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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
TRICORD SYSTEMS, INC.
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(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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / 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:
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(4) Date Filed:
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[LOGO]
February 16, 1999
Dear Stockholder:
Tricord Systems is entering an important phase of its development, a phase
that we believe will transform the Company into an enterprise that will provide
software for managing distributed storage as a shared resource on today's
rapidly growing networks. The storage systems market is projected to be one of
the fastest growing segments of the computer industry. As companies invest a
larger share of their information technology budget in storage systems products,
we believe they will become more dependent on the continuous availability of the
data stored in these systems and their need for advanced management of storage
will grow sharply.
Tricord is developing TSMS -- Tricord Storage Management Software -- to
offer customers a new and improved way to manage their data and storage devices.
TSMS is based on Tricord's distributed file system technology, a new approach
that will allow customers to add or reconfigure storage, assign or change the
fault tolerance characteristics of their data and make other changes "on line"
dynamically without interrupting users' access to their data. TSMS technology
will allow customers to aggregate storage across sub-systems to create a
continuously available shared data pool for Windows NT networks as a network
resource that can be grown easily on line without storage downtime. TSMS will
offer customers dramatic improvements over today's storage management systems.
In addition, TSMS uses the storage resources efficiently and will substantially
reduce life cycle costs. Tricord has a significant opportunity because
improvements in storage management have not kept pace with the need for 24-hour,
7-day-a-week access to data.
The Network Attached Storage (NAS) and the Storage Area Network (SAN)
markets are growing rapidly. Tricord believes it has a significant development
lead in providing a much-improved level of functionality. The customers need
better storage management tools and the time to move aggressively to exploit
this exciting technology could never be better.
In December 1998, the Company obtained $3 million in a private placement
with a majority of that investment coming from Rod Canion, a co-founder of
Compaq Computer Corporation. Two talented and experienced executives -- also
investors -- joined our team; Kathleen Clark, a former marketing executive at
Compaq, joined Tricord as Vice President of Marketing, and David Cabello, former
General Counsel at Compaq, joined Tricord as Vice President and General Counsel
to the Company.
Today we have an experienced management team and a highly skilled
engineering team in place. The Company will be adding additional resources to
its marketing and engineering teams as we go through the year.
You are cordially invited to attend a Special Meeting of Stockholders of
Tricord Systems, Inc. to be held on March 17, 1999. 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 matters expected to be acted upon at the Special Meeting are described
in detail in the following Notice of Special Meeting of Stockholders and Proxy
Statement.
I encourage you to vote "FOR" the proposals described in the attached Proxy
Statement. These measures are important to the growth of the Company.
<PAGE>
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE
SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING. Returning the proxy does
not deprive you of your right to attend the meeting and to vote your shares in
person.
We look forward to seeing you at the Special Meeting.
[SIGNATURE]
John J. Mitcham
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
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[LOGO]
2905 Northwest Boulevard, Suite 20
Plymouth, Minnesota 55441
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders of Tricord Systems, Inc.:
A Special Meeting of Stockholders of Tricord Systems, Inc., a Delaware
corporation ("Tricord" or the "Company"), will be held on March 17, 1999, 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 consider and act upon a proposal to approve an amendment to Tricord's
Certificate of Incorporation to increase the number of authorized shares
of Common Stock, $.01 par value, from 27,000,000 to 75,000,000 shares.
(2) To consider and act upon a proposal to approve amendments to Tricord's
1998 Stock Incentive Plan to increase the number of shares of Common
Stock reserved for issuance thereunder from 1,000,000 to 5,000,000 shares
and to increase the per participant limitation from 100,000 to 500,000
shares.
(3) To consider and act upon a proposal to approve an amendment to Tricord's
1998 Non-Employee Director Stock Plan to increase the number of shares of
Common Stock reserved for issuance thereunder from 350,000 to 550,000
shares.
(4) To transact such other business as may properly come before the Special
Meeting.
The proposed amendments and other related matters are more fully described
in the Proxy Statement accompanying this Notice. Only stockholders of record at
the close of business on February 5, 1999 are entitled to notice of, and to vote
at, the Special Meeting and any adjournments or postponements thereof.
All stockholders are cordially invited to attend the Company's Special
Meeting in person. Whether or not you expect to attend, WE URGE YOU TO COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENVELOPE
PROVIDED.
By Order of the Board of Directors,
J. David Cabello
SECRETARY
February 16, 1999
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[LOGO]
2905 Northwest Boulevard, Suite 20
Plymouth, Minnesota 55441
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PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS
FEBRUARY 16, 1999
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors (the "Board") of Tricord Systems, Inc. ("Tricord" or the
"Company") of proxies in the accompanying form from holders of shares of Common
Stock to be voted at the Special Meeting of Stockholders to be held on March 17,
1999, at 1:00 p.m., Minneapolis time, at the Radisson Hotel and Conference
Center, 3131 Campus Drive, Plymouth, Minnesota (the "Special Meeting").
Stockholders of record as of the close of business on February 5, 1999 will
be entitled to vote at the meeting or any adjournments. On that date, the
Company had 18,995,500 shares of Common Stock outstanding. Each share is
entitled to one vote. The presence at the Special Meeting, in person or by
proxy, of the holders of a majority of the outstanding shares of Common Stock
entitled to vote at the Special Meeting (9,497,751 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 Special Meeting for the purposes of
determining a quorum, without regard to whether the card reflects votes withheld
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). All
proxies will be voted in accordance with the instructions contained therein,
and, if no choice is specified, the proxies will be voted in favor of the
proposals set forth in the accompanying Notice of the Special Meeting and this
Proxy Statement.
Approval of the proposal to amend the Certificate of Incorporation to
increase the number of shares of Common Stock requires the affirmative vote of
the holders of a majority of the outstanding shares entitled to vote. Approval
of proposals 2 and 3 requires the affirmative vote of the holders of a majority
of the shares present in person or represented by proxy and entitled to vote at
the Special Meeting. Shares voted as abstaining on the 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 proposals. 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.
In addition, the Company has retained the firm of Morrow & Company, Inc. to
assist with the solicitation of proxies and have agreed to pay such firm a fee
of approximately $6,500.
