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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / 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 Section 240.14a-11(c) or Section
240.14a-12
INPUT/OUTPUT, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(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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INPUT/OUTPUT, INC.
11104 WEST AIRPORT BLVD.
STAFFORD, TEXAS 77477
(281) 933-3339
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 28, 1998
To the Stockholders of Input/Output, Inc.:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders of
Input/Output, Inc. (the "Company") will be held at the Stafford Civic Center,
1415 Constitution Avenue, Stafford, Texas 77477, on Monday, September 28, 1998
at 10:00 a.m., Stafford, Texas time, for the following purposes, as described in
the accompanying Proxy Statement:
1. To elect three directors, each for a three-year term expiring in 2001
or until their successors are duly elected and qualified or until
their earlier death, resignation or removal.
2. To consider and vote upon the adoption of the Input/Output, Inc. 1998
Restricted Stock Plan.
3. To consider and vote upon the amendment of the Input/Output, Inc.
Amended and Restated 1990 Stock Option Plan.
4. To consider and vote upon the amendment of the Input/Output, Inc.
Amended and Restated 1996 Non-Employee Director Stock Option Plan.
5. To consider and vote upon the Input/Output, Inc. 1999 Management
Incentive Program.
6. To consider and ratify the appointment of KPMG Peat Marwick LLP as the
Company's independent certified public accountants for the fiscal year
ending May 31, 1999.
7. To transact any other business which properly may be brought before
the Annual Meeting or any adjournment thereof.
Only holders of record of the Company's Common Stock at the close of
business on August 14, 1998 are entitled to notice of and to vote at the Annual
Meeting or any adjournment thereof. A complete list of such stockholders will
be open for the examination of any stockholder of record at the Company's
principal executive offices at 11104 West Airport Blvd., Stafford, Texas 77477
for a period of ten (10) days prior to the Annual Meeting. The list shall also
be available for the examination of any stockholder of record present at the
Annual Meeting. The Annual Meeting may be adjourned from time to time without
notice other than by announcement at such meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT IN THE ENVELOPE PROVIDED.
By Order of the Board of Directors,
Stafford, Texas CHRIS E. WOLFE
August 27, 1998 Secretary
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INPUT/OUTPUT, INC.
11104 WEST AIRPORT BLVD.
STAFFORD, TEXAS 77477
(281) 933-3339
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 28, 1998
SOLICITATION AND REVOCABILITY OF PROXIES
The Board of Directors of Input/Output, Inc., a Delaware corporation (the
"Company"), is soliciting proxies to be voted at the Annual Meeting of
Stockholders of the Company to be held at the Stafford Civic Center, 1415
Constitution Avenue, Stafford, Texas 77477, on Monday, September 28, 1998 at
10:00 a.m., Stafford, Texas time, and at any adjournment thereof. This Proxy
Statement and the enclosed proxy are first being mailed to stockholders on or
about August 27, 1998 in connection with this solicitation.
This proxy solicitation is intended to afford stockholders the opportunity
to vote on the matters set forth in the accompanying Notice of Annual Meeting of
Stockholders dated August 27, 1998. The proxy permits stockholders to withhold
voting for any or all nominees for election to the Company's Board of Directors
(the "Board") and to abstain from voting for any proposal if the stockholder so
chooses.
All holders of record of shares of the Company's Common Stock at the close
of business on August 14, 1998 (the "Record Date"), are entitled to notice of
and to vote at the Annual Meeting. On the Record Date, the Company had
outstanding 44,586,434 shares of common stock, par value $0.01 per share (the
"Common Stock").
Each share of Common Stock is entitled to one vote. The presence, in
person or by proxy, of holders of a majority of the outstanding shares of Common
Stock entitled to vote as of the Record Date is necessary to constitute a quorum
at the Annual Meeting. A plurality of the votes of holders of the shares of
Common Stock represented in person or by proxy at the Annual Meeting, provided a
quorum is constituted, is required for the election of directors. All other
actions proposed in this proxy statement may be taken upon the affirmative vote
of holders of a majority of the shares of Common Stock represented at the Annual
Meeting, provided a quorum is present in person or by proxy.
With regard to the election of directors, votes may be cast in favor or
withheld; votes that are withheld will be excluded entirely from the vote and
will have no effect. Abstentions may be specified on all other proposals and
will be counted as present for purposes of the item on which the abstention is
noted. Abstentions on the specific proposals set forth in this proxy statement
(other than election of directors) will have the effect of negative votes
because these proposals require the affirmative vote of holders of a majority of
shares present in person or by proxy and entitled to vote. Under the rules of
the New York Stock Exchange, Inc. ("NYSE"), brokers who hold shares in street
name for customers have the authority to vote on certain "discretionary" items
when they have not received instructions from beneficial owners. NYSE rules
provide that brokers who have not received voting instructions from their
clients have discretion to grant a proxy and to vote on the election of
directors and the other proposals set forth herein. Under applicable Delaware
law, a broker non-vote will have no effect on the outcome of the election of
directors or the proposal to ratify the appointment of the auditors, nor will it
count as a vote cast in determining the total affirmative votes cast on the
proposals to adopt the Input/Output, Inc. 1998 Restricted Stock Plan, amend the
Input/Output, Inc. Amended and Restated 1990 Stock Option Plan, amend the
Input/Output, Inc. Amended and Restated 1996 Non-Employee Director Stock Option
Plan or adopt the Input/Output, Inc. 1999 Management Incentive Program.
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Any stockholder has the unconditional right to revoke his proxy at any time
before it is voted. Any proxy given may be revoked either by a written notice
duly signed and delivered to the Secretary of the Company prior to the exercise
of the proxy, by execution of a subsequent proxy and delivery of such subsequent
proxy to the Secretary of the Company, or by voting in person at the Annual
Meeting (although attending the Annual Meeting without executing a ballot or
executing a subsequent proxy will not constitute revocation of a proxy). Where a
stockholder's executed proxy specifies a choice with respect to a voting matter,
the shares will be voted accordingly. If no such specification is made, the
shares will be voted (i) FOR the nominees for director identified below, (ii)
FOR the adoption of the Input/Output, Inc. 1998 Restricted Stock Plan, (iii) FOR
the adoption of the proposed amendments to the Input/Output, Inc. Amended and
Restated 1990 Stock Option Plan, (iv) FOR the adoption of the proposed
amendments to the Input/Output, Inc. Amended and Restated 1996 Non-Employee
Director Stock Option Plan, (v) FOR the adoption of the Input/Output, Inc. 1999
Management Incentive Program and (vi) FOR the ratification of the appointment of
KPMG Peat Marwick LLP as the Company's independent certified public accountants
for the fiscal year ending May 31, 1999.
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation divides the Board into three
classes. The term of office of one class of directors expires at this Annual
Meeting of Stockholders. A second class of directors will serve until the 1999
Annual Meeting of Stockholders, and the third class of directors will serve
until the 2000 Annual Meeting of Stockholders.
