9.1 Plan Administrator. At the discretion of the Board of Directors, the Plan
shall be administered by the Board of Directors or by a Committee appointed
by the Board of Directors in accordance with Rule 16b-3 under the
Securities Exchange Act of 1934, as in effect from time to time. Each member
of the Committee shall be either a director, an officer or an Employee of the
Company. Each member shall serve for a term commencing on a date
specified by the Board of Directors and continuing until he or she dies,
resigns or is removed from office by the Board of Directors.
9.2 Powers. The Plan Administrator shall be vested with full authority to
make, administer and interpret all rules and regulations as it deems
necessary to administer the Plan. Any determination, decision or act of the
Plan Administrator with respect to any action in connection with the
construction, interpretation, administration or application of the Plan shall
be final, conclusive and binding upon all Participants and any and all other
persons claiming under or through any Participant. The provisions of the Plan
shall construed in a manner consistent with the requirements of Section 423
of the Code.
ARTICLE X
CHANGES IN CAPITALIZATION, MERGER, ETC.
10.1 Rights of the Company. The grant of a right to purchase Shares pursuant
to this Plan shall not affect in any way the right or power of the Company to
make adjustments, reclassification, reorganizations or other changes of
its capital or business structure or to merge or to consolidate or to
dissolve, liquidate or transfer all or any part of its divisions,
subsidiaries, business or assets.
10.2 Recapitalization. Subject to any required action by the stockholders,
the number of Shares covered by the Plan as provided in Section 8.1 and the
price per share shall be proportionately adjusted for any increase of
decrease in the number of issued Shares of the Company resulting from a
subdivision or consolidation of Shares or the payment of a stock dividend
(but only on the Shares) or any other increase or decrease in the number of
such Shares effected without receipt or payment of consideration by the
Company.
10.3 Consolidation or Merger. In the event of the consolidation or merger of
the Company with or into any other business entity, or the sale by the
Company of substantially all of its assets, the successor may continue the
Plan by adopting the same by resolution of its board of directors or
agreement of its partners or proprietors. If, within 90
days after the effective date of a consolidation, merger or sale of assets,
the successor corporation, partnership or proprietorship does not adopt the
Plan, the Plan shall be terminated in accordance with Section 13.1.
ARTICLE XI
TERMINATION OF EMPLOYMENT
11.1 Vacation, Leave or Layoff. A person's Employment shall not terminate on
account of an authorized leave of absence, sick leave or vacation, or on
account of a military leave described in Section 11.2, or a direct transfer
between Employers. Failure to return to work upon expiration of any leave of
absence, sick leave or vacation shall be considered a resignation effective
as of the expiration of such leave of absence, sick leave or vacation.
11.2 Military Leave. Any Employee who leaves the Employer directly to perform
services in the Armed Forces of the United States or in the United States
Public Health Service under conditions entitling the Employee to
reemployment rights provided by the laws of the United States, shall be on
military leave. An Employee's military leave shall expire if the Employee
voluntarily resigns from the Employer during the leave or if he or she fails
to make application for reemployment within a period specified by such law for
the preservation of employment rights. In such event, the individual's
employment shall terminate by resignation on the day the military leave
expires.
ARTICLE XII
STOCKHOLDER APPROVAL AND RULINGS
The Plan is expressly made subject (a) to the approval of the holders of a
majority of the outstanding shares of the Company within 12 months after the
date the Plan is adopted and (b) at its election, to the receipt by the
Company from the Internal Revenue Service of a ruling in scope and content
satisfactory to counsel to the Company, affirming the qualification of the
Plan within the meaning of Section 423 of the Internal Revenue Code of 1986.
If the Plan is not so approved by the stockholders within 12 months after the
date the Plan is adopted and if, at the election of the Company a ruling from
the Internal Revenue Service is sought but is not received on or before one
year after this Plan's adoption by the Board of Directors, this Plan shall not
come into effect. In that case, the Account of each Participant shall
forthwith be paid to him.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1 Amendment and Termination of the Plan.
(a) The Board of Directors of the Company may at any time amend the Plan.
Except as otherwise provided herein, no amendment may adversely affect or
change any right to purchase Shares previously granted to any Participant.
No amendment shall be made without prior approval of the stockholders of the
Company if the amendment would:
(i) Permit the sale of more Shares than are authorized under Section 8.1;
(ii) Permit the sale of Shares to employees of entities which are not
Employers as defined in Section 2.13;
(iii) Materially increase the benefits accruing to Participants under the
Plan; or
(iv) Materially modify the requirements as to eligibility for participation in
the Plan.
