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SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Exabyte Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials:
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO OF EXABYTE CORPORATION APPEARS HERE]
1685 38TH STREET
BOULDER, COLORADO 80301
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 9, 1997
TO THE STOCKHOLDERS OF EXABYTE CORPORATION:
NOTICE IS HEREBY given that the Annual Meeting of Stockholders of Exabyte
Corporation, a Delaware corporation (the "Company"), will be held on Friday,
May 9, 1997 at 9:00 a.m. at the Company's principal executive offices, 1685
38th Street, Boulder, Colorado 80301 (the "Annual Meeting"), for the following
purposes:
1. To elect one director to hold office until the 2000 Annual Meeting of
Stockholders.
2. To approve the Incentive Stock Plan, as amended, to, among other
things, increase the number of shares authorized for issuance by 1,500,000
shares and to extend the termination date of the Incentive Stock Plan to
January 16, 2007.
3. To ratify the selection of Price Waterhouse LLP as independent
accountants of the Company for its fiscal year ending January 3, 1998.
4. To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice of Annual Meeting.
The Board of Directors has fixed the close of business on March 19, 1997 as
the record date for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
[SIGNATURE OF STEPHEN F. SMITH
APPEARS HERE]
Stephen F. Smith
Corporate Secretary
Boulder, Colorado
March 28, 1997
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN
PERSON. WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE
IN ORDER TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING. A RETURN
ENVELOPE (WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES) IS
ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL
VOTE IN PERSON IF YOU ATTEND THE ANNUAL MEETING. PLEASE NOTE, HOWEVER, THAT
IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU
WISH TO VOTE AT THE ANNUAL MEETING, YOU MUST BRING WITH YOU A LETTER FROM
THE BROKER, BANK OR OTHER NOMINEE CONFIRMING YOUR BENEFICIAL OWNERSHIP OF
THE SHARES. ADDITIONALLY, IN ORDER TO VOTE AT THE ANNUAL MEETING, YOU MUST
OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE>
EXABYTE CORPORATION
1685 38TH STREET
BOULDER, COLORADO 80301
----------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 9, 1997
----------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors (the
"Board") of Exabyte Corporation, a Delaware corporation (the "Company" or
"Exabyte"), for use at the Annual Meeting of Stockholders to be held on May 9,
1997, at 9:00 a.m. (the "Annual Meeting"), or at any adjournment or
postponement thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting. The Annual Meeting will be held at the
Company's principal executive offices, 1685 38th Street, Boulder, Colorado
80301.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses,
fiduciaries and custodians holding in their names shares of the common stock
of the Company ("Common Stock") beneficially owned by others to forward to
such beneficial owners. The Company may reimburse persons representing
beneficial owners of Common Stock for their costs of forwarding solicitation
materials to such beneficial owners. Original solicitation of proxies by mail
may be supplemented by telephone, facsimile, telegram or personal solicitation
by directors, officers or other regular employees of the Company. No
additional compensation will be paid to directors, officers or other regular
employees for such services.
The Company knows of no business which will be presented for consideration
at the Annual Meeting other than that stated in the Notice of Annual Meeting.
However, if any other business shall properly come before the Annual Meeting,
it is the intention of the persons named in the accompanying proxy to vote in
respect of such other business in accordance with their best judgment.
The Company intends to mail this proxy statement and accompanying proxy card
on or about March 28, 1997 to all stockholders entitled to vote at the Annual
Meeting.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on March 19,
1997 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on March 19, 1997, the Company had outstanding and entitled
to vote 22,303,343 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual
Meeting. All votes will be tabulated by the inspector of election appointed
for the Annual Meeting, who will separately tabulate affirmative and negative
votes, abstentions and broker non-votes. Abstentions will be counted toward
the tabulation of votes cast on proposals presented to the stockholders and
will have the same effect as negative votes. Broker non-votes are counted
toward a quorum, but are not counted for any purpose in determining whether a
matter has been approved.
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REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Corporate Secretary of the Company at the Company's principal executive
offices, 1685 38th Street, Boulder, Colorado 80301, a written notice of
revocation or a duly executed proxy bearing a later date, or it may be revoked
by attending the Annual Meeting and voting in person. Attendance at the Annual
Meeting will not, by itself, revoke a proxy.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
1998 Annual Meeting of Stockholders must be received by the Company no later
than December 2, 1997 in order to be included in the proxy statement and proxy
relating to that annual meeting. Stockholders are also advised to review the
Company's By-laws, which contain additional requirements with respect to
advance notice of director nominations and stockholder proposals.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation and By-laws provide that
the Board shall be divided into three classes, each class consisting, as
nearly as possible, of one-third of the total number of directors, with each
class having a three-year term. Vacancies on the Board may be filled by a
majority vote of the stockholders or by a majority vote of the remaining
directors. A director elected to fill a vacancy (including a vacancy created
by an increase in the size of the Board) shall serve for the remainder of the
full term of the class of directors in which the vacancy occurred.
The Board is presently composed of six members. There is one director in the
class whose term of office expires in 1997. The nominee for election to this
class is currently a director of the Company who was previously elected by the
stockholders. If elected at the Annual Meeting, the nominee would serve until
the 2000 Annual Meeting and until a successor is elected and qualified, or
until such director's earlier death, resignation or removal.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the Annual Meeting. Shares
represented by executed proxies will be voted, if authority to do so is not
withheld, for the election of the nominee named below. In the event that the
nominee should be unavailable for election as a result of an unexpected
occurrence, such shares will be voted for the election of such substitute
nominee as management may propose. The person nominated for election has
agreed to serve, if elected, and management has no reason to believe that the
nominee will be unable to serve.
Set forth below is biographical information for the person nominated and
each person whose term of office as a director will continue after the Annual
Meeting.
NOMINEE FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2000 ANNUAL MEETING
Mark W. Perry
Mr. Mark W. Perry, age 53, has served as a director of Exabyte since March
1994. Mr. Perry has served as a General Partner of New Enterprise Associates,
a venture capital firm, since January 1996. From May 1994 to December 1995,
Mr. Perry served as President and Chief Executive Officer and then as Chairman
of Viewstar Corporation, a provider of business process automation,
client/server software. Prior to joining Viewstar, Mr. Perry was employed by
Silicon Graphics, Inc., a manufacturer of visual computing systems, serving as
Vice Chairman from April 1992 until May 1994, as Executive Vice President
responsible for worldwide sales,
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marketing and service, business development and administration in 1991 and
1992, as Executive Vice President responsible for the product divisions,
including research and development, manufacturing, marketing and software
applications, from 1988 through 1990, and as Vice President of Finance and
Administration and Chief Financial Officer from 1985 to 1988. Prior to his
association with Silicon Graphics, Inc., Mr. Perry was Executive Vice
President and Chief Operating Officer of Sonoma Vineyards, Windsor, California
from 1982 to 1985 and a partner at Arthur Young & Company, San Francisco,
California, from 1977 to 1982. Mr. Perry is a Certified Public Accountant. Mr.
