<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
TRICORD SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
April 13, 1998
Dear Stockholder:
The date for this year's Annual Meeting is Friday, May 15, 1998. It will be
held at the Radisson Hotel and Conference Center, 3131 Campus Drive, Plymouth,
Minnesota, beginning at 1:00 p.m., Minneapolis time.
The Annual Meeting is an opportunity for you to meet the directors of your
Company and some of the team that manage the Company.
It is very important that your shares be represented at the meeting, whether
you can attend or not, and I urge you to sign and return your proxy card in the
enclosed envelope.
[SIGNATURE]
John J. Mitcham
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
[LOGO]
2905 Northwest Boulevard, Suite 20
Plymouth, Minnesota 55441
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 15, 1998
To the Stockholders of Tricord Systems, Inc.:
The Annual Meeting of the Stockholders of Tricord Systems, Inc. will be held
on Friday, May 15, 1998, at 1:00 p.m., Minneapolis time, at the Radisson Hotel
and Conference Center, 3131 Campus Drive, Plymouth, Minnesota, for the following
purposes:
(1) To elect a director for a term of three years.
(2) To consider and act upon a proposal to approve the 1998 Stock Incentive
Plan.
(3) To consider and act upon a proposal to approve the 1998 Non-Employee
Director Stock Plan.
(4) To ratify the appointment of Coopers & Lybrand L.L.P., certified public
accountants, as independent auditors for the Company for the year ending
December 31, 1998.
(5) To transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on March 25, 1998 will be
entitled to vote at the meeting or any adjournments.
By Order of the Board of Directors,
[SIGNATURE]
Jeff A. Stewart
SECRETARY
April 13, 1998
<PAGE>
[LOGO]
2905 Northwest Boulevard, Suite 20
Plymouth, Minnesota 55441
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 15, 1998
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors (the "Board") of Tricord Systems, Inc. (the "Company") of
proxies in the accompanying form from holders of shares of Common Stock to be
voted at the Annual Meeting of Stockholders to be held on May 15, 1998, at 1:00
p.m., Minneapolis time, at the Radisson Hotel and Conference Center, 3131 Campus
Drive, Plymouth, Minnesota (the "Annual Meeting").
Stockholders of record as of the close of business on March 25, 1998 will be
entitled to vote at the meeting or any adjournments. On that date, the Company
had 14,228,718 shares of Common Stock outstanding. Each share is entitled to one
vote. The presence at the Annual Meeting, in person or by proxy, of the holders
of a majority of the outstanding shares of Common Stock entitled to vote at the
Annual Meeting (7,114,360 shares) is required for a quorum for the transaction
of business. In general, shares of Common Stock represented by a properly signed
and returned proxy card will be counted as shares present and entitled to vote
at the Annual Meeting for the purposes of determining a quorum, without regard
to whether the card reflects votes withheld from the director nominee or an
abstention (or is left blank) or reflects a "broker non-vote" on a matter (i.e.,
a card returned by a broker on behalf of its beneficial owner customer that is
not voted on a particular matter because voting instructions have not been
received and the broker has no discretionary authority to vote).
Because the director nominee who receives the greatest number of votes cast
for the election of the director at the Annual Meeting will be elected as a
director, votes that are withheld from the election of the director nominee will
be excluded entirely from the vote and will have no effect. Each of the other
proposals described in this Proxy Statement requires the approval of a majority
of the shares present and entitled to vote in person or by proxy on that
proposal. Shares voted as abstaining on any of these proposals will be treated
as shares present and entitled to vote that were not cast in favor of the
proposals, and thus will be counted as votes against the particular proposal.
Shares represented by a proxy card that includes any broker non-votes on a
matter will be treated as shares not entitled to vote on that matter, and thus
will not be counted in determining whether that matter has been approved.
A proxy card is enclosed for your use. You are solicited on behalf of the
Board to SIGN AND RETURN THE PROXY CARD IN THE ACCOMPANYING ENVELOPE. No postage
is required if mailed within the United States. The cost of soliciting proxies,
including the preparation, assembly and mailing of the proxies and soliciting
material, as well as the cost of forwarding such material to the beneficial
owners of the Company's Common Stock, will be borne by the Company. Directors,
officers and regular employees of the Company may, without compensation other
than their regular compensation, solicit proxies by telephone, telegram or
personal conversation. The Company may reimburse brokerage firms and others for
expenses in forwarding proxy materials to the beneficial owners of Common Stock.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF THE
PROPOSALS SET FORTH IN THE NOTICE OF MEETING.
2
<PAGE>
This Proxy Statement and the enclosed form of proxy will be mailed to each
stockholder on or about April 13, 1998, together with the Annual Report to
Stockholders of the Company for the year ended December 31, 1997.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table contains information, as of February 27, 1998, regarding
the beneficial ownership of Common Stock of the Company, its only class of
voting securities, by each person known by the Company to own more than 5% of
such outstanding shares, each director and nominee for director, each of the
executive officers named in the "Summary Compensation Table" below, and the
executive officers and directors of the Company as a group (consisting of eight
persons). Except as otherwise indicated, the stockholders listed in the table
have sole voting and investment power with respect to the shares indicated.
Shares subject to options exercisable within 60 days are treated as outstanding
only when determining the amount and percentage owned by such individual or
entity.
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENT OF
OF BENEFICIAL OWNER NUMBER OF SHARES CLASS
- ------------------------------------------ ----------------- ------------
<S> <C> <C>
CORAL Entities 1,105,191(1) 7.4%
60 South Sixth Street
Suite 3510
Minneapolis, MN 55402
Yuval Almog 1,157,301(2) 7.7%
Jeffrey O. Henley 81,110(3) *
Donald L. Lucas 60,000(4) *
John J. Mitcham 983,836(5) 6.6%
2905 Northwest Blvd., Suite 20
Plymouth, MN 55441
Charles C. Devor 192,120(6) 1.3%
Alexander H. Frey 95,000(7) *
Charles E. Pearsall 117,350(8) *
Joan M. Wrabetz -- (9)
All directors and executive officers as a 2,713,467(10) 18.2%
group (8 persons)
</TABLE>
- ------------------------
* Less than 1%.
(1) As reported in a Schedule 13G, dated February 3, 1998, filed with the
Securities and Exchange Commission, 838,525 shares are held of record by
Coral Partners I - Superior, a Minnesota limited partnership ("CP I"), and
266,666 shares are held of record by Coral Partners II, a limited
partnership ("CP II"). Coral Management Partners I, a limited partnership
("CMP I"), is the general partner of CP I, and Coral Management Partners
II, a limited partnership ("CMP II"), is the general partner of CP II. CMP
I and CMP II each have the following three general partners: Yuval Almog,
Peter H. McNerney and Linda L. Watchmaker. Pursuant to Rule 13d-3 of the
Securities Exchange Act of 1934, each of Mr. Almog, Mr. McNerney and Ms.
Watchmaker may be deemed to share beneficial ownership with respect to such
shares; however, as set forth in their Schedule 13G, these three
individuals disclaim beneficial ownership except to the extent of their
pecuniary interests therein.
(2) Includes 1,105,191 shares beneficially owned by CMP I and CMP II with
respect to which Mr. Almog may be deemed to share beneficial ownership. Mr.
Almog, however, disclaims beneficial ownership except to the extent of his
pecuniary interest therein. Also includes options to purchase 45,000 shares
3
<PAGE>
that are exercisable on or before April 30, 1998. Mr. Almog's address is
the same as CORAL Entities above.
(3) Includes options to purchase 60,000 shares that are exercisable on or
before April 30, 1998.
(4) Includes 15,000 shares held by the Donald L. Lucas Profit Sharing Trust DTD
1-1-84. Also includes options to purchase 45,000 shares that are
exercisable on or before April 30, 1998.
(5) Includes options to purchase 324,702 shares that are exercisable on or
before April 30, 1998.
(6) Includes options to purchase 165,000 shares that are exercisable on or
before April 30, 1998.
(7) Includes options to purchase 40,000 shares that are exercisable on or
before April 30, 1998.
(8) Includes options to purchase 41,750 shares that are exercisable on or
before April 30, 1998.
(9) Ms. Wrabetz resigned as Vice President and Chief Technical Officer of the
Company on February 13, 1998.
(10) Includes options to purchase an aggregate of 726,202 shares that are
exercisable on or before April 30, 1998.
ELECTION OF DIRECTORS
NOMINATION
The Company's Certificate of Incorporation provides that the Board shall
consist of between one and nine members, as determined from time to time by the
Board, divided into three classes in as nearly equal number as possible. The
term of each class of directors is three years, and the term of one class
expires each year in rotation. The terms of the directors in Class C expire with
this Annual Meeting.
Mr. Jeffrey O. Henley, a Class C director, has decided not to stand for
re-election at the Annual Meeting. The Board wishes to thank Mr. Henley for his
contributions to the Company.
Although a replacement has not been found for Mr. Henley, the Board intends
to continue to search for additional directors with the qualifications needed to
contribute to the Company's success.
The Board has recommended that Mr. Almog, the remaining current Class C
director, be nominated for election as a director in Class C to serve for a
three-year term expiring at the 2001 Annual Meeting of Stockholders, or until
his successor is elected and qualified. Mr. Almog has consented to serve for the
new term, if elected.
4
<PAGE>
NOMINEE AND CONTINUING DIRECTORS
The nominee for election as a director and the continuing directors, their
ages (as of February 27, 1998), the year in which each first became a director,
and their principal occupations or employment are as follows:
<TABLE>
<CAPTION>
YEAR FIRST
NAMES OF NOMINEE AND DIRECTORS PRINCIPAL OCCUPATION AGE BECAME DIRECTOR
- ------------------------------ ---------------------------------------------------------- --- ---------------
<S> <C> <C> <C>
NOMINEE FOR THREE-YEAR TERM EXPIRING IN 2001:
Yuval Almog President of CORAL Group, Inc., a venture capital 48 1987
management company
DIRECTOR NOT STANDING FOR ELECTION THIS YEAR WHOSE TERM EXPIRES IN 1999:
John J. Mitcham President and Chief Executive Officer of the Company 56 1995
DIRECTOR NOT STANDING FOR ELECTION THIS YEAR WHOSE TERM EXPIRES IN 2000:
Donald L. Lucas Private Investor 67 1992
</TABLE>
Except as indicated below, during the past five years, there has been no
change in the principal occupations or employment of the nominee for election as
a director or of the continuing directors.
Mr. Mitcham has been President and Chief Executive Officer and a director of
the Company since May 2, 1995. From 1989 to May 1995, Mr. Mitcham served as
President and Chief Executive Officer of AT&T Paradyne Corporation.
Mr. Almog is President of Coral Group, Inc., which provides management
services to CMP I and CMP II venture capital partnerships of which Mr. Almog is
Managing General Partner. As described in footnote 1 to the table entitled
"Security Ownership of Certain Beneficial Owners and Management," CMP I and CMP
II are the general partners of CP I and CP II. Until November 1993, Mr. Almog
also served as Senior Vice President of Investment Advisers, Inc.
The following Board members also serve as directors of the designated public
companies: Mr. Almog -- Delphi Information Systems, Inc.; Mr. Henley -- Oracle
Corporation; and Mr. Lucas -- Cadence Design Systems, Inc., Coulter
Pharmaceutical, Inc., Macromedia, Inc., Oracle Corporation and Transcend
Services, Inc.
COMMITTEES AND ATTENDANCE
The business and affairs of the Company are managed by the Board which met
on two occasions, held four telephonic meetings and took action by written
consent two times during 1997. All of the directors attended 100% of all
meetings of the Board and committees on which they served during 1997.
The Board maintains standing committees of the Board including the Finance
and Audit Committee and the Compensation Committee. There is no Nominating
Committee of the Board.
The Finance and Audit Committee performs principally the following
functions: reviews the Company's current and long-range financial position,
financial policies and performance objectives; makes recommendations to the
Board on allocation of capital and banking relationships; evaluates retirement
plan investment management and fund performance; reviews the Company's business
insurance policies; recommends to the Board the engagement of the Company's
independent auditors; reviews with the independent auditors the plan and results
of the auditing engagement; reviews the adequacy of the internal accounting
controls; and reviews the range of audit and non-audit professional service
fees, approves such services and considers the independence of the Company's
independent auditors. The members of the Finance and Audit Committee are Messrs.
Henley and Lucas. The Committee did not meet during 1997.
5
<PAGE>
The Compensation Committee reviews and recommends for approval to the Board
the remuneration arrangements for the Company's executive officers and the
adoption of compensation and option plans in which these persons and other key
employees of the Company may participate. The Compensation Committee also serves
as the disinterested committee administering the Company's various stock option
plans. The members of the Compensation Committee are Messrs. Almog and Lucas.
The Committee met on three occasions, held one telephonic meeting and took
action by written consent once during 1997.
DIRECTOR COMPENSATION
Non-employee directors receive an annual retainer of $10,000 (payable in the
form of Common Stock) plus $1,500 for each Board meeting and committee meeting
(if on a date other than a Board meeting) attended and are reimbursed for travel
and lodging expenses in connection with attendance at Board and committee
meetings. During 1997, the non-employee directors were reimbursed the following
amounts for expenses: Mr. Almog (none); Mr. Henley ($2,105); and Mr. Lucas
($2,241).
Non-employee directors previously were entitled to participate in the 1992
Non-Employee Director Stock Option Plan (the "1992 Director Plan"). The 1992
Director Plan, which expired in June 1997, operated in substantially the same
manner as the 1998 Non-Employee Director Stock Plan, which was adopted by the
Board on February 20, 1998 and is subject to stockholder approval at this Annual
Meeting. See "Proposal to Adopt the Company's 1998 Non-Employee Director Stock
Plan" for a complete description.
6
<PAGE>
COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total return during the period March
19, 1993, the date of the Company's initial public offering, to December 31,
1997 for the Company's Common Stock, the Nasdaq -- U.S. Index and the Nasdaq --
Computer Manufacturer Stock Index. This graph assumes the investment on March
19, 1993 of $100 in the Company's Common Stock and the stock in the companies
presented in the Nasdaq -- U.S. Index and the Nasdaq -- Computer Manufacturer
Stock Index on March 19, 1993 and the reinvestment of all dividends.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TRICORD SYSTEMS,
NASDAQ STOCK MARKET - US NASDAQ COMPUTER MANUFACTURERS INC.
