<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
MICRON ELECTRONICS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
[MICRONPC.COM LOGO]
Micron Electronics, Inc.
900 East Karcher Road
Nampa, Idaho 83687
----------------------------
Notice of 1999 Annual Meeting of Shareholders
Monday, November 22, 1999
----------------------------
To The Shareholders:
Notice Is Hereby Given that the 1999 Annual Meeting of Shareholders of
Micron Electronics, Inc., a Minnesota corporation (the "Company"), will be held
on Monday, November 22, 1999, at 9:00 a.m. Mountain Time, at the Nampa Civic
Center, 311 3rd Street South, Nampa, Idaho, 83651, for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are duly elected and qualified.
2. To approve an amendment to the Company's 1995 Stock Option Plan
increasing the number of shares reserved for issuance thereunder from 10,000,000
to 15,000,000.
3. To approve the Micron Electronics, Inc. Management and Executive
Incentive Plan.
4. To ratify the appointment of PricewaterhouseCoopers L.L.P. as
independent accountants of the Company for the fiscal year ending August 31,
2000.
5. To transact such other business as may properly come before the
meeting or any adjournment(s) or postponement(s) thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on October 1, 1999 are
entitled to notice of and to vote at the meeting.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
All shareholders are cordially invited to attend the meeting in person.
Shareholders will be required to furnish proof of ownership of the Company's
Common Stock before being admitted to the meeting. Shareholders holding shares
in the name of a broker, bank or other nominee are requested to bring a
statement from the broker, bank or nominee confirming their ownership of the
Company's Common Stock.
To ensure your representation at the meeting in the event you cannot
attend, you are urged to return a proxy as soon as possible. Shareholders may
vote, sign, date and return the enclosed Proxy in the postage-prepaid envelope
provided. As an alternative to using the paper Proxy to vote, stockholders may
vote electronically via the Internet or by telephone. Please see "Telephone and
Internet Voting Alternatives" in the Proxy Statement for additional details.
Shareholders attending the meeting may vote in person, even if they have
returned a Proxy.
Sincerely,
JoAnne S. Pfeifer
Vice President, Administration, Corporate
Secretary
Nampa, Idaho
October 29, 1999
<PAGE>
[MICRONPC.COM LOGO]
Micron Electronics, Inc.
900 East Karcher Road
Nampa, Idaho 83687
_______________________
PROXY STATEMENT
1999 ANNUAL MEETING OF SHAREHOLDERS
Monday, November 22, 1999
_______________________
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed Proxy is solicited on behalf of the Board of Directors of
Micron Electronics, Inc., a Minnesota corporation (the "Company"), for use at
the 1999 Annual Meeting of Shareholders to be held on Monday, November 22, 1999,
at 9:00 a.m. Mountain Time, or at any adjournment(s) or postponement(s) thereof
(the "Annual Meeting"). The purposes of the Annual Meeting are set forth herein
and in the accompanying Notice of 1999 Annual Meeting of Shareholders. The
Annual Meeting will be held at the Nampa Civic Center, 311 3rd Street South,
Nampa, Idaho, 83651. This Proxy Statement and the enclosed Proxy were first
provided on or about October 29, 1999 to all shareholders entitled to vote at
the Annual Meeting. An annual report to shareholders for the fiscal year ended
September 2, 1999 is also provided with this Proxy Statement.
The Company's principal executive offices are located at 900 East Karcher
Road, Nampa, Idaho, 83687 and its telephone number is (208) 898-3434.
Revocability of Proxies
By executing and returning the Proxy (either by returning the paper Proxy
or by submitting your proxy by telephone or electronically via the Internet) you
are authorizing Joel J. Kocher and JoAnne S. Pfeifer to represent you and vote
your shares at the Annual Meeting according to your instructions. In the event
that any nominee is unable or declines to serve as a director at the time of the
Annual Meeting, the Proxies will be voted for any nominee whom shall be
designated by the present Board of Directors to fill the vacancy or for the
balance of those nominees named without a substitute. The Board of Directors has
no reason to believe that any of the persons named will be unable or unwilling
to serve as a nominee or as a director if elected.
Any Proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted by delivering to the Company a written
notice of revocation or a duly executed Proxy bearing a later date or by
attending the Annual Meeting and voting in person. Please note, however, that
if a shareholder's shares are held of record by a broker, bank or other nominee
and that shareholder wishes to vote at the Annual Meeting, the shareholder must
bring to the Annual Meeting a statement from the broker, bank or other nominee
confirming that shareholder's beneficial ownership of shares.
1
<PAGE>
Solicitation
The cost of soliciting Proxies will be borne by the Company. In addition,
the Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
materials to such beneficial owners. Proxies may be solicited by the Company's
directors, officers and employees personally or by telephone, facsimile,
telegram or by electronic means without additional compensation.
VOTING SECURITIES AND PRINCIPAL HOLDERS
Record Date
Only shareholders of record at the close of business on October 1, 1999
(the "Record Date") are entitled to notice of and to vote at the Annual Meeting.
Outstanding Shares
The Company has only one class of stock outstanding, the Company's common
stock, $.01 par value per share (the "Common Stock"). As of the Record Date,
96,282,424 Common Stock were issued and outstanding.
Voting Rights
Each shareholder will be entitled to one vote for each share of Common
Stock held as of the Record Date for all matters, including the election of
directors. Shareholders do not have the right to cumulate their votes in the
election of directors.
A majority of all votes eligible to be cast will be required to establish a
quorum for the transaction of business at the Annual Meeting. Shares that are
voted "FOR", "AGAINST", "WITHHELD" or "ABSTAIN" are treated as being present at
the Annual Meeting for the purpose of establishing a quorum and are also treated
as shares entitled to vote at the Annual Meeting (the "Votes Cast") with respect
to such matter. Abstentions will have the same effect as voting against a
proposal. Broker non-votes will be counted for the purpose of determining the
presence or absence of a quorum for the transaction of business, but such non-
votes will not be counted for the purpose of determining the number of Votes
Cast with respect to the particular proposal on which a broker has expressly not
voted. Thus, a broker non-vote will not affect the outcome of the voting on a
proposal.
2
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth ownership information with respect to the
Common Stock of the Company and the common stock, $.10 par value per share, of
Micron Technology, Inc., a Delaware corporation and the parent of the Company
(the "Micron Technology, Inc. Common Stock"), as of the Record Date, with
respect to (i) persons known by the Company to beneficially own more than five
percent (5%) of the Company's Common Stock, (ii) each director of the Company,
(iii) each Named Executive Officer of the Company listed in the "SUMMARY
COMPENSATION TABLE" on page 7, and (iv) all directors and executive officers of
the Company as a group:
<TABLE>
<CAPTION>
Micron Electronics, Inc. Micron Technology, Inc.
Common Stock Common Stock
- -------------------------------------------------------------------------------------------------------------------------------
Amount and Amount and
Nature of Nature of
Beneficial Percent of Beneficial Percent of
Name of Beneficial Owner Ownership (1) Class Ownership (1) Class
- -------------------------------------------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C>
Micron Technology, Inc.
8000 South Federal Way
Boise, Idaho 83707 60,882,863 63.2% N/A N/A
Joel J. Kocher 190,000 (2) * 148 (4) -
Michael S. Adkins 50,800 (2)(6) * 56,829 (5)(6) *
Scott L. Bower 27,979 (2) * - -
Stephen S. Brown 11,412 (2) * - -
Savino R. Ferrales 26,000 (2) * - -
Steven R. Appleton - (3) - 493,239 (5) *
John B. Balousek 10,000 (2) * - -
Robert A. Lothrop 10,000 (2) * 58,573 (5)(7) *
Robert Lee 10,000 (2) * - -
All directors and executive officers as a
group (19 persons)(1)(2)(3)(4)(5)(6) 514,862 0.6% 617,710 0.2%
</TABLE>
* Less than 1%
____________________
(1) Unless otherwise indicated below, the persons and entities named in
the table have sole voting and investment power with respect to all
shares beneficially owned, subject to community property laws where
applicable.
(2) Includes options to purchase shares of the Company's Common Stock
exercisable within 60 days of October 1, 1999 in the following
amounts: Mr. Kocher, 190,000; Mr. Adkins, 50,800; Mr. Bower, 25,000;
Mr. Brown, 10,000; Mr. Ferrales, 26,000; Mr. Balousek, 10,000; Mr.
Lee, 10,000; Mr. Lothrop, 10,000; and all directors and executive
officers as a group (19 persons), 495,148.
(3) Mr. Appleton, a director of the Company, serves as Chairman of the
Board, President and Chief Executive Officer of Micron Technology,
Inc. In addition to the shares indicated in the above table, Mr.
Appleton may be deemed the beneficial owner of 60,882,863 shares of
the Company's Common Stock held by Micron Technology, Inc. Mr.
Appleton disclaims beneficial ownership of all of the shares of the
Company's Common Stock held by Micron Technology, Inc.
(4) Includes 148 shares of Micron Technology, Inc. Common Stock as a
result of the assumed conversion of $9,305.25 principal amount of 7%
convertible subordinated debentures, due July 1, 2004.
(5) Includes options to purchase shares of Micron Technology, Inc. Common
Stock exercisable within 60 days of October 1, 1999 in the following
amounts: Mr. Adkins, 56,829; Mr. Appleton, 301,949; Mr. Lothrop,
16,000; and all directors and executive officers as a group (19
persons), 383,085.
(6) Does not include 264 shares of Company Common Stock held by Mr.
Adkins' spouse; and 186 shares of Company Common Stock held by Mr.
Adkins' spouse for benefit of his minor children. Also does not
include 210 shares of Micron Technology, Inc. Common Stock held by Mr.
Adkins' spouse and 400 shares of Micron Technology, Inc. Common Stock
held by Mr. Adkins' spouse for benefit of his minor children.
(7) Does not include 424 shares of Micron Technology, Inc. Common Stock
held by Mr. Lothrop's spouse. Includes 39,585 shares of Micron
Technology, Inc. Common Stock held in joint tenancy with Mr. Lothrop's
spouse.
3
<PAGE>
DIRECTORS
The directors of the Company, all of whom have been nominated for
reelection at the Annual Meeting, their ages, their business experience during
the past five years and their principal occupations as of the Record Date are
set forth below:
Steven R. Appleton, age 39, has served as the Chief Executive Officer,
President and Chairman of the Board of Directors of Micron Technology, Inc.
("MTI") since September of 1994, with the exception of an eight day period from
January 18 to January 26, 1996. Mr. Appleton has served as a member of the Board
of Directors of the Company from the Effective Time of the Merger (as defined
under "Certain Relationships and Related Transactions" below) until January
1996, and from February 1996 to the present.
John B. Balousek, age 54, was appointed to the Board of Directors of the
Company on August 17, 1999. Mr. Balousek served as President, Chief Operating
Officer, and Director of Foote, Cone & Belding Communications, Inc., a global
advertising and communications company, from May 1991 to February 1996, and as
Chairman and CEO of True North Technologies, a digital and interactive services
company of True North Communications, parent company of Foote, Cone & Belding
Communications, from March to July 1996. Mr. Balousek also served as a director
of True North Communications from February 1996 to January 1997. Mr. Balousek is
currently a director on the boards of Geoworks Corporation and Freeshop.com,
Inc., both publicly held companies, and several privately held companies.
Joel J. Kocher, age 43, was appointed President and Chief Operating
Officer, and a director of the Company in January 1998. In June 1998, Mr. Kocher
was appointed Chairman of the Board of Directors, President, Chief Executive
Officer and Chief Operating Officer. Mr. Kocher resigned from the position of
Chief Operating Officer concurrent with the appointment of Jill D. Smith as
Executive Vice President and Chief Operating Officer of the Company in April
1999. Mr. Kocher previously served as President of Worldwide Marketing, Sales
and Service at Dell Computer Corporation, a provider of personal computers
through the direct channel, from 1987 to September 1994. In October 1994, Mr.