W. J. ("Zeke") Zeringue, Ernest E. Cook and William F. Wallace, each of
whom is currently a director of the Company with their term expiring at the 1998
Annual Meeting, are nominees for director and will stand for election at this
year's Annual Meeting for a three-year term of office expiring at the 2001
Annual Meeting of Stockholders or until their successors are duly elected and
qualified or until their earlier death, resignation or removal. For additional
information regarding Messrs. Zeringue, Cook and Wallace, see "Management --
Directors and Executive Officers of the Company." The persons named in the
proxy will vote FOR such nominees, except where authority has been withheld as
to a particular nominee or as to all nominees.
Nominees for director receiving a plurality of the votes represented by the
shares of Common Stock present in person or represented by proxy at the Annual
Meeting and entitled to vote thereon will be elected as directors. Each nominee
has consented to being named in this Proxy Statement and to serve his term if
elected. If any nominee should for any reason become unavailable for election,
proxies may be voted with discretionary authority by the persons appointed as
proxies for any substitute designated by the Board.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THESE NOMINEES FOR
ELECTION TO THE BOARD.
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PROPOSAL TO ADOPT THE INPUT/OUTPUT, INC.
1998 RESTRICTED STOCK PLAN
GENERAL
On June 1, 1998, the Company's Board of Directors adopted, subject to
stockholder approval, the Input/Output, Inc. 1998 Restricted Stock Plan (the
"1998 Plan") in order to afford the Company with another means to provide
current and potential key management employees of the Company with a proprietary
interest in the Company. The statements herein concerning the terms and
provisions of the 1998 Plan are summaries only and are qualified in their
entirety by reference to the full text of the 1998 Plan, a copy of which is
attached hereto as Appendix I.
In 1990, the Company adopted the Input/Output, Inc. 1990 Restricted
Stock Plan, under which 1,220,000 shares (after giving effect to two stock
splits) were authorized for grants of restricted stock. The 1990 Restricted
Stock Plan expires pursuant to its terms on September 1, 1999. In addition,
as of May 31, 1998, only 15,000 shares remained available for awards under
this Plan. The Board of Directors and Compensation Committee approved and
adopted the 1998 Plan, subject to stockholder approval, in order to provide
the Company with the continuity of having a restricted stock plan available,
and to permit awards of restricted stock in limited situations in order to
attract and retain valued current and potential key management employees.
Pursuant to the terms of the 1998 Plan, the Company will enter into
individual award agreements with plan participants designated by the
Compensation Committee, which agreements will provide the number of shares of
Common Stock granted pursuant to the award (the "Restricted Stock"), the
price, if any, to be paid by the participant for the Restricted Stock, the
time or times within which the award is subject to forfeiture (the
"Restricted Period") and the other terms, limitations and any performance
objectives as are specified by the Compensation Committee. Certificates
representing the Restricted Stock will bear appropriate legends regarding the
transfer restrictions, and participants will not be permitted to sell,
transfer, pledge, assign or otherwise dispose of their Restricted Stock
during the Restricted Period.
TERMS OF THE 1998 PLAN
TERM. Unless sooner terminated by action of the Board, the 1998 Plan
will terminate on June 1, 2008, and thereafter no shares of Restricted Stock
may be granted thereunder.
SHARES. The Plan provides that the maximum number of shares of Common
Stock that may be delivered pursuant to awards under the 1998 Plan is
100,000, subject to adjustment in accordance with the 1998 Plan; no
individual participant may receive, during any fiscal year, awards covering
an aggregate of more than 50,000 shares of Common Stock.
PARTICIPANTS. The Compensation Committee will have authority to grant
shares of Restricted Stock to key employees of the Company (including
officers and directors who are employees) or any majority-owned subsidiary at
such time, in such amounts and under such terms as the Compensation Committee
determines consistent with the provisions of the 1998 Plan.
TERMINATION OF EMPLOYMENT OR SERVICE. The 1998 Plan states that upon
termination of a participant's employment with the Company for any reason
other than death, disability or retirement, the nonvested shares of
Restricted Stock shall be forfeited.
CHANGE OF CONTROL. The 1998 Plan provides that in the event of a
"Change in Control" of the Company, all Restricted Stock will become fully
vested. "Change in Control" is defined in Section 2.4 of the 1998 Plan.
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ADMINISTRATION OF THE 1998 PLAN
The 1998 Plan is administered by the Compensation Committee of the
Board. See "Proposal to Adopt Amendments to the Input/Output, Inc. Amended
and Restated 1990 Stock Option Plan," "Management - Meetings of Directors and
Committees" and "Remuneration of Directors and Officers - Compensation
Committee Report on Executive Compensation."
AMENDMENT OF THE 1998 PLAN
The 1998 Plan provides that the Board may from time to time discontinue or
further amend the 1998 Plan without the consent of the participants or the
Company's stockholders. However, stockholder approval will be required in the
event any additional shares of Common Stock are sought to be authorized under
the 1998 Plan; no such authorization is planned or anticipated at this time.
CERTAIN FEDERAL INCOME TAX ASPECTS
The following is a summary of the principal federal income tax
consequences associated with grants of Restricted Stock under the 1998 Plan.
It does not describe all federal income tax consequences under the 1998 Plan,
nor does it describe foreign, state or local tax consequences. Each
participant is urged to consult his or her personal tax advisor to determine
the specific tax consequences to him or her of participating in the 1998 Plan.
GENERAL. In general, a participant who receives an award of Restricted
Stock under the 1998 Plan will not be taxed on the receipt of the Restricted
Stock, but instead will be taxed on the fair market value of the underlying
Common Stock upon the lapse of restrictions applicable to such award, unless
the participant elects to recognize income in the year in which the award is
made pursuant to Section 83(b) of the Internal Revenue Code of 1986, as
amended (the "Code"). The Company will be entitled to a corresponding
deduction to the extent that such amount is an ordinary and necessary expense
and satisfies the test of reasonable compensation.
WITHHOLDING. Withholding of applicable federal and state taxes will be
required in connection with any ordinary income realized by a participant by
reason of an award of Restricted Stock pursuant to the 1998 Plan. A
participant must deposit with the Company cash or Common Stock in an amount
necessary to satisfy applicable federal and state withholding requirements.
CHANGE IN CONTROL. In the event of a Change in Control of the Company,
certain accelerations of awards could result in "excess parachute" amounts
under Section 280G of the Code. In such case, the Company would not be
entitled to a deduction with respect to excess parachute payments, and the
individual receiving the payments would be subject to a 20% excise tax on the
same.
PLAN BENEFITS
As discussed above, Restricted Stock awards under the 1998 Plan will be
made in the discretion of the Compensation Committee pursuant to the terms of
individual award agreements to be entered into with the participants.
Accordingly, the Company cannot estimate shares of Restricted Stock to be
issued in the future. No awards have been made or are currently planned
under the 1998 Plan. During the Company's fiscal year ended May 31, 1998,
the Company granted 53,000 shares of restricted stock under the 1990
Restricted Stock Plan to W. J. Zeringue, the Chairman and Chief Executive
Officer, upon his joining the Company.
