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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / 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)
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(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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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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[LOGO]
February , 1999
Dear Stockholder:
Tricord Systems is entering an important phase of its development, a phase
that 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 investment in storage
systems products consumes a larger share of their information technology budget
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 or 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 cofounder of Compaq
Computer Corporation. Two talented and experienced executives -- also investors
- -- joined our team; Kathleen Clark, formerly a marketing executive at Compaq,
joined Tricord as Vice President of Marketing, and David Cabello, formerly
General Counsel at Compaq, joined Tricord as 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.
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It is important that you use this opportunity to take part in the affairs of
your Company by voting on the business to come before this Special Meeting.
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
PRESIDENT AND CHIEF EXECUTIVE OFFICER
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[LOGO]
2905 Northwest Boulevard, Suite 20
Plymouth, Minnesota 55441
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NOTICE OF ANNUAL 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 shares 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 shares to 5,000,000
shares and to increase the per participant limitation from 100,000 shares
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 shares 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 , 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 , 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 to assist the
solicitation of proxies and have agreed to pay such firm a fee of $ .
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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 , 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,
6,243,994 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 1,760,506 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 investigating 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. Moreover, 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 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, to 5,000,000 shares in total, and (2) a 400,000
share increase in the number of options that may be granted to any participant
during any fiscal year, to 500,000 shares in total (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. Moreover,
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 a
committee, consisting of not less that 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 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 Option Plan. The amendments to the
1998 Plan proposed hereby would increase the number of shares authorized under
the 1998 Plan from 1,000,000 shares 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, options to purchase 3,661,000 shares of Common Stock at a
weighted average exercise price of $.063 were outstanding, and no shares
remained available for future grant under the 1998 Plan. In December 1998,
options to purchase 2,150,556 were granted, subject to stockholder approval of
the increase in the number of shares reserved under the 1998 Plan described in
this proxy statement. Assuming approval of this increase, 1,849,444 shares would
remain 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 by 400,000 to 500,000 shares.
If Incentive Awards granted under the 1998 Plan expire or otherwise
terminate without being exercised, the Common Stock not purchased pursuant to
such Incentive Awards becomes available for reissuance under the 1998 Plan. Any
shares of Common Stock that are subject to an Incentive Award that expires or is
forfeited and any shares of Common Stock that are subject to an Incentive Award
that is settled or paid in cash or any form other than shares of Common Stock
will automatically again become available for issuance under the 1998 Plan. Any
shares of Common Stock that constitute the forfeited portion of a Restricted
Stock Award, however, will not become available for further issuance under the
1998 Plan. In the event of any reorganization, merger, recapitalization, stock
dividend, stock split or similar change in the corporate structure or shares of
the Company, appropriate adjustments will be made to the number and kind of
shares reserved under the 1998 Plan and under outstanding Incentive Awards and
to the exercise price of securities reserved under the 1998 Plan and under
outstanding Incentive Awards.
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 3, 1999, there
were approximately 35 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 Small Cap Market System was $ .
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
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to the difference between the fair market value of one or more shares of Common
Stock and the exercise price of such shares under the terms of the Stock
Appreciation Right. The exercise price of a Stock Appreciation Right will be
determined by the Committee, but may not be less than the fair market value of
the Common Stock on the date of grant. Stock Appreciation Rights become
exercisable at such times and in such installments as may be determined by the
Committee, except that Stock Appreciation Rights may not become exercisable
prior to six months from their date of grant and may not be exercisable after 10
years from their date of grant.
RESTRICTED STOCK AWARDS. 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 Commons 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 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, nor within one
year after the participant exercised the Incentive Option and the shares were
transferred to the participant, then the participant will recognize a long-term
capital gain or loss. The amount of the long-term capital gain or loss will be
equal to the difference between (i) the amount the participant realized on
disposition of the shares and (ii) the option price at which the participant
acquired the shares. The Company is not entitled to any compensation expense
deduction under these circumstances.