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THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF THE
PROPOSALS SET FORTH IN THE NOTICE OF MEETING.
This Proxy Statement and the enclosed form of proxy will be mailed to each
stockholder on or about February 16, 1999.
PROPOSAL TO AMEND THE COMPANY'S
CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED SHARES OF COMMON STOCK
PROPOSED AMENDMENT
On December 7, 1998, the Board of Directors (the "Board") of the Company
approved an increase in the authorized number of shares of Common Stock from
27,000,000 to 75,000,000 shares, subject to stockholder approval. Currently, the
Company's Certificate of Incorporation authorizes the issuance of 32,750,677
shares of capital stock, 27,000,000 shares of which are designated Common Stock
and the remaining shares of which are designated Preferred Stock or are
undesignated. No change would be made to the number of authorized shares of
Preferred Stock and undesignated stock. As a result, the proposed amendment
would increase the total number of authorized shares of capital stock to
80,750,677 shares. Specifically, Section 1 of Article IV of the Company's
Certificate of Incorporation would be amended to read as follows:
The aggregate number of shares which this Corporation has the authority to
issue is 80,750,677 shares, 75,000,000 of which shall be designated common
stock, $.01 par value (hereinafter referred to as the "Common Stock"),
2,043,966 of which shall be designated series C convertible preferred stock,
$.01 par value (hereinafter referred to as the "Series C Preferred Stock"),
706,711 of which shall be designated series D convertible preferred stock,
$.01 par value (hereinafter referred to as the "Series D Preferred Stock"),
and 3,000,000 undesignated stock, $.01 par value (hereinafter referred to as
the "Undesignated Stock"), which Undesignated Stock may be issued in
different classes or series, with the designation of the class or series,
the relative rights and preferences of each class or series, to be
determined by the Board of Directors of this Corporation. Series C Preferred
Stock and Series D Preferred Stock are herein sometimes referred to
collectively as "Preferred Stock." Common Stock and Preferred Stock are
herein sometimes referred to collectively as "Capital Stock."
As of February 5, 1999, of the 27,000,000 shares of Common Stock currently
authorized, 18,995,500 shares of Common Stock were issued and outstanding and,
excluding the options granted subject to stockholder approval at this meeting,
6,548,379 shares were reserved for issuance upon the exercise of outstanding
options and warrants. Accordingly, on February 5, 1999, if all such outstanding
options and warrants were exercised, there would be 1,456,121 shares of Common
Stock available for issuance by the Company. If these amendments are approved by
the Company's stockholders, 47,205,506 shares of Common Stock will be authorized
and available for issuance or sale by the Company immediately after the Special
Meeting (excluding shares reserved for issuance as set forth above).
PURPOSES OF PROPOSED AMENDMENT
The Board believes that it is necessary and desirable to increase the number
of shares of Common Stock that the Company is authorized to issue to give the
Board additional flexibility to raise equity capital, reserve additional shares
for issuance under the Company's employee benefit plans and make acquisitions
through the use of stock. Except as permitted or required by the Company's
existing employee benefit plans, the Board has no definitive agreements or
commitments to issue additional Common Stock for any of these purposes. The
Company is, however, currently discussing various alternatives for raising
additional capital, which include additional issuances of Common Stock or
securities convertible or exercisable into Common Stock.
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The Board believes that the proposed increase in the authorized shares would
make it unnecessary to hold a special stockholders' meeting in the future for
the purpose of authorizing an increase in the authorized Common Stock should the
Company decide to use its shares for one or more of such previously mentioned
purposes. No additional action or authorization by the Company's stockholders
would be necessary prior to the issuance of such additional shares, unless
required by applicable law or regulation.
EFFECTS OF PROPOSED AMENDMENT
Under the Company's Certificate of Incorporation, the Company's stockholders
do not have preemptive rights with respect to the Common Stock. Thus, should the
Board elect to issue additional shares of Common Stock, existing stockholders
would not have any preferential rights to purchase such shares, and any such
issuances could, therefore, have a dilutive effect on the shareholdings of
current stockholders.
The proposed amendment to increase the authorized number of shares of Common
Stock could, under certain circumstances, have an anti-takeover effect, although
this is not the intention of this proposal. In the event of a hostile attempt to
take over the Company, it might be possible for the Company to try to impede
such an attempt by issuing shares of the Common Stock through a private
placement to a friendly party, thereby diluting the voting power of the other
outstanding shares and increasing the potential cost to acquire control of the
Company. By potentially discouraging initiation of any such unsolicited takeover
attempt, the proposed amendment may limit the opportunity for the Company's
stockholders to dispose of their shares at the higher price that is generally
available in takeover attempts or that may be available under a merger proposal.
The proposed amendment may have the effect of permitting the Company's current
management, including the current Board, to retain its position and place it in
a better position to resist changes that stockholders may wish to make if they
are dissatisfied with the conduct of the Company's business.
The Company also has certain other mechanisms in place that may have an
anti-takeover effect. The Company's Certificate of Incorporation (i) authorizes
the Board of Directors, without any action by the stockholders, to establish the
rights and preferences of up to 3,000,000 shares of undesignated preferred stock
(of which 2,500,000 shares remain undesignated as of the date of this Proxy
Statement) and (ii) provides for a staggered board of directors. In addition,
the Company has in place a Stockholder Rights Plan (the "Rights Plan") designed
to protect the Company and its stockholders from unsolicited attempts or
inequitable offers to acquire the Company. Pursuant to the Rights Plan, each
share of Common Stock now outstanding has, and each share of Common Stock to be
issued in the future prior to the occurrence of certain events will have,
attached to it one preferred stock purchase right. The Company has also entered
into change in control agreements with its chief executive officer and certain
of its executive officers that provide for the payment of certain benefits to
such executive officers upon the occurrence of a "change in control" of the
Company.
As previously stated, however, the only intended purpose of the proposed
amendment is to increase the number of available shares of Common Stock in order
to give the Board more flexibility in conducting normal business operations, and
the proposal is not being presented as, nor is it part of, a plan to adopt a
series of anti-takeover measures.