<S> <C> <C> <C>
3/19/93 100.000 100.000 100.000
3/31/93 101.153 99.049 115.909
6/30/93 103.090 95.175 200.000
9/30/93 111.779 85.153 190.909
12/31/93 113.976 99.204 240.909
3/31/94 109.184 96.180 134.091
6/30/94 104.079 77.978 97.727
9/30/94 112.696 94.810 46.591
12/31/94 111.410 108.949 47.727
3/31/95 121.458 114.847 46.591
6/30/95 138.929 139.661 34.091
9/30/95 155.665 168.031 41.473
12/31/95 157.562 171.599 27.273
3/31/96 164.910 176.883 37.500
6/30/96 178.372 198.857 40.909
9/30/96 184.718 219.553 24.427
12/31/96 193.795 230.416 13.636
3/31/97 183.292 193.649 5.682
6/30/97 216.892 250.265 11.364
9/30/97 253.587 314.418 9.091
12/31/97 237.868 278.926 4.545
</TABLE>
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Composed entirely of outside directors, the Compensation Committee of the
Board meets four to five times per year and is responsible for reviewing and
approving remuneration arrangements for the Company's executive officers and the
administration of compensation and stock option plans in which these individuals
and other key employees participate. In addition, the committee reviews and
provides direction for the development of future leadership to meet the
long-term organizational and growth objective requirements of the Company. A
more complete description of the functions of the Compensation Committee is set
forth under the caption "Election of Directors -- Committees and Attendance."
COMPENSATION PHILOSOPHY AND OBJECTIVES. The Company's executive
compensation philosophy is to pay for individual and Company results. The
objectives of the Company's executive compensation program are to:
- Reward the achievement of desired Company and individual performance
goals.
- Provide compensation that is competitive with other companies of
comparable size and complexity that will enable the Company to attract and
retain key executive talent.
- Align the interests of the Company's executives to stockholder return
through long-term opportunities for stock ownership.
7
<PAGE>
In determining the compensation of the Company's executive officers, the
Compensation Committee may consider a number of factors, including Company
performance, both separately and in relation to other companies competing in the
Company's markets, the individual performance of each executive officer,
comparative compensation surveys concerning compensation levels and stock grants
at other companies, historical compensation levels and stock awards at the
Company, and the overall competitive environment for executives and the level of
compensation necessary to attract and retain key executive talent.
The Company's executive compensation program is comprised of base salary,
annual incentive opportunities in the form of cash bonuses and long-term
incentive opportunities in the form of stock options. The Compensation Committee
uses its discretion to establish executive compensation at levels which, in its
judgment, are warranted by external and internal factors, as well as an
executive's individual circumstances. As a result, actual compensation levels
may be greater or less than the compensation levels in relation to other
companies competing in the Company's markets based upon annual and long-term
Company performance as well as individual performance.
BASE SALARY. The Compensation Committee regularly reviews each executive's
base salary. Base salaries are determined by taking into account an executive's
level of responsibility, prior experience and competitive market data. The
annual merit program for executives is the same as for all of the Company's
employees. Upon a review of the Company's 1997 performance and other factors
described above, the executive officers were granted base salary increases of
between 0% and 26% for 1998.
The compensation of John J. Mitcham, the Company's President and Chief
Executive Officer, is determined in accordance with his employment agreement
with the Company, which was entered into in May 1995. Pursuant to this
employment agreement, Mr. Mitcham is paid an annual base salary that was
initially established at $300,000 in May 1995. Effective April 1, 1997, Mr.
Mitcham voluntarily reduced his annual base salary 20% to $240,000. Each year
the Compensation Committee conducts a performance and salary review of Mr.
Mitcham's base salary to determine whether it should be increased. Based on this
review, the Compensation Committee determined to maintain Mr. Mitcham's base
salary at $300,000, subject to Mr. Mitcham's voluntary reduction to $240,000. In
addition, the employment agreement provides that the Company will reimburse Mr.
Mitcham for premiums on a term life insurance policy up to a maximum of $3,500
per year. The Compensation Committee will conduct a performance and salary
review in May 1998 for the purpose of determining Mr. Mitcham's base salary for
the ensuing year, which review is based upon both individual and Company
performance. In making its determination of base salary for Mr. Mitcham, the
Compensation Committee will consider the same factors as described above with
respect to all other executive officers.
ANNUAL CASH BONUSES. The philosophy of the Compensation Committee is to
provide executives with direct financial incentives in the form of annual cash
bonuses to achieve Company, business unit and individual performance goals. The
Compensation Committee does not have a fixed formula or criteria for determining
annual cash bonuses. Instead, the Compensation Committee, in its discretion,
establishes bonuses at year-end, based upon the extent to which the Company has
achieved its annual business plan and the individual executive has achieved his
goals. Upon a review of these factors, the executive officers of the Company
received bonuses for 1997 ranging from $10,000 to $35,000. In connection with
his employment agreement, Mr. Mitcham was granted a Bonus Option in 1995 that
became exercisable in five years or earlier upon the satisfaction of certain
performance goals. Accordingly, Mr. Mitcham did not receive an annual cash bonus
in 1997.
LONG-TERM INCENTIVES. The 1995 Stock Incentive Plan (the "1995 Plan") and
the 1998 Stock Incentive Plan (the "1998 Plan"), which is subject to stockholder
approval at this Annual Meeting, are broad "omnibus" plans that provide the
Compensation Committee with significant flexibility to award key executives
stock options, restricted stock awards, stock appreciation rights, performance
units and stock bonuses. To date, long-term incentives have been provided
primarily in the form of stock options, which
8
<PAGE>
are granted with an exercise price equal to the fair market value of the Common
Stock at the date of grant and become exercisable proportionately over a period
of time. Grants of all awards under the 1995 Plan and the 1998 Plan are made by
the Compensation Committee in its discretion based upon an executive's
contribution toward Company performance and expected contribution toward meeting
the Company's long-term strategic goals. Because the value to an executive of
the various stock awards depends on increases in the market price of the Common
Stock, the Compensation Committee believes that this form of compensation aligns
an executive's compensation more closely with increases in stockholder value.
During 1997, the Compensation Committee granted stock options to certain of
its executive officers. Although the Compensation Committee's decision to grant
options and its determination of the size of such grants were based upon many of
the same factors considered in granting annual cash bonuses as described above,
the Compensation Committee also considered the need to continue to provide
executives with proper incentives and the impact of the decline in the Company's
stock price on existing options held by executives, and, based on the level of
prior grants, Mr. Mitcham was not granted additional options in 1997. The
Compensation Committee also considered the level of prior stock option grants to
such executives. In addition, in February 1997, in the belief that it was in the
best interests of the Company and its stockholders to ensure that the intended
incentives for employees were maintained in accordance with the compensation
philosophy of the Compensation Committee, the Compensation Committee amended and
repriced (to a lower exercise price) options then held by employees, including
Mr. Mitcham. See "Compensation Committee Report on Repricing of Options."
TAX LAW CHANGES. The Omnibus Reconciliation Act of 1993 added Section
162(m) to the Internal Revenue Code of 1986, as amended (the "Code"), which
generally precludes the Company and other public companies from taking a tax
deduction for compensation over $1 million which is not "performance-based" and
is paid, or otherwise taxable, to executives named in the Summary Compensation
Table and employed by the Company at the end of the applicable tax year. No
named executive is likely to earn over $1 million in 1998. Therefore, the
Company does not have a policy at this time regarding qualifying the
compensation paid to its executive officers for deductibility under Section
162(m), but will formulate such a policy if compensation levels ever approach $1
million.
Compensation Committee
Yuval Almog, CHAIRMAN
Donald L. Lucas
9
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -------------
----------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) COMPENSATION (2) OPTIONS COMPENSATION (3)
- ---------------------------------- --------- ---------- ----------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
John J. Mitcham (4) 1997 $ 270,000 $ -- $ -- 800,000(5) $ 1,000
President and Chief 1996 300,000 -- 13,316 100,000 1,000
Executive Officer 1995 197,884 -- -- 700,000 --
Charles C. Devor (6) 1997 186,669 10,000 -- 350,000(5) 1,000
Vice President of 1996 158,674 20,000 -- 150,000 1,000
Business Development 1995 65,155 13,527 53,950 200,000 1,000
Alexander H. Frey (7) 1997 103,752 25,000 86,537 300,000(5) 1,000
Vice President, 1996 22,350 -- -- 100,000 1,000
Architecture 1995 -- -- -- -- --
Charles E. Pearsall (8) 1997 95,000 35,000 24,316 175,000(5) 1,000
Vice President, 1996 80,628 63,659 100,000 1,000
Engineering 1995 -- -- -- -- --
Joan M. Wrabetz (9) 1997 140,003 15,000 -- 275,000(5) 1,000
Former Vice President 1996 111,007 14,000 -- 130,000 1,000
and Chief Technical Officer 1995 -- -- -- -- 1,000
</TABLE>
- ------------------------
(1) Bonuses for services rendered have been included as compensation for the
year earned, even though such bonuses may have actually been paid in the
following year.
(2) "Other Annual Compensation" consists of relocation assistance for Mr.
Mitcham, Mr. Devor, Mr. Frey and Mr. Pearsall.
(3) "All Other Compensation" consists of the Company's matching contribution to
the employees accounts in the Company's 401K Retirement Plan for Mr.
Mitcham, Mr. Devor, Mr. Frey, Mr. Pearsall and Ms. Wrabetz.
(4) Mr. Mitcham joined the Company in May 1995.
(5) Certain options previously granted in 1995 and 1996 were amended and
repriced in 1997 as follows: Mr. Mitcham, 800,000; Mr. Devor, 350,000; Mr.
Frey 100,000; Mr. Pearsall, 100,000; Ms. Wrabetz, 130,000. The previous
options from 1995 and 1996 were canceled but are presented in the above
table. See "Compensation Committee Report on Repricing of Options."
(6) Mr. Devor joined the Company in July 1995.
(7) Mr. Frey joined the Company in October 1996.
(8) Mr. Pearsall joined the Company in February 1996.
(9) Ms. Wrabetz joined the Company in January 1996 and resigned from the Company
in February 1998.
OPTIONS
The following tables provide certain information regarding option grants and
exercises during 1997 to or by the executive officers named in the Summary
Compensation Table above and the number and value of the options held by such
persons at the end of 1997.
10
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1) POTENTIAL REALIZABLE
-------------------------------------------------------- VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM (2)
OPTIONS EMPLOYEES EXERCISE OR EXPIRATION ------------------------
NAME GRANTED IN 1997 BASE PRICE DATE 5% 10%
- ------------------------ ----------- ----------------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
John J. Mitcham 800,000(3) 21.52% $ 0.875 3/14/07 $ 440,226 $ 1,115,620
Charles C. Devor 350,000(3) 9.42% 0.875 3/14/07 192,599 488,084
Alexander H. Frey 100,000 2.69% 0.844 2/25/07 52,827 133,874
Alexander H. Frey 100,000(3) 2.69% 0.875 3/14/07 55,028 139,452
Alexander H. Frey 50,000 1.35% 0.563 5/21/07 17,609 44,625
Alexander H. Frey 50,000 1.35% 1.031 10/29/07 32,388 82,078
Charles E. Pearsall 50,000 1.35% 0.844 2/25/07 26,414 66,937
Charles E. Pearsall 100,000(3) 2.69% 0.875 3/14/07 55,028 139,452
Charles E. Pearsall 25,000 0.67% 1.031 10/29/07 16,194 41,039
Joan M. Wrabetz 70,000 1.88% 0.844 2/25/07 36,979 93,712
Joan M. Wrabetz 130,000(3) 3.50% 0.875 3/14/07 71,537 181,288
Joan M. Wrabetz 75,000 2.02% .0563 5/21/07 26,414 66,937
</TABLE>
- ------------------------
(1) All of the options granted to executives were granted under the 1995 Plan.
Options become exercisable under such plans so long as executives remain in
the employ of the Company. To the extent not already exercisable, options
under the 1995 Plan become immediately exercisable in full upon certain
changes in control of the Company and remain exercisable for the remainder
of their terms. See "Change in Control Arrangements". All other options
become exercisable with respect to 25% of the shares upon each anniversary
of the grants.
(2) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent upon the future
performance of the Company's Common Stock, overall market conditions and the
executive's continued employment with the Company. The amounts represented
in this table may not necessarily be achieved.
(3) These options reflect the amendment and repricing of certain existing
options in 1997. Such options were repriced on March 14, 1997 under the 1995
Plan, with an exercise price equal to the fair market value of the Company's
Common Stock on such date. Such options could not be exercised for one year
from the date of such repricing and thereafter became exercisable in
accordance with their original vesting schedule. See "Compensation Committee
Report on Repricing of Options."
11
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SHARES END OF 1997 AT END OF 1997 (1)
ACQUIRED ON VALUE -------------------------- ------------------------------
NAME EXERCISE (2) REALIZED (3) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- --------------- ------------- ----------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
John J. Mitcham -- $ -- -- 800,000 $ -- $ --
Charles C. Devor -- -- -- 350,000 -- --
Alexander H. Frey -- -- -- 300,000 -- --
Charles E. Pearsall -- -- -- 175,000 -- --
Joan M. Wrabetz -- -- -- 275,000 -- --
</TABLE>
- ------------------------
(1) Value calculated as the excess of the market value of the Common Stock at
December 31, 1997 ($0.52) over the exercise price per share. The market
value of the Common Stock at December 31, 1997 represents the average of the
high and low sales price as reported on the Nasdaq National Market System.
Options are in-the-money if the market price of the shares exceeds the
option exercise price. As of December 31, 1997, none of the options held by
these officers were in-the-money.
(2) The exercise price may be paid in cash or, in the Compensation Committee's
discretion, by delivery of a promissory note or shares of Common Stock
valued at the fair market value on the date of exercise or pursuant to a
cashless exercise procedure under which the executive provides irrevocable
instructions to a brokerage firm to sell the purchased shares and remit to
the Company, out of the sale proceeds, an amount equal to the exercise price
plus applicable withholding taxes.
(3) Value calculated as the excess of the market value at the date of exercise
over the option exercise price.
COMPENSATION COMMITTEE REPORT ON REPRICING OF OPTIONS
In February 1997, in the belief that it was in the best interests of the
Company and its stockholders to ensure that incentives for employees were
maintained in accordance with the compensation philosophy of the Compensation
Committee, the Compensation Committee amended and repriced (to a lower exercise
price) options then held by employees. These options were amended and repriced
to reflect the fact that the market price of the Company's Common Stock had been
negatively impacted in 1997 because of the Company's decision not to bring its
next generation enterprise server to market and to focus its development efforts
on Distributed File System and File-Intelligent I/O technology. In the opinion
of the Compensation Committee, the Company's management and other personnel have
dealt with the change in focus. Accordingly, the Compensation Committee
determined that, in light of the reduced market size of the Common Stock of the
Company and the importance of equity based compensation to the overall
compensation philosophy of the Compensation Committee, it was appropriate to
reprice these options to continue to provide the incentives intended under the
1995 Plan. These options were amended and repriced on March 14, 1997 with an
exercise price equal to the market price on that date. Such options could not be
exercised for one year from the date of such repricing and thereafter became
exercisable in accordance with their original vesting schedule.