If the participant does not satisfy both of the above holding period
requirements, then the participant will be required to report as ordinary
income, in the year the participant disposes of the shares, the amount by which
the lesser of the fair market value of the shares at the time of exercise of the
Incentive Option or the amount realized on the disposition of the shares (if the
disposition is the result of a sale or exchange to one other than a related
taxpayer) exceeds the option price for the shares. The Company will be entitled
to a compensation expense deduction in an amount equal to the ordinary income
includable in the taxable income of a participant. The remainder of the gain or
loss recognized on the disposition, if any, will be treated as long-term or
short-term capital gain or loss, depending on the holding period.
STOCK APPRECIATION RIGHTS. A participant who receives a Stock Appreciation
Right will not recognize any taxable income at the time of grant. Upon exercise
of a Stock Appreciation Right, the participant will realize ordinary income in
an amount equal to the cash and fair market value of any shares of Common Stock
received by the participant. The Company will receive a corresponding tax
deduction for any amounts includable by the participant as ordinary income.
RESTRICTED STOCK AWARDS AND STOCK BONUSES. With respect to shares issued
pursuant to a Restricted Stock Award that are not subject to risk of forfeiture
or with respect to Stock Bonuses, a participant will include as ordinary income
in the year of receipt an amount equal to the fair market value of the shares
received 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, 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 President 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 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 and consultants as a group 2,150,556
</TABLE>
RECOMMENDATION OF THE BOARD
The Board recommends a vote FOR approval of the amendments to 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
On December 7, 1998, 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, to 550,000 shares in total.
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 increase the propriety interest of
such directors in the Company's long-term success and progress and their
identification with the interests of the Company's stockholders. 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 award options under
the 1998 Director Plan and attract and retain such individuals.
10
<PAGE>
SUMMARY OF THE 1998 NON-EMPLOYEE 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 Committee. 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 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, options to purchase 110,000 shares of Common Stock at a
weighted average price of $1.31 were outstanding, and 6,155 shares remained
available for future grant.
In the event of any reorganization, merger, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares, rights
offerings, or extraordinary dividend or divestiture or any other change in the
corporate structure or shares of the Company, the Committee shall make
adjustments, determined by the Committee in its discretion to be appropriate, as
to the number and kind of securities subject to and reserved under the 1998
Director Plan and, in order to prevent dilution or enlargement of rights of
eligible directors, the number, kind and exercise of outstanding awards of
options and Common Stock. The Committee may amend the 1998 Director Plan from
time to time in such respects as the Committee may deem advisable in order that
awards of options and Common Stock under the 1998 Director Plan will conform to
any change in applicable laws or regulations or in any other respect the
Committee may deem to be in the best interests of the Company; provided,
however, that no amendment to the 1998 Director Plan will be effective without
approval of the stockholders of the Company if stockholder approval in then
required pursuant to the rules of any stock exchange or Nasdaq or similar
regulatory body. Awards of options and Common Stock may not be transferred other
than by will or the laws of descent and distribution, and during the lifetime of
an optionee may be exercised only by the optionee. The 1998 Director Plan will
terminate on February 20, 2003, unless sooner terminated by action of the Board.
No awards of options and Common Stock will be granted after termination of the
1998 Director Plan.
Under the 1998 Director Plan, each eligible director automatically receives,
on a one-time basis, a non-qualified option to purchase 25,000 shares of Common
Stock (the "Initial Option") upon such director's initial election or
appointment to the Board. In addition to the Initial Option, a non-qualified
option to purchase 10,000 shares of Common Stock (the "Annual Option") is
granted automatically commencing January 5, 1998 and continuing on each
succeeding January 5 thereafter to each eligible director as of such dates. The
Initial Options and Annual Options are sometimes collectively referred to as
"Director Options."