RECOMMENDATION OF THE BOARD
The Board recommends a vote FOR approval of the amendment to the Company's
Certificate of Incorporation to increase the number of authorized shares of
Common Stock. The affirmative vote of the holders of a majority of the
outstanding shares entitled to vote at the Special Meeting, assuming a quorum is
present, is necessary for approval. Unless a contrary choice is specified,
proxies solicited by the Board will be voted FOR approval of such increase.
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PROPOSAL TO APPROVE CERTAIN AMENDMENTS
TO THE 1998 STOCK INCENTIVE PLAN
PROPOSED AMENDMENTS
In December 1998 and January 1999, the Board approved, subject to
stockholder approval, certain amendments to its 1998 Stock Incentive Plan (the
"1998 Plan"), and directed that these amendments be submitted to Tricord's
stockholders for their approval. The 1998 Plan was originally approved by the
stockholders on May 15, 1998.
The changes to the 1998 Plan to be made by the proposed amendments are: (1)
a 4,000,000 share increase in the number of shares of Common Stock that may be
issued under the 1998 Plan, from 1,000,000 to 5,000,000 shares, and (2) a
400,000 share increase in the number of options that may be granted to any
participant during any fiscal year, from 100,000 to 500,000 shares (regardless
of whether such person is an existing employee, has received a promotion or is a
new hire).
PURPOSES OF THE PROPOSED AMENDMENTS
Providing stock option grants and other incentive awards under the 1998 Plan
is an important element in the overall success of the Company. In general, the
Board believes that equity-based incentives align the interests of the Company's
management and employees with those of the Company's stockholders. In addition,
providing stock option grants and other incentive awards under the 1998 Plan is
an important strategy for attracting and retaining the type of high-quality
executives, employees and advisors the Board believes necessary for the Company
to achieve its goals. Given the intense competition for such personnel, the
Board believes that its ability to offer competitive compensation packages,
including those with equity-based incentive components, is particularly
important in attracting and retaining qualified candidates. The Board also
believes that it will be necessary for the Company to offer significant equity
incentives to these types of individuals and that it will therefore be necessary
to increase significantly the number of shares available for issuance under the
Company's stock-based compensation plans on an aggregate and per participant
basis.
SUMMARY OF THE 1998 PLAN
A general description of the basic features of the 1998 Plan is outlined
below. Unless otherwise indicated, the following summary of the principal
provisions of the 1998 Plan assumes the approval of the foregoing proposed
amendments to the 1998 Plan. This summary is qualified in its entirety by
reference to the full text of the 1998 Plan, as amended, a copy of which may be
obtained from the Company at the address set forth at the beginning of this
Proxy Statement.
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."
ADMINISTRATION. The 1998 Plan may be administered by the Board or by a
committee consisting of not less than two members of the Board (the Board or any
such committee is referred to as the "Committee"). 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 1998 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.
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SHARES TO BE AWARDED. Prior to the proposed amendments of the 1998 Plan
described in this Proxy Statement, there were authorized for issuance under the
1998 Plan 1,000,000 shares of Common Stock, plus any shares of Common Stock that
are not issued under the Company's 1995 Stock Incentive Plan. The amendments to
the 1998 Plan proposed hereby would increase the number of shares authorized
under the 1998 Plan from 1,000,000 to 5,000,000 shares. As of February 5, 1999,
no shares of Common Stock had been issued upon the exercise of options granted
under the 1998 Plan, and options to purchase 3,661,000 shares of Common Stock
(2,250,615 of which are subject to stockholder approval at this Special Meeting)
at a weighted average exercise price of $0.63 were outstanding. Accordingly, no
shares remain available under the 1998 Plan. Assuming approval of an increase of
4,000,000 shares to the 1998 Plan, 1,749,385 shares would be available for
future grant.
Without consideration of the proposed amendments to the 1998 Plan, no
participant in the 1998 Plan may be granted, during each year during the term of
the 1998 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 an aggregate of 100,000 shares of
Common Stock. The amendments to the 1998 Plan proposed hereby would increase
this limitation on the number of shares from 100,000 to 500,000 shares.
Any shares of Common Stock that are subject to an Incentive Award that
expires or is terminated 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 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 outstanding Options.
PARTICIPANTS. 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. On February 5, 1999, there
were approximately 35 full-time employees of the Company eligible to be granted
Incentive Awards under the 1998 Plan.
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 5, 1999, the closing price per share of the
Common Stock as reported on the Nasdaq SmallCap Market System was $3.13. 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
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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. 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.
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.
STOCK BONUSES. 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 "Compensation of Directors and Executive Officers --
Change in Control Arrangements" for a discussion regarding the effect of a
"change in control" on Incentive Awards granted under the 1998 Plan.
EFFECT OF 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.
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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.
OPTIONS. 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 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, or 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 in 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 receipt to 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
8
<PAGE>
receipt (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 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 and, 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.
9
<PAGE>
PLAN BENEFITS
The following table illustrates the options that have been granted subject
to stockholder approval of the increase in the number of shares reserved under
the 1998 Plan provided in this Proxy Statement.
PLAN BENEFITS
1998 STOCK INCENTIVE PLAN
<TABLE>
<CAPTION>
NUMBER OF
SHARES
UNDERLYING
OPTIONS
NAME POSITION GRANTED
- ----------------- ------------------------------------------ -------------
<S> <C> <C>
John J. Mitcham Chairman and Chief Executive Officer 300,000
J. David Cabello Vice President and General Counsel 500,000
Kathleen H. Clark Vice President, Marketing 500,000
Alexander H. Frey Senior Vice President, Architecture 200,000
Charles E. Vice President, Engineering 150,000
Pearsall
Jeff A. Stewart Vice President and Controller 50,000
All executive officers as a group (6 persons) 1,700,000
All employees (including executive officers) and consultants 2,250,615
as a group
</TABLE>
RECOMMENDATION OF THE BOARD
The Board recommends a vote FOR approval of the amendments to the 1998 Plan.
The affirmative vote of the holders of a majority of shares of Common Stock
present in person or by proxy at the Special Meeting, assuming a quorum is
present, is necessary for approval. Unless a contrary choice is specified,
proxies solicited by the Board will be voted FOR approval of such proposed
amendments.