Kocher joined Artisoft, Inc. where he served as Executive Vice President and
Chief Operating Officer until he was appointed President, Chief Operating
Officer, and Director in October 1995, serving in such capacities until December
1996. From December 1996 to August 1997, Mr. Kocher served as President and
Chief Operating Officer at Power Computing Corporation, a manufacturer of
Macintosh OS compatible systems.
Robert Lee, age 51, was appointed to the Board of Directors of the Company
on April 1, 1999. Mr. Lee served as President of Business Communication Services
of Pacific Bell from April 1995 to May 1998, and as Executive Vice President of
California Markets Group of Pacific Bell from April 1993 to May 1995. Mr. Lee
currently serves as director of several privately held companies.
Robert A. Lothrop, age 73, served as the Senior Vice President of the J.R.
Simplot Company, a food processing, fertilizer and agricultural chemicals
manufacturing company, from January 1986 until his retirement in January 1991.
Mr. Lothrop was elected to the Board of Directors of MTI in 1986. In 1992, he
was elected to the Board of Directors of Micron Semiconductor, Inc. (then a
wholly-owned subsidiary of MTI) and resigned as a director of MTI. Mr. Lothrop
was re-elected to the Board of Directors of MTI in 1994, at which time he
resigned from the Board of Directors of Micron Semiconductor, Inc. At the
Effective Time of the Merger, Mr. Lothrop was appointed a director of the
Company.
There is no family relationship between any director or executive
officer of the Company.
Certain Relationships and Related Transactions
Pursuant to an Agreement of Merger dated October 30, 1994, as amended, by
and among the Company, Micron Computer, Inc., an Idaho corporation, and former
Micron Custom Manufacturing Services, Inc. ("MCMS"), on April 7, 1995, Micron
Computer, Inc. and former MCMS, then subsidiaries of MTI, were merged with and
into the Company (the "Merger"). Upon the Effective Time of the Merger (the
"Effective Time of the Merger"), the separate existence of Micron Computer, Inc.
and former MCMS ceased, the Company remained as the surviving corporation, the
name of the Company was changed from "ZEOS International, Ltd."
4
<PAGE>
to "Micron Electronics, Inc.," and all of the rights, privileges, powers,
franchises, properties, assets, liabilities and obligations of Micron Computer,
Inc. and former MCMS were vested in the Company. At the Effective Time of the
Merger, MTI owned approximately 79% of the outstanding Common Stock of the
Company.
As of the Record Date, MTI owned approximately 63.2% of the outstanding
Common Stock of the Company. Two (2) of the five (5) nominees for director of
the Company are also directors of MTI. MTI and its subsidiaries supply and
purchase products and services used and produced by the Company.
During fiscal 1999, MTI supplied a substantial portion of the full
specification random access memory components used in the Company's personal
computer operations. Purchases by the Company of these components from MTI,
completed upon market terms and conditions, amounted to approximately
$36,647,000 in fiscal 1999.
In fiscal 1999, MTI and its subsidiaries paid the Company approximately
$6,486,000 for purchases of PC systems and other equipment. In fiscal 1999, the
Company paid MTI and its subsidiaries approximately $6,634,000 for equipment.
The Company relies on MTI for certain information systems, payroll,
employee benefits, risk management and other administrative services. In fiscal
1999, the Company paid approximately $529,000 to MTI for such services.
During the second quarter of 1999, the Company sold to MTI certain assets
associated with its advanced engineering group for approximately $290,000, which
constituted the book value of the assets. This sale occurred in connection with
the transfer of the employees of the advanced engineering group from the Company
to MTI.
The Company and MTI are parties to a Component Recovery Agreement,
effective as of August 30, 1996 (the "Component Recovery Agreement"), under
which MTI is required to deliver to the Company all of the nonstandard dynamic
random access memory components produced at its semiconductor manufacturing
operations. During fiscal 1999, the Company's cost of such components generally
was determined as one-half of the pre-tax net income generated from the
Company's sales of semiconductor memory products supplied by MTI. In fiscal
1999, the Company paid approximately $65,298,000 to MTI pursuant to the
Component Recovery Agreement.
Effective on September 2, 1999, the Company and MTI entered into an Amended
and Restated Component Recovery Agreement (the "Amended Component Recovery
Agreement"). The Amended Component Recovery Agreement expires on August 30,
2001. Under the Amended Component Recovery Agreement, the cost to the Company of
components obtained from MTI will be negotiated on a quarterly basis, but in no
event will the cost be less than 50% of pre-tax net income generated from the
sale of SpecTek products derived from such components. The maximum cost payable
by the Company to MTI for components during fiscal 2000 is as follows: first
quarter, 50% of pre-tax net income; second quarter, 62.5% of pre-tax net income;
third quarter, 75% of pre-tax net income; and fourth quarter 87.5% of pre-tax
net income. The cost to the Company of components obtained from MTI during
fiscal 2001 is not subject to any maximum amount.
The Amended Component Recovery Agreement also provides that MTI will make
commercially reasonable efforts to obtain for the Company nonstandard memory
components produced by TECH Semiconductor Singapore Pte. Ltd. and KMT
Semiconductor Limited, joint venture companies in which MTI is affiliated. The
Company, MTI and the joint venture companies may agree to utilize a pricing
matrix based on effective yields and worldwide average sales prices in order to
establish prices for the components from the joint venture companies. In such
case, the price paid by the Company for components from the joint ventures will
be determined under the matrix, rather than as a percentage of pre-tax net
income. During fiscal 1999, the Company paid approximately $14,554,000 to the
joint venture companies for non-standard memory components.
Under the Amended Component Recovery Agreement, at the commencement of the
second quarter of fiscal 2000, the Company has an option to require MTI to
purchase all of the assets of SpecTek for a purchase price equal to the net book
value of the assets. At the commencement of fiscal 2001, MTI has an option to
require the Company to sell all of the assets of SpecTek under the same terms
and conditions. Additionally, the Company
5
<PAGE>
would have an option to require MTI to purchase, and MTI would have the option
to require the Company to sell, the assets of SpecTek at book value if MTI's
ownership in the Company falls below 50% or if an unrelated third party acquires
more than 30% of the Company.
Concurrent with the Amended Component Recovery Agreement, the Company and
Micron Semiconductor Products, Inc. ("MSP"), a subsidiary of MTI, entered into
an Exclusive Sales Representative Agreement (the "Sales Representative
Agreement") under which MSP will serve as exclusive sales representative for
SpecTek memory products. Under the Sales Representative Agreement, MSP will not
be entitled to any sales commission but is entitled to charge the Company for
certain employee costs and reasonable sales and marketing expenses.
On September 2, 1999, the Company acquired the assets of Micron Internet
Services, a division of MTI, for approximately $2,218,000, which constituted the
book value of the assets. MTI's agreement to sell the Micron Internet Services
assets at book value was given in partial consideration for the Company agreeing
to the terms of the Amended Component Recovery Agreement.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and officers and persons who own beneficially more than
ten percent (10%) (collectively, the "Beneficial Owners") of a registered class
of the Company's equity securities, to file initial reports of ownership and
reports of changes of ownership with the Securities and Exchange Commission (the
"SEC") and the National Association of Securities Dealers. Copies of all filed
reports are required to be furnished to the Company pursuant to Section 16(a).
Based solely on the reports received by the Company and on written
representations from reporting persons, the Company believes that the Beneficial
Owners complied with all applicable Section 16(a) filing requirements during the
fiscal year ended September 2, 1999.
Board Meetings and Committees
The Board of Directors of the Company held a total of seven (7) meetings
during the Company's fiscal year ended September 2, 1999. The Board of Directors
has formed an Audit Committee and a Compensation Committee. A Nominating
Committee has not been formed.
The Audit Committee held three (3) meetings during fiscal 1999. Serving on
the Audit Committee are Directors Robert A. Lothrop, Robert Lee and John B.
Balousek. Past members of the Audit Committee, serving during fiscal year 1999,
were Jerry M. Hess, who resigned from the Board of Directors on October 1, 1998,
and John R. Simplot, who resigned from the Board of Directors on July 1, 1999.
The Audit Committee is primarily responsible for reviewing the services
performed by the Company's independent accountants and evaluating the Company's
accounting principles, system of internal accounting controls and adherence with
the Company's internal compliance codes.
The Compensation Committee held seven (7) meetings during fiscal year 1999.
Serving on the Compensation Committee are Directors Robert A. Lothrop, Robert
Lee and John B. Balousek. Past members of the Compensation Committee, serving
during fiscal year 1999, were Jerry M. Hess and John R. Simplot. The
Compensation Committee's primary responsibility is to review and establish the
compensation of the Company's officers, including salary, bonuses, stock option
grants and other compensation.
During fiscal 1999, all directors attended 75% or more of the aggregate
number of meetings of the Board of Directors and of meetings of all committees
of the Board on which they served.
6
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Compensation of Executive Officers
The following table sets forth the cash and non-cash compensation for each
of the last three fiscal years for services rendered to the Company, its
predecessors and its subsidiaries, awarded to or earned by any individual who
served as Chief Executive Officer of the Company during fiscal 1999 and for each
of the other four most highly compensated executive officers of the Company who
were serving as executive officers at the end of fiscal 1999 whose combined
salary and bonus earned in fiscal 1999 exceeded $100,000 (the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
----------------------------------------------- ------------
Other Securities
Fiscal Annual Underlying All Other
Name and Principal Position Year Salary (1) Bonus (2) Compensation (4) Options (5) Compensation (8)
- --------------------------- ------ ---------- --------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Joel J. Kocher 1999 $448,077 $ 255,768 - 50,000 $ 3,670 (9)
Chairman, President, and 1998 220,769 300,362 - 650,000 (6) 55,984 (9)
Chief Executive Officer 1997 - - - - -
Michael S. Adkins 1999 $210,096 $ 145,000 - 70,000 $ 7,630
Vice President, General 1998 206,405 186,204 - 135,000 (7) 19,988
Manager Micron PC 1997 139,846 86,237 - 35,000 10,397
Scott L. Bower 1999 $260,000 $ 153,323 (3) - 15,000 $ 8,965 (9)
Vice President, 1998 30,000 46,875 (3) - 125,000 12,379 (9)
General Manager Micron 1997 - - - - -
Computer Services, Inc.
Stephen S. Brown 1999 $230,769 $ 125,828 (3) - 75,000 $ 52,165 (9)
Vice President, Chief 1998 - - - - -
Information Officer 1997 - - - - -
Savino R. Ferrales 1999 $250,000 $ 96,562 - 20,000 $ 3,000
Senior Vice President, 1998 137,500 113,830 - 130,000 (7) 81,591 (9)
Human Resources 1997 - - - - -
</TABLE>
________________________________
(1) Includes compensation deferred by the employee under the Company's and its
parent's qualified 401(k) retirement plans.
(2) Includes amounts paid under the Company's profit sharing plans and amounts
awarded and paid under the Management and Executive Incentive Plan (the
"Incentive Plan", formerly the Micron Electronics, Inc. Executive Bonus
Plan) for Fiscal 1999 and earned and paid under the Incentive Plan for
prior fiscal years. See "REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD
OF DIRECTORS REGARDING EXECUTIVE COMPENSATION."
(3) Includes bonus payments paid upon commencement of employment in the
following amounts: Mr. Bower, $25,000, $25,000 (1998); Mr. Brown, $32,000.
(4) Excludes certain perquisites and other amounts which in the aggregate did
not exceed the lesser of $50,000 or 10% of the total annual salary and
bonuses for the officer.
(5) Except as otherwise noted, consists of options to purchase shares of the
Company's Common Stock under the Company's 1995 Stock Option Plan.
(6) Consists of 500,000 options to purchase shares of the Company's Common
Stock granted under the Company's 1995 Stock Option Plan and 150,000
options to purchase shares of the Company's Common Stock granted outside
the 1995 Stock Option Plan.
(7) Includes options granted in exchange for previously granted options which
were canceled pursuant to an option repricing program implemented in fiscal
1998 in the following amounts: Mr. Adkins, 85,000; Mr. Ferrales, 37,735.