Perry is also a director of Arbor Software Corporation.
THE BOARD RECOMMENDS A VOTE IN FAVOR OF THE NAMED NOMINEE
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING
Ralph Z. Sorenson
Dr. Ralph Z. Sorenson, age 63, has served as a director of Exabyte since
January 1993. Dr. Sorenson is currently a Professor Emeritus at the College of
Business and Administration at the University of Colorado at Boulder. From
July 1992 to June 1993 he was Dean of the College of Business and
Administration. Dr. Sorenson served as Adjunct Professor of Management at the
Harvard Business School from 1989 to 1992, teaching management policy and
practice. From 1981 to 1989, Dr. Sorenson was Chairman, President and Chief
Executive Officer of Barry Wright Corporation, a diversified industrial
company engaged in the design and manufacture of industrial products for
improving productivity and integrating filing systems for the office. Prior to
1981, he was President of Babson College in Wellesley, Massachusetts. Dr.
Sorenson also serves as a director of Eaton Vance Corporation; Houghton
Mifflin Company; Polaroid Corporation; Sweetwater, Inc.; Whole Foods Market
Incorporated; and Xenometrix, Inc.
Thomas E. Pardun
Mr. Thomas E. Pardun, age 53, has served as a director of Exabyte since
April 1995. Mr. Pardun has been President of U.S. WEST International, Asia-
Pacific, a subsidiary of U.S. WEST, Inc., since May 1996. From April 1993
until May 1996, Mr. Pardun was President and Chief Executive Officer of U.S.
WEST Multimedia Communications, Inc. Previously, Mr. Pardun was Vice President
and General Manager of Business and Government Services at U.S. WEST
Communications from January 1990 to April 1993. He served as Vice President of
Marketing and Planning for U.S. WEST Communications from June 1988 through
December 1989. Mr. Pardun was President of U.S. Sprint's Central Group,
Sprint's West Division, and Senior Vice President of Business Development for
Sprint in Kansas City. Prior to his association with Sprint, Mr. Pardun held a
variety of management positions with IBM Corporation. Mr. Pardun also serves
as a director of Western Digital Corporation and the Denver Center for the
Performing Arts.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1998 ANNUAL MEETING
Peter D. Behrendt
Mr. Peter D. Behrendt, age 58, joined the Company in July 1987 as President,
Chief Operating Officer and a director. He has been the Company's Chairman of
the Board since January 1992. He served as President until January 1997, Chief
Operating Officer until December 1994 and Chief Executive Officer from July
1990 until January 1997. Prior to joining the Company, Mr. Behrendt held
various executive positions during 26 years with IBM, including Director of
Quality and Product Assurance for the Information Systems and Communications
Group and Product Manager of the electronic typewriter business, and was
responsible for product and business planning for IBM's disk offerings. Mr.
Behrendt is also a director of Western Digital Corporation, Infocus Systems
Corporation and Wild Oats Corporation.
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Bruce M. Holland
Mr. Bruce M. Holland, age 45, has served as a director of Exabyte since
January 1989. Mr. Holland has served as President, Chief Executive Officer and
a director of SpectraLink Corporation, a telecommunications equipment
manufacturer, since its inception in April 1990. Prior to that, Mr. Holland
founded Cadnetix, a CAD/CAM manufacturer, in 1982 and served as its President
and a director from its inception until the merger with Daisy Systems in 1988,
at which time he became President, Chief Operating Officer and a director of
Daisy/Cadnetix, Inc. Mr. Holland resigned as President and Chief Operating
Officer of Daisy/Cadnetix, Inc. in September 1989 and resigned his position as
a director in December 1989.
Thomas G. Washing
Mr. Thomas G. Washing, age 56, has served as a director of Exabyte since
January 1986. Since January 1997, Mr. Washing has been a Managing Director of
Sequel Venture Partners LLC, a Boulder, Colorado-based venture capital firm.
Prior to that, Mr. Washing was President of Sanitas Capital Management, a firm
providing strategic and financial assistance to emerging growth companies.
Mr. Washing was a General Partner in the venture capital firm of Hill, Carman
& Washing from 1985 to 1994. He previously co-founded Horsley Keogh &
Associates, a venture capital investment firm, in 1983. Prior to entering the
venture capital industry, Mr. Washing was a partner in the law firm of Nixon,
Hargrave, Devans & Doyle, where he specialized in corporate and securities
law.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 28, 1996, the Board held one special
and four regular meetings (excluding telephone board meetings). The Board has
an Audit Committee and a Compensation Committee but does not have a Nominating
Committee or any committee performing a similar function.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained;
and receives and considers the auditors' comments as to controls, adequacy of
staff and management performance, and procedures in connection with audit and
financial controls. The Audit Committee, which is currently composed of
Messrs. Washing, Perry and Sorenson, met two times during fiscal 1996.
The Compensation Committee makes recommendations concerning salaries,
incentive compensation and stock options to officers and directors, and
otherwise determines compensation levels and performs such other functions
regarding compensation as the Board may delegate. The Compensation Committee
is currently composed of Messrs. Perry, Pardun, Holland, Sorenson and Washing.
The Compensation Committee met one time during fiscal 1996.
Under the terms of the Company's Incentive Stock Plan, as amended (the
"Incentive Stock Plan"), the Board delegated the authority to grant options to
employees who are not officers or directors to a Stock Option Committee,
composed of Messrs. Behrendt, Holland, Pardun and Washing. The Stock Option
Committee met four times during fiscal 1996.
During fiscal 1996, each Board member attended at least 75% of the aggregate
of the meetings of the Board and committees on which he served, held during
the period for which he was a director or committee member, respectively.
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PROPOSAL 2
APPROVAL OF THE INCENTIVE STOCK PLAN,
AS AMENDED
The Board adopted the Incentive Stock Plan in January 1987. In January 1990,
the Board approved the amendment and restatement of the Incentive Stock Plan
to enhance the flexibility of the Board in granting stock options and stock
purchase rights to the Company's employees and consultants. The amended and
restated Incentive Stock Plan was approved by the Company's stockholders at
its 1990 Annual Meeting.
As a result of a series of amendments to the Incentive Stock Plan, as of
January 1, 1997, an aggregate of 8,000,000 shares were authorized for issuance
under the Incentive Stock Plan and only 932,862 shares remained available for
future grants. As a result, in January 1997, the Board amended the Incentive
Stock Plan, subject to stockholder approval, to, among other things, increase
the aggregate number of shares authorized for issuance under the Incentive
Stock Plan from 8,000,000 to an aggregate of 9,500,000 shares and to extend
the termination date of the Incentive Stock Plan from February 4, 2005 to
January 16, 2007. The amendment to increase the number of shares authorized
for issuance was adopted by the Board to ensure that the Company can continue
to grant stock options and stock purchase rights to employees and consultants
at levels determined appropriate by the Board and the Compensation and Stock
Option Committees.