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VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of
Common Stock represented in person or by proxy at the Annual Meeting and
entitled to vote, provided a quorum is present, is required for the approval
of the 1998 Plan.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE
THE ADOPTION OF THE INPUT/OUTPUT, INC. 1998 RESTRICTED STOCK PLAN.
PROPOSAL TO ADOPT AMENDMENTS TO THE INPUT/OUTPUT, INC.
AMENDED AND RESTATED 1990 STOCK OPTION PLAN
GENERAL
The Company's Amended and Restated 1990 Stock Option Plan was adopted in
1990 and has been subsequently amended many times. In June 1998, the Board
approved, subject to approval by the Company's stockholders, certain additional
amendments to the 1990 Plan. The Amended and Restated 1990 Stock Option Plan,
as proposed to be amended by the terms hereof, is referred to herein as the
"1990 Plan."
The principal amendments to the 1990 Plan are:
(i) An amendment to increase the total number of shares of
Common Stock authorized and reserved for issuance under the
1990 Plan by 1,500,000 shares (Section 5 of the 1990 Plan);
(ii) An amendment to increase the number of shares under options
which may be granted to an individual over a four-year
period from 750,000 to 1,200,000 shares (Section 5 of the
1990 Plan); and
(iii) An amendment to provide for full vesting of stock options
upon a "Change in Control" of the Company in the event that
the successor to the Company does not assume or replace
outstanding options under the 1990 Plan (Section 8 of the
1990 Plan).
The statements herein concerning the terms and provisions of the 1990 Plan
are summaries only and are qualified in their entirety by reference to the full
text of the 1990 Plan, as proposed to be amended and restated, a copy of which
is attached hereto as Appendix II.
At May 31, 1998, the Company estimates that approximately 1,275 employees
and officers were eligible to participate in the 1990 Plan, 995 of whom were
participants. As of May 31, 1998, options to purchase 3,485,746 shares of
Common Stock had been granted under the 1990 Plan and were outstanding at
exercise prices ranging from $2.0313 to $30.375 per share, leaving only 523,204
shares of Common Stock available for option grants under the 1990 Plan. As of
May 31, 1998, the aggregate market value of the shares of Common Stock
underlying outstanding options under the 1990 Plan was $76,686,000 (based on the
closing sales price per share of $22.00 on the New York Stock Exchange composite
tape on such date.)
For information concerning stock options granted during fiscal 1998 under
the 1990 Plan to the named executive officers, the Company's executive officers
as a group, all non-employee directors as a group, and all non-executive
employees as a group, see "Remuneration of Directors and Officers - Stock
Options."
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TERMS OF THE 1990 PLAN AND AGREEMENTS
TERM. Unless sooner terminated by action of the Board, the 1990 Plan will
terminate on September 1, 2000, and thereafter no options may be granted
thereunder.
OPTIONEES. The Compensation Committee will have authority to grant stock
options to key employees, consultants and independent contractors of the Company
(including officers and directors who are employees) or any majority-owned
subsidiary of the Company, at such time, in such amounts and under such terms as
the Compensation Committee determines in accordance with the 1990 Plan.
EXERCISE OF OPTIONS. The exercise price may be paid in cash or in shares
of Common Stock valued at their fair market value on the date of exercise (or in
any combination of cash and shares of Common Stock having an aggregate fair
market value equal to the exercise price). The Compensation Committee is
authorized to prescribe the time or times at which a stock option granted under
the 1990 Plan may be exercised (Section 6(c) of the 1990 Plan).
TERMINATION OF EMPLOYMENT OR SERVICE. The 1990 Plan states that upon
termination of an optionee's employment or service with the Company, his option
will be exercisable for a period of 180 days after such termination; provided,
however, that if his termination is by reason of death, total and permanent
disability or retirement, as the case may be, his option will automatically vest
and become fully exercisable for a period of 12 months after such date of
termination.
CHANGE OF CONTROL. The 1990 Plan provides that in the event of a "Change
of Control" of the Company, all stock options will become fully exercisable and
vested (unless the successor to the Company assumes or replaces on substantially
equivalent terms the options outstanding under the 1990 Plan), regardless of
provisions under option agreements requiring shares to be exercised in
installments. In the event any successor to the Company assumes or replaces on
substantially equivalent terms the options outstanding under the 1990 Plan, but
within the 18-month period following the Change of Control event the optionee's
employment is terminated by the Company without cause or else the optionee
resigns after he experiences a "Change in Duties", then all stock options of
that optionee under the 1990 Plan will thereupon become fully vested and
exercisable in full. "Change of Control" and "Change in Duties" are defined in
Section 8 of the 1990 Plan.
ADMINISTRATION OF THE 1990 PLAN
The 1990 Plan is administered by the Compensation Committee of the Board.
The Compensation Committee may grant options under the 1990 Plan and determine
the terms of options granted to key employees. The Board selects the members of
the Compensation Committee from among disinterested members of the Board.
Members of the Compensation Committee serve at the will of the Board and may be
removed from the Compensation Committee at any time at the Board's discretion.
AMENDMENT OF THE 1990 PLAN
The 1990 Plan provides that the Board may from time to time discontinue or
further amend the 1990 Plan without the consent of the participants or the
Company's stockholders, except for amendments which would prevent incentive
stock options granted under the 1990 Plan from being so qualified, and
amendments which would adversely affect optionees with respect to options
previously granted without those optionees' consent.
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CERTAIN FEDERAL INCOME TAX ASPECTS
The following is a summary of the principal federal income tax consequences
associated with grants of options under the 1990 Plan. It does not describe all
federal income tax consequences under the 1990 Plan, nor does it describe
foreign, state or local tax consequences. Each participant is urged to consult
his or her personal tax advisor to determine the specific tax consequences to
him or her of the 1990 Plan.
NONQUALIFIED STOCK OPTIONS. The 1990 Plan is not a "qualified plan" within
the meaning of Section 401 of the Code. The granting of a nonqualified stock
option will not result in federal income tax consequences to either the Company
or the optionee. Upon exercise of a nonqualified stock option, the optionee
will recognize ordinary income in an amount equal to the difference between the
fair market value of the shares on the date of exercise and the exercise price,
and the Company will be entitled to a corresponding deduction to the extent such
amount is an ordinary and necessary expense and satisfies the test of reasonable
compensation. Different rules would apply to nonqualified stock options that
have a "readily ascertainable fair market value" as that phrase is defined in
regulations promulgated under Section 83 of the Code.
For purposes of determining gain or loss realized upon a subsequent sale or
exchange of such shares, the optionee's tax basis will be the sum of the
exercise price paid and the amount of ordinary income, if any, recognized by the
optionee. Any gain or loss realized by an optionee on disposition of such
shares generally will be a long-term capital gain or loss (if the shares are
held as a capital asset for at least one year) and will not result in any tax
deduction to the Company.