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<PAGE>
The following table sets forth certain additional information regarding all
repricings of options held by any executive officer that have occurred in the
last ten years.
<TABLE>
<CAPTION>
TEN-YEAR OPTION REPRICINGS
--------------------------------------------- LENGTH OF
SECURITIES ORIGINAL
UNDERLYING OPTION TERM
NUMBER OF MARKET PRICE OF EXERCISE PRICE REMAINING
OPTIONS STOCK AT TIME AT TIME OF NEW AT DATE OF
REPRICED OR OF REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME AND POSITION DATE AMENDED (#) AMENDMENT ($) AMENDMENT ($) PRICE ($) AMENDMENT
- --------------------------------- --------- ------------ --------------- -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
John J. Mitcham 3/14/97 700,000 $ 0.875 $ 4.190 $ 0.875 8 yrs. 2 mos.
President and Chief Executive
Officer
John J. Mitcham 3/14/97 100,000 0.875 4.688 0.875 9 yrs. 1 mo.
Charles C. Devor 3/14/97 100,000 0.875 4.130 0.875 3 yrs. 4 mos.
Vice President of Business
Development
Charles C. Devor 3/14/97 100,000 0.875 3.875 0.875 8 yrs. 7 mos.
Charles C. Devor 3/14/97 150,000 0.875 2.183 0.875 9 yrs. 4 mos.
Alexander H. Frey 3/14/97 100,000 0.875 2.375 0.875 8 yrs. 8 mos.
Vice President, Architecture
Charles E. Pearsall 3/14/97 75,000 0.875 3.750 0.875 8 yrs. 11 mos.
Vice President, Engineering
Charles E. Pearsall 3/14/97 25,000 0.875 2.813 0.875 9 yrs. 4 mos.
Jeff A. Stewart 3/14/97 5,000 0.875 6.000 0.875 2 yrs. 7 mos.
Vice President and Controller
Jeff A. Stewart 3/14/97 3,000 0.875 3.062 0.875 8 yrs. 8 mos.
Jeff A. Stewart 3/14/97 3,000 0.875 2.813 0.875 9 yrs. 4 mos.
Gregory T. Barnum 3/14/97 37,500 0.875 4.500 0.875 0 yrs. 7 mos.
Former Chief Financial Officer
Gregory T. Barnum 3/14/97 10,000 0.875 10.000 0.875 0 yrs. 11 mos.
Gregory T. Barnum 3/14/97 10,000 0.875 16.500 0.875 1 yr. 3 mos.
Gregory T. Barnum 3/14/97 30,000 0.875 22.125 0.875 1 yr. 10 mos.
Gregory T. Barnum 3/14/97 35,000 0.875 5.250 0.875 2 yrs. 6 mos.
Gregory T. Barnum 3/14/97 50,000 0.875 3.875 0.875 8 yrs. 7 mos.
Gregory T. Barnum 3/14/97 100,000 0.875 2.813 0.875 9 yrs. 4 mos.
Joan M. Wrabetz 3/14/97 100,000 0.875 3.000 0.875 8 yrs. 10 mos.
Former Vice President and Chief
Technical Officer
Joan M. Wrabetz 3/14/97 30,000 0.875 2.813 0.875 9 yrs. 4 mos.
Terence J. Webb 8/11/94 7,500 5.187 24.750 5.187 4 yrs. 2 mos.
Former Sr. Vice President of
Operations
Terence J. Webb 8/11/94 7,500 5.187 22.120 5.187 4 yrs. 5 mos.
</TABLE>
Compensation Committee
Yuval Almog, CHAIRMAN
Donald L. Lucas
13
<PAGE>
CHANGE IN CONTROL ARRANGEMENTS
Under the Company's 1995 Plan, in the event a "change in control" of the
Company occurs, all outstanding options held by a participant for at least six
months will become immediately exercisable in full and will remain exercisable
for the remainder of their terms, regardless of whether the participant remains
in the employ or service of the Company or any subsidiary. A "change in control"
for purposes of the Company's 1995 Plan will generally occur upon the following
events: (a) the sale or other transfer of substantially all of the assets of the
Company; (b) the liquidation or dissolution of the Company; (c) a merger or
consolidation involving the Company if 70% or less of the voting stock of the
surviving company is held by persons who were stockholders of the Company
immediately before the merger or consolidation; (d) any person becomes the
beneficial owner of 30% or more of the combined voting power of the Company's
outstanding securities ordinarily having the right to vote at elections of
directors; (e) the "continuity directors" (directors as of the date the
applicable plan was adopted and additional directors nominated or elected by the
"continuity directors") of the Company cease to constitute at least a majority
of the Board; or (f) any change of control that is required to be reported under
Section 13 or 15 (d) of the Securities Exchange Act of 1934 (the "Exchange
Act").
In addition to the change in control provisions under its 1995 Plan, the
Company has also entered into change in control agreements with certain of its
officers and key employees, including Charles C. Devor, the Company's Vice
President of Business Development and Mr. Charles E. Pearsall, the Company's
Vice President of Engineering. Pursuant to these agreements (the "Change in
Control Agreements"), in the event of a Change in Control Termination (as
defined below), the Company agrees (a) to make a lump-sum cash payment to the
employee in an amount equal to one and one-half times such employee's annual
base salary, plus one and one-half times such employee's target annual cash
bonus for the year during which the termination occurs, (b) to provide to the
employee continued coverage under the Company's group health plan for up to 18
months, (c) to provide to the employee a "gross-up" payment sufficient to pay
any excise tax imposed under Section 4999 of the Code (or any comparable state
or local law) resulting from any Change in Control (as defined below), and (d)
to provide to the employee outplacement counseling services costing up to 5% of
such employee's annual base salary.
For purposes of the Change in Control Agreements, a "Change in Control
Termination" is deemed to occur if the Company terminates such employee's
employment for any reason other than for Cause (which includes gross misconduct,
willful and continued failure to perform, or conviction of a felony or gross
misdemeanor) or the employee's death or the employee terminates his or her
employment for Good Reason (which includes an adverse change in the employee's
position with the Company, reduction in base salary or benefits, forced
relocation, or failure by the Company to observe certain requirements of the
Change in Control Agreement) and any such termination occurs either within 12
months after the last day of the month in which the Change in Control occurred
or prior to the Change in Control if the employee's termination was a condition
of or related to the Change in Control. For purposes of the Change in Control
Agreements, a "Change in Control" is defined to include (a) a merger involving
the Company where the pre-merger stockholders own at least 50% but less than 80%
of the surviving Company's voting stock (unless approved by the Board of
Directors) or less than 50% of the surviving Company's voting stock (whether or
not approved by the Board of Directors), (b) a transfer of substantially all of
the Company's assets or a liquidation of the Company, (c) the acquisition by any
person or group of 20% or more but less than 50% of the Company's voting stock
(unless approved by the Board of Directors) or 50% or more of the Company's
voting stock (whether or not approved by the Board of Directors), (d) the
continuity directors (the current directors and their future nominees) ceasing
to constitute a majority of the Board of Directors, and (e) any other change in
control that would be required by the Securities and Exchange Commission (the
"SEC").
The change in control provisions of the Company's 1995 Plan, as well as the
Change in Control Agreements, are designed to attract and retain valued
employees of the Company and to ensure that the performance of these employees
is not undermined by the possibility, threat or occurrence of a change in
14
<PAGE>
control. While these measures were not adopted to deter takeovers, they may have
an incidental anti-takeover effect by making it more expensive for a bidder to
acquire control of the Company.
DEVOR SEVERANCE AGREEMENT
Under an agreement dated February 8, 1997 entered into with Mr. Devor (the
"Severance Agreement"), the Company has agreed, within 10 business days
following a Triggering Termination (as defined below) of the employee (a) to
make a lump-sum cash payment to such employee equal to his annual base salary
and (b) for 12 months following such termination (or until the employee becomes
covered under another comparable plan) to maintain a group health plan that
covers such employee (and eligible family members and dependents) under the same
terms and at the same cost to the employee as to similarly situated individuals
who continue to be employees of the Company.
For purposes of the Severance Agreement, a "Triggering Termination" is
defined as termination of employment by the Company for any reason other than
the employee's death or for Cause (with such terms defined similarly as in the
Change in Control Agreements) or termination by the employee for Good Reason, in
each case so long as such termination by either the Company or the employee
would not entitle the employee to receive benefits pursuant to such employee's
Change in Control Agreement. To the extent that the employee incurs a tax
liability in connection with such health benefits that he would not have
incurred had he been an active employee of the Company, the Company will
reimburse the employee in an amount equal to such tax liability. The Severance
Agreement has an initial term of two years.
MITCHAM EMPLOYMENT AGREEMENT
Pursuant to the terms of an employment agreement, dated as of May 2, 1995,
Mr. Mitcham is paid an annual base salary that is determined each year by the
Compensation Committee based on a performance and salary review of Mr. Mitcham.
The base salary was initially fixed at $300,000. In addition to base salary, the
employment agreement provided for the grant to Mr. Mitcham on May 2, 1995 of an
option to purchase 500,000 shares of the Company's common stock (the "Base
Option") at an exercise price equal to $4.19 (the fair market value of the
Company's Common Stock on the Grant Date). The Base Option becomes exercisable
with respect to six forty-eighths of the shares subject to such option six
months after the Grant Date and with respect to an additional one forty-eighth
of the shares subject to such option at the end of each month thereafter. The
Base Option expires 10 years after the Grant Date. In addition to the Base
Option, the employment agreement provided for the grant to Mr. Mitcham on the
Grant Date of a Bonus Option to purchase 200,000 shares of the Company's common
stock at an exercise price equal to $4.19. The Bonus Option becomes exercisable
in full five years after the Grant Date (or earlier upon the satisfaction of
certain performance goals) and will expire 10 years after the Grant Date. Both
the Bonus Option and Base Option become immediately exercisable in full upon a
Change in Control, as defined in the stock option plans, and will remain
exercisable for the remainder of their terms. Mr. Mitcham is also entitled to
customary benefits, reimbursements of business expenses and reimbursement for
premiums on a term life insurance policy up to a maximum of $3,500 per year. In
addition, pursuant to the employment agreement, the Company will reimburse Mr.
Mitcham for his relocation expenses (up to a maximum of $100,000) plus amounts
for any taxes on such reimbursement amounts.
The employment agreement continues until terminated and may be terminated in
the following circumstances: (i) by the Company upon written notice with or
without cause; (ii) by Mr. Mitcham upon 30 days' written notice; or (iii) upon
Mr. Mitcham's death or disability. If the Company terminates the employment
agreement other than for cause or if Mr. Mitcham terminates the agreement due to
a material breach by the Company that is not cured within 30 days of notice, the
Company will be obligated to continue to pay Mr. Mitcham his then current Base
Salary for a period of two years following such termination, if such termination
occurs within two years after the effective date of the agreement, or for a
period of one year following such termination, if termination occurs thereafter.
Such payments, however, will continue only so long as Mr. Mitcham
conscientiously and aggressively seeks new employment and
15
<PAGE>
complies with his continuing obligations under the employment agreement and will
be reduced to reflect any payments received during such period from another
employer.
Pursuant to the employment agreement, Mr. Mitcham has agreed that, during
his employment and for a period of one year thereafter, he will not: (i) compete
in the network server business within any state or country in which the Company
markets or services products or provides services; (ii) interfere in any way
with the Company's relationship with any of its current or potential customers;
or (iii) employ or attempt to employ any of the Company's employees. In
addition, the employment agreement prohibits the disclosure of confidential
information to anyone outside of the Company during and subsequent to Mr.
Mitcham's employment and requires disclosure to the Company of ideas,
discoveries or inventions relating to or resulting from Mr. Mitcham's work for
the Company and assignment to the Company of all proprietary rights to such
ideas, discoveries or inventions.
PROPOSAL TO ADOPT THE COMPANY'S 1998
STOCK INCENTIVE PLAN
INTRODUCTION
On February 20, 1998, the Company's Board approved the Company's 1998 Stock
Incentive Plan, subject to stockholder approval. The 1998 Plan provides for the
grant to participating eligible recipients of the Company of stock options
("Options"), including both incentive stock options ("Incentive Options") and
non-statutory stock options ("Non-Statutory Options"), Restricted Stock Awards,
Performance Units, Stock Bonuses and Stock Appreciation Rights. Options,
Restricted Stock Awards, Performance Units, Stock Bonuses and Stock Appreciation
Rights are collectively referred to as "Incentive Awards."
At this Annual Meeting, the stockholders are being asked to approve the 1998
Plan.
SUMMARY OF THE PLAN
A general description of the basic features of the 1998 Plan is outlined
below. The summary is qualified in its entirety by the full text of the plan, a
copy of which may be obtained from the Company at the address set forth at the
beginning of this proxy statement.
GENERAL. All employees (including officers and directors who are also
employees) and all non-employee consultants and independent contractors of the
Company are eligible to participate in the 1998 Plan. The maximum number of
shares of Common Stock that may be issued under the 1998 plan will be 1,000,000
shares, plus any shares of Common Stock that are not issued under the Company's
1995 Plan. On March 31, 1998, there were 38 employees of the Company eligible to
be granted Incentive Awards under the 1998 Plan.
No participant in the 1998 Plan may be granted, during any fiscal year, any
Options or Incentive Awards with a value based solely on an increase in the
value of the Common Stock after the date of grant relating to more than an
aggregate of 100,000 shares of Common Stock (250,000 shares with respect to a
1998 Plan participant who, during any such fiscal year, is first appointed or
elected as an officer, hired as an employee or retained as a consultant by the
Company or who receives a promotion that results in an increase in
responsibilities or duties). Any shares of Common Stock that are subject to an
Incentive Award that expires or is forfeited and any shares of Common Stock that
are subject to an Incentive Award that is settled or paid in cash or any form
other than shares of Common Stock will automatically again become available for
issuance under the 1998 Plan. Any shares of Common Stock that constitute the
forfeited portion of a Restricted Stock Award, however, will not become
available for further issuance under the 1998 Plan. In the event of any
reorganization, merger, recapitalization, stock dividend, stock split or similar
change in the corporate structure or shares of the Company, appropriate
adjustments will be made to the number and kind of shares reserved under the
1998 Plan and under outstanding Incentive Awards and to the exercise price of
securities reserved under the 1998 Plan and under outstanding Incentive Awards.