(8) Except as otherwise noted, consists of contributions made by the Company
under qualified 401(k) retirement plans and cash paid under sabbatical and
time-off plans.
(9) Includes payment by the Company for relocation costs in the following
amounts for fiscal 1999 unless otherwise noted: Mr. Kocher, $3,670 and
$54,484 (1998); Mr. Bower, $7,465 and $12,379 (1998); Mr. Brown, $50,665;
Mr. Ferrales, $81,591 (1998).
7
<PAGE>
OPTION GRANTS IN FISCAL 1999
The following table provides information with respect to stock options granted
in fiscal 1999 to each of the Named Executive Officers. In accordance with the
rules of the SEC, the table sets forth the hypothetical gains or "option
spreads" that would exist for the options at the end of their respective terms
based on assumed annual rates of compound stock price appreciation of 0%, 5% and
10% from the dates the options were granted to the end of the respective option
terms. Actual gains, if any, on option exercises are dependent on the future
performance of the Company's Common Stock and overall market conditions. There
can be no assurance that the potential realizable values shown in this table
will be achieved.
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------
Potential Realizable
Percent of Market Value at
Number of Total Price of Assumed Annual Rates
Securities Options Exercise Securities of Stock
Underlying Granted to Price On Price Appreciation for
Options Employees in Per Date of Expiration Option Term
------------------------------
Name Granted (1) Fiscal 1999 Share Grant Date 0% 5% 10%
- ------------------ ----------- ----------- ----- ----- ---- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joel J. Kocher 50,000 (2) 1.35% $13.2750 $13.2750 9/04/04 $ - $225,738 $512,124
Michael S. Adkins 7,532 (2) 0.20% $13.2750 $13.2750 9/04/04 $ - $ 34,005 $ 77,146
52,468 (2)(3) 1.41 11.2837 13.2750 9/04/04 104,480 341,360 641,882
10,000 0.27 9.5312 9.5312 6/10/09 - 60,003 152,097
Scott L. Bower 15,000 0.40% $11.5000 $11.5000 7/15/09 $ - $108,484 $274,921
Stephen S. Brown 32,230 (2) 0.87% $15.5125 $15.5125 9/28/04 $ - $170,216 $386,218
17,770 (2)(3) 0.48 13.1856 15.5125 9/28/04 41,349 135,198 254,290
25,000 0.67 11.5000 11.5000 7/15/09 - 180,995 458,785
R. Ferrales 20,000 0.54% $11.5000 $11.5000 7/15/09 $ - $144,646 $366,561
</TABLE>
_________________
(1) Unless otherwise noted, options vest over four (4) years in increments of
twenty-five percent (25%) per year. Options granted pursuant to the
Company's 1995 Stock Option Plan are granted as incentive stock options
("ISOs") or nonstatutory stock options ("NSOs"). ISOs are granted with an
exercise price equal to 100% of the fair market value (as defined in the
plan) of the Company's Common Stock on the date of grant. Except as
otherwise noted, NSOs granted and set forth in the above table were granted
with an exercise price equal to 100% of the fair market value (as defined
in the plan) of the Company's Common Stock on the date of grant.
(2) Options vest over five (5) years in increments of twenty percent (20%) per
year.
(3) Represents NSOs granted pursuant to the Company's 1995 Stock Option Plan at
85% of fair market value (as defined in the plan).
8
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL 1999
AND SEPTEMBER 2 1999 OPTION VALUES
The following table provides information regarding Company and MTI stock
option exercises in fiscal 1999 by the Named Executive Officers, and the value
of such officers' unexercised options at September 2 1999:
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised Unexercised In-The-Money
Options at Fiscal Options at Fiscal
Year-End Year-End
-------- --------
Shares Acquired Value Exercisable (E)/ Exercisable (E)/
Name on Exercise Realized Unexercisable (U) Unexercisable (U)
- ------------------- ----------- --------- ----------------- -----------------
<S> <C> <C> <C> <C>
Joel J. Kocher - - 180,000 (E) $ 111,384 (E)
370,000 (U) $ 290,836 (U)
Michael S. Adkins 15,000 (1) $ 660,030 72,609 (E) (2) $2,615,937 (E) (3)
145,074 (U) (2) 705,874 (U) (3)
Scott L. Bower - - 25,000 (E) $ -
115,000 (U)
Stephen S. Brown - - 75,000 (U) $ -
Savino R. Ferrales
- - 26,000 (E) $ -
124,000 (U)
</TABLE>
______________________________
(1) Reflects exercise of options to purchase MTI Common Stock.
(2) Includes options to purchase MTI Common Stock in the following amounts:
Mr. Adkins, 46,809 (E), 12,874 (U).
(3) Includes the value of options to purchase MTI Common Stock in the following
amounts: Mr. Adkins, $2,615,288 (E), $704,936 (U).
Compensation of Directors
Members of the Board of Directors who are not employees, officers or directors
of the Company, MTI, or any subsidiary or affiliate of the Company or MTI are
paid an annual retainer of $40,000 (the "Annual Retainer"). The Annual Retainer
is payable in arrears in equal quarterly installments within the first thirty
days of each fiscal quarter to qualified directors holding office during the
prior fiscal quarter. Qualified directors who hold office for less than an
entire fiscal quarter receive a pro-rated portion of the Annual Retainer.
Additionally, all directors who are not employees of the Company, MTI or their
subsidiaries or affiliates are to receive a formula Nonstatutory Stock Option (a
"Formula Option") of 10,000 shares of Common Stock upon appointment to the Board
and such directors serving on the Board as of the date immediately following
each annual meeting of the Company's shareholders receive a Formula Option as of
the date of the meeting for 3,000 shares of Common Stock. The Company
reimburses directors for travel and lodging expenses, if any, incurred in
connection with attendance at Board meetings.
Employment and Severance Arrangements
The Company has entered into employment and severance agreements (the
"Agreements") with Mr. Kocher, Mr. Adkins and Mr. Ferrales and certain other
officers of the Company relating to termination and compensation upon
termination of the officer's active employment with the Company. The Agreements
allow either the Company or the officer to terminate the officer's active
employment with the Company for any reason, voluntary or involuntary, with or
without cause, by providing notice to that effect in writing. The Agreements
provide that during a six-month or one-year "Transition Period" following
termination, the officer will continue to receive all benefits "customarily
provided" to such officer while employed, including, but not limited to, salary,
bonuses, executive bonuses, benefits and continued vesting of any granted stock
options. "Customarily provided" refers to Company practices and plans with
respect to the officer's benefits and compensation in effect as of the date of
termination of the officer's active employment with the Company. However, such
terminated officers will not be
9
<PAGE>
entitled to any new grants of interest in future executive bonuses, any new
grants of stock options, or payment of any compensation under an incentive
program that is deferred, due to payment criteria of such incentive program, as
those criteria existed as of the date of termination of the officer's active
employment with the Company, beyond the Transition Period. Joseph M. Daltoso,
former Chairman and Chief Executive Officer, Gregory D. Stevenson, former
President and Chief Operating Officer, and T. Erik Oaas, former Executive Vice
President and Chief Financial Officer have Agreements with two-year Transition
Periods. Certain officers, including Mr. Bower and Mr. Brown, have entered into
employment and severance agreements which provide for a lump sum payment of six
(6) or twelve (12) months base salary upon termination, rather than for payments
and benefits over a Transition Period as provided under the Agreements.
During fiscal 1999, the following former Named Executive Officers received
cash compensation under the Agreements in the amounts noted: Mr. Daltoso,
$677,295; Mr. Stevenson, $512,352; Mr. Oaas, $443,121; Mr. George A. Haneke,
former Senior Vice President, Business Systems Planning, $334,238; and Ms.
Judith A. Bitterli, Vice President, Office of the General Manager Micron PC,
$78,017.
Change of Control Agreements
A Change of Control, for purposes other than the 1995 Stock Option Plan, shall
mean the acquisition by any person or entity of securities of the Company which
results in such person or entity owning or controlling more of the combined
voting power of the Company than does MTI and owning or controlling more than
35% of the voting securities of the Company or, subject to MTI owning or
controlling more than 35% of the securities of the Company, the acquisition by
any person or entity of more than 35% of the common stock of MTI.
Upon a Change of Control of the Company (as defined above), a cash lump-sum
payment in the amount equal to the salary payable under the Agreements shall be
made to each officer in exchange for any further salary obligations thereunder.
In addition, (i) the chief executive officer, president, general manager and
vice president (except Area Vice Presidents as defined below) of the Company and
its subsidiaries shall be entitled to receive two years base salary, (ii) each
vice president of the Company and its subsidiaries not elected by the applicable
board of directors ("Area Vice President") and each officer and management
director of the Company and its subsidiaries not otherwise included in (i) shall
receive one year base compensation or total target compensation, in each case if
such employee has not received a comparable offer of employment, following such
Change of Control. An employee's right to terminate employment under the
Agreements shall terminate upon acceptance of such comparable offer of
employment. A comparable offer of employment is defined as an agreement
providing for responsibilities, status, cash compensation, benefits and location
comparable to those in effect before the Change of Control as reasonably
determined by the employee (with a term of three years for the chief executive
officer and president, two years for the vice presidents and general managers of
subsidiaries (excluding Area Vice Presidents) and one year for Area Vice
Presidents, officers and management directors identified in (ii) above,
providing one year's salary and benefits in the event of death and disability
and which has severance consisting of continued compensation and benefits
through the end of the term). All other employees of the Company and its
subsidiaries not included in (i) and (ii) above shall receive six months base
salary or total target compensation if the employee has not received an offer of
employment providing comparable compensation, benefits and location following
the Change of Control.
The Micron Electronics, Inc. Management and Executive Incentive Plan (the
"Incentive Plan", formerly the Micron Electronics, Inc. Executive Bonus Plan)
provides that, upon a Change of Control of the Company, the Company shall pay to
each eligible executive bonuses allocated, if any, under the Incentive Plan for
the current fiscal year at the maximum level established by the Board of
Directors as of the most recent allocation and any bonuses that have been
awarded for previous years under the Incentive Plan but not previously paid.
Upon a Change of Control, the Company shall pay all employees such amounts, if
any, that are necessary to place such employees in the same after tax position
as the employees would have been in had no excise tax been imposed under Section
280G of the Internal Revenue Code of 1986, as amended (the "Code").
A Change of Control for purposes of the 1995 Stock Option Plan shall mean the
acquisition, by any person or entity, of securities of the Company which results
in such person or entity owning or controlling more of the combined voting power
of the Company than does MTI and owning or controlling more than 20% of the
voting securities of the Company or the acquisition by any person or entity of
more than 35% of the Common Stock of
10
<PAGE>
MTI. The Micron Electronics, Inc. 1995 Stock Option Plan provides that, in the
event of a Change of Control of the Company, the unexercised portion of any
options under such plan shall be immediately exercisable.
Compensation Committee Interlocks and Insider Participation
Serving on the Compensation Committee are Directors Robert A. Lothrop, Robert
Lee and John B. Balousek. Past members of the Compensation Committee, serving
during fiscal year 1999, were Jerry M. Hess and John R. Simplot. During fiscal
1999, Messrs. Hess, Lothrop and Simplot were directors of MTI.
11
<PAGE>
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following report and
the performance graph on page 15 shall not be incorporated by reference into any
such filings.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
REGARDING EXECUTIVE COMPENSATION
Compensation Committee
Serving on the Compensation Committee are Directors Robert A. Lothrop, Robert
Lee and John B. Balousek. Past members of the Compensation Committee, serving
during fiscal year 1999, were Jerry M. Hess, who resigned from the Board of
Directors on October 1, 1998, and John R. Simplot, who resigned from the Board
of Directors on July 1, 1999. The Committee met seven (7) times in fiscal 1999
and intends to meet annually or more frequently as the Company's Board of
Directors may request.
The Committee's primary responsibility is to review and establish the
compensation of the Company's officers, including salary, bonuses, stock option
grants and other compensation. Compensation for the Company's executive
officers for fiscal 1999, including base salary, performance bonuses, stock
option grants and other compensation, was determined by the Compensation
Committee and reviewed by the Company's Board of Directors.