INCENTIVE STOCK OPTIONS. In general, no income will be recognized by an
optionee and no deduction will be allowed to the Company at the time of the
grant or exercise of an incentive stock option granted under the 1990 Plan.
When the stock received on exercise of the option is sold, provided that the
stock is held for more than two years from the date of grant of the option
and more than one year from the date of exercise, the optionee will recognize
long-term capital gain or loss equal to the difference between the amount
realized and the exercise price of the option related to such stock. If
these holding period requirements under the Code are not satisfied, the
subsequent sale of stock received upon exercise is treated as a
"disqualifying disposition." In general, the optionee will recognize taxable
income at the time of a disqualifying disposition as follows: (i) ordinary
income in an amount equal to the excess of the lesser of the fair market
value of the Common Stock on the date the incentive stock option is exercised
or the amount realized on such disqualifying disposition over the exercise
price and (ii) capital gain to the extent of any excess of the amount
realized on such disqualifying disposition over the fair market value of the
Common Stock on the date the incentive stock option is exercised (or capital
loss to the extent of any excess of the exercise price over the amount
realized on disposition). Any capital gain or loss recognized by the
optionee will be long-term or short-term depending upon the holding period
for the stock sold. The Company may claim a deduction at the time of the
disqualifying disposition equal to the amount of the ordinary income the
optionee recognizes.
Although an optionee will not realize ordinary income upon the exercise of
an incentive stock option, the excess of the fair market value of the shares
acquired at the time of exercise over the option price is included in
"alternative minimum taxable income" for purposes of calculating the optionee's
alternative minimum tax, if any, pursuant to Section 55 of the Code.
WITHHOLDING. Withholding of federal income taxes at applicable rates will
be required in connection with any ordinary income realized by a participant by
reason of the exercise of stock options granted pursuant to the 1990 Plan. A
participant must pay such taxes to the Company in cash or in Common Stock prior
to the receipt of any Common Stock certificates.
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The affirmative vote of the holders of a majority of the shares of Common
Stock represented in person or by proxy at the Annual Meeting and entitled to
vote, provided a quorum is present, is required to approve the amendments to the
1990 Plan.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE
AMENDMENTS TO THE INPUT/OUTPUT, INC. AMENDED AND RESTATED 1990 STOCK OPTION
PLAN.
PROPOSAL TO ADOPT AMENDMENTS TO THE INPUT/OUTPUT, INC.
AMENDED AND RESTATED 1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
GENERAL
As a means to attract and recruit qualified new directors and to retain
capable directors in a manner that promotes ownership of a proprietary interest
in the Company, the Input/Output, Inc. Amended and Restated 1996 Non-Employee
Director Stock Option Plan was adopted in 1996. In June 1998, the Board
approved, subject to approval of the Company's stockholders, certain amendments
to the plan. The Amended and Restated 1996 Non-Employee Director Stock Option
Plan, as proposed to be amended by the terms hereof, is referred to herein as
the "Directors Plan."
Under the terms of the Directors Plan, each non-employee director of the
Company (a "Non-Employee Director") is to be granted an option to purchase
20,000 shares of Common Stock on the first business day of November 1996, or
with respect to any Non-Employee Director who joins the Board after that
date, on the date that person commences serving as a Non-Employee Director.
Afterwards, the Non-Employee Director will be entitled to receive options to
purchase 10,000 shares on the first business days of each November following
such initial 20,000 share grant. Therefore, the Non-Employee Directors
serving as such as of November 1, 1996 each received annual grants of stock
options on the first business day of November 1996 and 1997. In addition,
each such Non-Employee Director continuing in office will receive a stock
option to purchase 10,000 shares of Common Stock on the first business day of
November 1998 and on the first business day of November of each year
thereafter. The stock options to be granted in November 1998 shall be fully
exercisable on and following the first anniversary date of their date of
grant, and stock options granted in future years shall be fully exercisable
on the date of each annual grant.
In accordance with the terms of the Directors Plan, Mr. William F.
Wallace, a Non-Employee Director who was elected to the Board on August 24,
1998, received an option to purchase 20,000 shares of Common Stock which
vests in three equal installments on August 24 of each of 1999, 2000 and
2001. In addition, if Mr. Wallace is elected to the Board by the Company's
stockholders at the Annual Meeting, he will be entitled to an option to
purchase 10,000 shares of Common Stock in November 1998 which will vest in
two equal installments on each of the first and second anniversaries of the
date of grant. See "Election of Directors" and "Management - Directors and
Executive Officers of the Company."
The Directors Plan also provides for discretionary grants of stock
options to Non-Employee Directors as determined from time to time by the
Board. On June 30, 1997, the five outside Board members at that time (Messrs.
Carter, Cook, Denison, Elliott and Graves) were each granted options to
purchase 12,000 shares of Common Stock, vesting in one-third increments over
a three-year period following the date of grant.
As of August 24, 1998, the Company had granted options covering a total
of 1,234,000 shares of Common Stock under the Directors Plan, leaving only
180,000 shares of Common Stock available for grant. The principal amendment
to the Directors Plan for approval at the Annual Meeting is a proposal to
increase the total shares of Common Stock authorized and reserved for
issuance under the Directors Plan by 300,000 shares (Article III of the
Directors Plan).
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The provisions of the Directors Plan are summarized below. All statements
are qualified in their entirety by reference to the full text of the Directors
Plan, which is attached hereto as Appendix III.
The Directors Plan is not subject to the provisions of ERISA and is not a
"qualified plan" within the meaning of Section 401 of the Code. The Directors
Plan will terminate on July 12, 2006, and thereafter no options may be granted
thereunder. The holder of an option granted pursuant to the Directors Plan does
not have any of the rights or privileges of a stockholder except with respect to
shares that have been actually issued.
TERMS OF THE DIRECTORS PLAN
ELIGIBILITY. Only Non-Employee Directors are eligible to receive options
under the Directors Plan. At the present time, six members of the Company's
Board of Directors are considered Non-Employee Directors for purposes of the
Directors Plan: Charles E. Selecman, Shelby H. Carter, Jr., Ernest E. Cook,
Theodore H. Elliott, Jr., G. Thomas Graves III and William F. Wallace.
PURPOSE. The purpose of the Directors Plan is to promote the long-term
growth of the Company by increasing the proprietary interest of Non-Employee
Directors in the Company, and to attract, recruit and retain highly qualified
and capable Non-Employee Directors by allowing these directors to participate in
the long-term growth and financial success of the Company. See "Remuneration of
Directors and Officers - Compensation of Directors."
EXERCISE PRICE AND TERM. The exercise price for an option granted under
the Directors Plan shall be equal to the Fair Market Value per share of the
Common Stock on the date of grant, but in any event shall not be less than the
par value per share of the Common Stock. The option period extends for ten
years from the date the option is granted, subject to earlier termination in the
event a director ceases to serve as such.