16
<PAGE>
ADMINISTRATION. The 1998 Plan will be administered by a committee
consisting of not less that two members of the Board (the "Committee"). The
Board has appointed the Company's Compensation Committee to administer the 1998
Plan. The 1998 Plan vests broad powers in the Committee to administer and
interpret the 1998 Plan, including the authority to select the participants that
will be granted Incentive Awards under the plan, to determine the nature,
extent, timing, exercise price, vesting and duration of Incentive Awards and to
prescribe all other terms and conditions of Incentive Awards that are consistent
with the 1998 Plan. The Committee may modify the terms of an outstanding
Incentive Award in any manner (with the consent of the affected participant for
most modifications) as long as the modified terms are permitted by the 1998 Plan
as then in effect. The Committee may amend the 1998 Plan from time to time in
such respects as the Committee may deem advisable in order that Incentive Awards
under the 1998 Plan will conform to any change in applicable laws or regulations
or in any other respect the Committee may deem to be in the best interests of
the Company; provided, however, that no amendments to the 1998 Plan will be
effective without approval of the stockholders of the Company if stockholder
approval of the amendment is then required pursuant to Section 422 of the Code
or the rules of any stock exchange of Nasdaq or similar regulatory body.
TYPES OF AWARDS
OPTIONS. Incentive Options and Non-Statutory Options must be granted with
an exercise price equal to at least the fair market value of the Common Stock on
the date of grant. On February 27, 1998, the closing price per share of the
Common Stock as reported on the Nasdaq National Market was $1.09. Options will
become exercisable at such times and in such installments as may be determined
by the Committee, provided that Options may not become exercisable prior to six
months from their date of grant and may not be exercisable after 10 years from
their date of grant.
The exercise price of options must be paid in cash, except that the
Committee may allow payment to be made (in whole or in part) by delivery of a
"broker exercise notice" (pursuant to which the broker or dealer is instructed
to sell enough shares or loan the optionee enough money to pay the exercise
price and to remit such sums to the Company), a promissory note or by transfer
of shares of Common Stock (either previously owned by the participant or to be
acquired upon Option exercise). The aggregate fair market value of shares of
Common Stock with respect to which incentive stock options within the meaning of
Section 422 of the Code become exercisable for the first time by a participant
in any calendar year may not exceed $100,000. Any Incentive Options in excess of
this amount will be treated as Non-Statutory Options.
STOCK APPRECIATION RIGHTS. A Stock Appreciation Right is a right to receive
a payment from the Company in the form of shares or cash or a combination of
both (as determined by the Committee), equal to the difference between the fair
market value of one or more shares of Common Stock and the exercise price of
such shares under the terms of the Stock Appreciation Right. The exercise price
of a Stock Appreciation Right will be determined by the Committee, but may not
be less than the fair market value of the Common Stock on the date of grant.
Stock Appreciation Rights become exercisable at such times and in such
installments as may be determined by the Committee, except that Stock
Appreciation Rights may not become exercisable prior to six months from their
date of grant and may not be exercisable after 10 years from their date of
grant.
RESTRICTED STOCK AWARDS AND STOCK BONUSES. A Restricted Stock Award is an
award of Common Stock that vests at such times and in such installments as may
be determined by the Committee and, until it vests, is subject to restrictions
on transferability and to the possibility of forfeiture. The Committee may
impose such restrictions or conditions to the vesting of Restricted Stock Awards
as it deems appropriate, including that the participant remain in the continuous
employ or service of the Company for a certain period or that the participant or
the Company satisfy certain performance goals or criteria. No Restricted Stock
Award may vest prior to six months from its date of grant.
17
<PAGE>
Unless the Committee determines otherwise, any dividends or distributions
(including regular quarterly dividends) paid with respect to shares of Common
Stock subject to the unvested portion of a Restricted Stock Award will be
subject to the same restrictions as the shares to which such dividends or
distributions relate. In addition, the Committee may require that regular
quarterly cash dividends be reinvested in shares of Common Stock.
A Stock Bonus is an award of Common Stock that is not subject to risk of
forfeiture. A Stock Bonus may be granted without any restrictions, or the Common
Stock covered by the Award may be made subject to restrictions on
transferability.
PERFORMANCE UNITS. A Performance Unit is a right to receive a payment from
the Company, in the form of shares or cash or a combination of both (as
determined by the Committee), upon the achievement of established performance
goals. A Performance Unit will vest at such times and in such installments as
may be determined by the Committee. The Committee may impose such restrictions
or conditions to the vesting of Performance Units as it deems appropriate,
including that the participant remains in the continuous employ or service of
the Company for a certain period or that the participant or the Company satisfy
certain performance goals or criteria.
CHANGE IN CONTROL. See "Executive Compensation -- Change in Control
Arrangements" for a discussion regarding the effect of a "change in control" on
Incentive Awards granted under the 1998 Plan, which effect is substantially
similar to that under the 1995 Plan.
TERMINATION OF EMPLOYMENT OR SERVICE. In the event a participant's
employment or other service with the Company is terminated by reason of death,
disability or retirement, (i) all outstanding Options and Stock Appreciation
Rights will remain exercisable to the extent then exercisable for a period of
one year after such termination (three months in the case of retirement), but in
no event after their original expiration date, (ii) all Restricted Stock Awards
then held by the participant will become fully vested and nonforfeitable, and
(iii) all Performance Units and Stock Bonuses then held by the participant will
vest or continue to vest according to their original terms.
In the event a participant's employment or other service with the Company is
terminated for any other reason, (ii) all outstanding Options and Stock
Appreciation Rights will immediately terminate without notice, (ii) all
Restricted Stock Awards that have not vested as of such termination will be
terminated and forfeited, and (iii) all Performance Units and Stock Bonuses then
held by the participant will vest or continue to vest according to their
original terms; provided, however, that if such termination is due to any reason
other than the voluntary termination by the participant or termination by the
Company for cause, all Options and Stock Appreciation Rights will remain
exercisable for three months to the extent then exercisable.
The Company may, in its discretion, modify these post-termination
provisions, provided that no Incentive Award may become exercisable or vest
prior to six months from its date of grant and no Option or Stock Appreciation
Rights may remain exercisable beyond its expiration date.
FEDERAL INCOME TAX CONSEQUENCES
The following general description of federal income tax consequences is
based on current statutes, regulations and interpretations. This description is
not intended to address specific tax consequences applicable to an individual
participant who receives an Incentive Award and does not address special rules
that may be applicable to directors, officers and greater-than-10% stockholders
of the Company.
OPTION. There will not be any federal income tax consequences to either the
participant or the Company as a result of the grant to a participant of an
Option under the 1998 Plan. The exercise by a participant of an Incentive Option
will also not result in any federal income tax consequences to the Company or
the participant, except that an amount equal to the excess fair market value of
the shares
18
<PAGE>
acquired upon exercise of the Incentive Option, determined at the time of
exercise, over the consideration paid for the shares by the participant will be
a tax preference item for purposes of the alternative minimum tax. Upon the
exercise of a Non-Statutory Option, a participant will recognize ordinary income
on the date of exercise in an amount equal to the difference between the fair
market value of the shares purchased and the consideration paid for the shares.
In general, the Company will be entitled to a compensation expense deduction in
connection with the exercise of a Non-Statutory Option for any amounts
includable in the taxable income of a participant as ordinary income.
If a participant disposes of the shares acquired upon exercise of an
Incentive Option, the federal income tax consequences will depend upon how long
the participant has held the shares. If the participant does not dispose of the
shares within two years after the Incentive Option was granted, nor within one
year after the participant exercised the Incentive Option and the shares were
transferred to the participant, then the participant will recognize a long-term
capital gain or loss. The amount of the long-term capital gain or loss will be
equal to the difference between (i) the amount the participant realized on
disposition of the shares and (ii) the option price at which the participant
acquired the shares. The Company is not entitled to any compensation expense
deduction under these circumstances.
If the participant does not satisfy both of the above holding period
requirements, then the participant will be required to report as ordinary
income, in the year the participant disposes of the shares, the amount by which
the lesser of the fair market value of the shares at the time of exercise of the
Incentive Option or the amount realized on the disposition of the shares (if the
disposition is the result of a sale or exchange to one other than a related
taxpayer) exceeds the option price for the shares. The Company will be entitled
to a compensation expense deduction in an amount equal to the ordinary income
includable in the taxable income of a participant. The remainder of the gain or
loss recognized on the disposition, if any, will be treated as long-term or
short-term capital gain or loss, depending on the holding period.
STOCK APPRECIATION RIGHTS. A participant who receives a Stock Appreciation
Right will not recognize any taxable income at the time of grant. Upon exercise
of a Stock Appreciation Right, the participant will realize ordinary income in
an amount equal to the cash and fair market value of any shares of Common Stock
received by the participant. The Company will receive a corresponding tax
deduction for any amounts includable by the participant as ordinary income.
RESTRICTED STOCK AWARDS AND STOCK BONUSES. With respect to shares issued
pursuant to a Restricted Stock Award that are not subject to risk of forfeiture
or with respect to Stock Bonuses, a participant will include as ordinary income
in the year of receipt an amount equal to the fair market value of the shares
received on the date of receipt. With respect to shares that are subject to a
risk of forfeiture, a participant may file an election under Section 83(b) of
the Code within 30 days after the transfer to include as ordinary income in the
year of transfer an amount equal to the fair market value of the shares received
on the date of transfer (determined as if the shares were not subject to any
risk of forfeiture). If a Section 83(b) election is made, the participant will
not recognize any additional income when the restrictions on the shares issued
in connection with the Restricted Stock Award lapse. The Company will receive a
corresponding tax deduction for any amounts includable by the participant as
ordinary income.
A participant who does not make a Section 83(b) election within 30 days of a
Restricted Stock Award that is subject to a risk of forfeiture will recognize
ordinary income at the time of the lapse of the restrictions in an amount equal
to the then fair market value of the shares freed of restrictions. The Company
will receive a corresponding tax deduction for any amounts includable by the
participant as ordinary income.
PERFORMANCE UNITS. A participant who receives a Performance Unit will not
recognize any taxable income at the time of grant. Upon settlement of the
Performance Unit, the participant will realize ordinary income in an amount
equal to the cash and fair market value of any shares of Common Stock received
by
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the participant. The Company will receive a corresponding tax deduction for any
amounts includable by the participant as ordinary income.
EXCISE TAX ON PARACHUTE PAYMENTS. The Code imposes a 20% excise tax on the
recipient of "excess parachute payments," as defined in the Code, and denies tax
deductibility to the Company for such excess parachute payments. Generally,
parachute payments are payments in the nature of compensation to employees of a
company who are officers, shareholders or highly compensated employees, which
payments are contingent upon a change in control of a company. Acceleration of
the vesting of Incentive Awards upon a change in control of the Company may
constitute parachute payments, in certain cases, "excess parachute payments."
The 1998 Plan limits the acceleration of such vesting to avoid excess parachute
payments unless the participant is subject to a separate agreement with the
Company (as is the case of Mr. Mitcham) which specifically provides that excess
parachute payments attributable to accelerated vesting will not reduce other
payments from the Company.
SECTION 162(M). Under Section 162(m) of the Code, the deductibility of
certain compensation paid to the chief executive officer and each of the four
other most highly compensated executives of publicly held companies is limited
to $1,000,000. Compensation for this purpose generally includes any items of
compensation expense described above in connection with Incentive Awards under
the 1998 Plan. However, certain types of compensation are excepted from this
limit, including compensation that qualifies as "performance-based
compensation." Under Section 162(m), any compensation expense resulting from the
exercise of Options or Stock Appreciation Rights under the 1998 Plan with
exercise prices equal to (or greater than) the fair market value of the Common
Stock on the date of grant should qualify as "performance-based compensation"
excepted from the limit of Section 162(m). However, compensation expense in
connection with any other Incentive Awards under the 1998 Plan would be subject
to this limit.
NEW PLAN BENEFITS
No options have been granted under the 1998 Plan to any of the executive
officers named in the Summary Compensation Table or to any other employee of the
Company, and no other Incentive Awards have been granted to participants under
the 1998 Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS
At this Annual Meeting, the stockholders are being asked to approve the 1998
Plan. The Board recommends a vote FOR approval of such proposal. The affirmative
vote of a majority of shares of Common Stock present and entitled to vote in
person or by proxy on this proposal is necessary for approval. Unless a contrary
choice is specified, proxies solicited by the Board will be voted FOR approval
of such proposal.
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PROPOSAL TO ADOPT THE COMPANY'S 1998
NON-EMPLOYEE DIRECTOR STOCK PLAN
INTRODUCTION
On February 20, 1998, the Company's Board approved the Company's 1998
Non-Employee Director Stock Plan (the "1998 Director Plan"), subject to
stockholder approval. The 1998 Director Plan replaces the 1995 Non-Employee
Director Stock Option Plan, which expired in June 1997. The 1998 Director Plan
provides for awards of options and Common Stock to directors who are not
employees of the Company. The purpose of the 1998 Director Plan is to advance
the interests of the Company and its stockholders by enabling the Company to
attract and retain the services of experienced and knowledgeable non-employee
directors and to increase the propriety interest of such directors in the
Company's long-term success and progress and their identification with the
interests of the Company's stockholders.
At this Annual Meeting, the stockholders are being asked to approve the 1998
Director Plan.
SUMMARY OF THE PLAN
A general description of the basic features of the 1998 Director Plan is
outlined below. The summary is qualified in its entirety by the full text of the
plan, a copy of which may be obtained from the Company at the address set forth
at the beginning of this proxy statement.
The 1998 Director Plan will be administered by the Committee. Directors of
the Company who are not employees of the Company are eligible to participate in
the 1998 Director Plan.
The maximum number of shares of Common Stock reserved for issuance under the
1998 Director Plan will be 350,000 shares. In the event of any reorganization,
merger, recapitalization, liquidation, reclassification, stock dividend, stock
split, combination of shares, rights offerings, or extraordinary dividend or
divestiture or any other change in the corporate structure or shares of the
Company, the Committee shall make adjustments, determined by the Committee in
its discretion to be appropriate, as to the number and kind of securities
subject to and reserved under the 1998 Director Plan and, in order to prevent
dilution or enlargement of rights of eligible directors, the number, kind and
exercise of outstanding awards of options and Common Stock. The Committee may
amend the 1998 Director Plan from time to time in such respects as the Committee
may deem advisable in order that awards of options and Common Stock under the
1998 Director Plan will conform to any change in applicable laws or regulations
or in any other respect the Committee may deem to be in the best interests of
the Company; provided, however, that no amendment to the 1998 Director Plan will
be effective without approval of the stockholders of the Company if stockholder
approval in then required pursuant to the rules of any stock exchange or Nasdaq
or similar regulatory body. Awards of options and Common Stock may not be
transferred other than by will or the laws of descent and distribution, and
during the lifetime of an optionee may be exercised only by the optionee. The
1998 Director Plan will terminate on February 20, 2003, unless sooner terminated
by action of the Board. No awards of options and Common Stock will be granted
after termination of the 1998 Director Plan.