PROPOSAL TO APPROVE A CERTAIN AMENDMENT
TO THE 1998 NON-EMPLOYEE DIRECTOR STOCK PLAN
PROPOSED AMENDMENT
In January 1999, the Board approved, subject to stockholder approval, a
certain amendment to its 1998 Non-Employee Director Stock Plan (the "1998
Director Plan"), and directed that this amendment be submitted to Tricord's
stockholders for their approval. The 1998 Director Plan was originally approved
by the stockholders on May 15, 1998.
The change to the 1998 Director Plan to be made by the proposed amendment is
a 200,000 share increase in the number of shares of Common Stock that may be
issued under the 1998 Director Plan, from 350,000 to 550,000 shares.
PURPOSE OF THE PROPOSED AMENDMENT
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 generally 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 align the interest of such directors
with the Company's long-term success and progress and with the interests of the
Company's stockholders. Accordingly, the purpose of the proposed amendment to
the 1998 Director Plan is to further these general objectives by expanding the
Board's ability to make awards under the 1998 Director Plan and attract and
retain such individuals.
10
<PAGE>
SUMMARY OF THE 1998 DIRECTOR PLAN
A general description of the basic features of the 1998 Director Plan is
outlined below. Unless otherwise indicated, the following summary of the
principal provisions of the 1998 Director Plan assumes the approval of the
foregoing proposed amendment to the 1998 Director Plan. 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 is administered by the Board. Directors of the
Company who are not employees of the Company are eligible to participate in the
1998 Director Plan.
Prior to the proposed amendment to the 1998 Director Plan described in this
Proxy Statement, there were authorized for issuance under the 1998 Director Plan
350,000 shares of Common Stock. The amendment to the 1998 Director Plan proposed
hereby would increase the number of shares authorized for issuance under the
1998 Director Plan by 200,000 shares, from 350,000 to 550,000 shares. As of
February 5, 1999, no shares of Common Stock had been issued upon the exercise of
options under the 1998 Director Plan, and options to purchase 110,000 shares of
Common Stock at a weighted average price of $1.31 were outstanding. Accordingly,
6,155 shares remain available for future grant. Assuming approval of an increase
of 200,000 shares to the 1998 Director Plan, 206,155 shares would be available
for future grants.
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 Board shall make adjustments,
determined by the Board 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 price of outstanding awards of options and Common
Stock. The Board may amend the 1998 Director Plan from time to time in such
respects as the Board 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 Board 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 is 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 on each January 5 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 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 SmallCap Market on the date of grant.
On February 5, 1999, the closing price of one share of Common Stock as reported
by the Nasdaq SmallCap Market was $3.13. A Director Option may be exercised by
an eligible director in whole or in part from time to time by delivery to the
11
<PAGE>
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.
In addition, 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
SmallCap Market.
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, Retainer Stock or 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 the participant as ordinary income.
12
<PAGE>
PLAN BENEFITS
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 have
been granted under the 1998 Director Plan.
PLAN BENEFITS
1998 DIRECTOR PLAN
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF
SHARES SHARES SHARES
UNDERLYING OF RETAINER OF MEETING
OPTIONS STOCK STOCK
NAME AND POSITION GRANTED GRANTED GRANTED
- ---------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Non-Executive Director Group 110,000(1) 108,233(2) 125,612(3)
</TABLE>
- ------------------------
(1) Includes Annual Options of 20,000 granted, 10,000 each to Mr. Almog and Mr.
Lucas, as of January 2, 1998 and Initial Options of 50,000 granted, 25,000
each to Mr. Dillon and Mr. Moore, and Annual Options of 40,000 granted,
10,000 each to Messrs. Almog, Dillon, Lucas and Moore, as of January 5,
1999.
(2) Includes 28,233 shares issued in payment of the November 1997 retainer and
80,000 shares issued in payment of the November 1998 retainer.
(3) Includes 98,945 shares issued in payment of Board meeting fees, and 26,667
shares issued to Mr. Almog in payment of annual retainer fees for previous
years.
RECOMMENDATION OF THE BOARD
The Board recommends a vote FOR approval of the amendment to the 1998
Director Plan. The affirmative vote of the holders of a majority of shares of
Common Stock present in person or by proxy at the Special Meeting, assuming a
quorum is present, is necessary for approval. Unless a contrary choice is
specified, proxies solicited by the Board will be voted FOR approval of such
proposed amendment.
13
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table contains information, as of February 5, 1999, 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, each of the executive officers, and the
current directors and executive officers of the Company as a group (consisting
of ten 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>
NUMBER OF PERCENT OF
NAME SHARES CLASS
- ------------------------------------------------ ------------ ---------------
<S> <C> <C>
Joseph R. Canion 4,281,500 (1) 20.4%
CORAL Entities 1,105,191 (2) 5.8%
Yuval Almog 1,266,097 (3) 6.7%
Tom R. Dillon 35,878 (4) *
Donald L. Lucas 357,244 (5) 1.9%
Fred G. Moore 30,423 (6) *
John J. Mitcham 1,187,392 (7) 6.2%
J. David Cabello 855,000 (8) 4.4%
Kathleen H. Clark 400,000 (9) 2.1%
Alexander H. Frey 333,439(10) 1.7%
Charles E. Pearsall 179,794(11) *
Jeff A. Stewart 70,197(12) *
All current directors and executive officers as
a group (10 persons) 4,715,464(13) 23.7%
</TABLE>
- ------------------------
* Less than 1%.
(1) As reported in a Schedule 13D, dated December 23, 1998, filed with the
Securities and Exchange Commission. Includes warrants issued December 15,
1998 to purchase 2,000,000 shares at $3.50 per share, expiring December 15,
2003. Mr. Canion's address is 5 Post Oak Park, Suite 1655, Houston, TX
77027.
(2) 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. The address of the CORAL Entities is 60 South
Sixth Street, Suite 3510, Minneapolis, MN 55402.
(3) 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 50,000 shares
that are exercisable on or before April 5, 1999. Mr. Almog's address is the
same as CORAL Entities above.