Each Initial Option becomes exercisable each month on a cumulative basis
with respect to 2.78% of the total shares covered by such Initial Option,
commencing one month after the date of grant and terminates five years after its
date of grant. The Annual Option becomes exercisable in full six months after
its date of grant and terminates five years after its date of grant. The
exercise price per share to be paid by an eligible director at the time a
Director Option is exercised will be the fair market value of one share of
Common Stock on the date of grant, determined based upon the closing price of
the Common Stock as reported by the Nasdaq National Market on the date of grant.
On February 5, 1999, the closing price of one share of Common Stock as reported
by the Nasdaq National Market was $ . A Director Option may be
exercised by an eligible director in whole or in part from time to time by
delivery
11
<PAGE>
to the Company of a written notice of exercise, accompanied by payment in cash
or personal check payable to the Company, of the full exercise price for the
shares being purchased. In the event that an eligible director's service as a
director terminates, the Director Options will remain exercisable for three
months after such termination (one year with respect to termination due to death
or disability and immediate termination with respect to termination of service
by the director or termination by the Company for "cause"). In no event,
however, may Director Options be exercised after their expiration date.
In the Board's discretion, the $10,000 annual retainer to which eligible
directors are entitled on each November 1 may be paid in the form of cash or
Common Stock. If payment is made in Common Stock, each eligible director as of
such dates will receive such number of shares of Common Stock (the "Retainer
Stock") as equals $10,000 divided by the fair market value of one share of
Common Stock as of each immediately preceding October 31. Subject to approval of
the 1998 Director Plan, the Board had determined to pay the November 1, 1997
retainer in the form of Common Stock.
Moreover, in the Board's discretion, the $1,500 meeting fee to which
eligible directors are entitled may be paid in the form of cash or Common Stock.
If payment is made in Common Stock, each eligible director as of such meeting
dates will receive such number of shares of Common Stock (the "Meeting Stock")
as equals $1,500 divided by the fair market value of one share of Common Stock
as of each immediately preceding day in which trading occurs on the Nasdaq
National Market.
FEDERAL INCOME TAX CONSEQUENCES
The following general description of federal income tax consequences is
based on current statutes, regulations and interpretations. This description is
not intended to address specific tax consequences applicable to any one eligible
director who receives Director Options or Retainer Stock.
DIRECTOR OPTIONS. There will not be any federal income tax consequences to
either the eligible director or the Company upon grant of a Director Option.
Upon exercise of a Director Option, an eligible director will generally
recognize ordinary income on the date of exercise in an amount equal to the
difference between the fair market value of the shares purchased and the
consideration paid for the shares. In general, the Company will be entitled to a
compensation expense deduction in connection with the exercise of a Director
Option for any amounts includable in the taxable income of an eligible director
as ordinary income.
RETAINER STOCK AND MEETING STOCK. With respect to shares issued as Retainer
Stock and Meeting Stock, the participant will include as ordinary income in the
year of transfer an amount equal to the fair market value of the shares
transferred. The Company will receive a corresponding tax deduction for any
amounts includable in the taxable income of participant as ordinary income.
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 NON-EMPLOYEE DIRECTOR STOCK 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 120,000(1) 108,233(2) 125,612(3)
</TABLE>
- ------------------------
(1) Includes Annual Options of 30,000 granted 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 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 67,333 shares issued in payment of Board of Directors meeting fees
for which board members had not been paid the customary Board of Directors
meeting fee and 26,667 shares issued to Mr. Almog in payment of annual
retainer fees for previous years, for which Mr. Almog had not been paid the
customary annual retainer fee. Also includes 31,602 shares issued in payment
of Board of Directors meeting fees.
RECOMMENDATION OF THE BOARD
The Board recommends a vote FOR approval of the amendment to 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 3, 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 named in
the "Summary Compensation Table" below, 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 1,271,097 (3) 6.7%
Tom R. Dillon 35,887 (4) *
Donald L. Lucas 357,253 (5) 1.9%
Fred G. Moore 30,423 (6) *
John J. Mitcham 1,187,392 (7) 6.2%
Alexander H. Frey 333,439 (8) 1.7%
Charles E. Pearsall 179,794 (9) *
Jeff A. Stewart 70,197(10) *
All current directors and executive officers as
a group (10 persons) 4,720,482(11) 23.8%
</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 55,000 shares
that are exercisable on or before April 3, 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 3, 1999. Mr. Dillon's address is 102 Bell Flower Way, Scotts Valley,
CA 95066.