TERMINATION OF SERVICE. Upon termination of a participant's service as a
director with the Company and its subsidiaries due to death, total and permanent
disability or retirement, all unmatured installments of options outstanding
shall thereupon automatically be accelerated and exercisable in full, and the
option may be exercised for a period of 12 months after such termination of
service, or until expiration of the stock option period (whichever is sooner),
by the participant or his estate or personal representative, or by the person
who acquired the right to exercise the option by bequest or inheritance or by
reason of the participant's death. In the event of the termination of a
participant's service as a director other than as a result of death, disability,
or retirement, such participant's stock options may be exercised by the
participant for a period of 180 days after the participant's termination of
service, or until expiration of the applicable option period (whichever is
sooner) to the extent of the shares with respect to which such options could
have been exercised by the participant on the date of termination, and
thereafter to the extent not so exercised, such options shall terminate.
ADMINISTRATION OF THE DIRECTORS PLAN
The Directors Plan is administered by the Compensation Committee of the
Board. See "Proposal to Approve Amendments to the Input/Output, Inc. Amended
and Restated 1990 Stock Option Plan--Administration of the 1990 Plan."
-9
<PAGE>
ADJUSTMENTS; AMENDMENTS
The Directors Plan provides that the number of shares issuable under the
Directors Plan and upon exercise of outstanding options and the exercise prices
of such options are subject to such adjustments as are appropriate to reflect
any increase or decrease in the number of issued and outstanding shares of
Common Stock through the declaration of a stock dividend or through any
recapitalization resulting in a stock split-up, combination, or exchange of
shares of Common Stock (Article X of the Directors Plan).
If the Company merges or consolidates, transfers all or substantially all
of its assets to another entity or dissolves or liquidates, then under certain
circumstances a holder of an option will be entitled to purchase the equivalent
number of shares of stock, other securities, cash or property that the option
holder would have been entitled to receive had he or she exercised his or her
option immediately prior to such event.
In the event of a "Change in Control" of the Company (as defined in
Article I of the Plan), then, notwithstanding any other provision in the
Directors Plan, all unmatured installments of stock options outstanding shall
thereupon automatically be accelerated and exercisable in full (Article XI of
the Directors Plan).
The Directors Plan provides that the Board of Directors may from time to
time discontinue or amend the Directors Plan without the consent of the
stockholders unless such discontinuance or amendment is required by applicable
law, rule or regulation (Article VII of the Directors Plan).
CERTAIN FEDERAL INCOME TAX ASPECTS
The granting of a stock option under the Directors Plan will not result in
federal income tax consequences to either the Company or the optionee. Upon
exercise of a stock option, the optionee will recognize ordinary income in an
amount equal to the difference between the fair market value of the shares on
the date of exercise and the exercise price, and the Company will be entitled to
a corresponding deduction. See "Proposal to Adopt Amendments to the
Input/Output, Inc. Amended and Restated 1990 Stock Option Plan -- Certain
Federal Income Tax Aspects -- Nonqualified Stock Options."
The affirmative vote of the holders of a majority of the shares of Common
Stock represented in person or by proxy at the Annual Meeting and entitled to
vote, provided a quorum is present, is required to approve the amendments to the
Directors Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE THE
AMENDMENTS TO THE INPUT/OUTPUT, INC. AMENDED AND RESTATED 1996 NON-EMPLOYEE
DIRECTOR STOCK OPTION PLAN.
PROPOSAL TO ADOPT THE INPUT/OUTPUT, INC.
1999 MANAGEMENT INCENTIVE PROGRAM
GENERAL
On June 1, 1998, the Board adopted and approved the terms of the
Input/Output, Inc. 1999 Management Incentive Program (the "Incentive Plan"),
subject to approval by the Company's stockholders at the Annual Meeting.
During 1993, the United States Congress adopted Section 162(m) of the
Internal Revenue Code of 1986 (the "Code"), the terms of which place limits on
the Company's ability to deduct certain compensation in excess of $1,000,000 for
any taxable year paid to certain of its executive officers ("Section 162(m)").
One exception to these limitations is for "performance-based" compensation that
has been disclosed to and
-10-
<PAGE>
approved by stockholders prior to payment of the awards. Final federal
income tax regulations were promulgated in December 1995, which provide
guidelines for compliance with this exception to the deduction limitation
rules.
In response to Section 162(m) and the adoption of the related final
treasury regulations, the Compensation Committee and the Board in July 1996
approved the terms of the Company's 1996 Amended and Restated Management
Incentive Program (the "1996 Incentive Plan"), which replaced the Company's
then-existing management bonus plan; the 1996 Incentive Plan was intended to
comply with the performance-based exception to Section 162(m). The 1996
Incentive Plan was approved by the Company's stockholders at the Company's 1996
Annual Meeting of Stockholders. The 1996 Incentive Plan provided for the
payment of bonuses to the executives and key employees of the Company, basing
the bonus payments upon the Company's actual before-tax profits for a fiscal
year compared to both budgeted before-tax profits for that fiscal year and
before-tax profits for the preceding fiscal year. During fiscal 1998, the Board
amended the terms of the 1996 Incentive Plan by changing one bonus determinant
to a pre-tax return on operating assets formula. This change was believed
desirable by the Board in order to reflect particular performance objectives by
the Company believed to be more meaningful at that particular point in time.
During fiscal 1998, in connection with the Compensation Committee's review
of its compensation programs, the Compensation Committee determined that a new
management incentive plan should be adopted, both to reflect certain different
performance criteria that the Committee then felt more relevant and also to
afford the Committee additional flexibility to be able to change the performance
determinants under the plan in order to address particular performance
objectives from fiscal year to fiscal year. As a result of its study, the
Compensation Committee recommended for Board approval the terms of the Incentive
Plan.
The provisions of the Incentive Plan (which include the material terms of
the performance-based compensation provisions) are summarized below. The
statements herein concerning the terms and provisions of the Incentive Plan are
summaries only and are qualified in their entirety by reference to the full text
of the Incentive Plan, a copy of which is attached hereto as Appendix IV.
The purpose of the Incentive Plan is to advance the interests of the
Company and its stockholders by providing certain of the Company's key employees
with annual incentive compensation which is tied to the achievement of
preestablished and objective performance goals. The Incentive Plan is designed
to provide the Company with flexibility in achieving those purposes and to
implement performance-based compensation strategies that will attract and retain
officers and employees who are important to the long-term success of the
Company.
The Compensation Committee shall within 90 days after the commencement of
each fiscal year, select the particular key employees of the Company and its
subsidiaries to whom bonuses under the Incentive Plan may be granted.
Approximately 25 employees are currently eligible to participate in the
Incentive Plan. Subject to the terms of the Incentive Plan, employees who
participate in the Incentive Plan may also participate in other incentive or
benefit plans of the Company or any of its subsidiaries (Articles III and IV of
the Incentive Plan).