Under the 1998 Director Plan, each eligible director automatically receives,
on a one-time basis, a non-qualified option to purchase 25,000 shares of Common
Stock (the "Initial Option") upon such director's initial election or
appointment to the Board. In addition to the Initial Option, a non-qualified
option to purchase 10,000 shares of Common Stock (the "Annual Option") is
granted automatically commencing January 5, 1998 and continuing on each
succeeding January 5 thereafter to each eligible director as of such dates. The
Initial Options and Annual Options are sometimes collectively referred to as
"Director Options."
Each Initial Option becomes exercisable each month on a cumulative basis
with respect to 2.78% of the total shares covered by such Initial Option,
commencing one month after the date of grant and terminates five years after its
date of grant. The Annual Option becomes exercisable in full six months
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after its date of grant and terminates five years after its date of grant. The
exercise price per share to be paid by an eligible director at the time a
Director Option is exercised will be the fair market value of one share of
Common Stock on the date of grant, determined based upon the closing price of
the Common Stock as reported by the Nasdaq National Market on the date of grant.
On February 27, 1998, the closing price of one share of Common Stock as reported
by the Nasdaq National Market was $1.09. A Director Option may be exercised by
an eligible director in whole or in part from time to time by delivery to the
Company of a written notice of exercise, accompanied by payment in cash or
personal check payable to the Company, of the full exercise price for the shares
being purchased. In the event that an eligible director's service as a director
terminates, the Director Options will remain exercisable for three months after
such termination (one year with respect to termination due to death or
disability and immediate termination with respect to termination of service by
the director or termination by the Company for "cause"). In no event, however,
may Director Options be exercised after their expiration date.
In the Board's discretion, the $10,000 annual retainer to which eligible
directors are entitled on each November 1 may be paid in the form of cash or
Common Stock. If payment is made in Common Stock, each eligible director as of
such dates will receive such number of shares of Common Stock (the "Retainer
Stock") as equals $10,000 divided by the fair market value of one share of
Common Stock as of each immediately preceding October 31. Subject to approval of
the 1998 Director Plan, the Board had determined to pay the November 1, 1997
retainer in the form of Common Stock.
Moreover, in the Board's discretion, the $1,500 meeting fee to which
eligible directors are entitled may be paid in the form of cash or Common Stock.
If payment is made in Common Stock, each eligible director as of such meeting
dates will receive such number of shares of Common Stock (the "Meeting Stock")
as equals $1,500 divided by the fair market value of one share of Common Stock
as of each immediately preceding day in which trading occurs on the Nasdaq
National Market.
On February 20, 1998, the Company's Board approved the grant of 67,333
shares of Common Stock under the 1998 Director Plan in payment of $50,500 of
meeting fees through February 20, 1998, for which current Board members had not
been paid the customary Board of Directors meeting fee. In addition, the Board
approved on February 20, 1998 the grant of 26,667 shares of Common Stock in
payment of $20,000 of annual retainer fees for Mr. Almog for previous years for
which Mr. Almog had not been paid the customary annual retainer fee. All such
grants of shares are subject to approval of the 1998 Director Plan by the
stockholders at this Annual Meeting.
FEDERAL INCOME TAX CONSEQUENCES
The following general description of federal income tax consequences is
based on current statutes, regulations and interpretations. This description is
not intended to address specific tax consequences applicable to any one eligible
director who receives Director Options or Retainer Stock and Meeting Stock.
DIRECTOR OPTIONS. There will not be any federal income tax consequences to
either the eligible director or the Company upon grant of a Director Option.
Upon exercise of a Director Option, an eligible director will generally
recognize ordinary income on the date of exercise in an amount equal to the
difference between the fair market value of the shares purchased and the
consideration paid for the shares. In general, the Company will be entitled to a
compensation expense deduction in connection with the exercise of a Director
Option for any amounts includable in the taxable income of an eligible director
as ordinary income.
RETAINER STOCK AND MEETING STOCK. With respect to shares issued as Retainer
Stock and Meeting Stock, the participant will include as ordinary income in the
year of transfer an amount equal to the fair market value of the shares
transferred. The Company will receive a corresponding tax deduction for any
amounts includable in the taxable income of participant as ordinary income.
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NEW PLAN BENEFITS
No Director Options have been granted to non-employee directors, and no
Retainer Stock or Meeting Stock has been awarded to non-employee directors under
the 1998 Director Plan.
The following table illustrates the options and the shares of Retainer Stock
and Meeting Stock that the eligible directors of the Company as a group will
receive under the 1998 Director Plan in 1998.
PLAN BENEFITS
1998 NON-EMPLOYEE DIRECTOR STOCK PLAN
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES
UNDERLYING OF RETAINER STOCK OF MEETING STOCK
NAME AND POSITION OPTIONS GRANTED GRANTED GRANTED
- ----------------------------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Non-Executive Director Group 30,000(1) 46,513(2) 94,000(3)
</TABLE>
- ------------------------
(1) Represents the Annual Options to be granted as of January 5, 1998.
(2) Represents 28,233 shares to be issued in payment of the November 1997
retainer and 18,280 shares to be issued in payment of the November 1998
retainer. Assumes no new directors are appointed to the Board during 1998.
The Retainer Stock to be granted in November 1998 is valued at the fair
market value of the Common Stock on February 27, 1998, although the actual
fair market value will be based on the fair value as of October 31, 1998.
(3) Represents 67,333 shares to be issued in payment of Board of Directors
meeting fees for meetings through February 20, 1998, for which current Board
members had not been paid the customary Board of Directors meeting fee and
26,667 shares to be issued to Mr. Almog in payment of annual retainer fees
for previous years, for which Mr. Almog had not been paid the customary
annual retainer fee.
RECOMMENDATION OF THE BOARD OF DIRECTORS
At this Annual Meeting, the stockholders are being asked to approve the 1998
Director Plan. The Board recommends a vote FOR approval of such proposal. The
affirmative vote of a majority of shares of Common Stock present and entitled to
vote in person or by proxy on this proposal is necessary for approval. Unless a
contrary choice is specified, proxies solicited by the Board will be voted FOR
approval of such proposal.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of the Company's Common
Stock, to file with the SEC initial reports of ownership and reports of changes
in ownership of Common Stock and other equity securities of the Company.
Executive officers, directors and greater than 10% shareholders are required by
SEC regulations to furnish the Company with all Section 16(a) reports they file.
To the Company's knowledge, based upon a review of the copies of such reports
furnished to the Company during, or with respect to, the period ended December
31, 1997, and based on representations by such persons, all of the Company's
executive officers, directors and greater than 10% stockholders complied with
all Section 16(a) filing requirements.
SELECTION OF INDEPENDENT AUDITORS
The Board has appointed Coopers & Lybrand L.L.P., independent certified
public accountants, as auditors of the Company for the year ending December 31,
1998. Coopers & Lybrand L.L.P. has audited the financial statements of the
Company since incorporation and has no other relationship with or interest in
the Company.
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Unless a contrary choice is specified, proxies solicited by the Board will
be voted FOR ratification of the appointment of Coopers & Lybrand L.L.P. as
auditors for the Company for the year ending December 31, 1998.
Representatives of Coopers & Lybrand L.L.P. will be present at the meeting,
will have an opportunity to make a statement if they so desire, and will be
available to respond to appropriate questions.
PROPOSALS FOR THE NEXT ANNUAL MEETING
Stockholder proposals intended to be presented in the proxy material
relating to the next Annual Meeting of Stockholders must be received by the
Company on or before December 14, 1998.
OTHER BUSINESS
The Company knows of no other matters that will be presented at this year's
Annual Meeting of Stockholders. If any other matter properly arises at the
meeting, it is intended that the shares represented by proxies in the
accompanying form will be voted in accordance with the judgment of the persons
named in the proxies.
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<PAGE>
ANNUAL REPORT
A copy of the Company's Annual Report to Stockholders for the year ended
December 31, 1997 accompanies this Notice of Annual Meeting and Proxy Statement.
The Annual Report describes the financial condition of the Company as of
December 31, 1997.
THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON FORM
10-K (EXCLUSIVE OF EXHIBITS) FOR THE YEAR ENDED DECEMBER 31, 1997 TO EACH PERSON
WHO IS A STOCKHOLDER OF THE COMPANY AS OF MARCH 25, 1998, UPON RECEIPT FROM ANY
SUCH PERSON OF A WRITTEN REQUEST FOR SUCH AN ANNUAL REPORT ON FORM 10-K. SUCH
REQUESTS SHOULD BE SENT TO: TRICORD SYSTEMS, INC., 2905 NORTHWEST BOULEVARD,
SUITE 20, PLYMOUTH, MINNESOTA 55441, ATTENTION: INVESTOR RELATIONS.
BY ORDER OF THE BOARD OF DIRECTORS
[SIGNATURE]
Jeff A. Stewart
SECRETARY
April 13, 1998
Plymouth, Minnesota
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TRICORD SYSTEMS, INC.
1998 STOCK INCENTIVE PLAN
1. PURPOSE OF PLAN.
The purpose of the Tricord Systems, Inc. 1998 Stock Incentive Plan (the "Plan")
is to advance the interests of Tricord Systems, Inc. (the "Company") and its
stockholders by enabling the Company and its Subsidiaries to attract and retain
persons of ability to perform services for the Company and its Subsidiaries by
providing an incentive to such individuals through equity participation in the
Company and by rewarding such individuals who contribute to the achievement by
the Company of its economic objectives.
2. DEFINITIONS.
The following terms will have the meanings set forth below, unless the context
clearly otherwise requires:
2.1. "BOARD" means the Board of Directors of the Company.
2.2. "BROKER EXERCISE NOTICE" means a written notice pursuant to which a
Participant, upon exercise of an Option, irrevocably instructs a
broker or dealer to sell a sufficient number of shares or loan a
sufficient amount of money to pay all or a portion of the exercise
price of the Option and/or any related withholding tax obligations
and remit such sums to the Company and directs the Company to
deliver stock certificates to be issued upon such exercise directly
to such broker or dealer.
2.3. "CHANGE IN CONTROL" means an event described in Section 13.1 of the
Plan.
2.4. "CODE" means the Internal Revenue Code of 1986, as amended.
2.5. "COMMITTEE" means the group of individuals administering the Plan,
as provided in Section 3 of the Plan.
2.6. "COMMON STOCK" means the common stock of the Company, $.01 par
value, or the number and kind of shares of stock or other
securities into which such Common Stock may be changed in
accordance with Section 4.3 of the Plan.
2.7. "DISABILITY" means the disability of the Participant such as would
entitle the Participant to receive disability income benefits
pursuant to the long-term disability plan of the Company or
Subsidiary then covering the Participant or, if no such plan exists
or is applicable to the Participant, the permanent and total
disability of the Participant within the meaning of Section 22(e)(3)
of the Code.
2.8. "ELIGIBLE RECIPIENTS" means all employees (including, without
limitation, officers and directors who are also employees) of the
Company or any Subsidiary and any non-employee consultants and
independent contractors of the Company or any Subsidiary.
2.9. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
<PAGE>
2.10. "FAIR MARKET VALUE" means, with respect to the Common
Stock, as of any date (or, if no shares were traded or quoted on
such date, as of the next preceding date on which there was such a
trade or quote) (a) the closing sale price of the Common Stock if
the Common Stock is listed, admitted to unlisted trading
privileges or reported on any foreign or national securities
exchange or on the Nasdaq National Market or an equivalent foreign
market on which sale prices are reported; (b) if the Common Stock
is not so listed, admitted to unlisted trading privileges or
reported, the closing bid price as reported by the Nasdaq SmallCap
Market, OTC Bulletin Board or the National Quotation Bureau, Inc.
or other comparable service; or (c) if the Common Stock is not so
listed or reported, such price as the Committee determines in good
faith in the exercise of its reasonable discretion.
2.11. "INCENTIVE AWARD" means an Option, Stock Appreciation Right,
Restricted Stock Award, Performance Unit or Stock Bonus granted to
an Eligible Recipient pursuant to the Plan.
2.12. "INCENTIVE STOCK OPTION" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Section 6 of the Plan
that qualifies as an "incentive stock option" within the meaning of
Section 422 of the Code.
2.13. "NON-STATUTORY STOCK OPTION" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Section 6 of the Plan
that does not qualify as an Incentive Stock Option.
2.14. "OPTION" means an Incentive Stock Option or a Non-Statutory Stock
Option.
2.15. "PARTICIPANT" means an Eligible Recipient who receives one or more
Incentive Awards under the Plan.
2.16. "PERFORMANCE UNIT" means a right granted to an Eligible Recipient
pursuant to Section 9 of the Plan to receive a payment from the
Company, in the form of stock, cash or a combination of both, upon
the achievement of established performance goals.
2.17. "PREVIOUSLY ACQUIRED SHARES" means shares of Common Stock that are
already owned by the Participant or, with respect to any Incentive
Award, that are to be issued upon the grant, exercise or vesting of
such Incentive Award.
2.18. "RESTRICTED STOCK AWARD" means an award of Common Stock granted to
an Eligible Recipient pursuant to Section 8 of the Plan that is
subject to the restrictions on transferability and the risk of
forfeiture imposed by the provisions of such Section 8.
2.19. "RETIREMENT" means normal or approved early termination of
employment or service pursuant to and in accordance with the regular
retirement/pension plan or practice of the Company or Subsidiary
then covering the Participant, provided that if the Participant is
not covered by any such plan or practice, the Participant will be
deemed to be covered by the Company's plan or practice for purposes
of this determination.
2.20. "SECURITIES ACT" means the Securities Act of 1933, as amended.
2.21. "STOCK APPRECIATION RIGHT" means a right granted to an Eligible
Recipient pursuant to Section 7 of the Plan to receive a payment
from the Company, in the form of stock, cash or a combination of
both, equal to the difference between the Fair Market Value of one
or more shares of Common Stock and the exercise price of such shares
under the terms of such Stock Appreciation Right.
2.22. "STOCK BONUS" means an award of Common Stock granted to an Eligible
Recipient pursuant to Section 10 of the Plan.
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<PAGE>
2.23. "SUBSIDIARY" means any entity that is directly or indirectly
controlled by the Company or any entity in which the Company has a
significant equity interest, as determined by the Committee.
2.24. "TAX DATE" means the date any withholding tax obligation arises
under the Code for a Participant with respect to an Incentive Award.
3. PLAN ADMINISTRATION.
3.1. THE COMMITTEE. The Plan will be administered by the Board or by
a committee. So long as the Company has a class of its equity
securities under Section 12 of the Exchange Act, any committee
administering the Plan will consist solely of two or more members
of the Board who are "non-employee directors" within the meaning
of Rule 16b-3 under the Exchange Act and, if the Board so
determines in its sole discretion, who are "outside directors"
within the meaning of Section 162(m) of the Code. Such a
committee, if established, will act by majority approval of the
members, and a majority of the members of such a committee will
constitute a quorum. As used in this Plan, the term "Committee"
will refer to the Board or to such a committee, if established.