14
<PAGE>
(5) Includes 49,085 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 3, 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. Mr. Lucas' address is 3000 Sand Hill
Road, #3-210, Menlo Park, CA 94025.
(6) Includes options to purchase 4,862 shares that are exercisable on or before
April 3, 1999. Mr. Moore's address is 2595 Canton Boulevard, Suite 320,
Boulder, CO 80302.
(7) Includes options to purchase 155,951 shares that are exercisable on or
before April 3, 1999.
(8) Includes options to purchase 115,000 shares that are exercisable on or
before April 3, 1999.
(9) Includes options to purchase 85,500 shares that are exercisable on or
before April 3, 1999.
(10) Includes options to purchase 37,250 shares that are exercisable on or
before April 3, 1999.
(11) Includes options to purchase 500,508 shares that are exercisable on or
before April 3, 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 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 were reimbursed the following amounts
for expenses: Mr. Almog (none); Mr. Dillon ($1,662); Mr. Lucas ($1,258); and Mr.
Moore (none).
Non-employee directors are entitled to participate in the Director Plan. The
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 Director Plan. In
accordance with the terms of the 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 fair market
value of the Common Stock on the date of grant. The 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 fair market value 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, 1998, 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
agreement with an estimated total value of $5,000,000 with respect to the
Company's products and services as a direct result of Mr. Moore's efforts during
the term of the agreement. 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 base salary, ranging from 12% to 15%, during the 1998 fourth
quarter.
The compensation of John J. Mitcham, the Company's President and Chief
Executive Officer, is determined in accordance with his employment agreement
with the Company, which was entered into in May 1995. Pursuant to this
employment agreement, Mr. Mitcham is paid an annual base salary that was
initially established at $300,000 in May 1995. Effective April 1, 1997, Mr.
Mitcham voluntarily reduced his annual base salary 20% to $240,000. Each year
the Compensation Committee conducts a performance and salary review of Mr.
Mitcham's base salary to determine whether it should be increased. Based on this
review, the Compensation Committee determined to maintain Mr. Mitcham's base
salary at $300,000, subject to Mr. Mitcham's voluntary reduction to $240,000. In
addition, the employment agreement provides that the Company will reimburse Mr.
Mitcham for premiums on a term life insurance policy up to a maximum of $3,500
per year. Mr. Mitcham agreed to take his entire 1998 fourth quarter base salary
and certain other compensation in the form of Common Stock. 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 is based upon both individual and Company performance. In making its
determination of base salary for Mr. Mitcham, the Compensation Committee will
consider the same factors as described above with respect to all other executive
officers.
ANNUAL CASH BONUSES. The philosophy of the Compensation Committee is to
provide executives with direct financial incentives in the form of annual cash
bonuses to achieve Company, business unit and individual performance goals. The
Compensation Committee does not have a fixed formula or criteria for determining
annual cash bonuses. Instead, the Compensation Committee, in its discretion,
establishes
17
<PAGE>
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.
In connection with his employment agreement, Mr. Mitcham was granted a bonus
option in 1995 that became exercisable in five years or earlier upon the
satisfaction of certain performance goals. Accordingly, Mr. Mitcham did not
receive an annual cash bonus in 1998.
LONG-TERM INCENTIVES. The 1995 Stock Incentive Plan (the "1995 Plan") and
the 1998 Plan, are broad "omnibus" plans that provides 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 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 stock options to all of its
executive officers. Although the Compensation Committee's decision to grant
options and its determination of the size of such grants were based upon many of
the same factors considered in granting annual cash bonuses as described above,
the Compensation Committee also considered the need to continue to provide
executives with the proper incentives and the impact of the decline in the
Company's stock price on existing options held by executives. In addition, the
Compensation Committee considered the level of prior stock option grants to such
executives.