The Incentive Plan is administered by the Compensation Committee of the
Board of Directors; bonus awards under the Incentive Plan to "covered
employees," that is, the chief executive officer and the other four highest
compensated officers of the Company as of the last day of the taxable year, must
be made only by "outside director" (as that term is used under Section 162(m))
members of the Compensation Committee. See "Proposal to Approve Amendments to
the Input/Output, Inc. Amended and Restated 1990 Stock Option Plan --
Administration of the 1990 Plan."
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<PAGE>
BONUSES UNDER THE INCENTIVE PLAN
Bonuses will be calculated and awarded under the Incentive Plan according
to the participant's position within the Company. Participants will be
classified into Groups as designated by the Compensation Committee from time to
time. Initially, Group I shall consist of the Chief Executive Officer and Chief
Operating Officer of the Company (currently comprised of two persons); Group II
shall consist of the vice presidents of the Company (currently seven persons);
Group III shall consist of key employees of the Company and its subsidiaries, as
designated by the Compensation Committee.
PERFORMANCE GOALS. Under the Incentive Plan, the Compensation Committee
shall establish for each participant and each Group corporate performance goals
and individual performance goals. The corporate performance goals shall be the
key financial and strategic objectives established by the Committee for the
particular fiscal year in question and will be based on the measures and
objectives as the Committee then deems most relevant and meaningful for the
Company. Examples of such corporate measures include (but are not limited to)
free cash flow; earnings before interest, taxes, depreciation and amortization;
revenue growth; return on operating assets; and return on equity. The
individual performance goals will be the specific individual goals and
objectives established by the Committee. The Committee shall then weight, or
determine the percentage of, the total bonus that is to be paid on the basis of
achievement of corporate performance goals and achievement of individual
performance goals. The Committee then determines the target level of
performance for which a target bonus (expressed as a percentage of the
participant's base salary) for each participant will be paid (that is, the bonus
payable if the Company achieves target performance for the corporate performance
goals established by the Committee and the individual achieves target
performance for the individual performance goals so established). In like
respect, the Committee also determines the minimum level of performance
(threshold performance) in relation to the performance goals determined before
any bonus will be payable under the Incentive Plan, and the maximum level of
performance (maximum performance) in relation to the performance goals
determined that will permit a maximum bonus to be paid under the Incentive Plan.
The Incentive Plan provides that the Compensation Committee must, within 90
days after the commencement of the fiscal year in question, establish each of
these amounts in an incentive schedule.
ADJUSTMENTS AND LIMITATION ON BONUS. Following each fiscal year, the
Committee will calculate the bonus amounts on the basis of the incentive
schedule for that fiscal year and the level of achievement of performance goals
for each participant. The Committee may, in its sole discretion, adjust the
bonus for any participant who is not a "covered employee" by increasing or
decreasing the bonus amount by an amount equal to up to 20% of the bonus amount
calculated (provided that the total amount of all such increases equals the
total amount of all such decreases under the Incentive Plan for that fiscal year
in question). The bonus amounts calculated for any participant who is a
"covered employee" under Section 162(m) may be reduced by an amount of up to 20%
by the Compensation Committee in its sole discretion; however, the bonus amounts
calculated under the Incentive Plan payable to any such participant may not be
increased. In any event, the maximum total bonus amount payable to any
participant with respect to any bonus year shall not exceed $1,200,000.
As a condition to eligibility for payment of a bonus with respect to any
fiscal year, a participant shall be required to be employed by the Company or
one of its subsidiaries through the applicable payment date for the bonuses
(which shall not be later than 90 days after the end of the applicable bonus
year), unless during that year, the participant died, became permanently
disabled, or retired from the Company pursuant to retirement policies then in
effect, in which case the participant will receive a prorated portion of his
bonus earned for that year.
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<PAGE>
AMENDMENT
The Incentive Plan provides that the Compensation Committee or the Board
may at any time and from time to time without the consent of the participants
amend or discontinue the plan in whole or in part.
NEW PLAN BENEFITS
As set forth above, bonuses under the Incentive Plan will be based upon
performance goals with respect to fiscal 1999 and future years. No incentive
compensation under these terms has yet been earned by any participant.
Accordingly, the amount of annual incentive compensation to be paid in the
future to participants, including the Company's current or future named
executive officers subject to Section 162(m), cannot be determined at this
time, since actual amounts will depend on actual corporate and individual
performance measured against the attainment of the preestablished performance
goals and the Compensation Committee's discretion to adjust those amounts.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE
INCENTIVE PLAN.
PROPOSAL TO RATIFY APPOINTMENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board has selected KPMG Peat Marwick LLP as independent certified
public accountants to examine the consolidated financial statements of the
Company for its fiscal year ending May 31, 1999. Stockholders are being asked
to ratify this appointment. The Company has been informed that neither KPMG
Peat Marwick LLP nor any of its partners have any direct financial interest or
any material indirect financial interest in the Company nor have had any
connection during the past three years with the Company in the capacity of
promoter, underwriter, voting trustee, director, officer or employee.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
Annual Meeting with the opportunity to make a statement if they so desire and to
be available to respond to appropriate questions.
The affirmative vote of the holders of a majority of the shares of Common
Stock represented in person or by proxy at the Annual Meeting and entitled to
vote thereon, provided a quorum is present, is required for approval of this
proposal.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE COMPANY'S INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING MAY 31, 1999.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names, ages and titles of the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
W. J. ("Zeke") Zeringue. . . . . . 49 Chairman of the Board of Directors
and Chief Executive Officer
Axel M. Sigmar . . . . . . . . . . 37 Director, President and Chief
Operating Officer
Robert P. Brindley . . . . . . . . 48 Director and Executive Vice
President - Worldwide Marketing and
Sales
Robert A. Brook. . . . . . . . . . 43 Senior Vice President - Chief
Geophysicist
Gay Stanley Mayeux . . . . . . . . 43 Vice President and Chief Financial
Officer
Thomas C. Connolly . . . . . . . . 49 Vice President - Manufacturing
Ronald A. Harris . . . . . . . . . 42 Vice President and Controller
Dennis N. Jordhoy. . . . . . . . . 44 Vice President - Sales
David Ridyard. . . . . . . . . . . 39 Vice President
Chris E. Wolfe . . . . . . . . . . 45 Vice President - General Counsel
and Secretary
Shelby H. Carter, Jr.. . . . . . . 67 Director
Ernest E. Cook . . . . . . . . . . 72 Director
Theodore H. Elliott, Jr. . . . . . 63 Director
G. Thomas Graves III . . . . . . . 49 Director
Charles E. Selecman. . . . . . . . 70 Director
William F. Wallace . . . . . . . . 59 Director
</TABLE>
Set forth below are descriptions of the backgrounds of the executive
officers and directors of the Company and their principal occupations for the
past five years.
EXECUTIVE OFFICERS
W. J. "Zeke" Zeringue was elected Chairman of the Board and Chief Executive
Officer of the Company in January 1998 and served as the Company's President
from January to August 1998. Prior to joining the Company, Mr. Zeringue served
as President of Halliburton Energy Services ("Halliburton Energy"), an oilfield
services company, from September 1996 until November 1997. Mr. Zeringue had
been continuously employed by Halliburton Energy since 1972. Mr. Zeringue,
whose present term as a director of the Company expires at the 1998 Annual
Meeting of Stockholders, is a nominee for re-election at the meeting. See
"Election of Directors."