In April 1995, the Board amended the Incentive Stock Plan to require that
the exercise price for all options granted under the Incentive Stock Plan
shall be at not less than 100% of fair market value of the shares at the time
of the grant and to rescind the power of the Board to lower the option price
except under Section 14 of the Incentive Stock Plan "Adjustments Upon Changes
in Capitalization or Merger." In November 1996, the Board amended the
Incentive Stock Plan to conform to the new requirements of and to eliminate
certain provisions no longer required by Rule 16b-3 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). In January 1997, the Board
amended the Incentive Stock Plan to include a provision which permits the
discretionary grant of options to non-employee directors.
During fiscal 1996, under the Incentive Stock Plan, the Company granted to
all current executive officers options to purchase an aggregate of 145,000
shares at an exercise price of $14.00 per share. The Company granted to all
employees (including executive officers) options to purchase 1,016,600 shares
at exercise prices ranging from $13.25 to $17.50 per share. The Company also
granted to all current non-employee directors options to purchase an aggregate
of 30,000 shares at an exercise price of $14.00.
Proposal 2 requests that the stockholders approve Incentive Stock Plan, as
amended. The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote at the Annual
Meeting will be required to approve Proposal 2. Abstentions will be counted
toward the tabulation of votes cast on proposals presented to the stockholders
and will have the same effect as negative votes. Broker non-votes are counted
towards a quorum, but are not counted for any purpose in determining whether
this matter has been approved.
THE BOARD RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2
The essential features of the Incentive Stock Plan are outlined below.
GENERAL TERMS OF THE INCENTIVE STOCK PLAN
GENERAL
The Incentive Stock Plan provides for the discretionary grant of both
incentive and non-statutory stock options to employees and directors of and
consultants to the Company and its affiliates. The Incentive Stock Plan also
provides for the non-discretionary grant of non-statutory stock options to
directors who are not
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employees of the Company or any of its affiliates. Unless the context
indicates otherwise, an "affiliate" of the Company refers to any "parent" or
"subsidiary" of the Company as those terms are defined in Section 424 of the
Internal Revenue Code of 1986, as amended, (the "Code"). Incentive stock
options granted under the Incentive Stock Plan are intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Code. Non-
statutory stock options granted under the Incentive Stock Plan are intended by
the Company not to qualify as incentive stock options under the Code. The
Incentive Stock Plan also provides for the grant of rights to purchase Common
Stock of the Company. See "Federal Income Tax Information" for a discussion of
the tax treatment of incentive and non-statutory stock options and stock
purchase rights.
PURPOSE
The purpose of the Incentive Stock Plan is to encourage ownership of shares
of the Company by key employees of and consultants to the Company, thereby
providing additional incentive for such persons to further the success of the
Company. The Incentive Stock Plan is also intended to encourage ownership of
shares of the Company by the Company's non-employee directors, thereby
securing the services of such qualified directors and providing them with
incentives to exert maximum efforts for the success of the Company.
ADMINISTRATION
The Incentive Stock Plan is administered by the Board. The Board is
authorized by the Incentive Stock Plan to delegate administration of the
Incentive Stock Plan to a committee composed of not fewer than two members of
the Board. The Board has delegated administration of option grants to
employees and consultants who are not officers or directors of the Company to
a Stock Option Committee of the Board. The Board has delegated administration
of option grants to officers and employee directors of the Company to the
Compensation Committee of the Board. Administration of the portion of the
Incentive Stock Plan governing grants of options to non-employee directors
currently remains vested in the Board.
With respect to discretionary grants of options and stock purchase rights,
the Board has the power to interpret the Incentive Stock Plan and, subject to
the provisions of the Incentive Stock Plan, to determine (i) the persons to
whom and the dates on which options and stock purchase rights will be granted;
(ii) whether an option will be an incentive stock option or a non-statutory
stock option; (iii) the number of shares subject to each option or stock
purchase right; (iv) the exercise price and other terms and provisions of each
option or stock purchase right granted; (v) to modify, terminate or amend each
option granted, with the consent of the optionee; (vi) to accelerate or defer,
with the consent of the optionee, the exercisability of any option; and (vii)
to prescribe, amend and rescind rules and regulations relating to the
Incentive Stock Plan. With respect to non-discretionary grants of options
granted to non-employee directors, the Board has the power to interpret the
Incentive Stock Plan. As used herein with respect to the Incentive Stock Plan,
the "Board" refers to the Stock Option Committee and the Compensation
Committee as well as to the Board itself.
The regulations under Section 162(m) of the Code require that the directors
who serve as members of such Committees must be "outside directors" in order
for income arising from certain grants to qualify as performance-based
compensation. The Incentive Stock Plan provides that, in the Board's
discretion, directors serving on the Committees will be "outside directors"
within the meaning of Section 162(m).
STOCK SUBJECT TO THE INCENTIVE STOCK PLAN
If options or stock purchase rights granted under the Incentive Stock Plan
expire or become unexercisable for any reason without having been exercised in
full, the unpurchased shares become available for future grant or sale under
the Incentive Stock Plan, unless the Incentive Stock Plan has been terminated.
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ADJUSTMENT PROVISIONS
Subject to any required action by the stockholders of the Company, the
following will be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, the
payment of a stock dividend with respect to the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company: (i) the number of shares of
Common Stock covered by each outstanding option or stock purchase right; (ii)
the maximum number of shares which may be granted to an employee during a
calendar year; (iii) the class, number of shares and price per share of Common
Stock subject to such outstanding options; (iv) the number of shares of Common
Stock reserved for future grant of options or right under the Incentive Stock
Plan; and (v) the exercise price per share covered by each outstanding option
or stock purchase right.
EFFECT OF CERTAIN CORPORATE EVENTS
With respect to discretionary grants of options or stock purchase rights the
Incentive Stock Plan provides that, in the event of a proposed dissolution or
liquidation of the Company, a merger of the Company with or into another
corporation, or a proposed sale of all or substantially all of the assets of
the Company, then, pursuant to the Incentive Stock Plan, at the sole
discretion of the Board and to the extent permitted by law, several events may
occur. Either (i) any surviving corporation will assume any options
outstanding under the Incentive Stock Plan or will substitute similar options
for those outstanding under the Incentive Stock Plan; (ii) such options will
continue in full force and effect; or (iii) each option held by an optionee
then performing services as an employee, director or consultant will become
fully exercisable, at such time as the Board may determine, prior to
consummation of such proposed action and the option terminated if not
exercised prior to such event.
The Board may also, in its discretion, require that all shares of Common
Stock purchased pursuant to the early exercise provision described in the
foregoing clause (iii) which would not otherwise be purchasable at such time,
will be subject to a repurchase right of the Company or its successor. Such
repurchase right will expire at the same, or earlier, times and under the same
conditions as such shares would have become available for exercise under the
original terms of the option had the option not become fully exercisable
pursuant to such provision.