(4) Includes options to purchase 6,945 shares that are exercisable on or before
April 5, 1999.
14
<PAGE>
(5) Includes 52,244 shares held by the Donald L. Lucas & Lygia S. Lucas Trust
DTD 12-3-84 and 190,000 shares held by the Donald L. Lucas Profit Sharing
Trust DTD 1-1-84. Also includes options to purchase 40,000 shares that are
exercisable on or before April 5, 1999. Also includes warrants issued
December 15, 1998 to purchase 75,000 at an exercise price of $3.50 per
share, expiring December 15, 2003.
(6) Includes options to purchase 4,862 shares that are exercisable on or before
April 5, 1999.
(7) Includes options to purchase 155,951 shares that are exercisable on or
before April 5, 1999. Mr. Mitcham's address is 2905 Northwest Boulevard,
Suite 20, Plymouth, Minnesota 55441.
(8) Includes warrants issued December 15, 1998 to purchase 250,000 shares at
$3.50 per share, expiring December 15, 2003.
(9) Includes warrants issued December 15, 1998 to purchase 50,000 shares at
$3.50 per share, expiring December 15, 2003.
(10) Includes options to purchase 115,000 shares that are exercisable on or
before April 5, 1999.
(11) Includes options to purchase 85,500 shares that are exercisable on or
before April 5, 1999.
(12) Includes options to purchase 37,250 shares that are exercisable on or
before April 5, 1999.
(13) Includes options to purchase 495,508 shares that are exercisable on or
before April 5, 1999 and 375,000 shares of Common Stock issuable upon the
exercise of outstanding warrants.
15
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTOR COMPENSATION
Non-employee directors receive an annual retainer of $10,000 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. The 1998 Director
Plan provides that, in the discretion of the Board, payment of the directors'
annual cash retainer and meeting fees may be made in the form of Company Common
Stock. During 1998, the non-employee directors received cash reimbursement for
expenses in the following amounts: Mr. Almog ($0); Mr. Dillon ($1,662); Mr.
Lucas ($1,258); and Mr. Moore ($825).
Non-employee directors are entitled to participate in the 1998 Director
Plan. The 1998 Director Plan provides for automatic grants of non-qualified
options to the Company's non-employee directors. Currently, three hundred fifty
thousand (350,000) shares are reserved for issuance under the 1998 Director
Plan. In accordance with the terms of the 1998 Director Plan, new non-employee
directors of the Company who are first elected or appointed to the Board to fill
new directorships or vacancies will automatically be granted, on a one-time
basis on the date of their election or appointment, non-qualified options to
purchase 25,000 shares of Common Stock, at an exercise price equal to the
closing market price of the Common Stock on the date of grant. The 1998 Director
Plan further provides that, on January 5 of each year, each non-employee
director will automatically be granted additional options to purchase 10,000
shares, with an exercise price equal to the closing market price on the date of
grant. The one-time option grants to Board members become exercisable each month
on a cumulative basis with respect to 2.78% of the total shares covered by each
such option, commencing one month after the date of grant and terminating five
years after the date of grant. Each annual option grant becomes exercisable in
full six months after its date of grant and terminates five years after its date
of grant.
On December 7, 1998, the Company and Fred G. Moore, a director of the
Company, entered into a Consulting Agreement that is scheduled to terminate on
March 31, 1999, but may be extended upon the mutual agreement of the Company and
Mr. Moore (the "Moore Agreement"). Pursuant to the Moore Agreement, Mr. Moore
consults with and assists the Company in providing professional marketing
services with respect to certain of the Company's products. In consideration for
his services, Mr. Moore received an option, pursuant to a non-statutory stock
option agreement dated December 7, 1998, to purchase up to 100,000 shares of the
Common Stock of the Company at an exercise price of $0.65625 per share. None of
the options granted have vested at this time. The options vest with respect to
all of the shares if the Company and one or more of certain identified companies
have executed, on or before the earlier of (a) June 30, 1999 or (b) the date of
the termination of the Moore Agreement if Mr. Moore voluntarily terminates the
agreement prior to its scheduled expiration date, one or more OEM licensing
agreements with an estimated total value of $5,000,000 during the term of the
OEM licensing agreement and any extensions thereto through December 31, 2000
with respect to the Company's products and services as a direct result of Mr.
Moore's efforts. If the total value of such OEM licensing agreements is less
than $5,000,000, the number of shares purchasable under such option shall be
proportionally reduced. To the extent exercisable, such option shall remain
exercisable until December 31, 2000.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Composed entirely of outside directors, the Compensation Committee of the
Board 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.
16
<PAGE>
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.
In determining the compensation of the Company's executive officers, the
Compensation Committee considers 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 at the companies used in the
comparative analysis 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 1998 performance and other factors
described above, the executive officers were granted base salary increases of
between 0% and 28% for 1999. Three of these executive officers agreed to take a
percentage of their 1998 fourth quarter base salary in Company Common Stock
valued according to the closing market price on the day such compensation was
due, such percentage ranging from 12% to 15%.
The compensation of John J. Mitcham, the Company's Chairman 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. Mr. Mitcham agreed to take his entire 1998 fourth quarter base salary
in the form of Company Common Stock, valued according to the closing market
price on the day such compensation was due. Mr. Mitcham also agreed to take
relocation reimbursement and life insurance premiums reimbursement due him in
the form of Company Common Stock at the closing market price on the date the
Board approved such payment. The Compensation Committee will conduct a
performance and salary review in May 1999 for the purpose of determining Mr.
Mitcham's base salary for the ensuing year, which review will be 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.
17
<PAGE>
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 1998 ranging from $0 to $30,000 and agreed to take such
bonuses in the form of Common Stock.
In October 1998, in lieu of an annual cash bonus, Mr. Mitcham was granted a
bonus option to purchase 100,000 shares of Common Stock at a price of $0.50 per
share that becomes exercisable in five years or earlier upon the satisfaction of
certain performance goals to be mutually agreed upon in good faith between Mr.
Mitcham and the Board. Accordingly, Mr. Mitcham did not receive an annual cash
bonus in 1998.