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<PAGE>
Axel M. Sigmar was elected President and Chief Operating Officer and was
appointed to the Company's Board of Directors in August 1998. Mr. Sigmar had
served as Executive Vice President and Chief Technical Officer beginning in
December 1997. Prior to that, he had served from June 1997 to December 1997 as
Vice President - Advanced System Group of the Company and, from 1992 until June
1997, as Vice President - Corporate Development. Mr. Sigmar's term as a
director of the Company expires at the 1999 Annual Meeting of Stockholders.
Robert P. Brindley, a director of the Company since July 1994, was
appointed Executive Vice President - Worldwide Marketing and Sales in June 1997.
He previously served as Senior Vice President of the Company from 1991 to June
1997, Chief Financial Officer from 1987 to 1998, Vice President - Finance from
1987 to 1991, and Vice President and Controller from 1982 to 1987. He also
served as Secretary of the Company from 1987 to July 1998. Mr. Brindley's term
as a director of the Company expires at the 2000 Annual Meeting of Stockholders.
Robert A. Brook was elected Senior Vice President - Chief Geophysicist in
October 1997 and, from June 1997 until October 1997, served as the Company's
Vice President - Research and Development. From 1993 until June 1997, Mr. Brook
served as Vice President - Exploration. Mr. Brook joined the Company in 1991.
Gay Stanley Mayeux became Vice President and Chief Financial Officer of the
Company in March 1998. Prior to joining the Company, Ms. Mayeux served, from
December 1996 to March 1998 as vice president and chief financial officer of
Hydril Company, a manufacturer of premium oilfield products, based in Houston,
Texas. From September 1995 to December 1996, Ms. Mayeux was senior partner with
The Stanley Spencer Group, an international consulting firm. Prior to that, Ms.
Mayeux, had held various accounting positions, including vice president and
corporate controller, with EVI Weatherford, Inc. ("EVI Weatherford"), an
international provider of engineered products and specialized services to the
drilling, completion and production sectors of the oil and gas industry, for
over eight years.
Thomas C. Connolly was elected Vice President - Manufacturing in March
1998. Prior to joining the Company, Mr. Connolly served as a plant manager for
Halliburton Energy in Dallas from January 1984 to April 1994, center manager of
Halliburton Energy from May 1994 to March 1996, Vice President
Manufacturing/Engineering from March 1996 to October 1996 and as President of
CRC Evans, a division of EVI Weatherford, from October 1996 to July 1997.
Ronald A. Harris was appointed Vice President and Controller in October
1997. Mr. Harris had served as the Company's Controller since 1992. Mr. Harris
joined the Company in 1991.
Dennis N. Jordhoy has been employed by the Company since January 1996 and
was elected Vice President - Sales in December 1997. Prior to that, his duties
were Manager of Product Sales from February 1997 to December 1997 and Director
of Marketing and Management Services for the Company's leasing subsidiary from
January 1996 to February 1997. Prior to joining the Company, Mr. Jordhoy served
with Capilano International as Chief Operating Officer from March 1994 to
January 1996.
David Ridyard was elected Vice President of the Company in October 1997.
Prior to joining the Company, Mr. Ridyard had spent over nine years with
Geophysical Service Inc. in various data acquisition and engineering development
capacities, before leaving in 1989 to form QC Tools. QC Tools was formed to
supply seismic data quality control software for the 3D seismic industry, and
was acquired by the Company in July 1994.
Chris E. Wolfe became Vice President - General Counsel and Secretary of the
Company in July 1998. From 1992 until joining the Company in July 1998, Mr.
Wolfe was a partner in Haynes and Boone, L.L.P., a law firm in Houston, Texas.
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<PAGE>
DIRECTORS
Shelby H. Carter, Jr., a director of the Company since February 1987, is
also a founder/director of Bay Networks, Inc., a computer networking company,
which trades under the symbol "BAY" on the NYSE, and is Vice Chairman and
co-founder of VitalSigns Software, Inc., a Silicon Valley start-up. Since
January 1986, Mr. Carter has also served as a professor at the University of
Texas Graduate School of Business and College of Business Administration.
From December 1986 to September 1989, he served as an advisory partner at
Austin Ventures, L.P., a venture capital firm. In January 1985, Mr. Carter
retired from his positions as General Sales Manager, Worldwide Operations and
Corporate Vice President for Xerox Corporation, where he had been employed
since January 1970; prior to that he was employed for 15 years by IBM
Corporation. He also serves on the Board of Directors of Pervasive Software,
Inc., which trades under the symbol "PVSW" on the Nasdaq Stock Market. Mr.
Carter's term as a director of the Company expires at the 2000 Annual Meeting
of Stockholders.
Ernest E. Cook, a director of the Company since February 1987, is an
independent oil and gas consultant. Mr. Cook is also a director of Triton
Energy Corporation. Mr. Cook, whose present term as a director of the Company
expires at the 1998 Annual Meeting of Stockholders, is a nominee for re-election
at the meeting. See "Election of Directors."
Theodore H. Elliott, Jr., a director of the Company since February 1987,
has been Chairman of Prime Capital Management Co. Inc., a Stamford, Connecticut
venture capital company, during the past five years. Mr. Elliott's term as a
director of the Company expires at the 2000 Annual Meeting of Stockholders.
G. Thomas Graves III, a director of the Company since February 1987,
currently serves as President of Gralee Capital Corporation, an asset management
company. He is also President and Director of Wilco Properties, Inc., a
privately held oil and gas exploration company. Mr. Graves served as Senior
Vice President of Triton Energy Corporation from 1987 to 1993 and also served as
Chairman and Chief Executive of Triton Europe Plc, a London Stock Exchange
listed company engaged in the oil and gas exploration industry, from October
1991 to September 1993. Mr. Graves' term as a director of the Company expires
at the 1999 Annual Meeting of Stockholders.
Charles E. Selecman served as Chairman of the Board of Directors of the
Company from December 1986 to January 1998. Mr. Selecman previously served as
President and Chief Executive Officer of the Company from 1989 until 1993 and
again from May through December 1997. From 1984 through 1986, he served as
president of various oil field equipment and oil and gas exploration and
production subsidiaries of Kidde, Inc., and also served as the group executive
for the Kidde, Inc. energy group, which included the Company. Mr. Selecman's
term as a director of the Company expires at the 1999 Annual Meeting of
Stockholders.
William F. Wallace was elected to the Board in August 1998. Since 1996,
Mr. Wallace has served as a consultant to The Beacon Group, a New York - based
venture capital fund. From October 1994 to July 1995, Mr. Wallace served as a
director, President and Chief Operating Officer of Plains Petroleum Company, a
NYSE-listed oil and gas production and exploration company based in Denver.