With respect to non-discretionary grants of options to non-employee
directors, the Incentive Stock Plan provides that, upon the occurrence of any
event described above and to the extent permitted by law, each option held by
a non-employee director will become fully exercisable prior to the
consummation of such event and will terminate if not exercised prior to such
event.
The acceleration of an option in the event of an acquisition or similar
corporate event may be viewed as an anti-takeover provision, which may have
the effect of discouraging a proposal to acquire or otherwise obtain control
of the Company. Effective January 26, 1996, the Compensation Committee
approved and the Board adopted a severance compensation program ("Severance
Program") which, among other things, provides, under certain circumstances,
for the acceleration of the vesting of outstanding and unexercised stock
options held by the affected officer or employee.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Incentive Stock Plan at any time.
Unless sooner terminated, the Incentive Stock Plan will terminate on January
16, 2007.
The Board may also amend the Incentive Stock Plan at any time without
stockholder approval, unless stockholder approval is necessary to comply with
Rule 16b-3 of the Exchange Act, or to satisfy the
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requirements of Section 422(b) of the Code, or Nasdaq or other securities
exchange listing requirements. Any amendment of the Incentive Stock Plan
requiring stockholder approval will not become effective unless so approved by
the stockholders. The Board may submit any other amendment to the Incentive
Stock Plan for stockholder approval including, but not limited to, amendments
intended to satisfy the requirements of Section 162(m) of the Code regarding
the exclusion of performance-based compensation from the limitation on the
deductibility of compensation paid to certain employees.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options are intended to be eligible
for the favorable federal income tax treatment accorded "incentive stock
options" under Section 422 of the Code. Incentive stock options generally have
the following federal income tax consequences:
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of
such stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition the optionee will
realize taxable ordinary income equal to the lesser of (i) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(ii) the optionee's actual gain, if any, on the purchase and sale. The
optionee's additional gain or any loss upon the disqualifying disposition will
be a capital gain or loss which will be long-term or short-term depending on
whether the stock was held for more than one year. Slightly different rules
may apply to optionees who acquire stock subject to certain repurchase options
or whose stock is subject to Section 16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will be entitled (subject to the
requirement of reasonableness, the provisions of Section 162(m) of the Code,
and the satisfaction of a tax reporting obligation) to a corresponding
business expense deduction in the tax year in which the disposition occurs.
Non-statutory Stock Options. Non-statutory stock options generally have the
following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a non-statutory stock option. Upon exercise of a non-statutory
stock option, normally the optionee will recognize taxable ordinary income
equal to the excess of the stock's fair market value on the date of exercise
over the exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an
amount based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will be entitled to a
business expense deduction equal to the taxable ordinary income recognized by
the optionee. Upon disposition of the stock, the optionee will recognize a
capital gain or loss equal to the difference between the selling price and the
sum of the amount paid for such stock plus any amount recognized as ordinary
income upon exercise of the option. Such gain or loss will be long-term or
short-term depending on whether the stock was held for more than one year.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or whose stock is subject to Section 16(b) of the
Exchange Act.
Stock Purchase Rights. Generally, the taxation of purchases pursuant to
stock purchase rights is identical to that of non-statutory stock options (see
"Non-statutory Stock Options" above). However, since stock acquired under a
stock purchase right normally is subject to a repurchase option, upon purchase
of Common Stock pursuant to stock purchase rights, the purchaser will not
normally recognize taxable income until such time as
8
<PAGE>
the Common Stock is no longer subject to repurchase by the Company. At such
time, the purchaser will recognize taxable ordinary income equal to the excess
of the value of the Common Stock at the time the repurchase option lapses over
the amount paid for the Common Stock. The purchaser may, however, make an
election under Section 83(b) of the Code to recognize ordinary income at the
time of purchase measured by the excess of the fair market value of the Common
Stock at the time of the purchase, determined without reference to the
Company's right of repurchase, over the amount paid for the Common Stock.
Generally, if the purchaser is an employee, the Company is required to
withhold from regular wages or supplemental wage payments an amount based on
the ordinary income recognized. Subject to the requirement of reasonableness,
the provisions of Section 162(m) of the Code and the satisfaction of a tax
reporting obligation, the Company will be entitled to a business expense
deduction equal to the taxable ordinary income realized by the purchaser. Upon
disposition of the Common Stock, the purchaser will recognize a capital gain
or loss equal to the difference between the selling price and the sum of the
amount paid for such Common Stock plus any amount recognized as ordinary
income as a result of the purchase of the Common Stock. Such gain or loss will
be long-term or short-term depending on whether the Common Stock was held for
more than one year from the date on which ordinary income was measured.
Slightly different rules may apply to purchasers who acquire stock which is
subject to Section 16(b) of the Exchange Act.
Potential Limitation on Company Deductions. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section
162(m), which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1,000,000 for a covered employee. It is possible that
compensation attributable to stock options, when combined with all other types
of compensation received by a covered employee from the Company, may cause
this limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with U.S. Treasury regulations issued under Section 162(m),
compensation attributable to stock options will qualify as performance-based
compensation, provided that the option is granted by a compensation committee
comprised solely of "outside directors" and either (i) the option plan
contains a per-employee limitation on the number of shares for which options
may be granted during a specified period, the per-employee limitation is
approved by the stockholders, and the exercise price of the option is no less
than the fair market value of the stock on the date of grant, or (ii) the
option is granted (or exercisable) only upon the achievement (as certified in
writing by the Compensation Committee) of an objective performance goal
established in writing by the Compensation Committee while the outcome is
substantially uncertain, and the option is approved by stockholders.
TERMS APPLICABLE TO DISCRETIONARY GRANTS OF OPTIONS AND STOCK PURCHASES
ELIGIBILITY
Incentive stock options may be granted only to employees of the Company or
any affiliate, including directors who are also employees. Non-statutory stock
options and stock purchase rights may be granted only to employees of the
Company or any affiliate or to persons performing services for the benefit of
the Company or any affiliate, such as directors, independent consultants or
advisors. The number of persons eligible to participate as of January 2, 1997
was approximately 1,493.
The aggregate fair market value (determined as of the time each option is
granted) of the shares of Common Stock with respect to which incentive stock
options are exercisable for the first time by any individual optionee during
any single calendar year (under all incentive stock option plans of the
Company and its affiliates) may not exceed $100,000. Should it be determined
that any incentive stock option, or portion thereof, granted under the
Incentive Stock Plan exceeds the applicable maximum, such incentive stock
option, or portion thereof, will be considered a non-statutory stock option.
9
<PAGE>
The Incentive Stock Plan includes a per-employee, per-calendar-year
limitation on the number of shares that can be made subject to options equal
to 500,000 shares of Common Stock. The purpose of this limitation is generally
to permit the Company to continue to be able to deduct for tax purposes the
compensation attributable to the exercise of options and rights granted under
the Incentive Stock Plan, pursuant to Section 162(m) of the Code.