To the extent consistent with corporate law, the Committee may
delegate to any officers of the Company the duties, power and
authority of the Committee under the Plan pursuant to such
conditions or limitations as the Committee may establish;
provided, however, that only the Committee may exercise such
duties, power and authority with respect to Eligible Recipients
who are subject to Section 16 of the Exchange Act. The Committee
may exercise its duties, power and authority under the Plan in
its sole and absolute discretion without the consent of any
Participant or other party, unless the Plan specifically provides
otherwise. Each determination, interpretation or other action
made or taken by the Committee pursuant to the provisions of the
Plan will be conclusive and binding for all purposes and on all
persons, and no member of the Committee will be liable for any
action or determination made in good faith with respect to the
Plan or any Incentive Award granted under the Plan.
3.2. AUTHORITY OF THE COMMITTEE.
(a) In accordance with and subject to the provisions of the Plan,
the Committee will have the authority to determine all
provisions of Incentive Awards as the Committee may deem
necessary or desirable and as consistent with the terms of
the Plan, including, without limitation, the following:
(i) the Eligible Recipients to be selected as Participants;
(ii) the nature and extent of the Incentive Awards to be made
to each Participant (including the number of shares of Common
Stock to be subject to each Incentive Award, any exercise
price, the manner in which Incentive Awards will vest or
become exercisable and whether Incentive Awards will be
granted in tandem with other Incentive Awards) and the form
of written agreement, if any, evidencing such Incentive
Award; (iii) the time or times when Incentive Awards will be
granted; (iv) the duration of each Incentive Award; and (v)
the restrictions and other conditions to which the payment or
vesting of Incentive Awards may be subject. In addition, the
Committee will have the authority under the Plan to pay the
economic value of any Incentive Award in the form of cash,
Common Stock or any combination of both.
(b) The Committee will have the authority under the Plan to amend
or modify the terms of any outstanding Incentive Award in any
manner, including, without
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<PAGE>
limitation, the authority to modify the number of shares or
other terms and conditions of an Incentive Award, extend the
term of an Incentive Award, accelerate the exercisability or
vesting or otherwise terminate any restrictions relating to
an Incentive Award, accept the surrender of any outstanding
Incentive Award or, to the extent not previously exercised or
vested, authorize the grant of new Incentive Awards in
substitution for surrendered Incentive Awards; provided,
however that the amended or modified terms are permitted by
the Plan as then in effect and that any Participant adversely
affected by such amended or modified terms has consented to
such amendment or modification. No amendment or modification
to an Incentive Award, however, whether pursuant to this
Section 3.2 or any other provisions of the Plan, will be
deemed to be a regrant of such Incentive Award for purposes
of this Plan.
(c) In the event of (i) any reorganization, merger,
consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of
shares, rights offering, extraordinary dividend or
divestiture (including a spin-off) or any other change in
corporate structure or shares, (ii) any purchase,
acquisition, sale or disposition of a significant amount of
assets or a significant business, (iii) any change in
accounting principles or practices, or (iv) any other similar
change, in each case with respect to the Company or any other
entity whose performance is relevant to the grant or vesting
of an Incentive Award, the Committee (or, if the Company is
not the surviving corporation in any such transaction, the
board of directors of the surviving corporation) may, without
the consent of any affected Participant, amend or modify the
vesting criteria of any outstanding Incentive Award that is
based in whole or in part on the financial performance of the
Company (or any Subsidiary or division thereof) or such other
entity so as equitably to reflect such event, with the
desired result that the criteria for evaluating such
financial performance of the Company or such other entity
will be substantially the same (in the discretion of the
Committee or the board of directors of the surviving
corporation) following such event as prior to such event;
provided, however, that the amended or modified terms are
permitted by the Plan as then in effect.
4. SHARES AVAILABLE FOR ISSUANCE.
4.1. MAXIMUM NUMBER OF SHARES. Subject to adjustment as provided in
Section 4.3 of the Plan, the maximum number of shares of Common
Stock that will be available for issuance under the Plan will be
1,000,000 shares, plus any shares of Common Stock which, as of
the date the Plan is approved by the shareholders of the Company,
are reserved for issuance under the Company's 1995 Stock
Incentive Plan and which are not thereafter issued or which have
been issued but are subsequently forfeited and which would
otherwise have been available for further issuance under such
plan. Notwithstanding any other provision of the Plan to the
contrary, no Participant in the Plan may be granted, during the
term of the Plan, any Options or Stock Appreciation Rights, or
any other Incentive Awards with a value based solely on an
increase in the value of the Common Stock after the date of
grant, relating to more than 100,000 shares of Common Stock in
the aggregate in any fiscal year of the Company (subject to
adjustment as provided in section 4.3 of the Plan); provided,
however, that a Participant who is first appointed or elected as
an officer, hired as an employee or retained as a consultant by
the Company or who receives a promotion that results in an
increase in responsibilities or duties may be granted, during the
fiscal year of such appointment, election, hiring, retention, or
promotion, Options or Stock Appreciation Rights, or any other
Incentive Awards with a value based solely on an increase in the
value of the Common Stock after the date of grant, relating up to
250,000 shares of Common Stock (subject to adjustment as provided
in Section 4.3 of the Plan); provided, however, that a Participant
who is first appointed or elected as an officer, hired as an
employee or retained as a consultant by the Company or who receives
a promotion that results in an increase in responsibilities or
duties may be granted, during the fiscal year of such appointment,
election, hiring, retention or promotion, Options relating to up to
200,000 shares of Common Stock (subject to adjustment as provided
in Section 4.3 of the Plan). The shares
4
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available for issuance under the Plan may, at the election of the
Committee, be either treasury shares or shares authorized but
unissued, and, if treasury shares are used, all references in the
Plan to the issuance of shares will, for corporate law purposes, be
deemed to mean the transfer of shares from treasury.
4.2. ACCOUNTING FOR INCENTIVE AWARDS. Shares of Common Stock that are
issued under the Plan or that are subject to outstanding Incentive
Awards will be applied to reduce the maximum number of shares of
Common Stock remaining available for issuance under the Plan. Any
shares of Common Stock that are subject to an Incentive Award that
lapses, expires, is forfeited or for any reason is terminated
unexercised or unvested and any shares of Common Stock that are
subject to an Incentive Award that is settled or paid in cash or any
form other than shares of Common Stock will automatically again
become available for issuance under the Plan. Any shares of Common
Stock that constitute the forfeited portion of a Restricted Stock
Award, however, will not become available for further issuance under
the Plan.
4.3. ADJUSTMENTS TO SHARES AND INCENTIVE AWARDS. In the event of any
reorganization, merger, consolidation, recapitalization,
liquidation, reclassification, stock dividend, stock split,
combination of shares, rights offering, divestiture or extraordinary
dividend (including a spin-off) or any other change in the corporate
structure or shares of the Company, the Committee (or, if the
Company is not the surviving corporation in any such transaction,
the board of directors of the surviving corporation) will make
appropriate adjustment (which determination will be conclusive) as
to the number and kind of securities available for issuance under
the Plan and, in order to prevent dilution or enlargement of the
rights of Participants, the number, kind and, where applicable,
exercise price of securities subject to outstanding Incentive
Awards.
5. PARTICIPATION.
Participants in the Plan will be those Eligible Recipients who, in the judgment
of the Committee, have contributed, are contributing or are expected to
contribute to the achievement of economic objectives of the Company or its
Subsidiaries. Eligible Recipients may be granted from time to time one or more
Incentive Awards, singly or in combination or in tandem with other Incentive
Awards, as may be determined by the Committee. Incentive Awards will be deemed
to be granted as of the date specified in the grant resolution of the Committee,
which date will be the date of any related agreement with the Participant.
6. OPTIONS.
6.1. GRANT. An Eligible Recipient may be granted one or more Options
under the Plan, and such Options will be subject to such terms and
conditions, consistent with the other provisions of the Plan, as may
be determined by the Committee. The Committee may designate whether
an Option is to be considered an Incentive Stock Option or a
Non-Statutory Stock Option.
6.2. EXERCISE PRICE. The per share price to be paid by a Participant
upon exercise of an Option will be determined by the Committee in
its discretion at the time of the Option grant, provided that (a)
such price will not be less than 100% of the Fair Market Value of
one share of Common Stock on the date of grant with respect to an
Incentive Stock Option
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(110% of the Fair Market Value if, at the time the Incentive Stock
Option is granted, the Participant owns, directly or indirectly,
more than 10% of the total combined voting power of all classes of
stock of the Company or any parent or subsidiary corporation of the
Company), and (b) such price will not be less than 100% of the Fair
Market Value of one share of Common Stock on the date of grant with
respect to a Non-Statutory Stock Option.
6.3. EXERCISABILITY AND DURATION. An Option will become exercisable at
such times and in such installments as may be determined by the
Committee at the time of grant; provided, however, that no Option
may be exercisable prior to six months from its date of grant and no
Incentive Stock Option may be exercisable after 10 years from its
date of grant (five years from its date of grant if, at the time the
Incentive Stock Option is granted, the Participant owns, directly or
indirectly, more than 10% of the total combined voting power of all
classes of stock of the Company or any parent or subsidiary
corporation of the Company).
6.4. PAYMENT OF EXERCISE PRICE. The total purchase price of the shares
to be purchased upon exercise of an Option will be paid entirely in
cash (including check, bank draft or money order); provided,
however, that the Committee may allow such payments to be made, in
whole or in part and upon such terms and conditions as may be
established by the Committee, by tender of a Broker Exercise Notice,
Previously Acquired Shares, a promissory note (on terms and
conditions acceptable to the Committee) or by a combination of such
methods.
6.5. MANNER OF EXERCISE. An Option may be exercised by a Participant in
whole or in part from time to time, subject to the conditions
contained in the Plan and in the agreement evidencing such Option,
by delivery in person, by facsimile or electronic transmission or
through the mail of written notice of exercise to the Company
(Attention: Chief Executive Officer) at its principal executive
office in Plymouth, Minnesota and by paying in full the total
exercise price for the shares of Common Stock to be purchased in
accordance with Section 6.4 of the Plan.
6.6. AGGREGATE LIMITATION OF STOCK SUBJECT TO INCENTIVE STOCK OPTIONS.
To the extent that the aggregate Fair Market Value (determined as of
the date an Incentive Stock Option is granted) of the shares of
Common Stock with respect to which incentive stock options (within
the meaning of Section 422 of the Code) are exercisable for the
first time by a Participant during any calendar year (under the Plan
and any other incentive stock option plans of the Company or any
subsidiary or parent corporation of the Company (within the meaning
of the Code)) exceeds $100,000 (or such other amount as may be
prescribed by the Code from time to time), such excess Options will
be treated as Non-Statutory Stock Options. The determination will
be made by taking incentive stock options into account in the order
in which they were granted. If such excess only applies to a
portion of an incentive stock option, the Committee will designate
which shares will be treated as shares to be acquired upon exercise
of an incentive stock option.
7. STOCK APPRECIATION RIGHTS.
7.1. GRANT. An Eligible Recipient may be granted one or more Stock
Appreciation Rights under the Plan, and such Stock Appreciation
Rights shall be subject to such terms and
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conditions, consistent with the other provisions of the Plan, as
will be determined by the Committee.
7.2. EXERCISE PRICE. The exercise price of a Stock Appreciation Right
will be determined by the Committee at the date of grant but will
not be less than 100% of the Fair Market Value of one share of
Common Stock on the date of grant.
7.3. EXERCISABILITY AND DURATION. A Stock Appreciation Right will become
exercisable at such time and in such installments as may be
determined by the Committee at the time of grant; provided, however,
that no Stock Appreciation Right may be exercisable prior to six
months or after 10 years from its date of grant. A Stock
Appreciation Right will be exercised by giving notice in the same
manner as for Options, as set forth in Section 6.5 of the Plan.
8. RESTRICTED STOCK AWARDS.
8.1. GRANT. An Eligible Recipient may be granted one or more Restricted
Stock Awards under the Plan, and such Restricted Stock Awards will
be subject to such terms and conditions, consistent with the other
provisions of the Plan, as may be determined by the Committee. The
Committee may impose such restrictions or conditions, not
inconsistent with the provisions of the Plan, to the vesting of such
Restricted Stock Awards as it deems appropriate, including, without
limitation, that the Participant remain in the continuous employ or
service of the Company or a Subsidiary for a certain period or that
the Participant or the Company (or any Subsidiary or division
thereof) satisfy certain performance goals or criteria; provided,
however, that no Restricted Stock Award may vest prior to six months
from its date of grant.
8.2. RIGHTS AS A STOCKHOLDER; TRANSFERABILITY. Except as provided in
Sections 8.1, 8.3 and 14.3 of the Plan, a Participant will have all
voting, dividend, liquidation and other rights with respect to
shares of Common Stock issued to the Participant as a Restricted
Stock Award under this Section 8 upon the Participant becoming the
holder of record of such shares as if such Participant were a holder
of record of shares of unrestricted Common Stock.
8.3. DIVIDENDS AND DISTRIBUTIONS. Unless the Committee determines
otherwise (either in the agreement evidencing the Restricted Stock
Award at the time of grant or at any time after the grant of the
Restricted Stock Award), any dividends or distributions (including
regular quarterly cash dividends) paid with respect to shares of
Common Stock subject to the unvested portion of a Restricted Stock
Award will be subject to the same restrictions as the shares to
which such dividends or distributions relate. In the event the
Committee determines not to pay such dividends or distributions
currently, the Committee will determine whether any interest will be
paid on such dividends or distributions. In addition, the Committee
may require such dividends and distributions to be reinvested (and
in such case the Participants consent to such reinvestment) in
shares of Common Stock that will be subject to the same restrictions
as the shares to which such dividends or distributions relate.
8.4. ENFORCEMENT OF RESTRICTIONS. To enforce the restrictions referred
to in this Section 8, the Committee may place a legend on the stock
certificates referring to such restrictions and may require the
Participant, until the restrictions have lapsed, to keep the stock
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certificates, together with duly endorsed stock powers, in the
custody of the Company or its transfer agent or to maintain evidence
of stock ownership, together with duly endorsed stock powers, in a
certificateless book-entry stock account with the Company's transfer
agent.
9. PERFORMANCE UNITS.
An Eligible Recipient may be granted one or more Performance Units under the
Plan, and such Performance Units will be subject to such terms and conditions,
consistent with the other provisions of the Plan, as may be determined by the
Committee. The Committee may impose such restrictions or conditions, not
inconsistent with the provisions of the Plan, to the vesting of such Performance
Units as it deems appropriate, including, without limitation, that the
Participant remain in the continuous employ or service of the Company or any
Subsidiary for a certain period or that the Participant or the Company (or any
Subsidiary or division thereof) satisfy certain performance goals or criteria.