Executive Officer Compensation
The Company's executive officer compensation programs are described below for
the purpose of providing a general understanding of the various components of
executive officer compensation. These executive officer compensation programs
are designed to attract, retain and reward highly qualified executive officers
who are important to the success of the Company and to provide incentives
relating directly to the financial performance and long-term growth of the
Company. The various components of the Company's executive officer compensation
programs are, in most cases, the same as those generally made available to
employees of the Company. The following is a summary of the executive officer
compensation programs:
Cash Compensation
Base Salary. The base salary of each executive officer is established
-----------
primarily upon (i) a review of executive compensation offered by companies
generally comparable to the Company, and (ii) a subjective evaluation of the
executive officer's expected contribution to the Company, including individual
performance, level of responsibility and technical expertise.
Performance Bonuses. Cash bonuses to executive officers are intended to
-------------------
reward executive officers for the Company's financial performance and
achievement of individual performance goals during the fiscal year and are
earned and paid pursuant to the Management and Executive Incentive Plan (the
"Incentive Plan", formerly the Micron Electronics, Inc. Executive Bonus Plan),
which was approved by the Company's shareholders in June 1995. Bonuses awarded
under the Incentive Plan are based on (i) after-tax net profit of the Company
for the fiscal year, and (ii) achievement of individual performance criteria.
Performance bonuses for fiscal 1999 and 1998 were paid in a lump sum.
Performance bonuses awarded for prior fiscal years are generally payable over a
five-year period.
Profit Sharing. The Company distributes, on a quarterly basis, approximately
--------------
five percent (5%) of its consolidated quarterly after-tax net profits generally
on an equal basis to eligible employees (including executive officers) of the
Company and its subsidiaries.
Incentive Bonuses. From time to time, incentive cash bonuses are approved for
-----------------
payment to employees (including executive officers) for the achievement of
milestones, the completion of projects identified as contributing to Company's
success and the attainment of technological advances.
12
<PAGE>
Equity Compensation
To provide long-term incentive to the executive officers and employees of the
Company and its subsidiaries, the Company grants incentive and nonstatutory
stock options to such persons pursuant to the Company's 1995 Stock Option Plan.
Such options provide a link to long-term growth in the value of the Company's
Common Stock. The criteria used to determine who receives stock options and the
number of stock options granted is generally based on an evaluation of the
individual's long-term impact to the Company. That criteria includes: ability
to directly contribute to the Company's corporate success and future revenue
growth, ability to develop efficiencies that result in cost reductions without
compromising product quality or quantity, ability to develop processes or
programs that directly support the attainment of corporate objectives, ability
to invent, design, or develop new products or components, or develop innovative
processes that make the Company more competitive, ability to manage key
departments/functions and other relevant items, as appropriate. Stock options
granted to employees and executive officers after April 28, 1999 typically have
a term of ten (10) years and vest twenty-five percent (25%) each year for four
(4) years from the date of grant. Stock options granted to employees and
executive officers prior to April 28, 1999 typically have a term of six (6)
years and vest twenty percent (20%) each year for five (5) years from the date
of grant.
Other Compensation
In addition to cash and equity compensation programs, executive officers
participate in various other employee benefit plans, including, but not limited
to, a time-off plan. Under the time-off plan, full-time employees of the
Company and its subsidiaries (including executive officers) are allowed to
accumulate a predetermined number of hours based on length of service for
vacation, holidays, sick time, emergencies and personal needs. Hours
accumulated in excess of 400 hours are paid in cash to the employee. Executive
officer participation in various clubs, organizations and associations may also
be funded by the Company or its subsidiaries.
CEO Compensation
Joel J. Kocher is the Chairman of the Board of Directors, Chief Executive
Officer and President of the Company. Mr. Kocher's annual base salary is based
on an analysis of compensation paid to chief executive officers of comparable
companies and on a subjective analysis of Mr. Kocher's experience, level of
responsibility and contribution to the Company. The Compensation Committee has
fixed Mr. Kocher's annual base salary at $450,000.
In October 1999, pursuant to the Incentive Plan, Mr. Kocher was awarded and
paid $255,000 for fiscal 1999 performance.
During fiscal 1999, Mr. Kocher was granted options to purchase a total of
50,000 shares of the Company's Common Stock granted under the Company's 1995
Stock Option Plan. The options vest at a rate of twenty percent (20%) each year
for five (5) years from the date of grant, and expire after a term of six (6)
years.
Tax Deductibility of Executive Compensation
The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the
Internal Revenue Code. Section 162(m) limits deductions for certain executive
compensation in excess of $1 million. Certain types of compensation are
deductible only if performance criteria are specified in detail, and payments
are contingent upon stockholder approval of the compensation arrangement. The
Company believes that it is generally in the best interests of its stockholders
to structure its compensation plans to achieve maximum deductibility under
Section 162(m) with minimal sacrifices in flexibility and corporate objectives.
With respect to non-equity compensation arrangements and amounts paid under the
Incentive Plan, the Compensation Committee has reviewed the terms of those
arrangements likely to be subject to Section 162(m) and believes that at this
time the Company is in compliance with Section 162(m). The Company also
believes the 1995 Stock Option Plan is in compliance with Section 162(m). The
Compensation Committee will continue to monitor compliance with Section 162(m)
and will take appropriate action if warranted. Since corporate objectives may
not always be consistent with the requirement for full deductibility, it is
conceivable that the Company may enter into compensation arrangements
13
<PAGE>
under which payments are not deductible under Section 162(m). Deductibility is
not the sole factor used by the Compensation Committee in ascertaining
appropriate levels or methods of compensation.
Compensation Committee of the Board of Directors
Robert A. Lothrop
Robert Lee
John B. Balousek
14
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the
Company's Common Stock for the period from August 31, 1994 through August 31,
1999 with the cumulative total return for the same period as (i) the Center for
Research in Securities Prices ("CRSP") Total Return Index for The Nasdaq Stock
Market (U.S. Companies) and (ii) the CRSP Total Return Index for Nasdaq Computer
Manufacturer Stocks. These indices are prepared and made available to the
public by the Center for Research in Securities Prices at the University of
Chicago. Upon the Effective Time of the Merger, the Company's fiscal year
became a 52 or 53 week period ending on the Thursday closest to August 31, which
corresponded to the fiscal years of Micron Computer, Inc. and former MCMS.
Accordingly, the last trading day of the Company's fiscal year varies. For
consistent presentation and a more meaningful comparison to the indices shown
herein, the Company's stock performance graph was plotted assuming an August 31
fiscal year-end. These comparisons assume an investment of $100 at the
commencement of the period and the reinvestment of dividends paid during the
period, as applicable. On October 17, 1994, the Company, then known as ZEOS
International, Ltd., announced its intent to merge with Micron Computer, Inc.
and former MCMS. The Merger was effective on April 7, 1995.
Note: Management cautions that the stock price performance information shown
in the graph below may not be indicative of current stock price levels or future
stock price performance.
[PERFORMANCE GRAPH OF MICRON ELECTRONICS, INC. APPEARS HERE]
The performance graph was plotted using the following data:
<TABLE>
<CAPTION>
Year Ending August 31
------------------------------------------
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Micron Electronics, Inc. $ 100 $ 576 $ 508 $ 522 $ 376 $ 310
CRSP Total Return Index for The Nasdaq Stock
Market (U.S. Companies) 100 135 152 212 200 371
CRSP Total Return Index for Nasdaq Computer
Manufacturer Stocks 100 175 209 332 403 932
</TABLE>
15
<PAGE>
PROPOSAL ONE:
ELECTION OF DIRECTORS
The Company's Board of Directors has fixed the number of directors at five
(5), and it is contemplated that a board of five (5) directors will be elected
at the Annual Meeting. Unless otherwise instructed, the proxy holders will vote
the Proxies received by them for the five (5) nominees named below, all of whom
are presently directors of the Company and are identified in the proxy statement
under "DIRECTORS". In the event that any nominee is unable or declines to serve
as a director at the time of the Annual Meeting, the Proxies will be voted for
any nominee whom shall be designated by the present Board of Directors to fill
the vacancy or for the balance of those nominees named without a substitute. In
the event that additional persons are nominated for election as directors, the
proxy holders intend to vote all Proxies received by them in such a manner as
will ensure the election of as many of the nominees listed below as possible. It
is not expected that any nominee will be unable or will decline to serve as a
director. The term of office of each person elected as a director will continue
until the next annual meeting of shareholders and until such person's successor
has been duly elected and qualified, or until such person's earlier death,
resignation, removal or disqualification. Officers are appointed by the Board of
Directors and serve at the discretion of the Board.
The Board's nominees for re-election at the Annual Meeting are Steven R.
Appleton, John B. Balousek, Joel J. Kocher, Robert Lee and Robert A. Lothrop.
The Board recommends a vote "FOR" the election of each of the foregoing
nominees.
The five (5) nominees receiving the highest number of affirmative votes of
the shares of the Company's Common Stock entitled to vote on this matter shall
be elected as the directors.
PROPOSAL TWO:
TO APPROVE THE AMENDMENT TO THE 1995 STOCK OPTION PLAN
The Micron Electronics, Inc. 1995 Stock Option Plan (as amended, the "1995
Option Plan") reserves 10,000,000 shares of Common Stock for issuance
thereunder. On August 26, 1999, the Board of Directors authorized an amendment
to the 1995 Option Plan, subject to shareholder approval, to increase by an
additional 5,000,000 shares the number of shares available for grant under the
1995 Option Plan. The purpose of the amendment is to provide the Company with
an additional 5,000,000 shares of Common Stock that can be awarded or granted to
officers, employees, non-employee directors and consultants of the Company in
future years through the expiration of the 1995 Option Plan in 2005.
The 1995 Option Plan was approved by shareholders at the 1995 Annual
Meeting and an amendment to the 1995 Option Plan was approved by the
shareholders at the 1997 Annual Meeting. The following is a summary of the
material features of the 1995 Option Plan. The following summary is qualified in
its entirety by reference to the full text of the 1995 Option Plan which is
attached hereto as Appendix A.
Purpose of the 1995 Option Plan and the Proposed Amendment
- ----------------------------------------------------------
The purpose of the proposed amendment is to ensure that the Company has a
sufficient number of shares of Common Stock reserved under the 1995 Option Plan
to accomplish the 1995 Option Plan's objective, i.e., to align employee and
shareholder long-term interest and to enable the Company to attract, motivate
and retain experienced and qualified personnel for positions of substantial
responsibility. Assuming approval of the proposed amendment, the 15,000,000
total shares reserved for issuance under the 1995 Option Plan will represent
approximately 15.6% of the Company's Common Stock outstanding as of the Record
Date.
Administration
- --------------
The 1995 Option Plan shall be administered by (i) the Board of Directors if
the Board may administer the 1995 Option Plan in compliance with Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or (ii) a committee appointed by the Board and constituted so as to
permit the 1995 Option Plan to comply with the provisions of Rule 16b-3 and
Section 162(m) of the Code. If permitted by Rule 16b-3, the 1995 Option Plan
may be administered by different bodies with respect to employees who are
directors, non-director officers, employees who are neither directors nor
officers, and consultants. For purposes
16
<PAGE>
of the plan description, for grants of options to individuals subject to Section
16b of the Exchange Act, the term "Committee" shall mean the Compensation
Committee of the Board of Directors, or, in the event the 1995 Option Plan is
administered by the Board of Directors, the Board of Directors. For all other
grants of options, the term "Committee" shall mean the Chief Executive Officer
of the Company. Members of the Board receive no additional compensation for
their services in connection with the administration of the 1995 Option Plan.