TERMS OF DISCRETIONARY OPTIONS AND RIGHTS UNDER THE INCENTIVE STOCK PLAN
The following is a description of the terms and conditions of stock options
and stock purchase rights permitted to be granted to employees and directors
of and consultants to the Company or its affiliates under the Incentive Stock
Plan (other than non-discretionary grants to non-employee directors).
Individual stock option grants or purchase rights in any given case may be
more restrictive as to any or all of the provisions permitted by the Incentive
Stock Plan as described below. The terms and conditions of separate options
and stock purchase rights need not be identical.
STOCK OPTIONS
Exercise Price. The exercise price for any incentive stock option granted
under the Incentive Stock Plan may not be less than 100% of the fair market
value (defined as the closing sales price of the Company's Common Stock on the
Nasdaq National Markets) of the Common Stock subject to the option on the date
of the grant. However, no incentive stock option may be granted to any person
who, at the time of the grant, owns shares representing more than 10% of the
total combined voting power of all classes of shares of the Company or of any
affiliate, unless the exercise price is at least 110% of the fair market value
of the stock subject to the option. At March 19, 1997 the closing sales price
of the Company's Common Stock as reported on the Nasdaq National Market was
$12.25 per share.
Consideration. The consideration to be paid for shares to be issued upon
exercise of an option, including the method of payment, is determined by the
Board and may consist entirely of cash, check or other shares of Common Stock
having a fair market value on the date of surrender equal to the aggregate
exercise price of the shares as to which such option is exercised, or any
combination of such methods of payment, or such other consideration and method
of payment to the extent permitted under applicable law. A promissory note may
be used to pay the exercise price of an option if the Board so provides and if
the promissory note is for an amount no greater than the full purchase price
less the aggregate par value of the shares purchased, and an amount equal to
or greater than such aggregate par value is paid in cash at the time of
exercise.
Option Exercise. Options are exercisable at such times and under such
conditions as determined by the Board and as permissible under the Incentive
Stock Plan. The Board has the power to accelerate or defer (with optionee's
consent) the time during which an option may be exercised. In general, options
become exercisable at the rate of 2% per month from the date of grant.
Term. Options have a maximum term of 10 years from the date of grant, except
that incentive stock options granted to persons owning more than 10% of the
total combined voting power of all classes of stock of the Company or any
affiliate have a maximum term of five years from the date of grant.
An option will terminate on the earlier (i) of the date of expiration of the
option, (ii) three months after termination of services to the Company or an
affiliate, (iii) six months after termination of employment if such
termination is due to such optionee's total and permanent disability (as
defined in the Code), or (iv) six months after death if the optionee dies
within not more than three months after termination of employment or
engagement as consultant. The option by its terms may provide for a longer or
shorter period of exercise following termination of service.
10
<PAGE>
Restrictions on Transfer. Under the Incentive Stock Plan, an option may not
be sold, pledged, assigned, hypothecated, transferred or disposed of in any
manner by the optionee other than by will or by the laws of descent and
distribution. During the lifetime of an optionee, an option may be exercised
only by the optionee.
STOCK PURCHASE RIGHTS
Rights. The Board may offer employees and consultants the right to purchase
Common Stock of the Company on terms determined by the Board. The Board will
advise the intended purchaser in writing of the terms, conditions and
restrictions relating to the offer, including the number of shares which such
person is entitled to purchase and the form of the proposed stock purchase
agreement. As of the date hereof, the Company has not granted any stock
purchase rights under the Incentive Stock Plan.
Exercise Price. The exercise price of a stock purchase right is determined
by the Board but, under the Incentive Stock Plan the exercise price may not be
less than 100% of the fair market value of the Common Stock subject to the
stock purchase right on the date of grant.
Consideration. The consideration to be paid for shares to be issued upon
exercise of a stock purchase right, including the method of payment, is
determined by the Board and may consist entirely of cash, check or other
shares of Common Stock of the Company having a fair market value on the date
of surrender equal to the aggregate exercise price of the shares as to which
such right is exercised, or any combination of such methods of payment, or
such other consideration and method of payment to the extent permitted under
the law. A promissory note may be used to pay the exercise price of a stock
purchase right if so provided by the Board and if the promissory note is for
an amount no greater than the full purchase price less the aggregate par value
of the shares purchased, and an amount equal to or greater than such aggregate
par value is paid in cash at the time of exercise.
Exercise. Stock purchase rights granted under the Incentive Stock Plan must
be accepted within the time period determined by the Board at the time of
grant, which period cannot exceed nine months from the date of grant. An offer
may be accepted by execution and delivery to the Company of a stock purchase
agreement together with the requisite payment within the time specified.
Repurchase Option. Unless the Board determines otherwise, a stock purchase
agreement will (i) grant the Company a repurchase option exercisable upon the
voluntary or involuntary termination of a purchaser's services to the Company
for any reason, and (ii) set the purchase price for the shares repurchased at
the original price paid by the purchaser (plus interest, if any, as determined
in the stock purchase agreement) which may be paid by cancellation of any
indebtedness of the purchaser to the Company. The repurchase option will lapse
at such rate as the Board may determine.
Restrictions on Transfer. Under the Incentive Stock Plan, a stock purchase
right may not be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner by the holder thereof other than by will or by the
laws of descent and distribution. During the lifetime of a holder, a stock
purchase right may be exercised only by that holder.
TERMS APPLICABLE TO NON-EMPLOYEE DIRECTORS' NON-DISCRETIONARY GRANTS
ELIGIBILITY OF DIRECTORS
Non-discretionary grants of options under the Incentive Stock Plan are made
only to non-employee directors. Messrs. Holland, Pardun, Perry, Sorenson and
Washing are currently eligible to receive such grants.
11
<PAGE>
GRANTS
The Incentive Stock Plan provides for the non-discretionary grant of non-
statutory stock options to purchase shares of Common Stock of the Company to
non-employee directors, including non-employee directors who are also
consultants. Pursuant to the terms of the Incentive Stock Plan, each non-
employee director who is a non-employee director on January 27th of each
fiscal year and has been a non-employee director for at least three months
prior will automatically be granted a non-statutory option on such date to
purchase 5,000 shares of Common Stock. Accordingly, on January 27, 1997,
Messrs. Holland, Pardun, Perry, Sorenson and Washing each received an option
to purchase 5,000 shares of Common Stock at an exercise price per share of
$10.61. The Incentive Stock Plan also provides that each person who is elected
for the first time to be a non-employee director shall, upon the date of his
initial election, automatically be granted a non-statutory option to purchase
10,000 shares of Common Stock.
TERMS OF OPTIONS
Exercise Price. The exercise price of each option must be 100% of the fair
market value of the Common Stock subject to the option on the date of the
grant.
Consideration. The consideration to be paid for shares to be issued upon
exercise of an option may consist entirely of cash, check or other shares of
the Company (held for the period required to avoid charges to the Company's
reported earnings) having a fair market value on the date of surrender equal
to the aggregate exercise price of the shares as to which such option is
exercised, or any combination of such methods of payments.