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 $114 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>
NASDAQ STOCK MARKET - US NASDAQ COMPUTER MANUFACTURERS TRICORD SYSTEMS, INC.
--------------------------- --------------------------------- ---------------------
<S> <C> <C> <C>
12/31/93 113.958 99.226 240.909
3/31/94 109.168 96.197 134.091
6/30/94 104.064 78.010 97.727
9/30/94 112.683 94.852 46.591
12/31/94 111.396 108.997 47.727
3/31/95 121.454 114.869 46.591
6/30/95 138.927 139.652 34.091
9/30/95 155.661 168.018 41.473
12/31/95 157.553 171.616 27.273
3/31/96 166.263 176.842 37.500
6/30/96 178.352 198.794 40.909
9/30/96 184.670 219.214 24.427
12/31/96 193.745 230.083 13.636
3/31/97 183.236 193.389 5.682
6/30/97 216.823 249.951 11.364
9/30/97 253.487 313.752 9.091
12/31/97 237.692 278.333 4.545
3/31/98 278.116 342.522 9.945
6/30/98 286.169 406.169 10.227
9/30/98 259.072 445.705 4.545
12/31/98 334.134 605.422 20.455
</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 --------------------------
----------------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) COMPENSATION (2) AWARDS OPTIONS COMPENSATION (3)
- ---------------------------- --------- ---------- ----------- ---------------- ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
John J. Mitcham 1998 $ 180,000 $ -- $ 246,502 -- 566,369 $ 1,000
President and Chief 1997 270,000 -- -- -- 800,000(4) 1,000
Executive Officer 1996 300,000 -- 13,316 -- 100,000 1,000
Alexander H. Frey (5) 1998 118,000 -- 29,650 75,000 540,000 1,000
Senior Vice President, 1997 103,752 -- 111,537 -- 300,000(4) 1,000
Architecture 1996 22,350 -- -- -- 100,000 1,000
Charles E. Pearsall (6) 1998 112,233 -- 33,600 -- 350,500 1,000
Vice President, 1997 95,000 -- 59,316 -- 175,000(4) 1,000
Engineering 1996 80,628 -- 63,659 -- 100,000 1,000
Jeff A. Stewart 1998 94,583 -- 23,800 -- 199,000 1,000
Vice President and 1997 85,824 5,000 10,000 -- 130,000(4) 1,000
Controller 1996 78,732 3,825 -- -- 11,000 --
Charles C. Devor (7) 1998 120,000 -- 5,846 -- -- --
Former Vice President, 1997 186,669 10,000 -- -- 350,000(4) 1,000
Business Development 1996 158,674 20,000 -- -- 150,000 1,000
</TABLE>
- ------------------------
(1) 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.
(2) "Other Annual Compensation" consists of: stock in lieu of salary, relocation
assistance and refund of life insurance premiums for Mr. Mitcham, stock in
lieu of bonus, stock in lieu of salary, a restricted stock award and
recognition award to Mr. Frey; stock in lieu of bonus, stock in lieu of
salary and relocation assistance to Mr. Pearsall; stock in lieu of bonus,
stock in lieu of salary and a recognition bonus to Mr. Stewart; and earned
vacation pay to Mr. Devor.
(3) "All Other Compensation" consists of the Company's matching contribution to
the employees accounts in the Company's 401K Retirement Plan for Mr.
Mitcham, Mr. Devor, Mr. Frey, Mr. Pearsall, Mr. Stewart and Mr. Devor.
(4) Certain options previously granted in 1995 and 1996 were amended and
repriced in 1997 as follows: Mr. Mitcham, 800,000; Mr. Frey 100,000; Mr.
Pearsall, 100,000; Mr. Stewart, 11,000; and Mr. Devor, 350,000. The previous
options from 1995 and 1996 were canceled but are presented in the above
table.
(5) Mr. Frey joined the Company in October 1996.
(6) Mr. Pearsall joined the Company in February 1996.