The Committee has the discretion to select the employees and/or consultants
to whom options may be granted (an "Optionee"), to determine the number of
shares granted under each option, and to make all other determinations which it
deems necessary or appropriate in the interpretation and administration of the
1995 Option Plan. The Committee, in its discretion, may accelerate the vesting
of any option, may reduce the exercise price of any option, and amend or modify
any option provided such amendment does not impair the rights of any Optionee
unless mutually agreed otherwise by the Optionee and Committee. Options granted
under the 1995 Option Plan will be evidenced by a written agreement between the
Company and the Optionee, containing the specific terms and conditions of each
option. The Company anticipates that the standard form of agreement will provide
for an option term of ten (10) years with the option exercisable as to one-
fourth (1/4) of the shares subject to the option per year commencing with the
first anniversary date of the date of grant.
Eligible Participants
- ---------------------
Only persons who are officers, employees, consultants or outside directors
of the Company will be eligible to participate in, and to receive options under,
the 1995 Option Plan. An Optionee may be granted more than one option under the
1995 Option Plan. No person shall be granted options to purchase more than
250,000 shares during any fiscal year; provided, however, that in the fiscal
year in which an employee commences employment with the Company, options granted
to such employee shall be limited to 500,000 shares in such fiscal year. The
purchase price per share payable by an Optionee upon exercise of each option
intended to qualify under Section 162(m) of the Code shall be equal to the fair
market value of the Company's Common Stock on the date of grant.
Term of Options
- ---------------
The 1995 Option Plan provides for the grant of incentive stock options
("ISOs") as defined in Section 422 of the Code, or nonstatutory stock options
("NSOs"). The purchase price per share payable by an Optionee upon exercise of
each ISO granted under the 1995 Option Plan shall be equal to the fair market
value of the Company's Common Stock on the date of the grant. The fair market
value of the Common Stock on a given date shall be the closing price of the
Common Stock on The Nasdaq Stock Market (or such national securities exchange on
which the Common Stock is primarily traded) on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal; provided,
however, that where there is no public market for the Common Stock, the fair
market value per share shall be determined by the Board of Directors in its
discretion. Options granted to consultants and outside directors shall be NSOs.
The purchase price per share payable by an Optionee upon the exercise of each
NSO granted under the 1995 Option Plan shall be determined by the Committee.
The exercise price of an option granted under the 1995 Option Plan may be
paid in cash, check, promissory note, a reduction in the amount of any Company
liability to the Optionee or, at the discretion of the Committee, in shares of
the Company's Common Stock, or in any combination thereof, as determined by the
Committee. Another method of payment available under the 1995 Option Plan
includes the acceptance by the Stock Administration Department and a stockbroker
of documentation necessary to perform a cashless exercise transaction.
In general, if an Optionee's employment with the Company is terminated for
any reason, options exercisable as of the date of termination may be exercised
for a period of 30 days following such date. Unless otherwise provided, options
not yet exercisable terminate immediately upon the date of the termination. The
Committee may grant options under the 1995 Option Plan, which survive the
termination of an Optionee's employment with the Company, and may accelerate the
vesting of options upon such terms and conditions as the Committee may
determine.
Options granted under the 1995 Option Plan cannot be assigned, transferred,
pledged, or otherwise encumbered in any way, except in the event of the death of
an Optionee, by the Optionee's will, or by the applicable laws of descent or
distribution. Options granted under the 1995 Option Plan may be exercised
during
17
<PAGE>
an Optionee's lifetime only by the Optionee. In the event of the death of an
Optionee, the exercisable portion of the Option at the time of death may be
exercised at any time within twelve (12) months following the date of death (but
in no event later than the expiration of the term of such Option) by the
Optionee's estate or by a person who acquired the right to exercise the Option
at the date of death.
Adjustments upon Change in Capitalization; Corporate Transactions
- -----------------------------------------------------------------
In the event of a change in the number of issued shares of the Company's
Common Stock by reason of a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, a proportionate adjustment
will be made in the number of shares reserved for issuance under the 1995 Option
Plan and in the number and exercise price of shares subject to any outstanding
options under the 1995 Option Plan, in order to maintain the purpose of the
original grant. In addition, in connection with any merger or sale of
substantially all of the assets of the Company, other than in a Change in
Control (as defined in the 1995 Option Plan), each outstanding option may be
assumed or an equivalent option substituted by a successor corporation. In lieu
of such assumption or substitution, or if the successor corporation does not
assume the options or substitute substantially equivalent options, the Board may
determine in its sole discretion that all or a portion of the options
outstanding should become exercisable. In the event of a Change in Control of
the Company other than pursuant to a merger of the Company, the unexercised
portion of outstanding options shall become immediately exercisable, to the
extent such acceleration does not disqualify the 1995 Option Plan or cause an
ISO to be treated as a NSO without the consent of the Optionee.
Amendment and Termination of the 1995 Option Plan
- ---------------------------------------------------
The 1995 Option Plan was effective upon the adoption by the Company's Board
of Directors and will terminate on April 26, 2005, unless earlier terminated by
the Board of Directors. The Company's Board of Directors may, at any time, amend
or terminate the 1995 Option Plan, provided that such termination will not
adversely affect the rights of the Optionees under any outstanding options
previously granted.
Federal Income Tax Consequences
- -------------------------------
The following discussion of the U.S. federal income tax consequences of the
1995 Option Plan is intended to be a summary of applicable federal law as of the
date of this Prospectus. State and local tax consequences may differ. Because
the U.S. federal income tax rules governing options and related payment are
complex and subject to frequent change, Optionees are advised to consult their
tax advisors prior to exercise of options or dispositions of stock acquired
pursuant to option exercise.
Incentive Stock Options. No taxable income is recognized by the Optionee
upon the grant or exercise of an ISO (unless the alternative minimum tax rules
apply). If Common Stock is issued to an Optionee pursuant to the exercise of an
ISO, and if no disqualifying disposition of the shares is made by the Optionee
within two years after the date of grant or within one year after the issuance
of such shares to the Optionee, (i) upon the resale of such shares, any amount
realized in excess of the option exercise price will generally be treated as a
capital gain or loss (rather than ordinary income or loss), and (ii) no
deduction will be allowed to the Company for U.S. federal income tax purposes.
If Common Stock acquired upon the exercise of an ISO is disposed of before
the expiration of either holding period described above (a "disqualifying
disposition"), generally (i) the Optionee will recognize ordinary income in the
year of disposition in an amount equal to the excess (if any) of the fair market
value of the shares at exercise (or, if less, the amount realized on the
disposition of the shares) over the option exercise price paid for such shares,
and (ii) the Company is entitled to a tax deduction in the same amount. Any
further gain or loss realized by the participant will be taxed as short-term,
mid-term or long-term capital gain or loss, as the case may be, and will not
result in any deduction by the Company.
Nonstatutory Stock Options. With respect to NSOs: (i) no income is
recognized by the Optionee at the time the option is granted; (ii) generally, at
exercise, ordinary income is recognized by the Optionee in an amount equal to
the difference between the option exercise price paid for the shares and the
fair market value of the shares on the date of exercise, and the Company is
entitled to a tax deduction in the same amount; and (iii) upon disposition of
the shares, any gain or loss is treated as capital gain or loss. In the case of
an Optionee who is also
18
<PAGE>
an employee at the time of grant, any income recognized upon exercise of an NSO
will constitute wages for which withholding will be required.
Alternative Minimum Tax. The exercise of an ISO granted under the 1995
Option Plan may subject the Optionee to the alternative minimum tax ("AMT")
under Section 55 of the Code. In computing alternative minimum taxable income,
shares purchased upon exercise of an ISO are treated as if they had been
acquired by the Optionee pursuant to an NSO. See "Nonstatutory Stock Options,"
above. This adjustment to alternative minimum taxable income does not occur with
respect to shares disposed of in a disqualifying disposition in the same
calendar year as the exercise of the ISO. Under certain circumstances, an
Optionee may affect the timing and measurement of AMT by filing an election with
the Internal Revenue Service under Section 83(b) within 30 days after the date
of exercise of an ISO. Accordingly, an Optionee should consult his or her own
tax advisor prior to exercising an ISO concerning the advisability of filing an
election under Section 83(b) of the Code for alternative minimum tax purposes.
If an Optionee pays AMT in excess of his or her regular tax liability, the
amount of such AMT relating to ISOs may be carried forward as a credit against
any subsequent years' regular tax in excess of the AMT.
Options to be Granted
- ---------------------
Because options under the 1995 Option Plan are granted in the discretion of
the Board of Directors (or such committee, if any, to whom the Board has
delegated such authority), it is not possible for the Company to determine and
disclose the amount of options that may be granted to the named executive
officers and the executive officers as a whole, if the amendment is approved.
However, see "Eligible Participants" above for a description of the limitations
as to granting options.
Proposed Amendment
- ------------------
Under the terms of the 1995 Option Plan, 10,000,000 shares are reserved for
issuance. The proposed amendment will increase the number of authorized shares
of Common Stock reserved for issuance by an additional 5,000,000 shares by
revising the first sentence of Section 3 of the 1995 Option Plan to read as
follows:
"Subject to the provisions of Section 11 of the
Plan, the maximum number of Shares which may be
optioned and sold under the Plan is 15,000,000
Shares."
Required Vote
- -------------
The affirmative vote of the holders of a majority of the outstanding shares
of the Company's Common Stock present or represented and voting at the Annual
Meeting will be required for approval of such amendment. The Board of Directors
recommends that shareholders vote "FOR" approval of such amendment. If the
amendment is approved by shareholders, it will be effective as of the date of
its adoption by the shareholders. If the shareholders do not approve the
amendment, the 1995 Option Plan will remain in effect in its current form.
PROPOSAL THREE:
TO APPROVE THE AMENDED MANAGEMENT AND EXECUTIVE INCENTIVE PLAN
The Micron Electronics, Inc. Management and Executive Incentive Plan (the
"Incentive Plan") had an original effective date of April 7, 1995 and was
approved by the shareholders as the Micron Electronics, Inc. Executive Bonus
Plan on June 20, 1995 in compliance with Section 162(m) of the Code. This Code
section limits the Company's deduction in any one fiscal year for federal income
tax purposes of compensation in excess of $1,000,000 paid to each of the
Company's Chief Executive Officer and its four other highest paid executive
officers who are employed on the last day of the fiscal year unless the
compensation was not otherwise subject to the deduction limit. Compensation
such as that paid under the Incentive Plan which is performance-based and
approved by the Company's shareholders is not subject to the deduction limit.
Reapproval of the Incentive Plan is required to preserve its status under Code
section 162(m). To maximize the Company's federal income tax deductions, the
Board of Directors of the Company is requesting that the shareholders approve
the adoption of the amended Incentive Plan at the Annual Meeting.
19
<PAGE>
The following is a summary of the material features of the Incentive Plan
as amended. The Incentive Plan is attached as Appendix B to the Proxy Statement,
and the following summary is qualified in its entirety by reference to it.
Purpose of the Amended Incentive Plan
- -------------------------------------
The Incentive Plan is designed to attract, retain, and reward highly
qualified executive, management and key employees who are important to the
Company's success and to provide incentives relating directly to the financial
performance and long-term growth of the Company. As amended, the Incentive Plan
permits greater flexibility in administration for awards to participants that
are not subject to Section 162(m) restrictions and provides additional
performance goals and performance periods on which to base awards.
Administration
- --------------
The Incentive Plan is administered by the Administrator, which may be one
or more committees appointed by the Board of Directors. The Compensation
Committee of the Board of Directors will be the Administrator of the Incentive
Plan with respect to the executive officers. An additional committee may be
appointed by the Board of Directors as the Administrator of the Incentive Plan
with respect to the officers and key employees. The present members of the
Compensation Committee are John B. Balousek, Robert Lee and Robert A. Lothrop,
all of whom are deemed to be outside directors of the Company, as defined under
and in compliance with Section 162(m). None of the members receive compensation
from the Company in any capacity other than as a director of the Company.
Performance goals will be based directly or indirectly on one or more, or a
combination of one or more, of the following: net income; earnings per share;
return on equity; gross margin; return on assets; net sales; new products;
expansion of facilities or operations; customer satisfaction; asset management;
debt management; return on invested capital; or economic value added.