The Committee will have the discretion either to determine the form in which
payment of the economic value of vested Performance Units will be made to the
Participant (i.e., cash, Common Stock or any combination thereof) or to consent
to or disapprove the election by the Participant of the form of such payment.
10. STOCK BONUSES.
An Eligible Recipient may be granted one or more Stock Bonuses under the Plan,
and such Stock Bonuses will be subject to such terms and conditions, consistent
with the other provisions of the Plan, as may be determined by the Committee.
The Participant will have all voting, dividend, liquidation and other rights
with respect to the shares of Common Stock issued to a Participant as a Stock
Bonus under this Section 10 upon the Participant becoming the holder of record
of such shares; provided, however, that the Committee may impose such
restrictions on the assignment or transfer of a Stock Bonus as it deems
appropriate.
11. EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE.
11.1. TERMINATION DUE TO DEATH, DISABILITY OR RETIREMENT. In the event a
Participant's employment or other service with the Company and all
Subsidiaries is terminated by reason of death, Disability or
Retirement:
(a) All outstanding Options and Stock Appreciation Rights then
held by the Participant will remain exercisable to the extent
exercisable as of such termination for a period of one year
(three months in the case of termination by reason of
Retirement) after such termination (but in no event after the
expiration date of any such Option or Stock Appreciation
Right);
(b) All outstanding Restricted Stock Awards then held by the
Participant that have not vested will become fully vested and
non-forfeitable; and
(c) All outstanding Performance Units and Stock Bonuses then held
by the Participant will vest and/or continue to vest in the
manner determined by the Committee and set forth in the
agreement evidencing such Performance Units or Stock Bonuses.
11.2. TERMINATION FOR REASONS OTHER THAN DEATH, DISABILITY OR RETIREMENT.
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(a) In the event a Participant's employment or other service is
terminated with the Company and all Subsidiaries for any
reason other than death, Disability or Retirement, or a
Participant is in the employ or service of a Subsidiary and
the Subsidiary ceases to be a Subsidiary of the Company
(unless the Participant continues in the employ or service of
the Company or another Subsidiary), all rights of the
Participant under the Plan and any agreements evidencing an
Incentive Award will immediately terminate without notice of
any kind, and no Options or Stock Appreciation Rights then
held by the Participant will thereafter be exercisable, all
Restricted Stock Awards then held by the Participant that
have not vested will be terminated and forfeited, and all
Performance Units and Stock Bonuses then held by the
Participant will vest and/or continue to vest in the manner
determined by the Committee and set forth in the agreement
evidencing such Performance Units or Stock Bonuses; provided,
however, that if such termination is due to any reason other
than voluntary termination by the Participant or termination
by the Company or any Subsidiary for "cause," all outstanding
Options and Stock Appreciation Rights then held by such
Participant will remain exercisable to the extent exercisable
as of such termination for a period of three months after
such termination (but in no event after the expiration date
of any such Option or Stock Appreciation Right).
(b) For purposes of this Section 11.2, "cause" (as determined by
the Committee) will be as defined in any employment or other
agreement or policy applicable to the Participant or, if no
such agreement or policy exists, will mean (i) dishonesty,
fraud, misrepresentation, embezzlement or deliberate injury
or attempted injury, in each case related to the Company or
any Subsidiary, (ii) any unlawful or criminal activity of a
serious nature, (iii) any intentional and deliberate breach
of a duty or duties that, individually or in the aggregate,
are material in relation to the Participant's overall duties,
or (iv) any material breach of any employment, service,
confidentiality or non-compete agreement entered into with
the Company or any Subsidiary.
11.3. MODIFICATION OF RIGHTS UPON TERMINATION. Notwithstanding the other
provisions of this Section 11, upon a Participant's termination of
employment or other service with the Company and all Subsidiaries,
the Committee may in its discretion (which may be exercised at any
time on or after the date of grant, including following such
termination) cause Options and Stock Appreciation Rights (or any
part thereof) then held by such Participant to become or continue to
become exercisable and/or remain exercisable following such
termination of employment or service and Restricted Stock Awards,
Performance Units and Stock Bonuses then held by such Participant to
vest and/or continue to vest or become free of transfer
restrictions, as the case may be, following such termination of
employment or service, in each case in the manner determined by the
Committee; provided, however, that (a) no Option or Stock
Appreciation may become exercisable, and no Restricted Stock Award
may vest and become non-forfeitable, prior to six months from its
date of grant, and (b) no Option or Stock Appreciation Right may
remain exercisable beyond its expiration date.
11.4. BREACH OF CONFIDENTIALITY OR NON-COMPETE AGREEMENTS.
Notwithstanding anything in this Plan to the contrary, in the event
that a Participant materially breaches the terms of any
confidentiality or non-compete agreement entered into with the
Company or any
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Subsidiary, whether such breach occurs before or after termination
of such Participant's employment or other service with the Company
or any Subsidiary, the Committee may immediately terminate all
rights of the Participant under the Plan and any agreements
evidencing an Incentive Award then held by the Participant without
notice of any kind.
11.5. DATE OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE. Unless the
Committee otherwise determines, a Participant's employment or other
service will, for purposes of the Plan, be deemed to have terminated
on the date recorded on the personnel or other records of the
Company or the Subsidiary for which the Participant provides
employment or other service, as determined by the Committee based
upon such records.
12. PAYMENT OF WITHHOLDING TAXES.
12.1. GENERAL RULES. The Company is entitled to (a) withhold and deduct
from future wages of the Participant (or from other amounts that may
be due and owing to the Participant from the Company or a
Subsidiary), or make other arrangements for the collection of, all
legally required amounts necessary to satisfy any and all federal,
state and local withholding and employment-related tax requirements
attributable to an Incentive Award, including, without limitation,
the grant, exercise or vesting of, or payment of dividends with
respect to, an Incentive Award or a disqualifying disposition of
stock received upon exercise of an Incentive Stock Option, or (b)
require the Participant promptly to remit the amount of such
withholding to the Company before taking any action, including
issuing any shares of Common Stock, with respect to an Incentive
Award.
12.2. SPECIAL RULES. The Committee may, upon terms and conditions
established by the Committee, permit or require a Participant to
satisfy, in whole or in part, any withholding or employment-related
tax obligation described in Section 12.1 of the Plan by electing to
tender Previously Acquired Shares, a Broker Exercise Notice or a
promissory note (on terms acceptable to the Committee), or by a
combination of such methods.
13. CHANGE IN CONTROL.
13.1. CHANGE IN CONTROL. For purposes of this Section 13.1, a "Change in
Control" of the Company will mean the following:
(a) the sale, lease, exchange or other transfer, directly or
indirectly, of substantially all of the assets of the Company
(in one transaction or in a series of related transactions)
to a person or entity that is not controlled by the Company;
(b) the approval by the stockholders of the Company of any plan
or proposal for the liquidation or dissolution of the
Company;
(c) a merger or consolidation to which the Company is a party if
the stockholders of the Company immediately prior to the
effective date of such merger or consolidation have
"beneficial ownership" (as defined in Rule 13d-3 under the
Exchange Act), immediately following the effective date of
such merger or consolidation, of securities of the surviving
corporation representing 70% or less of the combined voting
power of the surviving corporation's then outstanding
securities ordinarily having the right to vote at elections
of directors;
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(d) any person becomes after the effective date of the Plan the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 30% or more of the
combined voting power of the Company's outstanding securities
ordinarily having the right to vote at elections of
directors;
(e) the Incumbent Directors cease for any reason to constitute at
least a majority of the Board; or
(f) a change in control of the Company of a nature that would be
required to be reported pursuant to Section 13 or 15(d) of
the Exchange Act, whether or not the Company is then subject
to such reporting requirements.
13.2. INCUMBENT DIRECTORS. For purposes of this Section 13, "Incumbent
Directors" of the Company means any individuals who are members of
the Board on the effective date of the Plan and any individual who
subsequently becomes a member of the Board whose election, or
nomination for election by the Company's shareholders, was approved
by a vote of at least a majority of the Incumbent Directors (either
by specific vote or by approval of the Company's proxy statement in
which such individual is named as a nominee for director without
objection to such nomination).
13.3. ACCELERATION OF VESTING. Without limiting the authority of the
Committee under Section 3.2 of the Plan, if a Change in Control of
the Company occurs, then, unless otherwise provided in the agreement
evidencing an Incentive Award, (a) all outstanding Options and Stock
Appreciation Rights that have been held by a Participant for at
least six months will become immediately exercisable in full and
will remain exercisable for the remainder of their terms, regardless
of whether the Participant to whom such Options or Stock
Appreciation Rights have been granted remains in the employ or
service of the Company or any Subsidiary; (b) all outstanding
Restricted Stock Awards that have been held by the Participant for
at least six months will become immediately fully vested and
non-forfeitable; and (c) all outstanding Performance Units and Stock
Bonuses then held by the Participant will vest and/or continue to
vest in the manner determined by the Committee and set forth in the
agreement evidencing such Performance Units or Stock Bonuses.
13.4. CASH PAYMENT FOR OPTIONS. If a Change in Control of the Company
occurs, then the Committee, if approved by the Committee either in
an agreement evidencing an Incentive Award at the time of grant or
at any time after the grant of an Incentive Award, may determine
that some or all Participants holding outstanding Options will
receive, with respect to some or all of the shares of Common Stock
subject to such Options, as of the effective date of any such Change
in Control of the Company, cash in an amount equal to the excess of
the Fair Market Value of such shares immediately prior to the
effective date of such Change in Control of the Company over the
exercise price per share of such Options.
13.5. LIMITATION ON CHANGE IN CONTROL PAYMENTS. Notwithstanding anything
in Section 13.3 or 13.4 of the Plan to the contrary, if, with
respect to a Participant, the acceleration of the vesting of an
Incentive Award as provided in Section 13.3 or the payment of cash
in exchange for all or part of an Incentive Award as provided in
Section 13.4 (which acceleration or payment could be deemed a
"payment" within the meaning of Section 280G(b)(2) of the Code),
together with any other payments which such Participant has the
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right to receive from the Company or any corporation that is a
member of an "affiliated group" (as defined in Section 1504(a) of
the Code without regard to Section 1504(b) of the Code) of which the
Company is a member, would constitute a "parachute payment" (as
defined in Section 280G(b)(2) of the Code), then the payments to
such Participant pursuant to Section 13.3 or 13.4 will be reduced to
the largest amount as will result in no portion of such payments
being subject to the excise tax imposed by Section 4999 of the Code;
provided, however, that if such Participant is subject to a separate
agreement with the Company or a Subsidiary that specifically
provides that payments to such Participant will not be reduced even
if such payments would constitute excess parachute payments or
provides that the Participant will have the discretion to determine
which payments will be reduced in order to avoid excess parachute
payments (regardless of whether such separate agreement specifically
references Incentive Awards under this Plan), then the limitations
of this Section 13.5 will, to that extent, not apply.
14. RIGHTS OF ELIGIBLE RECIPIENTS AND PARTICIPANTS; TRANSFERABILITY.
14.1. EMPLOYMENT OR SERVICE. Nothing in the Plan will interfere with or
limit in any way the right of the Company or any Subsidiary to
terminate the employment or service of any Eligible Recipient or
Participant at any time, nor confer upon any Eligible Recipient or
Participant any right to continue in the employ or service of the
Company or any Subsidiary.
14.2. RIGHTS AS A STOCKHOLDER. As a holder of Incentive Awards (other
than Restricted Stock Awards and Stock Bonuses), a Participant will
have no rights as a stockholder unless and until such Incentive
Awards are exercised for, or paid in the form of, shares of Common
Stock and the Participant becomes the holder of record of such
shares. Except as otherwise provided in the Plan, no adjustment
will be made for dividends or distributions with respect to such
Incentive Awards as to which there is a record date preceding the
date the Participant becomes the holder of record of such shares,
except as the Committee may determine.
14.3. RESTRICTIONS ON TRANSFER. Except pursuant to testamentary will or
the laws of descent and distribution or as otherwise expressly
permitted by the Plan, no right or interest of any Participant in an
Incentive Award prior to the exercise or vesting of such Incentive
Award will be assignable or transferable, or subjected to any lien,
during the lifetime of the Participant, either voluntarily or
involuntarily, directly or indirectly, by operation of law or
otherwise. A Participant will, however, be entitled to designate a
beneficiary to receive an Incentive Award upon such Participant's
death, and in the event of a Participant's death, payment of any
amounts due under the Plan will be made to, and exercise of any
Options or Stock Appreciation Rights (to the extent permitted
pursuant to Section 11 of the Plan) may be made by, the
Participant's legal representatives, heirs and legatees.
14.4. NON-EXCLUSIVITY OF THE PLAN. Nothing contained in the Plan is
intended to modify or rescind any previously approved compensation
plans or programs of the Company or create any limitations on the
power or authority of the Board to adopt such additional or other
compensation arrangements as the Board may deem necessary or
desirable.
15. SECURITIES LAW AND OTHER RESTRICTIONS.
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Notwithstanding any other provision of the Plan or any agreements entered into
pursuant to the Plan, the Company will not be required to issue any shares of
Common Stock under this Plan, and a Participant may not sell, assign, transfer
or otherwise dispose of shares of Common Stock issued pursuant to Incentive
Awards granted under the Plan, unless (a) there is in effect with respect to
such shares a registration statement under the Securities Act and any applicable
state securities laws or an exemption from such registration under the
Securities Act and applicable state securities laws, and (b) there has been
obtained any other consent, approval or permit from any other regulatory body
which the Committee deems necessary or advisable. The Company may condition
such issuance, sale or transfer upon the receipt of any representations or
agreements from the parties involved, and the placement of any legends on
certificates representing shares of Common Stock, as may be deemed necessary or
advisable by the Company in order to comply with such securities law or other
restrictions.
16. PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may suspend or terminate the Plan or any portion thereof at any
time, and may amend the Plan from time to time in such respects as the Board
may deem advisable in order that Incentive Awards under the Plan will conform
to any change in applicable laws or regulations or in any other respect the
Board may deem to be in the best interests of the Company; provided, however,
that no amendments to the Plan will be effective without approval of the
stockholders of the Company if stockholder approval of the amendment is then
required pursuant to Section 422 of the Code or the rules of Nasdaq or any
stock exchange. No termination, suspension or amendment of the Plan may
adversely affect any outstanding Incentive Award without the consent of the
affected Participant; provided, however, that this sentence will not impair
the right of the Committee to take whatever action it deems appropriate under
Sections 3.2(c) and 4.3 of the Plan.
17. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan is effective as of February 20, 1998, the date it was adopted by the
Board. The Plan will terminate at midnight on February 20, 2008, and may be
terminated prior to such time by Board action, and no Incentive Award will be
granted after such termination. Incentive Awards outstanding upon termination
of the Plan may continue to be exercised, or vest or become free of
restrictions, in accordance with their terms.