(7) 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 executive officers named in the Summary
Compensation Table above and the number and value of the options held by such
persons at the end of 1998.
20
<PAGE>
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 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.
Options become exercisable under such plans so long as executives remain in
the employ of the Company. To the extent not already exercisable, options
under the 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) become exercisable monthly
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, 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 National Market
21
<PAGE>
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.
(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, the
Company has also entered into change in control agreements with certain of its
officers and key employees, including Charles C. Devor, the Company's Vice
President of Business Development and Mr. Charles E. Pearsall, the Company's
Vice President of Engineering. Pursuant to these agreements (the "Change in
Control Agreements"), in the event of a Change in Control Termination (as
defined below), the Company agrees (a) to make a lump-sum cash payment to the
employee in an amount equal to one and one-half times such employee's annual
base salary, plus one and one-half times such employee's target annual cash
bonus for the year during which the termination occurs, (b) to provide to the
employee continued coverage under the Company's group health plan for up to 18
months, (c) to provide to the employee a "gross-up" payment sufficient to pay
any excise tax imposed under Section 4999 of the Code (or any comparable state
or local law) resulting from any Change in Control (as defined below), and (d)
to provide to the employee outplacement counseling services costing up to 5% of
such employee's annual base salary.
For purposes of the Change in Control Agreements, a "Change in Control
Termination" is deemed to occur if the Company terminates such employee's
employment for any reason other than for Cause (which includes gross misconduct,
willful and continued failure to perform, or conviction of a felony or gross
misdemeanor) or the employee's death or the employee terminates his or her
employment for Good Reason (which includes an adverse change in the employee's
position with the Company, reduction in base salary or benefits, forced
relocation, or failure by the Company to observe certain requirements of the
Change in Control Agreement) and any such termination occurs either within 12
months after the last day of the month in which the Change in Control occurred
or prior to the Change in Control if the employee's termination was a condition
of or related to the Change in Control. For purposes of the Change in Control
Agreements, a "Change in Control" is defined to include (a) a merger involving
the Company where the pre-merger stockholders own at least 50% but less than 80%
of the surviving Company's voting stock (unless approved by the Board of
Directors) or less than 50% of the surviving Company's voting stock (whether or
not approved by the Board of Directors), (b) a transfer of substantially all of
the Company's assets or a liquidation of the Company, (c) the acquisition by any
person or group of 20% or more but less than 50% of the Company's voting stock
(unless approved by the Board of Directors) or 50% or more of the Company's
voting stock (whether or not approved by the Board of Directors), (d) the
"continuity directors" (the current directors and their future nominees) ceasing
to constitute a majority of the Board of Directors, and (e) any other change in
control that would be required by the Securities and Exchange Commission.
The change in control provisions of the Company's option plans, as well as
the Change in Control Agreements, are designed to attract and retain valued
employees of the Company and to ensure that the performance of these employees
is not undermined by the possibility, threat or occurrence of a change in
control. While these measures were not adopted to deter takeovers, they may have
an incidental anti-takeover effect by making it more expensive for a bidder to
acquire control of the Company.
DEVOR SEVERANCE AGREEMENT
Under an agreement dated February 8, 1997 entered into with Mr. Devor (the
"Severance Agreement"), the Company has agreed, within 10 business days
following a Triggering Termination (as defined below) of the employee (a) to
make a lump-sum cash payment to such employee equal to his annual base salary
and (b) for 12 months following such termination (or until the employee becomes
covered under another comparable plan) to maintain a group health plan that
covers such employee (and eligible family members and dependents) under the same
terms and at the same cost to the employee as to similarly situated individuals
who continue to be employees of the Company.