Promptly after the beginning of a performance period, the Administrator is
expected to determine (i) the performance criteria; (ii) the executives eligible
to participate in the Incentive Plan for the applicable Performance Period;
(iii) the target bonus amount for each executive for the Performance Period; and
(iv) the method for computing the amount of bonus payable to each executive if
the performance goals are achieved. For purposes of the Incentive Plan, a
Performance Period is any fiscal month, quarter, semi-annual, annual or any
other period of time as established by the Administrator; provided, however,
that Performance Periods for the Chief Executive Officer, President, Chief
Operating Officer and Chief Financial Officer may not be less than a year.
The maximum bonus amount that may be paid to any executive with respect to
results for any one fiscal year may not exceed the greater of $2,000,000 or two
percent (2%) of the Company's consolidated after-tax net profits. Bonus amounts
shall be paid within ninety (90) days after the close of the applicable
performance period unless the Administrator elects to defer the payout of the
bonus amount over a period of time not to exceed five (5) years. Payout of a
bonus over an extended period may, at the discretion of the Administrator, be
subject to or conditioned upon the continuation of the participant's employment,
a determination of satisfactory job performance, or the profitability of the
Company in the year paid. Bonuses will be paid only when the Administrator
certifies in writing that the performance goals have been met. In the event of
a Change in Control (as defined in the Incentive Plan), any bonus earned but not
yet paid under the Incentive Plan shall be immediately payable.
The Board of Directors or the Compensation Committee of the Board of
Directors may amend, modify, suspend, or terminate the Incentive Plan for the
purpose of meeting or addressing any changes in legal requirements or for any
other purpose permitted by law. The Board of Directors or the Compensation
Committee of the Board of Directors will seek shareholder approval of any
amendment determined to require shareholder approval or be advisable under the
regulations of the Internal Revenue Service or other applicable laws or
regulations.
20
<PAGE>
Eligible Participants
- ---------------------
Executives who are eligible to participate in the Incentive Plan include
the executive officers, officers and certain other key employees of the Company
as may be determined by the Administrator of the Incentive Plan. Individuals
subject to the reporting requirements of Section 16 of the Exchange Act are
considered to be executive officers for purposes of the Incentive Plan. As of
September 2, 1999, there were approximately 134 individuals of the Company who
currently participate in the Incentive Plan.
Amendment and Termination of the Incentive Plan
- -----------------------------------------------
The Incentive Plan was effective upon the adoption by the Company's Board
of Directors. The Company's Board of Directors or Compensation Committee may, at
any time, amend, modify, suspend or terminate the Incentive Plan.
Incentive Plan Benefits
- -----------------------
Because bonuses under the Incentive Plan are awarded based on whether or
not performance goals have been achieved for different Performance Periods, it
is not possible for the Company to determine and disclose the amount of
compensation that may be awarded to each executive officer if the amendment is
approved. However, see "Administration" above for a description of the
limitations as to the bonuses awarded.
Required Vote
- -------------
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock represented at the Annual Meeting will be required to
approve the adoption of the Micron Electronics, Inc. Management and Executive
Incentive Plan. Management recommends voting "FOR" approval of the proposal.
If the shareholders do not approve the amended Incentive Plan, the amended
Incentive Plan will remain in effect; however, any amounts paid under the
Incentive Plan will count as compensation that may result in the elimination of
the Company's ability to deduct compensation paid to the Chief Executive Officer
and its four (4) other highest paid executive officers in excess of $1 million.
PROPOSAL FOUR:
TO RATIFY THE APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed PricewaterhouseCoopers L.L.P.,
independent accountants, to audit the consolidated financial statements of the
Company for the fiscal year ending August 31, 2000, and recommends that
shareholders vote "FOR" ratification of such appointment.
The affirmative vote of the holders of a majority of the outstanding shares
of the Company's Common Stock present or represented and voting at the Annual
Meeting will be required for ratification of such appointment. In the event that
the shareholders fail to ratify such appointment, the Board of Directors will
reconsider its selection.
Representatives of PricewaterhouseCoopers L.L.P. are expected to be present
at the Annual Meeting. Such representatives will have the opportunity to make a
statement if they so desire, and are expected to be available to respond to
appropriate questions.
21
<PAGE>
OTHER MATTERS
The Company knows of no other matters to be submitted at the Annual
Meeting. If any other matters properly come before the Annual Meeting, the
persons named in the accompanying form of Proxy will vote, in their discretion,
the shares of the Company's Common Stock they represent.
TELEPHONE AND INTERNET VOTING ALTERNATIVES
Shareholders with shares held directly or in an account at a brokerage firm
may vote those shares telephonically by calling the telephone number or
accessing the Internet site referenced in your voting form. Votes submitted
electronically via the Internet or by telephone must be received by midnight,
Eastern Time, on November 21, 1999.
The Internet voting procedures are designed to authenticate shareholder
identities, to allow shareholders to give their voting instructions and to
confirm that the shareholders' instructions have been recorded properly.
Shareholders voting via the Internet should understand that there may be costs
associated with electronic access, such as usage charges from Internet access
providers and telephone companies, that must be borne by the shareholder.
The giving of a Proxy will not affect your right to vote in person should
you decide to attend the Annual Meeting. Shareholders holding shares in the name
of a broker or other nominee who wish to vote in person at the Annual Meeting
are requested to bring a statement from the broker or nominee confirming
ownership of the Company's Common Stock.
22
<PAGE>
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS FOR
2000 ANNUAL MEETING OF SHAREHOLDERS
In order to be included in the proxy statement and form of proxy relating
to the Company's 2000 Annual Meeting of Shareholders, proposals of shareholders
of the Company that are intended to be presented at such meeting must be
received by the Company no later than July 1, 2000, and must otherwise be in
compliance with applicable laws and regulations and the Bylaws of the Company.
THE MICRON ELECTRONICS, INC. BOARD OF DIRECTORS
Dated: October 29, 1999
23
<PAGE>
APPENDIX A
----------
MICRON ELECTRONICS, INC.
1995 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are:
--------------------
. to attract, motivate and retain experienced and qualified personnel
for positions of substantial responsibility,
. to provide additional incentive to Employees and Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Administrator at the time of grant.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as
-------------
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the legal requirements relating to the
---------------
administration of stock option plans under Minnesota corporate and securities
laws and the Code.
(c) "Board" means the Board of Directors of the Company.
------
(d) "Change in Control" means (i) the acquisition by any person or
-----------------
entity of securities of Micron Electronics, Inc. such that such person or
entity, directly, indirectly or beneficially, acting alone or in concert, (A)
owns or controls more of the combined voting power of all classes of voting
securities of Micron Electronics, Inc. than does Micron Technology, Inc. and (B)
owns or controls more than twenty percent (20%) of the combined voting power of
all classes of voting securities of Micron Electronics, Inc.; or (ii) the
acquisition by any person or entity, directly, indirectly or beneficially,
acting alone or in concert, of more than thirty-five percent (35%) of the common
stock of Micron Technology, Inc. outstanding at any time.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
----
(f) "Committee" means one or more Committees appointed by the Board
---------
in accordance with Section 4 of the Plan.
(g) "Common Stock" means the Common Stock of the Company.
------------
(h) "Company" means Micron Electronics, Inc., a Minnesota
-------
corporation.
(i) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render services and who is compensated
for such services. The term "Consultant" shall not include: (1) directors who
are paid only a director's fee by the Company or who are not compensated by the
Company for their services as Directors; or (2) individuals who (a) provide
services to the Company that directly or indirectly promote or maintain a market
for the Company's Common Stock, or (b) act as a conduit for distributing the
Company's Common Stock to the general public.
(j) "Continuous Status as an Employee or Consultant" means that the
----------------------------------------------
employment or consulting relationship with the Company, any Parent, or
Subsidiary, is not interrupted or terminated. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of (i) any leave
of absence approved by the
1
<PAGE>
Company or (ii) transfers between locations of the Company or between the
Company, its Parent, any Subsidiary, or any successor. A leave of absence
approved by the Company shall include sick leave, military leave, or any other
personal leave approved by an authorized representative of the Company. For
purposes of Incentive Stock Options, no such leave may exceed 90 days, unless
reemployment upon expiration of such leave is guaranteed by statute or contract.
If reemployment upon expiration of a leave of absence approved by the Company is
not so guaranteed, on the 181st day of such leave any Incentive Stock Option
held by the Optionee shall cease to be treated as an Incentive Stock Option and
shall be treated for tax purposes as a Nonstatutory Stock Option.
(k) "Director" means a member of the Board.
--------
(l) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(m) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(o) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the Nasdaq
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("Nasdaq") System, the Fair Market Value of a Share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such exchange or system (or the
exchange with the greatest volume of trading in the Common Stock) on the last
market trading day prior to the day of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the over-the-counter
market or is regularly quoted by a recognized securities dealer, but selling
prices are not reported, the Fair Market Value of a Share of Common Stock shall
be the mean between the high bid and low asked prices for the Common Stock on
the last market trading day prior to the day of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(p) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(q) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(r) "Notice of Grant" means a written notice evidencing certain terms
---------------
and conditions of an individual Option grant. The Notice of Grant is subject to
the terms and conditions of the Option Agreement.
(s) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "Option" means a stock option granted pursuant to the Plan.
------
(u) "Option Agreement" means a written agreement between the Company
----------------
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.
2
<PAGE>
(v) "Option Exchange Program" means a program whereby outstanding
-----------------------
options are surrendered in exchange for options with a lower exercise price.
(w) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(x) "Optionee" means an Employee, Consultant or Outside Director who
--------
holds an outstanding Option.
(y) "Outside Director" means a member of the Board who is not an
----------------
Employee of the Company, Micron Technology, Inc., or any Subsidiary of the
Company or Micron Technology, Inc.
(z) "Parent" means a "parent corporation", whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(aa) "Plan" means this 1995 Stock Option Plan.
----
(bb) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(cc) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 11 of the Plan.
(dd) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code. In the case of an
Option that is not intended to qualify as an Incentive Stock Option, the term
"Subsidiary" shall also include any other entity in which the Company, or any
Parent or Subsidiary of the Company, has a significant ownership interest.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 10,000,000 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been exercised
in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated); provided,
--------
however, that Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3,
------------------------------
the Plan may be administered by different bodies with respect to (i) Directors,
(ii) Officers who are not Directors, and (iii) Employees who are neither
Directors nor Officers.
(ii) Administration With Respect to Employees Subject to Section
-----------------------------------------------------------
16(b). With respect to Option grants made to Employees who are also Officers or
Directors subject to Section 16(b) of the Exchange Act, the Plan shall be
administered by (A) the Board, if the Board may administer the Plan in
compliance with the rules governing a plan intended to qualify as a
discretionary plan under Rule 16b-3, or (B) a committee designated by the Board
to administer the Plan, which committee shall be constituted to comply with the
rules governing a plan intended to qualify as a discretionary plan under Rule
16b-3. Once appointed, such committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members, remove
members (with or without cause) and substitute new members, fill vacancies
(however caused), and remove all members of the Committee and thereafter
directly administer the Plan, all to the extent permitted by the rules governing
a plan intended to qualify as a discretionary plan under Rule 16b-3.
3
<PAGE>
(iii) Administration With Respect to Other Persons. With
--------------------------------------------
respect to Option grants made to Employees or Consultants who are neither
Directors nor Officers of the Company, the Plan shall be administered by (A) the
Board or (B) a committee or committees designated by the Board, which committee
shall be constituted to satisfy Applicable Laws. Once appointed, such Board may
increase the size of the Committee and appoint additional members, remove
members (with or without cause) and substitute new members, fill vacancies
(however caused), and remove all members of the Committee and thereafter
directly administer the Plan, all to the extent permitted by Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(o) of the Plan;
(ii) to select the Consultants and Employees to whom Options
may be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend, and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option (subject to Section 14(c)
of the Plan), including the discretionary authority to extend the post-
termination exercisability period of Options longer than is otherwise provided
for in the Plan;
(xi) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option previously
granted by the Administrator;
(xii) to institute an Option Exchange Program; and
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
----------------------------------
decisions, determinations, and interpretations shall be final and binding on all
Optionees and any other holders of Options.