Option Exercise. Non-discretionary options granted to non-employee directors
under the Incentive Stock Plan become exercisable in installments of 2% per
month from the date of grant.
Term. Non-discretionary options granted to non-employee directors have a
term of 10 years from the date of grant. Each such option will terminate on
the earlier of the date of expiration of the option or (i) three months after
the services of a non-employee director terminate; (ii) six months after
termination of such services if such termination is due to such optionee's
total and permanent disability (as defined in the Code); or (iii) six months
after death if the optionee dies or if the optionee dies within not more than
three months after termination of such service. Under clause (i) in the
preceding sentence, the services of a non-employee director shall not be
deemed terminated if such non-employee director subsequently becomes an
employee or consultant.
Restrictions on Transfer. Under the Incentive Stock Plan, non-discretionary
options granted to a non-employee director may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner by the optionee other
than by will or by the laws of descent and distribution. During the lifetime
of the optionee, an option may be exercised only by that optionee.
PROPOSAL 3
RATIFICATION OF SELECTION OF
INDEPENDENT ACCOUNTANTS
The Board has selected Price Waterhouse LLP as the Company's independent
accountants for the fiscal year ending January 3, 1998, and has further
directed that management submit the selection of independent accountants for
ratification by the stockholders at the Annual Meeting. Price Waterhouse LLP
has audited the Company's financial statements since inception. A
representative of Price Waterhouse LLP is expected to be present at the Annual
Meeting, will have an opportunity to make a statement if he so desires and
will be available to respond to appropriate questions.
Stockholder ratification of the selection of Price Waterhouse LLP as the
Company's independent accountants is not required by the Company's By-laws or
otherwise. However, the Board is submitting the
12
<PAGE>
selection of Price Waterhouse LLP to the stockholders for ratification as a
matter of good corporate practice. If the stockholders fail to ratify the
selection, the Board will reconsider whether or not to retain that firm. Even
if the selection is ratified, the Board in its discretion may direct the
appointment of a different independent auditing firm at any time during the
year if the Board determines that such a change would be in the best interests
of the Company and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy entitled to vote at the Annual Meeting will be
required to ratify the selection of Price Waterhouse LLP. Abstentions will be
counted toward the tabulation of votes cast on this proposal and will have the
same effect as negative votes. Broker non-votes are counted towards a quorum,
but are not counted for any purpose in determining whether this matter has
been approved.
THE BOARD RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3
13
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of March 19, 1997 by: (i) each director; (ii)
each executive officer named in the Summary Compensation Table who was
employed by the Company in that capacity as of March 19, 1997; (iii) all
executive officers and directors of the Company as a group; and (iv) all those
known by the Company to be beneficial owners of more than five percent of its
Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP(1)
--------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
- ---------------- --------- ----------
<S> <C> <C>
First Pacific Advisors, Inc. ........................... 2,661,300 11.9%
11400 W. Olympic Blvd.
Suite 1200
Los Angeles, CA 90064(2)
Peter D. Behrendt(3)(4)................................. 513,380 2.3%
Bruce M. Holland(3)..................................... 13,800 *
Thomas E. Pardun(3)..................................... 7,600 *
Mark W. Perry(3)........................................ 12,100 *
Ralph Z. Sorenson(3).................................... 18,400 *
Thomas G. Washing(3)(5)................................. 29,896 *
Mark W. Canright(3)..................................... 77,540 *
William L. Marriner(3)(6)............................... 208,482 *
David L. Riegel(3)(7)................................... 166,410 *
All executive officers and directors as a group (9
persons)(8)............................................ 1,047,608 4.7%
</TABLE>
- --------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G, if any, filed with the
Securities and Exchange Commission (the "Commission"). Unless otherwise
indicated in the footnotes to this table and subject to community property
laws where applicable, each of the stockholders named in this table has
sole voting and investment power with respect to the shares indicated as
beneficially owned. Applicable percentages are based on 22,303,343 shares
outstanding on March 19, 1997, adjusted as required by rules promulgated
by the Commission.
(2) First Pacific Advisors, Inc. is a subsidiary of United Asset Management
Corporation and manages the FPA Family of Funds. It has shared voting
power with respect to 780,300 shares and shared dispositive power with
respect to 2,661,300 shares.
(3) Includes shares issuable upon the exercise of stock options that are
exercisable within 60 days of March 19, 1997, pursuant to outstanding
options as follows: Mr. Behrendt, 255,500 shares; Mr. Holland, 13,400
shares; Mr. Pardun, 6,600 shares; Mr. Perry, 12,100 shares; Mr. Sorenson,
18,400 shares; Mr. Washing, 13,400 shares; Mr. Canright, 77,540 shares;
Mr. Marriner, 125,400 shares; and Mr. Riegel, 144,800 shares.
(4) Includes 21,960 shares held by Mr. Behrendt's spouse as custodian for the
benefit of three children of Mr. Behrendt.
(5) Includes 2,500 shares held by Mr. Washing's spouse as to which he
disclaims beneficial ownership.
(6) Includes 25,000 shares held by Mr. Marriner's spouse.
(7) Includes 1,626 shares held in trust for the benefit of Mr. Riegel and his
spouse.
(8) Includes shares described in the notes above, as applicable.
14
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities, to file with the Commission initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Officers, directors and greater than 10%
stockholders are required by Commission regulations to furnish the Company
with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during fiscal 1996, all Section 16(a) filing
requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT(1)
The Compensation Committee (the "Committee") is composed entirely of non-
employee directors and is responsible for establishing and administering the
policies which govern the compensation of executive officers.
COMPENSATION PHILOSOPHY
The Company's executive compensation programs are designed to attract and
retain executives capable of leading the Company to meet its business
objectives and to motivate them to enhance long-term stockholder values. The
elements of the Company's compensation program include base salary
compensation, profit sharing and long-term compensation.
BASE COMPENSATION
To determine the base salary, the Committee, as in previous years, reviewed
the report submitted by the Human Resources Department of the Company. This
report reviews independent surveys that compare compensation paid to
executives in high technology companies with revenues between $150 million and
$500 million. One survey also includes a separate comparison for a group of 15
companies of comparable size in the systems and peripherals business (the
"Industry Survey"). Both total compensation and the proportion reported as
incentive pay were examined.
In addition to the Industry Survey results, the Committee reviewed Mr.
Behrendt's performance of job responsibilities in 1995 as well as other
factors. The Committee noted that in 1995 anticipated earnings were not
achieved, due in part to lower than expected sales to VAR and distribution
channels, lower sales to certain of the Company's large OEM customers and
significantly lower gross margins on products. The shutdown cost of the
facilities in Ann Arbor, San Jose and Lenexa also adversely affected 1995
revenues. Furthermore, inventories were higher than the Company's internal
objectives and a write-down of the quarter-inch, 4mm and end-of-life 8mm
inventories occurred in the third quarter. The Committee did not assign
relative weights to these factors. As a result of these considerations, the
Committee determined that no increase in salary from the 1995 level would be
granted to either Mr. Behrendt or to any of the other executive officers for
1996.