LONG-TERM INCENTIVES. The 1995 Stock Incentive Plan (the "1995 Plan") and
the 1998 Plan, 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 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 1998, the Compensation Committee granted new stock options to all of
its executive officers, including the grant of an option to purchase 300,000
shares of Common Stock at an exercise price of $0.656 per share to Mr. Mitcham
that is subject to stockholder approval at this Special Meeting. 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 the proper
incentives. In addition, the Compensation Committee considered the level of
prior stock option grants to such executives as well as the level of grants to
new hires.
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 1999. 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
18
<PAGE>
COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total return during the period
January 1, 1994 to December 31, 1998 for the Company's Common Stock, the Nasdaq
- -- U.S. Index and the Nasdaq -- Computer Manufacturer Stock Index. This graph
assumes the investment on January 1, 1994 of approximately $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 January 1, 1994 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>
12/31/93 100.000 100.000 100.000
3/31/94 95.797 96.947 55.660
6/30/94 91.318 78.618 40.566
9/30/94 98.881 95.592 19.340
12/31/94 97.752 109.847 19.811
3/31/95 106.578 115.765 19.340
6/30/95 121.911 140.741 14.151
9/30/95 136.596 169.329 17.215
12/31/95 138.256 172.955 11.321
3/31/96 145.900 178.222 15.566
6/30/96 156.508 200.345 16.981
9/30/96 162.052 220.924 10.140
12/31/96 170.015 231.878 5.660
3/31/97 160.793 194.898 2.358
6/30/97 190.266 251.902 4.717
9/30/97 222.440 316.200 3.774
12/31/97 208.580 280.504 1.887
3/31/98 244.052 345.194 4.128
6/30/98 251.119 409.338 4.245
9/30/98 227.341 449.182 1.887
12/31/98 293.209 610.146 8.491
</TABLE>
EXECUTIVE COMPENSATION
The following table provides summary information concerning cash and
non-cash compensation paid to or earned by the Company's Chief Executive Officer
and the four most highly paid executive officers of the Company, all of whom
received or earned cash and non-cash salary and bonus of more than $100,000 for
the fiscal year ended December 31, 1998 (the "Named Executive Officers").
19
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------------------
ANNUAL COMPENSATION SECURITIES
----------------------------------- RESTRICTED UNDERLYING
NAME AND PRINCIPAL SALARY BONUS OTHER ANNUAL STOCK OPTIONS ALL OTHER
POSITION YEAR (1) (2) COMPENSATION (3) AWARDS (SHARES) COMPENSATION (4)
- ------------------------- ---- -------- ------- ---------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
John J. Mitcham 1998 $240,000 $ -- $ 186,502 $ -- 566,369 $ 1,000
Chairman and Chief 1997 270,000 -- -- -- 800,000 (5) 1,000
Executive Officer 1996 300,000 -- 13,316 -- 100,000 1,000
Alexander H. Frey (6) 1998 122,500 25,000 150 75,000 (7) 540,000 1,000
Senior Vice President, 1997 103,752 25,000 86,537 -- 300,000 (5) 1,000
Architecture 1996 22,350 -- -- -- 100,000 1,000
Charles E. Pearsall (7) 1998 115,833 30,000 -- -- 350,500 1,000
Vice President, 1997 95,000 35,000 24,316 -- 175,000 (5) 1,000
Engineering 1996 80,628 -- 63,659 -- 100,000 1,000
Jeff A. Stewart 1998 98,333 20,000 150 -- 199,000 1,000
Vice President and 1997 85,824 15,000 -- -- 130,000 (5) 1,000
Controller 1996 78,732 3,825 -- -- 11,000 --
Charles C. Devor (8) 1998 120,000 -- 5,846 -- -- --
Former Vice President, 1997 186,669 10,000 -- -- 350,000 (5) 1,000
Business Development 1996 158,674 20,000 -- -- 150,000 1,000
</TABLE>
- ------------------------
(1) The following Named Executive Officers elected to receive a portion of their
1998 fourth quarter salary in the form of Common Stock at the closing price
on the day such salary was due: Mr. Mitcham ($60,000; 78,556 shares); Mr.
Frey ($4,500; 5,892 shares); Mr. Pearsall ($3,600; 4,714 shares); and Mr.
Stewart ($3,750; 4,910 shares).
(2) Bonuses for services rendered have been included as compensation for the
year earned, even though such bonuses may have actually paid in the
following year. For bonuses earned in 1998, the following Named Executive
Officers elected to receive their 1998 bonuses in the form of Common Stock
at the closing price on January 29, 1999, the day prior to the date of Board
approval of such bonuses: Mr. Frey ($25,000; 7,547 shares); Mr. Pearsall
($30,000; 9,056 shares); and Mr. Stewart ($20,000; 6,037 shares). For
bonuses earned in 1997, the following Named Executive Officers elected to
receive their bonuses in the form of Common Stock at the closing price on
February 12, 1998, the day the Board approved such bonuses: Mr. Frey
($25,000; 40,000 shares); Mr. Pearsall ($35,000; 56,000 shares); and Mr.
Stewart ($10,000; 16,000 shares).
(3) "Other Annual Compensation" consists of the following: relocation assistance
and refund of life insurance premiums for Mr. Mitcham, which Mr. Mitcham
elected to receive in the form of Common Stock at the closing price on the
day the Board approved such payments (relocation assistance, $172,502;
230,003 shares at $0.75 per share, and refund of life insurance premiums,
$14,000; 14,451 shares at $0.97 per share), and relocation assistance in
1997; a recognition award to Mr. Frey; relocation assistance to Mr.
Pearsall; a recognition award to Mr. Stewart; and earned vacation pay to Mr.
Devor.
(4) "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. Frey, Mr. Pearsall, Mr. Stewart and Mr. Devor.
20
<PAGE>
(5) Certain options previously granted in 1995 and 1996 were cancelled and
reissued in 1997 at the then market price as follows: Mr. Mitcham, 800,000
shares; Mr. Frey 100,000 shares; Mr. Pearsall, 100,000 shares; Mr. Stewart,
11,000 shares; and Mr. Devor, 350,000 shares.
(6) Mr. Frey joined the Company in October 1996.