4
<PAGE>
5. Eligibility. Nonstatutory Stock Options may be granted to Employees,
-----------
Consultants and Outside Directors. Incentive Stock Options may be granted only
to Employees. If otherwise eligible, an Employee or Consultant who has been
granted an Option may be granted additional Options.
6. Limitations.
-----------
(a) Each Option shall be designated in the Notice of Grant as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of Shares subject to an Optionee's Incentive Stock Options granted by the
Company or any Parent or Subsidiary, which become exercisable for the first time
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares shall be determined as of the time of grant.
(b) Neither the Plan nor any Option shall confer upon an Optionee any
right with respect to continuing the Optionee's employment or consulting
relationship with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such employment or
consulting relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options to
Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 250,000 Shares; provided, however, that
in the fiscal year in which an employee commences employment with the Company,
options granted to such employee shall be limited to 500,000 Shares in such
fiscal year. The purchase price per Share payable by an Optionee upon exercise
of each Option intended to qualify under Section 162(m) of the Code shall be
equal to the fair market value of the Company's Common Stock on the date of
grant.
(ii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 11.
(iii) If an Option is canceled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 11), the canceled Option will be counted against the limit
set forth in Section 6(c)(i). For this purpose, if the exercise price of an
Option is reduced, the transaction will be treated as a cancellation of the
Option and the grant of a new Option.
(d) The following limitations shall apply to grants of Options to
Outside Directors:
(i) Each Outside Director shall receive a formula Nonstatutory
Stock Option (a "Formula Option") as of the Effective Date with respect to
10,000 shares of Common Stock, as shall each Outside Director later appointed or
elected to the Board (with the grant made as of the date of his or her first
election or appointment). Each Outside Director serving on the Board as of the
date immediately following each annual meeting of the Company's shareholders
shall receive a Formula Option as of the date of that meeting with respect to
3,000 shares of Common Stock. The Exercise Price for Formula Options shall be
the Fair Market Value of the Common Stock on the date of grant.
(ii) Unless the Administrator specifies otherwise, each Formula
Option shall become exercisable as to 100% of the covered shares as of the date
of grant. To the extent that a Formula Option is not immediately exercisable, a
Formula Option shall become exercisable in accordance with the terms of section
9(c) of the Plan upon the Outside Director's Disability and in accordance with
the terms of section 9(d) of the Plan upon the Outside Director's death. Unless
the Administrator specifies otherwise, Options shall be granted for a term of
six years. Options shall be forfeited to the extent they are not then
exercisable if an Outside Director resigns, is removed or fails to be reelected
or reappointed as a Director. Options shall terminate within 30 days of an
Outside Director's resignation, removal, or failure to be reelected or
reappointed as a Director.
7. Term of Option. The term of each Option shall be stated in the
--------------
Notice of Grant; provided, however, that in the case of an Incentive Stock
Option, the term shall be ten (10) years from the date of grant or such shorter
term
5
<PAGE>
as may be provided in the Notice of Grant. Moreover, in the case of an Incentive
Stock Option granted to an Optionee who, at the time Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Incentive Stock Option shall be five (5) years from the date of grant or
such shorter term as may be provided in the Notice of Grant.
8. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to
--------------
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or Parent or Subsidiary,
the per Share exercise price shall be no less than 110% of the Fair Market Value
per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. The per Share exercise
price of Nonstatutory Stock Options intended to qualify under Section 162(m) of
the Code shall be no less than 100% of the Fair Market Value per Share on the
date of grant.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised. In doing so, the Administrator may specify that an
Option may not be exercised until the completion of a service period.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
6
<PAGE>
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written notice of exercise (in accordance with the Option Agreement) from
the person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised. Full payment may consist of any
consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan. Shares issued upon exercise of
an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the stock
certificate evidencing such Shares is issued (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate, either in book entry form or in certificate form, promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the Shares are
issued, except as provided in Section 11 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Employment or Consulting Relationship. Upon
----------------------------------------------------
termination of an Optionee's Continuous Status as an Employee or Consultant,
other than upon the Optionee's death or Disability, the Optionee may exercise
his or her Option, but only within such period of time as is specified in the
Notice of Grant, and only to the extent that the Optionee was entitled to
exercise it as the date of termination (but in no event later than the
expiration of the term of such Option as set forth in the Notice of Grant). In
the absence of a specified time in the Notice of Grant, the Option shall remain
exercisable for 30 days following the Optionee's termination of Continuous
Status as an Employee or Consultant. If, at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan. If,
after termination, the Optionee does not exercise his or her Option within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(c) Disability of Optionee. In the event that an Optionee's
----------------------
Continuous Status as an Employee or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option at any time
within twelve (12) months from the date of such termination, but only to the
extent that the Optionee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant). If, at the date of termination, the
Optionee does not exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option with respect to
the shares covered by the exercisable portion of the Option within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the
-----------------
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after death,
the Optionee's estate or a person who acquired the right to exercise the Option
by bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
7
<PAGE>
(e) Rule 16b-3. Options granted to individuals subject to Section 16
----------
of the Exchange Act must comply with the applicable provisions of Rule 16b-3 and
shall contain such additional conditions or restrictions as may be required
thereunder to qualify for the maximum exemption from Section 16 of the Exchange
Act with respect to Plan transactions.
(f) Suspension. Any Optionee who is also a participant in the
----------
Retirement at Micron or Micron Electronics Retirement at Micron Section 401(k)
Plan (each a "RAM Plan" and together the "RAM Plans") and who requests and
receives a hardship distribution from any RAM Plan, is prohibited from making,
and must suspend, for a period of twelve (12) months thereafter, his or her
elective contributions and employee contributions including, without limitation
to the foregoing, the exercise of any Option granted from the date of receipt by
that employee of the hardship distribution from any RAM Plan.
10. Non-Transferability of Options. An Option may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. Adjustments Upon Changes in Capitalization, Dissolution, Merger, or
-------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of issued shares of Common Stock which
have been authorized for issuance under the Plan but as to which no Options have
yet been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock or any other increase or decrease in the
number of shares of Common Stock effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding, and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Board may, in the exercise of its sole
discretion in such instances, declare that any Option shall terminate as of a
date fixed by the Board and give each Optionee the right to exercise his or her
Option as to all or any part of the Optioned stock, including Shares as to which
the Option would not otherwise be exercisable.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, other than in either such case, a Change in Control, each
outstanding Option may be assumed or an equivalent option or right may be
substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In lieu of such assumption or substitution, or in the
event the successor corporation does not assume the Option or substitute an
equivalent option or right, the Administrator may provide for the Optionee to
have the right to exercise the Option as to all or a portion of the Optioned
Stock, including Shares as to which it would not otherwise be exercisable. If
the Administrator makes an Option exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Administrator shall
notify the Optionee that the Option shall be fully exercisable for a period of
thirty (30) days from the date of such notice, and the Option will terminate
upon the expiration of such period. For the purposes of this paragraph, the
Option shall be considered assumed if, following the merger or sale of assets,
the option or right confers the right to purchase, for each Share of Optioned
Stock subject to the Option immediately prior to the merger or sale of assets,
the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets was not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the
8
<PAGE>
Option, for each Share of Optioned Stock subject to the Option, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
(d) Change in Control. In the event of a Change in Control, the
-----------------
unexercised portion of the Option shall become immediately exercisable, to the
extent such acceleration does not disqualify the Plan, or cause an Incentive
Stock Option to be treated as a Nonstatutory Stock Option without the consent of
the Optionee.
12. Date of Grant. The date of grant of an Option shall be, for all
-------------
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
13. Term of Plan. Subject to Section 18 of the Plan, the Plan shall
------------
become effective upon the earlier to occur of its adoption by the Board or its
approval by the shareholders of the Company as described in Section 18 of the
Plan. It shall continue in effect for a term of ten (10) years from the
effective date unless terminated earlier under Section 14 of the Plan.
14. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend, or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Rule 16b-3 or with Section 422 of the Code (or any successor rule or
statute or other applicable law, rule, or regulation, including the requirements
of any exchange or quotation system on which the Common Stock is listed or
quoted). Such shareholder approval, if required, shall be obtained in such a
manner and to such a degree as is required by the applicable law, rule, or
regulation.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension, or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
15. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, Applicable Laws,
and the requirements of any stock exchange or quotation system upon which the
Shares may then be listed or quoted, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required.
16. Liability of Company.
--------------------
(a) Inability to Obtain Authority. The inability of the Company to
-----------------------------
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered
--------------------------------
by an Option exceeds, as of the date of grant, the number of Shares which may be
issued under the Plan without additional shareholder approval,
9
<PAGE>
such Option shall be void with respect to such excess Optioned Stock, unless
shareholder approval of an amendment sufficiently increasing the number of
shares subject to the Plan is timely obtained in accordance with Section 14(b)
of the Plan.
17. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the manner and to the degree required under applicable federal and Minnesota
law.
10
<PAGE>
APPENDIX B
----------
MICRON ELECTRONICS, INC.
MANAGEMENT & EXECUTIVE INCENTIVE PLAN
1. PURPOSE
The Micron Electronics, Inc. Management and Executive Incentive Plan is
designed to attract, retain, and reward highly qualified executive, management
and key employees who are important to the Company's success and to provide
incentives to such employees relating directly to the financial performance and
long-term growth of the Company. The Plan was originally adopted and approved
by the shareholders as the Micron Electronics, Inc. Executive Bonus Plan on June
20, 1995 (the "Executive Bonus Plan").
2. DEFINITIONS
(a) Administrator - Means the Board or any of its Committees as shall be
administering the Plan, in accordance with Section 4 of the Plan.
(b) Applicable Laws - Means the legal requirements relating to the
administration of the Plan, in accordance with Section 4 of the Plan.
(c) Bonus - The incentive awarded to an Executive Officer, Officer or Key
Employee pursuant to the terms and conditions of the Plan.
(d) Board - The Board of Directors of Micron Electronics, Inc.
(e) Change in Control - (i) The acquisition by any person or entity of
securities of Micron Electronics, Inc. such that such person or entity,
directly, indirectly or beneficially, acting alone or in concert, (A) owns or
controls more of the combined voting power of all classes of voting securities
of Micron Electronics, Inc. than does Micron Technology, Inc. and (B) owns or
controls more than thirty-five percent (35%) of the combined voting power of all
classes of voting securities of Micron Electronics, Inc.; or (ii) subject to
Micron Technology, Inc. owning or controlling more than thirty five percent
(35%) of the combined voting power of all classes of voting securities of Micron
Electronics, Inc., the acquisition by any person or entity, directly, indirectly
or beneficially, acting alone or in concert, of more than thirty-five percent
(35%) of the common stock of Micron Technology, Inc. outstanding at any time.
(f) Code - The Internal Revenue Code of 1986, as amended.
(g) Committee - One or more committees appointed by the Board to
administer the Plan in accordance with Section 4 of the Plan, and in compliance
with requirements of Section 162(m) of the Code.
(h) Company - Micron Electronics, Inc. and any other corporation in which
Micron Electronics, Inc., controls, directly or indirectly, fifty percent (50%)
or more of the combined voting power of all classes of voting securities.
(i) Disability - Total and permanent disability as defined in Section
22(e)(3) of the Code.
(j) Executive - An Executive Officer, Officer or Key Employee of the
Company.
(k) Executive Officer - Any officer of the Company subject to the
reporting requirements of Section 16 of the Securities and Exchange Act of 1934
(the "Exchange Act").
(l) Extraordinary Items - A sale of a division or subsidiary of the
Company, a merger or consolidation of the Company, a reorganization or
dissolution of the Company or such other Extraordinary Items as determined by
the Administrator in its sole discretion.
(m) Key Employee - Any employee of the Company as may be designated by the
Administrator for this Plan.
1
<PAGE>
(n) Officer - Any officer of the Company who is not an Executive Officer.