PROFIT SHARING
Incentive compensation for executive officers is reflected in the annual
bonus plan, which is established at the first Board meeting of each year and
is based upon attainment of pre-tax income levels established by the Board in
the adoption of the annual operating plan. In 1996, the bonus for Mr. Behrendt
(paid in 1997) was established as a percentage of his 1996 base salary payable
to the extent that the Company satisfied pre-tax
15
<PAGE>
income goals established by the annual 1996 operating plan (the "1996
Operating Plan"). The target level of operating profit was not fully achieved
by the end of fiscal 1996. As a result, the bonus for Mr. Behrendt for fiscal
1996 was awarded only to the extent of 39% of the on-plan bonus specified in
the 1996 Operating Plan. Similar bonuses were paid to the other executive
officers for fiscal 1996, with the exception of Mr. Canright, Senior Vice
President of Sales and Customer Service, whose bonus was based on the
attainment of a combination of income and revenue levels.
LONG-TERM COMPENSATION
The third component of compensation is long-term compensation, reflected in
the stock option program. The Company has used the grant of options under the
Incentive Stock Plan to underscore the common interests of stockholders and
management. Options granted to executive officers are intended to provide a
continuing financial incentive to maximize long-term value to stockholders. In
determining the size of an option to be granted to an executive officer, the
Committee takes into account an officer's position and level of responsibility
within the Company, the officer's existing stock and unvested option holdings,
and the potential reward to the officer if the stock price appreciates in the
public market. In 1996, the Committee determined that long-term incentive
compensation should continue to constitute a significant component of
compensation for executives. As a result, in 1996 the Committee granted
options to executive officers to purchase Common Stock at levels ranging from
20,000 to 65,000 shares. Applying the factors described above, the Committee
granted Mr. Behrendt a stock option to acquire 65,000 shares. Mr. Behrendt's
grant of options, as well as those granted to other executive officers, are in
the midrange of equity incentives granted to executive officers at other
companies in the Industry Survey reviewed. The exercise price for each grant
represents the closing price of the stock on the date of grant. The Company's
option grants are on a 50-month vesting schedule and are only of value at the
time of vesting, and only if the stock price has appreciated.
The Company has not adopted a policy with respect to Section 162(m) of the
Code. However, the Compensation Committee has determined that stock options
and rights granted under the Incentive Stock Plan with an exercise price at
least equal to the fair market value of the Company's Common Stock on the date
of grant should, where practicable, be treated as "performance-based
compensation." To that end, the Incentive Stock Plan provides that no employee
may be granted stock options under the Incentive Stock Plan during a calendar
year to purchase in excess of 500,000 shares of Common Stock.
COMPENSATION COMMITTEE
Mark W. Perry Thomas E. Pardun Bruce M. Holland
Thomas G. Washing Ralph Z. Sorenson James M. McCoy*
- --------
* Mr. McCoy resigned as a member of the Board effective November 5, 1996.
(1) The material in this report is not "soliciting material," is not deemed
"filed" with the Commission and is not to be incorporated by reference in
any filing of the Company under the Securities Act of 1933, as amended
(the "Securities Act") or the Exchange Act, whether made before or after
the date hereof and irrespective of any general incorporation language in
any such filing.
COMPENSATION OF DIRECTORS
Each director of the Company who is not a full-time employee of the Company
received $15,000 as an annual retainer for his service as a director. In
addition, such directors receive $1,500 for each Board meeting they attend in
person and $250 for each meeting of a committee of the Board which they attend
in person or every telephone Board meeting in which they participate. Non-
employee directors received an aggregate of $137,500 for services rendered to
the Company as directors during fiscal 1996. The Company also reimburses non-
employee directors for out-of-pocket travel expenses in connection with their
attendance at meetings of the Board. Pursuant to the Incentive Stock Plan, on
January 27 of each fiscal year, each non-employee director who
16
<PAGE>
has been a non-employee director for at least three months is automatically
granted a non-statutory option to purchase 5,000 shares of the Company's
Common Stock. Each newly-elected non-employee director, upon initial election
to the Board, is to receive a non-statutory option to purchase 10,000 shares
of the Company's Common Stock. The exercise price of such options equals the
fair market value of the Company's Common Stock on the date of grant and vests
at the rate of 2% per month commencing on the date of grant. During fiscal
1996, options covering an aggregate of 35,000 shares were granted to the
Company's non-employee directors as a group with a weighted average exercise
price per share of $14.00.
SUMMARY OF COMPENSATION
The following table provides, for the years ended December 28, 1996,
December 30, 1995 and December 31, 1994, certain summary information
concerning compensation paid to or earned by the Company's Chief Executive
Officer and each of the other most highly-compensated executive officers of
the Company at December 28, 1996 whose aggregate base salary and bonus for
fiscal 1996 exceeded $100,000 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM:
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
----------------------------- ------------
SECURITIES ALL OTHER
UNDERLYING COMPEN-
NAME AND PRINCIPAL OPTIONS SATION
POSITION YEAR SALARY($)(1)(2) BONUS($) (#)(3) ($)(4)
- ------------------ ---- --------------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Peter D. Behrendt....... 1996 408,860 72,666 65,000 8,700
Chairman of the
Board(5) 1995 406,680 0 65,000 7,826
1994 385,582 253,176 70,000 8,670
William L. Marriner..... 1996 225,696 32,201 30,000 4,570
Chief Executive Officer
(Acting) 1995 224,932 0 30,000 4,489
President (Acting)(6) 1994 203,867 100,399 50,000 5,314
Chief Financial Officer
David L. Riegel......... 1996 229,743 32,986 30,000 7,458
Exec. Vice President of
Operations 1995 230,371 0 30,000 7,101
1994 208,846 109,704 60,000 6,636
Mark W. Canright........ 1996 189,195 140,276(7) 20,000 5,664
Sr. Vice President
Sales & Customer 1995 189,980 149,209(7) 20,000 5,326
Support(7) 1994 176,539 284,955(7) 38,000 5,538
</TABLE>
- --------
(1) Includes amounts earned but deferred at the election of the Named
Executive Officers under the Company's 401(k) Plan.
(2) As permitted by Commission rules, no amounts are shown for certain
perquisites where such amounts do not exceed the lesser of 10% of bonus
plus salary or $50,000.
(3) The Company has not granted any SARs or restricted stock awards.
(4) Includes the Company's matching payments under its 40l(k) plan for 1996 as
follows: Mr. Behrendt, $3,750; Mr. Riegel, $3,750; Mr. Marriner, $3,750;
and Mr. Canright, $3,750. Also includes the dollar value of executive life
insurance premiums paid by the Company in 1996 for the benefit of the
Named Executive Officers as follows: Mr. Behrendt, $4,950; Mr. Riegel,
$3,708; Mr. Marriner, $820; and Mr. Canright, $1,914.