(7) Effective November 3, 1998, the Company granted to Mr. Frey a restricted
stock award consisting of 150,000 shares of Common Stock that are restricted
and subject to forfeiture in satisfaction of certain contingent obligations
of the Company. Such award is valued for purposes of the above table based
on the closing price of the Common Stock on the date of grant. The
restrictions on these shares lapse with respect to 75,000 shares if Mr. Frey
remains in the employ of the Company until December 1, 1999 and with respect
to the remaining 75,000 shares if Mr. Frey remains in the employ of the
Company until December 1, 2000. As of December 31, 1998, such shares of
restricted Common Stock had a value of $337,500, based on the closing price
of the Common Stock as of such date.
(8) Mr. Devor resigned from the Company in September 1998.
OPTIONS
The following tables provide certain information regarding option grants and
exercises during 1998 to or by the Named Executive Officers and the number and
value of the options held by such persons at the end of 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
INDIVIDUAL GRANTS (1) ASSUMED ANNUAL RATES
------------------------------------------------------- OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM (2)
OPTIONS EMPLOYEES EXERCISE OR EXPIRATION ----------------------
NAME GRANTED IN 1998 BASE PRICE DATE 5% 10%
- ------------------------ ----------------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John J. Mitcham 100,000 2.52% $ 0.500 10/30/08 $ 31,445 $ 79,687
John J. Mitcham 300,000(3) 7.55% 0.656 12/7/08 123,766 313,649
Alexander H. Frey 50,000 1.26% 0.500 10/9/08 15,722 39,844
Alexander H. Frey 200,000(3) 5.03% 0.656 12/7/08 82,511 209,099
Charles E. Pearsall 40,000 1.01% 0.500 10/9/08 12,578 31,875
Charles E. Pearsall 150,000(3) 2.77% 0.656 12/7/08 61,883 156,824
Jeff A. Stewart 25,000 0.63% 0.500 10/9/08 7,861 19,922
Jeff A. Stewart 50,000(3) 1.26% 0.656 12/7/08 20,628 52,275
Charles C. Devor -- -- -- -- -- --
</TABLE>
- ------------------------
(1) All of the options granted to executives were granted under the 1998 Plan,
and some options are subject to stockholder approval at this Special
Meeting, as indicated in footnote 3. Options become exercisable under the
1998 Plan so long as executives remain in the employ of the Company and such
options have not expired. To the extent not already exercisable, options
under the 1998 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". Options with an
exercise price of $0.500 become exercisable with respect to 25% of the
shares upon each anniversary of the grants. Options with an exercise price
of $0.656 become exercisable with respect to 25% of the shares 12 months
after grant date and one forty-eighth (1/48th) of the shares each month
thereafter.
(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,
21
<PAGE>
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 are subject to stockholder approval at this Special Meeting.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE OPTIONS AT END OF 1998 AT END OF 1998 (1)
EXERCISE REALIZED -------------------------- --------------------------
NAME (2) (3) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John J. Mitcham 633,631 $ -- 124,701 441,668 $ 157,747 $ 661,910
Alexander H. Frey 10,000 -- 45,000 450,000 59,341 639,976
Charles E. Pearsall 14,500 -- 54,250 296,250 67,651 420,844
Jeff A. Stewart 6,000 -- 32,500 166,500 45,935 208,314
Charles C. Devor 200,000 397,860 -- -- -- --
</TABLE>
- ------------------------
(1) Value calculated as the excess of the market value of the Common Stock at
December 31, 1998 ($2.14) over the exercise price per share. The market
value of the Common Stock at December 31, 1998 represents the average of the
high and low sales price as reported on the Nasdaq SmallCap Market System.
Options are in-the-money if the market price of the shares exceeds the
option exercise price. As of December 31, 1998, all of the options held by
these officers were in-the-money. As of December 31, 1998, Mr. Devor had
exercised all of his outstanding options.
(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.
CHANGE IN CONTROL ARRANGEMENTS
Under the Company's option plans, 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 option plans 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").
22
<PAGE>
In addition to the change in control provisions under its option plans and
agreements, the Company also has in place a change in control agreement with Mr.
Charles E. Pearsall, the Company's Vice President of Engineering. Pursuant to
this agreement (the "Change in Control Agreement"), 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 Agreement, 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
Agreement, 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 "continuity
directors") or less than 50% of the surviving Company's voting stock (whether or
not approved by the "continuity 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 "continuity directors") or 50% or more of the
Company's voting stock (whether or not approved by the "continuity directors"),
(d) the "continuity directors" ceasing to constitute a majority of the Board of
Directors, and (e) any other change in control that would be required to be
reported under the Exchange Act.
The change in control provisions of the Company's option plans, as well as
the Change in Control Agreement, 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
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.
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 of certain options to
purchase 800,000 shares Common Stock. 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 agreed to 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
23
<PAGE>
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 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.
LOCK-UP AGREEMENTS
In connection with a recently-completed private placement, the members of
the Company's Board of Directors and the Company's senior management team,
including David Cabello and Kathleen Clark, have agreed not to sell, pledge,
transfer or otherwise dispose of any Company Common Stock (unless investors
representing a majority of the shares issued in the private placement otherwise
agree) until the earlier of six (6) months after commercial availability of
Tricord Storage Management Software (TSMS) or June 30, 2000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Almog and Mr. Lucas served as members of the Compensation Committee of
the Board of Directors during 1998. On December 15, 1998, Mr. Lucas, through a
trust with respect to which he is deemed the beneficial owner, participated in
the private placement by the Company to certain investors of 3,000,000 shares of
Common Stock and warrants to purchase an additional 3,000,000 shares. Pursuant
to this private placement, Mr. Lucas purchased a total of 75,000 shares of
Common Stock at a price of $1.00 per share and received warrants to purchase an
additional 75,000 shares of Common Stock at an exercise price of $3.50 per
share. The warrants are exercisable until December 15, 2003.
STOCKHOLDER PROPOSALS
The Company currently expects that its 1999 Annual Meeting of Stockholders
will be held on May 21, 1999. Stockholder proposals intended to be presented in
the Company's proxy materials relating to the 1999 Annual Meeting of
Stockholders must have been received by the Company on or before December 14,
1998 and must satisfy the requirements of the proxy rules promulgated by the
Securities and Exchange Commission.