18. MISCELLANEOUS
18.1. GOVERNING LAW. The validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and
actions relating to the Plan will be governed by and construed
exclusively in accordance with the laws of the State of Minnesota,
without regard to the conflicts of laws provisions of the State of
Minnesota or any other jurisdictions.
18.2. SUCCESSORS AND ASSIGNS. The Plan will be binding upon and inure to
the benefit of the successors and permitted assigns of the Company
and the Participants.
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TRICORD SYSTEMS, INC.
1998 NON-EMPLOYEE DIRECTOR STOCK PLAN
1. PURPOSE. The purpose of the 1998 Non-Employee Director Stock Plan
(the "Plan"), is to advance the interests of Tricord Systems, Inc. (the
"Company") and its stockholders by enabling the Company to attract and retain
the services of experienced and knowledgeable non-employee directors and to
increase the proprietary interests of such directors in the Company's
long-term success and progress and their identification with the interests of
the Company's stockholders.
2. ADMINISTRATION. The Plan will be administered by the Board or by a
committee of the Board. So long as the Company has a class of its equity
securites registered under Section 12 of the Exchange Act, any committee
administering the Plan will consist solely of two or more members of the
Board who are "non-employee directors" within the meaning of Rule 16b-3 under
the Exchange Act. Such a committee, if established, will act by majority
approval of the members, and a majority of the members of such a committee
will constitute a quorum. As used in the Plan, "Committee" will refer to the
Board or to such a committee, if established. All questions of
interpretation of the Plan or of any stock options and stock awards under the
Plan (collectively, "Awards") shall be determined by the Committee and such
determination shall be final and binding upon all persons having an interest
in the Plan.
3. PARTICIPATION IN THE PLAN. Directors of the Company who are not
employees of the Company or any subsidiary of the Company shall be eligible to
participate in the Plan ("Eligible Directors").
4. STOCK SUBJECT TO THE PLAN.
(a) NUMBER OF SHARES. The maximum number of shares of Common
Stock that shall be reserved for issuance under the Plan shall be three
hundred fifty thousand (350,000) shares of the Company's common stock,
$.01 par value (the "Common Stock"), subject to adjustment upon changes
in capitalization of the Company as provided in subparagraph (b) below.
The maximum number of shares authorized may be increased from time to
time by approval of the Board of Directors and the stockholders of the
Company. Shares of Common Stock that are issued as stock awards or that
may be issued upon exercise of stock options granted under the Plan
shall be applied to reduce the maximum number of shares of Common Stock
remaining available for use under the Plan. The shares to be issued
pursuant to the Plan may be, at the election of the Company, either
treasury shares or shares authorized but unissued. Any shares of Common
Stock that are subject to a stock option granted under the Plan (or any
portion thereof) that lapses, expires or for any reason is terminated
unexercised shall automatically again become available for use under the
Plan.
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(b) CHANGES IN STOCK. In the event of any reorganization,
merger, consolidation, recapitalization, liquidation, reclassification,
stock dividend, stock split, combination of shares, rights offering, or
extraordinary dividend or divestiture (including a spin-off), or any
other change in the corporate structure or shares of the Company, the
Committee (or, if the Company is not the surviving entity in any such
transaction, the board of directors of the surviving corporation) shall
make adjustments, determined by the Committee in its discretion to be
appropriate, as to the number and kind of securities subject to and
reserved under the Plan and, in order to prevent dilution or enlargement
of rights of Eligible Directors, the number, kind and, where applicable,
the exercise price of outstanding Awards granted under the Plan.
5. GRANT OF OPTIONS.
(a) NON-STATUTORY STOCK OPTIONS. All stock options granted under
the Plan (the "Options") shall be non-statutory stock options not
entitled to special tax treatment under Section 422 of the Internal
Revenue Code of 1986, as amended to date and as may be amended from time
to time (the "Code").
(b) TERMS, CONDITIONS AND FORM OF OPTIONS. Each Option granted
under the Plan shall be evidenced by a written agreement in such form as
the Committee shall from time to time approve, which agreements shall
comply with and be subject to the following terms and conditions:
(i) GRANT OF OPTIONS. At such time as additional
Eligible Directors are first elected or appointed to the Board of
Directors to fill new directorships or to fill vacancies, such
Eligible Directors will be granted automatically, on a one-time
basis on the date of their election or appointment, an Option to
purchase 25,000 shares of Common Stock. In addition to the
one-time grant of an Option to purchase 25,000 shares as described
above (the "One-Time Option"), an Option to purchase 10,000 shares
of Common Stock (the "Annual Option") shall be granted on January
5, 1998 and on each succeeding January 5 thereafter to each
Eligible Director as of such dates.
The written agreement evidencing each Option granted under
the Plan shall be dated as of the applicable date of grant (the
"Date of Grant"). An Eligible Director accepting such a grant of
an Option (an "Optionee") shall execute and return a copy of such
option agreement to the Committee.
(ii) OPTION EXERCISE PRICE. The per share price to be paid
by the Optionee at the time an Option is exercised shall be 100% of
the Fair Market Value of one share of Common Stock on the Date of
Grant. For purposes of the Plan, "Fair Market Value" shall mean,
with respect to the Common Stock, as of any date (or, if no shares
were traded or quoted on such date, as of the next preceding date
on which there was such a trade or quote) (A) the closing sale
price of the Common Stock if the Common Stock is listed, admitted
to unlisted trading privileges or reported on any foreign or
national securities exchange or on the Nasdaq National Market or an
equivalent foreign market on which sale prices are reported; (B) if
the Common Stock is not so listed, admitted to unlisted trading
privileges or reported, the closing bid price as reported by the
Nasdaq SmallCap Market, OTC Bulletin Board or the National
Quotation Bureau, Inc. or other comparable service; or (C) if the
Common Stock is not so listed or reported, such price as the
Committee determines in good faith in the exercise of its
reasonable discretion.
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(iii) EXERCISABILITY AND DURATION OF OPTIONS. Each
One-Time Option shall become exercisable each month on a cumulative
basis with respect to 2.78% of the total shares covered by the
Option, commencing one month after its Date of Grant and shall
terminate five years after its Date of Grant. Each Annual Option
shall become exercisable in full six months after its Date of Grant
and shall terminate five years after its Date of Grant.
(iv) TERMINATION OF DIRECTORSHIP. Each Option shall
terminate and may no longer be exercised if and when the Optionee
ceases to serve as a director of the Company, except (A) if the
Optionee ceases to serve as a director of the Company by reason of
death or the occurrence of an event which constitutes permanent and
total disability (within the meaning of Section 22(e)(3) of the
Code), then the Option shall remain exercisable to the extent that
the Option was exercisable as of such termination until the earlier
of the expiration of one year after such termination or the
remaining term of the Option, (B) if the Optionee ceases to serve
as a director of the Company by reason of his or her retirement,
then the Option shall remain exercisable to the extent that the
Option was exercisable on the date of retirement until the earlier
of the expiration of three months after such retirement or the
remaining term of the Option, (C) if the Optionee ceases to serve
as a director of the Company for any other reason, other than
voluntary termination or termination for "cause," then the Option
shall remain exercisable to the extent that the Option was
exercisable on the date the Optionee ceased to serve as a director
of the Company until the earlier of the expiration of three months
after the date the Optionee ceased to serve as a director of the
Company or the remaining term of the Option, and (D) if the
Optionee ceases to serve as a director of the Company as a result
of voluntary termination by the Optionee or termination by the
Company for "cause," then all outstanding Options then held by such
Optionee shall immediately terminate without notice of any kind and
no Options then held by the Optionee shall thereafter be
exercisable.
(v) MANNER OF OPTION EXERCISE. An Option may be exercised
by an Optionee in whole or in part from time to time, subject to the
conditions contained in the Plan and in the agreement evidencing
such Option, by giving written notice
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of exercise to the Company at its principal executive office (such
notice to specify the particular Option that is being exercised and
the number of shares with respect to which the Option is being
exercised) accompanied by payment, in cash or personal check
payable to the Company, of the total purchase price of the shares
to be purchased under the Option. The Company shall not be
required to sell or issue any shares under any outstanding Option
if, in the sole opinion of the Committee, the issuance of such
shares would constitute a violation by the Optionee or the Company
of any applicable law or regulation of any governmental authority,
including without limitation federal and state securities laws.
(vi) NONTRANSFERABILITY. No Option granted under the
Plan shall be assignable or transferable during the lifetime of the
Optionee, either voluntarily or involuntarily, or subjected to any
lien, directly or indirectly, by operation of law or otherwise,
including execution, levy, garnishment, attachment, pledge or
bankruptcy. In the event of an Optionee's death, an Optionee's
rights and interest in any Option shall be transferable by
testamentary will or the laws of descent and distribution, and the
exercise of any Options (to the extent permitted pursuant to
paragraph 5(b)(iv)(A) above) may be made by the Participant's legal
representatives, heirs or legatees. An Option shall be exercisable
during the Optionee's lifetime only by the Optionee.
(vi) SUCCESSIVE OPTIONS. Successive Options may be
granted to the same Optionee, whether or not the Options previously
granted to such Optionee remain unexercised. An Optionee may
exercise an Option if then exercisable, notwithstanding that
Options previously granted to such Optionee remain unexercised.
(viii) WITHHOLDING. The Company may require an Optionee to
promptly pay the Company the amount of any federal, state or local
withholding tax attributable to the Optionee's exercise of an
Option before acting on the Optionee's notice of exercise of the
Option.
6. ANNUAL RETAINER. Each Eligible Director shall receive an annual
retainer of $10,000 payable in the discretion of the Board by action of a
majority of the Board in cash or Common Stock, commencing on November 1, 1997
and continuing on each succeeding November 1. If payment is made in Common
Stock, each Eligible Director shall receive such number of shares of Common
Stock as equals $10,000 divided by the Fair Market Value of one share of
Common Stock as of each immediately preceding October 31.
7. MEETING FEES. Each Eligible Director shall receive an meeting fees
of $1,500 payable in the discretion of the Board by action of a majority of
the Board in cash or Common Stock, for each Board meeting attended and for
each Committee meeting attended if separate from each Board meeting. If
payment is made in Common Stock, each Eligible Director shall receive such
number of shares of Common Stock as equals $1,500 divided by the Fair Market
Value of
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one share of Common Stock as of each immediately preceding day prior to any
such meeting. In addition, each Eligible Director shall receive such number
of shares of Common Stock as equals any unpaid meeting payments due them
through the February 20, 1998 Board meeting, divided by the Fair Market Value
of one share of Common Stock on February 20, 1998.
8. LIMITATION OF RIGHTS.
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor
the granting of an Award nor any other action taken pursuant to the
Plan, shall constitute or be evidence of any agreement or understanding,
express or implied, that the Company will retain a director for any
period of time, or at any particular rate of compensation.
(b) RIGHTS AS A STOCKHOLDER. No Optionee shall have any rights
as a stockholder with respect to any shares of Common Stock covered by
an Option granted pursuant to the Plan until the Optionee shall have
become the holder of record of such shares, and no adjustments shall be
made for dividends or other distributions or other rights as to which
there is a record date preceding the date the Optionee becomes the
holder of record of such shares.
9. AMENDMENT OF THE PLAN. The Board may amend the Plan from time to
time in such respects as the Board may deem advisable in order that Awards
under the Plan will conform to any change in applicable laws or regulations
or in any other respect the Board may deem to be in the best interests of the
Company; provided, however, that no amendments to the Plan will be effective
without approval of the stockholders of the Company if stockholder approval
of the amendment is then required pursuant to Section 422 of the Code or the
rules of Nasdaq or any stock exchange. The Board may suspend or terminate
the Plan or any portion thereof at any time. No termination, suspension or
amendment of the Plan shall alter any outstanding Option without the consent
of the Optionee affected thereby; provided, however, that this sentence shall
not impair the right of the Committee to take whatever action it deems
appropriate under paragraph 4(b) above.
10. EFFECTIVE DATE AND DURATION OF THE PLAN. The Plan shall be
effective as of February 20, 1998, on the date of adoption by the Board. The
Plan shall terminate at midnight on February 20, 2003 and may be terminated
prior thereto by action of the Board, and no Award shall be granted after
such termination. Options outstanding upon termination of the Plan may
continue to be exercised in accordance with their terms.
11. GOVERNING LAWS. The Plan and all rights and obligations under the
Plan shall be construed in accordance with and governed by the laws of the
State of Minnesota, notwithstanding any conflicts of law principles.
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TRICORD SYSTEMS, INC.
2905 NORTHWEST BOULEVARD, SUITE 20
PLYMOUTH, MINNESOTA 55441
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned, having duly received the Notice of Annual Meeting of
Stockholders and Proxy Statement dated April 13, 1998, appoints John J. Mitcham
and Jeff A. Stewart as proxies (each with power to act alone and with powers of
substitution) to represent the undersigned and to vote, as designated below, all
shares of common stock of Tricord Systems, Inc. held of record by the
undersigned on March 25, 1998, at the Annual Meeting of Stockholders of Tricord
Systems, Inc. to be held at 1:00 p.m., local time, on May 15, 1998, at the
Radisson Hotel and Conference Center, 3131 Campus Drive, Plymouth, Minnesota and
any adjournments thereof.
1. ELECTION OF DIRECTOR
<TABLE>
<S> <C> <C>
/ / For the nominee listed below / / Withhold Authority to vote for
(except as marked to the contrary below) the nominee listed below
</TABLE>
NOMINEE FOR ELECTION
Yuval Almog
2. PROPOSAL TO APPROVE THE 1998 STOCK INCENTIVE PLAN.
/ / FOR / / AGAINST / / ABSTAIN
3. PROPOSAL TO APPROVE THE 1998 NON-EMPLOYEE DIRECTOR STOCK PLAN.
/ / FOR / / AGAINST / / ABSTAIN
4. PROPOSAL TO RATIFY THE APPOINTMENT OF COOPERS & LYBRAND L.L.P. AS
INDEPENDENT AUDITORS FOR THE COMPANY FOR THE YEAR ENDING DECEMBER 31, 1998.
/ / FOR / / AGAINST / / ABSTAIN
5. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
(CONTINUED AND TO BE COMPLETED AND SIGNED ON THE REVERSE SIDE)
<PAGE>
(CONTINUED FROM OTHER SIDE)
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 2, 3 AND 4 ABOVE AND TO GRANT AUTHORITY TO VOTE FOR THE
NOMINEE NAMED IN PROPOSAL 1 ABOVE.
PLEASE SIGN exactly as the name appears on
this card. 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.
Dated:
------------------------------------------
------------------------------------------
Name of Stockholder(s)
------------------------------------------
Signature
------------------------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