(5) Until January 16, 1997, Mr. Behrendt also served as President and Chief
Executive Officer of the Company.
(6) Since January 16, 1997, Mr. Marriner has served as Chief Executive Officer
(acting) and President (acting) in addition to serving as Executive Vice
President and Chief Financial Officer of the Company.
(7) Includes $140,276 in commissions paid to Mr. Canright for 1996; $149,209
in commissions paid to Mr. Canright for 1995; and $189,187 in commissions
paid to Mark W. Canright for 1994.
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<PAGE>
EXECUTIVE OFFICER SEVERANCE PROGRAM
Effective January 26, 1996, the Compensation Committee approved and the
Board adopted a Severance Program under which officers and other specified
employees of the Company would receive certain severance payments in the event
their employment with the Company were terminated within one year after
certain changes in control of the Company. The Severance Program provides for
a severance payment in varying amounts, not to exceed 18 months of
compensation, depending upon the time of any such change in control as well as
the position level of such terminated officer or employee. The Severance
Program further provides, under certain circumstances, for the acceleration of
the vesting of outstanding and unexercised stock options held by the affected
officer or employee.
INCENTIVE STOCK PLAN
The Board adopted the Incentive Stock Plan in January 1987. As a result of a
series of amendments, at March 19, 1997 there were 9,500,000 shares of Common
Stock authorized for issuance under the Incentive Stock Plan (including
1,500,000 shares added by amendment in January 1997 and subject to stockholder
approval). The Incentive Stock Plan provides for the discretionary grant of
both incentive and non-statutory options to employees, directors and
consultants to the Company and its affiliates. The Incentive Stock Plan also
provides for the non-discretionary grant of non-statutory stock options to
non-employee directors of the Company or any of its affiliates.
As of March 19, 1997, options to purchase 4,077,508 shares were outstanding
under the Incentive Stock Plan and options to purchase 351,115 shares
(excluding 1,500,000 shares added by amendment in January 1997 and subject to
stockholder approval) remained available for future grant thereunder.
STOCK OPTION GRANTS
The following table contains information for the year ended December 28,
1996 concerning the grant of stock options under the Incentive Stock Plan to
the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(3)
-------------------------------------------- -----------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES
GRANTED IN FISCAL EXERCISE EXPIRATION
NAME (#)(1) YEAR(2) PRICE($/SH) DATE 5%($) 10%($)
---- ---------- ---------- ----------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Peter D. Behrendt....... 65,000 6.3 14.00 01/26/06 572,294 1,450,306
William L. Marriner .... 30,000 2.9 14.00 01/26/06 264,136 669,372
David L. Riegel ........ 30,000 2.9 14.00 01/26/06 264,136 669,372
Mark W. Canright ....... 20,000 1.9 14.00 01/26/06 176,091 446,248
</TABLE>
- --------
(1) The Company has no plan that provides for the issuance of SARs. Options
generally vest at the rate of 2% of the total grant per month beginning
one month from the date of grant, for a period of 50 months. Options may
be either non-statutory or incentive stock options under the Code. The
exercise price of options granted under the Incentive Stock Plan must be
equal to no less than the fair market value of the Common Stock subject to
the option on the date of grant. Options granted to executive officers and
certain members of management are subject to an agreement with the Company
which provides, that upon a change of control, options will fully vest
unless the Board directs otherwise. The Board may not reprice options
granted under the Incentive Stock Plan.
(2) Based on options granted to employees for the year ended December 28, 1996
to purchase 1,046,600 shares.
(3) The potential realizable value is based on the term of the option at the
date of grant (10 years in each case). It is calculated by assuming that
the stock price on the date of grant appreciates at the indicated annual
rate, compounded annually for the entire term, and that the option is
exercised and sold on the last day of the option term for the appreciated
stock price. These amounts represent certain assumed rates of appreciation
only, in accordance with the rules of the Commission, and do not reflect
the Company's estimate or projection of future stock price performance.
Actual gains, if any, are dependent on the actual future performance of
the Common Stock. There can be no assurance that the amounts reflected in
this table will be achieved.
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<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to the Named Executive
Officers concerning the exercise of options during the last fiscal year and
unexercised options held as of the end of the fiscal year:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END (#)(2) AT FY-END ($)(3)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Peter D. Behrendt ...... 4,500 78,300 346,500/117,300 1,835,920/0
William L. Marriner .... 0 0 108,400/ 61,800 0/0
David L. Riegel ........ 0 0 134,600/ 65,400 0/0
Mark W. Canright ....... 0 0 68,100/ 41,200 3,450/0
</TABLE>
- --------
(1) Value realized is based on the fair market value of the Common Stock on
the date of exercise (based on the closing sales price reported on the
Nasdaq National Market) less the exercise price and does not necessarily
indicate that the shares were sold by the optionee.
(2) Includes both "in-the-money" and "out-of-the-money" options. "In-the-
money" options are options with exercise prices below the market price of
the Common Stock at December 28, 1996.
(3) Fair market value of the Company's Common Stock at December 28, 1996
($13.50, based on the closing sales price reported on the Nasdaq National
Market) less the exercise price of the option.
19
<PAGE>
PERFORMANCE GRAPH(1)
COMPARISON OF CUMULATIVE TOTAL RETURN ON INVESTMENT
AMONG EXABYTE CORPORATION,
NASDAQ COMPOSITE INDEX AND THE
NASDAQ COMPUTER MANUFACTURER STOCKS INDEX
[GRAPH APPEARS HERE]
- ------------------------------FISCAL YEAR ENDING--------------------------------
COMPANY 1991 1992 1993 1994 1995 1996
EXABYTE CORPORATION 100 62.13 60.00 72.77 49.79 45.96
SIC CODE 100 89.44 103.24 125.22 171.74 232.79
NASDAQ MARKET INDEX 100 100.98 121.13 127.17 164.96 204.98
ASSUMES $100 INVESTED ON DECEMBER 28, 1991
ASSUMES DIVIDEND REINVESTMENT
FISCAL YEAR ENDED DECEMBER 28, 1996
- --------
(1) The material in this chart is not "soliciting material," is not deemed
"filed" with the Commission and is not to be incorporated by reference in
any filing of the Company under the Securities Act or the Exchange Act,
whether made before or after the date hereof and irrespective of any
general incorporation language in any such filing.
20
<PAGE>
OTHER MATTERS
The Board knows of no other matters that will be presented for consideration
at the Annual Meeting. If any other matters are properly brought before the
Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
[SIGNATURE OF STEPHEN F. SMITH
APPEARS HERE]
Stephen F. Smith
Corporate Secretary
- --------
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996 IS
AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO: VIKI MCKINNEY, EXABYTE
CORPORATION, 1685 38TH STREET, BOULDER, COLORADO 80301.
21