A stockholder who wishes to make a proposal at the 1999 Annual Meeting
without including the proposal in the Company's proxy statement must notify the
Company by February 27, 1999. If a stockholder fails to give notice by this
date, then the persons named as proxies in the proxies solicited by the Company
for the 1999 Annual Meeting of Stockholders will have discretionary authority to
vote on the proposal.
OTHER BUSINESS
The Company knows of no other matters that will be presented at the Special
Meeting of Stockholders. If any other matter properly arises at the meeting, it
is intended that the shares represented by proxies
24
<PAGE>
in the accompanying form will be voted in accordance with the judgment of the
persons named in the proxies.
BY ORDER OF THE BOARD OF DIRECTORS,
J. David Cabello
SECRETARY
February 16, 1999
Plymouth, Minnesota
25
<PAGE>
APPENDIX A
TRICORD SYSTEMS, INC.
1998 NON-EMPLOYEE DIRECTOR STOCK PLAN
(AS AMENDED EFFECTIVE JANUARY 30, 1999)
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 securities 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 five
hundred fifty thousand (550,000) 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.
(b) CHANGES IN STOCK. In the event of any reorganization,
merger,
<PAGE>
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, as of any date, (or, if no shares were traded on such
date, as of the next preceding day on which there was such a
trade) (A) the closing sale price of the Common Stock if the
Common Stock is listed or admitted to unlisted trading privileges
or reported on any foreign or national securities exchange or on
the Nasdaq National Market System or an equivalent
2
<PAGE>
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 reporting 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.
(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 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
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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.
(vii) 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 PAYMENT. Each Eligible Director shall receive
an annual retainer payment of $10,000 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 PAYMENT. Each Eligible Director shall receive a
meeting payment 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 one share of Common Stock as of each immediately
preceding day prior to such meetings. 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.
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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, as amended,
shall be effective as of January 30, 1999. 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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APPENDIX B
TRICORD SYSTEMS, INC.
1998 STOCK INCENTIVE PLAN
(AS AMENDED EFFECTIVE DECEMBER 7, 1998)
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, no 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.
2.10. "FAIR MARKET VALUE" means, with respect to the Common Stock, as of
any date (or, if no
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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 System 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 reported by the Nasdaq SmallCap Market,
OTC Bulletin Board or the National Quotation Bureau, Inc. or
other comparable reporting 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.
2.23. "SUBSIDIARY" means any entity that is directly or indirectly
controlled by the Company or
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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 of the Board consisting of not less than two persons;
provided, however, that from and after the date on which the
Company first registers a class of its equity securities under
Section 12 of the Exchange Act, the Plan will be administered by
the Board, all of whom will be "disinterested persons" within the
meaning of Rule 16b-3 under the Exchange Act, or by a committee
consisting solely of not fewer than two members of the Board who
are such "disinterested persons." 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 limitation, the
authority to modify the number of shares or other terms and
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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
5,000,000 shares, plus any unissued shares from the 1995 Stock
Incentive Plan. Notwithstanding any other provision of the Plan
to the contrary, no Participant in the Plan may be granted 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
500,000 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). The shares 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
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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 (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.
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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 Financial 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 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.
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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 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
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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.
(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
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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 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
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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;
(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
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(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
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
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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.
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
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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 Rule 16b-3 under the Exchange Act, 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, as amended, is effective as of December 7, 1998. 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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PLEASE DETACH HERE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, AND 3.
1. PROPOSAL TO AMEND THE COMPANY'S / / For / / Against / / Abstain
CERTIFICATE OF INCORPORATION TO
INCREASE THE AUTHORIZED NUMBER OF
SHARES OF COMMON STOCK FROM
27,000,000 TO 75,000,000 SHARES.
2. PROPOSAL TO AMEND THE COMPANY'S / / For / / Against / / Abstain
1998 STOCK INCENTIVE PLAN TO (A)
INCREASE THE NUMBER OF SHARES
AVAILABLE FOR ISSUANCE THEREUNDER
FROM 1,000,000 TO 5,000,000 SHARES,
AND (B) INCREASE THE PER PARTICIPANT
LIMITATION FROM 100,000 TO 500,000
SHARES.
3. PROPOSAL TO AMEND THE COMPANY'S / / For / / Against / / Abstain
1998 NON-EMPLOYEE DIRECTOR STOCK PLAN
TO INCREASE THE NUMBER OF SHARES
AVAILABLE FOR ISSUANCE THEREUNDER
FROM 350,000 TO 550,000 SHARES.
4. IN THEIR DISCRETION, THE PROXIES
ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE
THE MEETING.
Address Change? Mark Box / /
Indicate changes below:
Dated: ____________________, 1999
---------------------------------------
---------------------------------------
Signature(s) in Box
THIS PROXY, WHEN PROPERLY EXECUTED,
WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER.
IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2 AND 3. 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 OR LIMITED
LIABILITY COMPANY, PLEASE SIGN IN
PARTNERSHIP OR APPLICABLE ENTITY NAME
BY AUTHORIZED PERSON.
<PAGE>
[LOGO] TRICORD SYSTEMS, INC.
SPECIAL MEETING OF STOCKHOLDERS
WEDNESDAY, MARCH 17, 1999
1:00 P.M.
TRICORD SYSTEMS, INC.
2905 NORTHWEST BOULEVARD, SUITE 20
PLYMOUTH, MN 55441
[LOGO] TRICORD SYSTEMS, INC.
2905 NORTHWEST BOULEVARD, SUITE 20
PLYMOUTH, MN 55441 PROXY
- ------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF TRICORD
SYSTEMS, INC.
The undersigned hereby appoints John J. Mitcham and J. David Cabello and each
of them, as Proxies, each with the power to appoint his substitute, and
hereby authorizes each of them to represent and to vote, as designated below,
all the shares of common stock of Tricord Systems, Inc. held of record by the
undersigned on February 5, 1999 at a Special Meeting of Stockholders to be
held on March 17, 1999 or any adjournment thereof.
SEE REVERSE FOR VOTING INSTRUCTIONS