(b) The Plan is intended to be a permanent program, but an Employer shall have
the right at any time to declare the Plan terminated completely as to it.
Upon such termination, amounts credited to the Accounts of Participants
with respect to whom the Plan has been terminated shall be returned to such
Participants.
13.2 Non-Transferability. Neither payroll deductions credited to a
Participant's Account nor any rights with regard to the purchase of Shares
under the Plan may be assigned, transferred, pledged or otherwise disposed of
in any way by the Participant except as provided in Section 7.2, and any
attempted assignment, transfer, pledge, or other disposition shall be null
and void. The Company may treat any such act as an election to withdraw funds
in accordance with Section 7.4.
13.3 Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purposes and the
Company shall not be obligated to segregate the payroll deductions.
13.4 Expenses. All expenses of administering the Plan shall be borne by the
Company and its subsidiaries. The Company will not pay expenses, commission
or taxes incurred in connection with sales of Shares by the Custodian
at the request of a Participant. Expenses to be paid by a Participant will be
deducted from the proceeds of sale prior to remittance.
13.5 No Interest. No Participant shall be entitled, at any time, to any
payment or credit for interest with respect to or on the payroll deductions
contemplated herein, or on any other assets held hereunder for the
Participant's Account.
13.6 Registration and Qualification of Shares. The offering of Shares
hereunder shall be subject to the effecting by the Company of any
registration or qualification of the Shares under any federal or state law or
the obtaining of the consent or approval of any governmental regulatory body
which the Company shall determine, in its sole discretion, is necessary or
desirable as a condition to, or in connection with, the offering or the issue
or purchase of the Shares covered thereby. The Company shall make every
reasonable effort to effect such registration or qualification or to obtain
such consent or approval.
13.7 Responsibility and Indemnity. Neither the Company, any Subsidiary of the
Company, its Board of Directors, the Custodian, nor any member, officer,
agent, or employee of any of them, shall be liable to any Participant under
the Plan for any mistake of judgment or for any omission or wrongful act
unless resulting from gross negligence, willful misconduct or intentional
misfeasance. The Company will indemnify and save harmless its Board of
Directors, the Custodian and any such member, office, agent or employee
against any claim, loss, liability or expense arising out of the Plan, except
such as may result from the gross negligence, willful misconduct or
intentional misfeasance of such entity or person.
13.8 Plan Not a Contract of Employment. The Plan is strictly a voluntary
undertaking on the part of the Employer and shall not constitute a contract
between the Employer and any Employee, or consideration for or an inducement
or a condition of the employment of an Employee. Except as otherwise required
by law, or any applicable collective bargaining agreement, nothing contained
in the Plan shall give any Employee the right to be retained in the service
of the Employer or to interfere with or restrict the right of the Employer,
which is hereby expressly reserved, to discharge or retire any Employee at
any time, with or without cause and with or without notice. Except as
otherwise required by law, inclusion under the Plan will not give any Employee
any right or claim to any benefit hereunder except to the extent such right
has specifically become fixed under the terms of the Plan. The doctrine of
substantial performance shall have no application to any Employee,
Participant, or Beneficiary. Each condition and provision, including
numerical items, has been carefully considered and constitutes the minimum
limit on performance which will give rise to the applicable right.
13.9 Service of process. The Secretary of the Company is hereby designated
agent for service or legal process on the Plan.
13.10 Notice. All notices or other communications by a Participant to the
Company under or in connection with the Plan shall be deemed to have been
duly given when received by the Plan Administrator. Any notice required by
the Plan to be received by the Company prior to an Enrollment Date, payroll
period or other specified date, and received by the Plan Administrator
subsequent to such date shall be effective on the next occurring Enrollment
Date, payroll period or other specified date to which such notice applies.
13.11 Governing Law. The Plan shall be interpreted, administered and enforced
in accordance with the Code, and the rights of Participants, former
Participants, Beneficiaries and all other persons shall be determined in
accordance with it. To the extent that state law is applicable, however, the
laws of the State of Oregon shall apply.
13.12 Plurals. Where the context so indicates, the singular shall include the
plural and vice versa.
13.13 Titles. Titles of Articles and Sections are provided herein for
convenience only and are not to serve as the basis for interpretation or
construction of the Plan.
13.14 References. Unless the context clearly indicates to the contrary,
reference to a Plan provision, statute, regulation or document shall be
construed as referring to any subsequently enacted, adopted or executed
counterpart.