For purposes of the Severance Agreement, a "Triggering Termination" is
defined as termination of employment by the Company for any reason other than
the employee's death or for Cause (with such terms defined similarly as in the
Change in Control Agreements) or termination by the employee for Good Reason, in
each case so long as such termination by either the Company or the employee
would not entitle
22
<PAGE>
the employee to receive benefits pursuant to such employee's Change in Control
Agreement. To the extent that the employee incurs a tax liability in connection
with such health benefits that he would not have incurred had he been an active
employee of the Company, the Company will reimburse the employee in an amount
equal to such tax liability. The Severance Agreement has an initial term of two
years.
MITCHAM EMPLOYMENT AGREEMENT
Pursuant to the terms of an employment agreement, dated as of May 2, 1995,
Mr. Mitcham is paid an annual base salary that is determined each year by the
Compensation Committee based on a performance and salary review of Mr. Mitcham.
The base salary was initially fixed at $300,000. In addition to base salary, the
employment agreement provided for the grant to Mr. Mitcham 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 will reimburse Mr. Mitcham for
his relocation expenses (up to a maximum of $100,000) plus amounts for any taxes
on such reimbursement amounts.
The employment agreement continues until terminated and may be terminated in
the following circumstances: (i) by the Company upon written notice with or
without cause; (ii) by Mr. Mitcham upon 30 days' written notice; or (iii) upon
Mr. Mitcham's death or disability. If the Company terminates the employment
agreement other than for cause or if Mr. Mitcham terminates the agreement due to
a material breach by the Company that is not cured within 30 days of notice, the
Company will be obligated to continue to pay Mr. Mitcham his then current Base
Salary for a period of two years following such termination, if such termination
occurs within two years after the effective date of the agreement, or for a
period of one year following such termination, if termination occurs thereafter.
Such payments, however, will continue only so long as Mr. Mitcham
conscientiously and aggressively seeks new employment and 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.
STOCKHOLDER PROPOSALS
The Company currently expects that its 1999 Annual Meeting of Stockholders
will be held on March 17, 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.
23
<PAGE>
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 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 , 1999
Plymouth, Minnesota
24
<PAGE>
PLEASE FOLD HERE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, AND 3. PLEASE
MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
1. PROPOSAL TO AMEND THE COMPANY'S / / For / / Against / / Abstain
CERTIFICATE OF INCORPORATION TO INCREASE THE
AUTHORIZED NUMBER OF SHARES OF COMMON STOCK,
$.01 PAR VALUE, FROM 27,000,000 SHARES TO
75,000,000 SHARES.
2. PROPOSAL TO AMEND THE COMPANY'S 1998 / / For / / Against / / Abstain
STOCK INCENTIVE PLAN TO (A) INCREASE THE
NUMBER OF SHARES AVAILABLE FOR ISSUANCE
THEREUNDER FROM 1,000,000 TO 5,000,000, AND
(B) INCREASE THE PER PARTICIPANT LIMITATION
FROM 100,000 SHARES TO 500,000 SHARES.
3. PROPOSAL TO AMEND THE COMPANY'S 1998 / / For / / Against / / Abstain
NON-EMPLOYEE DIRECTOR STOCK PLAN TO INCREASE
THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE
THEREUNDER FROM 350,000 SHARES TO 550,000
SHARES.
4. IN THEIR DISCRETION, THE PROXIES ARE / / For / / Against / / Abstain
AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING.
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. Dated: ____________________, 1999
- ----------------------------------------
- ----------------------------------------
Signature(s) in Box
(If there are co-owners both must sign)
THE SIGNATURE(S) SHOULD BE EXACTLY AS THE NAME(S) APPEAR PRINTED TO THE LEFT.
IF A CORPORATION, PLEASE SIGN THE CORPORATION NAME IN FULL BY A DULY
AUTHORIZED OFFICER AND INDICATE THE OFFICE OF THE SIGNER. WHEN SIGNING AS
EXECUTOR, ADMINISTRATOR, FIDUCIARY, ATTORNEY, TRUSTEE OR GUARDIAN, OR AS
CUSTODIAN FOR A MINOR, PLEASE GIVE FULL TITLE AS SUCH. IF A PARTNERSHIP, SIGN
IN THE PARTNERSHIP NAME.
<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