(o) Performance Period - The fiscal month, quarter, semi-annual, annual,
or any other period of time established by the Administrator for the
establishment of performance goals; provided, that any Performance Period
established for an Executive Officer who is Chief Executive Officer, President,
Chief Operating Officer, or Chief Financial Officer shall not be less than one
year.
(p) Plan - Means this Micron Electronics, Inc. Management and Executive
Incentive Plan.
(q) Target Bonus - The targeted amount of the Bonus, whether stated as a
percentage of an Executive's annualized salary or otherwise, that is designated
by the Administrator with respect to an Executive's participation under the Plan
during a Performance Period.
3. ELIGIBILITY
(a) General. Only Executives, including Executive Officers, Officers and
-------
Key Employees, are eligible for participation in the Plan, as follows:
(i) Executive Officers. In order to participate in the Plan for any
------------------
Performance Period, an Executive Officer must be designated for participation in
accordance with Section 4 of the Plan and the selection procedures established
by the Board or the Compensation Committee of the Board.
(ii) Officers and Key Employees. In order to participate in the Plan
--------------------------
for any Performance Period, an Officer or Key Employee must be designated for
participation in accordance with Section 4 of the Plan and the selection
procedures established by the Administrator.
(b) Executive Eligibility Mid-Way Through Performance Period. If an
---------------------------------------------------------
employee becomes an Executive mid-way through a Performance Period, then such
Executive may be eligible for participation in the Plan on a pro-rated basis,
with a Target Bonus set under the Plan equal to the Target Bonus that would have
been set for the entire Performance Period multiplied by the number of weeks of
the Executive's participation over the total number of weeks in the Performance
Period.
(c) Death, Disability or Retirement of Executive. If an employee ceases
--------------------------------------------
to be an Executive as a result of the Executive's death, Disability or
retirement with the Company during a Performance Period, then such Executive
shall be eligible for participation in the Plan on a pro-rated basis, unless
otherwise approved by the Administrator. In such event, and subject to a
determination with respect to satisfactory achievement of the Executive's
performance goals and final approval by the Administrator, the Executive may
earn a Bonus under the Plan equal to the Bonus that would have been paid for the
entire Performance Period multiplied by the number of weeks of the Executive's
participation over the total number of weeks in the Performance Period.
(d) Termination of Employment. If an employee ceases to be an Executive
-------------------------
or an employee of the Company for any reason other than death, Disability or
retirement during a Performance Period, no Bonus shall be paid to that employee
for that Performance Period, unless governed by the Change in Control provisions
below or otherwise approved by the Administrator.
4. ADMINISTRATION
(a) Procedure.
---------
(i) Multiple Administrative Bodies. If permitted by the Code, the
------------------------------
Plan may be administered by different bodies with respect to (i) Executive
Officers, and (ii) Officers and Key Employees.
2
<PAGE>
(ii) Administration With Respect to Executive Officers. With
-------------------------------------------------
respect to participation of Executives who are also Executive Officers subject
to Section 16(b) of the Exchange Act, the Plan shall be administered by (A) the
Board, if the Board may administer the Plan in compliance with Section 162(m) of
the Code, or (B) the Compensation Committee of the Board, which committee shall
be constituted to comply with the rules governing a plan intended to qualify
under the requirements of Section 162(m) of the Code.
(iii) Administration With Respect to Officers and Key Employees.
---------------------------------------------------------
With respect to participation of Executives who are also Officers or Key
Employees, the Plan shall be administered by (A) the Board, if the Board may
administer the Plan in compliance with Section 162(m) of the Code, or (B) the
Compensation Committee of the Board, which committee shall be constituted to
comply with the rules governing a plan intended to qualify under the
requirements of Section 162(m) of the Code, or (C) a committee or committees
designated by the Board, which committee or committees shall be constituted to
satisfy Applicable Laws. Once appointed, such Board may increase the size of the
Committee and appoint additional members, remove members (with or without cause)
and substitute new members, fill vacancies (however caused), and remove all
members of the Committee and thereafter directly administer the Plan, all to the
extent permitted by Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan,
---------------------------
and in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to select the Executives who may participate in the Plan;
(ii) to approve forms of notice for use under the Plan;
(iii) to approve the setting of Target Bonuses under the Plan, in
accordance with the performance goals and other requirements set forth in the
Plan;
(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award of a Bonus hereunder. The setting of Target
Bonuses and the awards of Bonuses under the Plan shall be based directly or
indirectly on one or more, or a combination of one or more, of the following
performance goals: (1) net income, (2) earnings per share, (3) return on equity,
(4) gross margin, (5) return on assets, (6) net sales, (7) new products, (8)
expansion of facilities or operations, (9) customer satisfaction, (10) asset
management, (11) debt management, (12) return on invested capital, or (13)
economic value added. Performance goals may be set by the Administrator on an
individual, area of responsibility, business segment or Company-wide basis, or
any combination thereof. Unless otherwise specifically approved by the
Administrator, the methods for calculating performance goals shall exclude
Extraordinary Items;
(v) to construe, interpret, and administer the Plan as necessary to
comply with the requirements of Section 162(m) of the Code;
(vi) to prescribe, amend, and rescind rules, regulations and
guidelines relating to the Plan; and
(vii) to make all other determinations deemed necessary or advisable
for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
----------------------------------
determinations, and interpretations shall be final, conclusive, and binding upon
all persons. The Administrator shall certify in writing prior to commencement
of payment of the Bonus that the performance goal or goals under which the bonus
is to be paid has or have been achieved. The Administrator in its sole
discretion has the authority to reduce the amount of a Bonus otherwise allocated
to an Executive upon attainment of the performance goal established for any
Performance Period provided that a reduction in the amount of one Executive's
Bonus does not result in an increase in the amount of any other Executive's
Bonus.
(d) Determining Target Bonus and Bonus. Promptly after the beginning of a
----------------------------------
Performance Period, the Administrator shall: (i) determine the performance
criteria; (ii) determine each Executive eligible to participate in the Plan for
the applicable Performance Period; (iii) determine the Target Bonus for each
Executive for the applicable Performance Period; and (iv) determine the method
for computing, based on the Target Bonus, the amount of Bonus payable to each
Executive if the performance goals and objectives are achieved. The
Administrator in its sole discretion has the authority to increase the amount of
a Bonus otherwise allocated to an Executive.
3
<PAGE>
(e) Payment of Bonus - In General. The maximum Bonus amount that can be
-----------------------------
paid to any Executive with respect to any one fiscal year cannot exceed the
greater of $2,000,000 or two percent (2%) of the Company's consolidated after-
tax net profits. Bonus amounts shall be paid within ninety (90) days after the
close of the applicable Performance Period, unless the Administrator elects to
defer the payout of the Bonus or any portion thereof over a period of time not
to exceed five (5) years. Payout of a Bonus, or any portion thereof, whether at
one time or over an extended period may, at the discretion of the Administrator,
be subject to and conditioned upon the continuation of an Executive's employment
with the Company, a determination of satisfactory job performance with respect
to the Executive, or the profitability of the Company in the year paid. Unpaid
Bonuses can be canceled at the discretion of the Administrator.
(f) Payment of Bonus - Change in Control. Upon a Change in Control, the
------------------------------------
Company shall pay to each eligible Executive (i) any Target Bonus allocated, if
any, under the Plan for all Performance Periods during the current fiscal year
at the target level established by the Administrator as of the most recent
allocation, unless otherwise agreed between the Company and the Executive, and
(ii) any Bonuses that have been awarded for previous years under the Plan but
not previously paid, in either case immediately before such Change in Control.
To determine the amount of the Target Bonus for all Performance Periods during
the current fiscal year, the bonus pool shall be annualized if the Change in
Control occurs after the end of the second fiscal quarter. If the Change in
Control occurs prior to the end of the second fiscal quarter, the bonus pool
shall be calculated as of the fiscal month end immediately prior to the Change
in Control.
(g) Changes to Plan. The Board or the Compensation Committee of the
---------------
Board may amend, modify, suspend, or terminate the Plan for the purpose of
meeting or addressing any changes in legal requirements or for any other purpose
permitted by law. The Board or the Compensation Committee of the Board will seek
shareholder approval of any amendment determined to require shareholder approval
or be advisable under the regulations of the Internal Revenue Service or other
applicable law or regulation.
5. NONASSIGNABILITY
No Target Bonus, Bonus or any other benefit under the Plan shall be
assignable or transferable by the participant during the participant's lifetime
except as otherwise approved by the Administrator.
6. NO RIGHT TO CONTINUED EMPLOYMENT
Nothing in the Plan shall confer upon any Executive or employee any right
to continue in the employ of the Company or shall interfere with or restrict in
any way the right of the Company to discharge an Executive or employee at any
time for any reason whatsoever, with or without cause. An Executive's
participation under the Plan does not constitute a contract of employment or
obligate the Company to employ the Executive for any period of time.
7. EFFECTIVE DATE
The original effective date of the Executive Bonus Plan is April 7, 1995,
as approved by the shareholders on June 20, 1995. The effective date of the Plan
as amended and approved by the shareholders is November 22, 1999.
4
<PAGE>
This Proxy is solicited on behalf of the Board of Directors.
MICRON ELECTRONICS, INC.
900 East Karcher Road, Nampa, Idaho 83687
1999 ANNUAL MEETING OF SHAREHOLDERS
November 22, 1999
The undersigned shareholder(s) of Micron Electronics, Inc., a Minnesota
corporation, hereby acknowledges receipt of the Notice of 1999 Annual Meeting of
Shareholders and the Proxy Statement, each dated October 29, 1999, and hereby
appoints Joel J. Kocher and JoAnne S. Pfeifer, and each of them, proxies and
attorneys-in-fact, with full power of substitution, on behalf and in the name of
the undersigned, to represent the undersigned at the 1999 Annual Meeting of
Shareholders of Micron Electronics, Inc., to be held on Monday, November 22,
1999, at 9:00 a.m. Mountain Time, at the Nampa Civic Center, 311 3rd Street
South, Nampa, Idaho, 83651, and at any adjournment(s) or postponement(s) thereof
(the "Annual Meeting"), and to vote, as designated on the proposals below, all
shares of Micron Electronics, Inc. Common Stock which the undersigned would be
entitled to vote, if then and there personally present, on the proposals set
forth below:
1. ELECTION OF DIRECTORS:
[_] FOR nominees listed below [_] WITHHOLD authority to vote for all
(except as indicated) nominees listed below
If you wish to withhold authority to vote for any individual nominee, please
strike a line through that nominee's name set forth below:
Steven R. Appleton Robert Lee
John B. Balousek Robert A. Lothrop
Joel J. Kocher
2. APPROVAL OF AMENDMENT TO MICRON ELECTRONICS, INC. 1995 STOCK OPTION PLAN
[_] FOR [_] AGAINST [_] ABSTAIN
3. APPROVAL OF THE MICRON ELECTRONICS, INC. MANAGEMENT AND EXECUTIVE INCENTIVE
PLAN
[_] FOR [_] AGAINST [_] ABSTAIN
4. TO RATIFY THE APPOINTMENT OF PRICEWATERHOUSECOOPERS L.L.P. AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR FISCAL YEAR 2000:
[_] FOR [_] AGAINST [_] ABSTAIN
and in their discretion, upon such other matter or matters which may properly
come before the Annual Meeting.
The shares represented by this Proxy, when properly executed, will be
voted in the manner directed herein by the undersigned shareholder(s). If no
direction is made, this Proxy will be voted FOR items 1, 2, 3 and 4 above. If
any other matters properly come before the Annual Meeting, the persons named in
this Proxy will vote in their discretion. In the event that any nominee is
unable or declines to serve as a director at the time of the Annual Meeting, the
Proxies will be voted for any nominee whom shall be designated by the present
Board of Directors to fill the vacancy or for the balance of those nominees
named without a substitute.
Dated , 1999
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Signature
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Signature
(This Proxy should be voted, signed, and dated by the shareholder(s)
exactly as his or her name appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. If shares
are held by joint tenants or as community property, all persons having an
interest therein should sign.)