Following Plains' merger with Barrett Resources, a NYSE-listed oil and gas
production and exploration company, Mr. Wallace served as a director and Vice
Chairman of the Board of Barrett from July 1995 to March 1996. Prior to joining
Plains, Mr. Wallace served from 1989 to 1994 as a regional vice president of
Texaco Exploration and Production, Inc. Mr. Wallace currently serves on the
boards of directors of Vessels Energy Inc., AMBAR Inc., KMOC Oil Corp. and
Westport Oil and Gas Company, Inc., all of which are privately held. Mr.
Wallace, whose present term as a director of the Company expires at the 1998
Annual Meeting of Stockholders, is a nominee for re-election at the meeting.
See "Election of Directors."
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<PAGE>
No director is related to any other director or executive officer of the
Company or its subsidiaries, and there are no arrangements or understandings
between a director and any other person pursuant to which such person was
elected as director.
Corporate officers are appointed by the Board and serve at the discretion
of the Board.
MEETINGS OF DIRECTORS AND COMMITTEES
The Board held eight meetings during fiscal 1998. Each director attended
at least 75% of the aggregate of the total meetings of the Board and any
committee on which such director served.
The Company has the following standing Committees:
THE AUDIT COMMITTEE, which currently consists of Messrs. Elliott
(Chairman) and Graves, met twice during fiscal 1998. Its principal functions
are to confirm the existence of effective accounting and internal control
systems and to oversee the Company's external and internal audit functions.
THE COMPENSATION COMMITTEE, which currently consists of Messrs. Carter
(Chairman) and Cook, held ten meetings during fiscal 1998. Its principal
functions are to study, advise and consult with the Company's management
regarding the compensation of officers and directors and other key employees of
the Company and to administrate the Company's executive compensation plans.
THE NOMINATING COMMITTEE, which currently consists of Messrs. Selecman
(Chairman) and Carter, met once during fiscal 1998. Its principal functions are
to identify suitable candidates to fill vacancies on the Board which may occur
from time to time. The Nominating Committee will consider nominees recommended
by holders of Common Stock. Nominations should be sent to the Nominating
Committee in care of the Company at the address set forth on the first page of
this Proxy Statement, on or before May 3, 1999.
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<PAGE>
REMUNERATION OF DIRECTORS AND OFFICERS
EXECUTIVE COMPENSATION
The following table sets forth information regarding annual and long-term
compensation with respect to the fiscal years ended May 31, 1998, 1997 and 1996
paid or accrued by the Company to or on behalf of those persons who were during
the fiscal year ended May 31, 1998, (i) the Company's Chief Executive Officers
and (ii) the other four most highly compensated executive officers of the
Company (the Company's Chief Executive Officers and the other four most highly
compensated officers for the fiscal year ended May 31, 1998 are collectively
referred to herein as the "Named Executive Officers.")
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ALL OTHER
COMPENSATION
ANNUAL COMPENSATION LONG-TERM COMPENSATION (3) (4)
---------------------------------- ---------------------------- --------------
SECURITIES RESTRICTED
FISCAL UNDERLYING STOCK AWARDS
YEAR SALARY BONUS OPTIONS ($) (2)
------ --------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
W. J. ("Zeke") Zeringue (1) 1998 $175,000 $0 600,000 $1,573,000 $0
Chairman of the Board and Chief
Executive Officer
Charles E. Selecman (1) 1998 $280,000 $1,200,000 200,000 $0 $12,320
Chairman of the Board, President
and Chief Executive Officer
Axel M. Sigmar 1998 $207,000 $195,300 280,000 $0 $49,246
President and
1997 160,000 $0 60,000 37,976
Chief Operating Officer
1996 150,000 138,263 50,000 43,899
Robert P. Brindley 1998 $250,000 $ 236,250 120,000 $0 $52,015
Executive Vice President- 1997 225,000 $0 80,000 40,262
Worldwide Marketing and Sales
1996 195,000 179,742 80,000 44,268
Robert A. Brook 1998 $182,000 $171,675 80,000 $0 $16,162
Senior Vice President-Chief
1997 158,000 0 60,200 11,859
Geophysicist
1996 138,000 46,620 20,000 8,352
Dennis N. Jordhoy 1998 $163,000 $113,164 20,000 $0 $10,413
Vice President-Sales 1997 118,000 0 5,200 1,275
1996 29,000(5) 21,051 10,000 0.00
</TABLE>
- -----------------------
(1) Mr. Selecman assumed the positions of President and Chief Executive Officer
on May 16, 1997 and held those positions until his retirement on December
31, 1997. Mr. Zeringue was elected Chairman of the Board and Chief
Executive Officer effective as of January 1, 1998. Mr. Selecman's
employment agreement with the Company provided for his base salary, stock
options and bonus payments. Mr. Zeringue has entered into an employment
agreement with the Company. See "-- Employment Agreements" and
"Compensation Committee Report on Executive Compensation."
(2) The Company is required to use the closing price of its Common Stock on the
date of grant of the restricted stock award for valuation purposes with
respect to this column. The restricted period with respect to each of the
Company's restricted stock awards is two years
-18-
<PAGE>
for 50% of the shares awarded, three years for an additional 25% of the
shares awarded and four years for the remaining 25% of the shares
awarded. Dividend and voting rights of restricted stock are the same as
all other shares of the Company's outstanding Common Stock. Based on
the last reported sales price as of December 10, 1997 of Common Stock on
the New York Stock Exchange composite tape of $29 11/16 per share, Mr.
Zeringue's aggregate restricted stock holdings were 53,000 shares,
having a value of $1,573,000. The restricted stock plan provides that
all restrictions with respect to the shares of restricted stock awarded
will automatically lapse upon a "change of control" (as defined in the
plan) of the Company or termination of employment due to death or
retirement. In addition, the restrictions on Mr. Zeringue's shares of
restricted stock will automatically lapse upon a termination of his
employment with the Company for any reason other than for "cause" (as
defined in his employment agreement).
(3) During fiscal 1998, the Company contributed to its Section 401(k) Plan as
follows: Mr. Zeringue: $0; Mr. Selecman: $12,320; Mr. Sigmar: $18,345; Mr.
Brindley: $21,542; Mr. Brook: $16,162; and Mr. Jordhoy: $10,413.
(4) During fiscal 1998, the Company paid whole life insurance premiums as
contributions with respect to the Company's Supplemental Executive
Retirement Plan (SERP) as follows: Mr. Sigmar: $30,901 and Mr. Brindley:
$30,473.
(5) Mr. Jordhoy became an employee of the Company on January 15, 1996.
During fiscal 1998, the named individuals and certain officers included in
the group received benefits in the form of certain perquisites. However, none
of the individuals identified in the foregoing table received perquisites which
exceeded in value the lesser of $50,000 or 10% of such officer's salary and
bonus.
STOCK OPTIONS
The options shown below were awarded during fiscal 1998 pursuant to the
Company's Amended and Restated 1990 Stock Option Plan (the "1990 Plan"):
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
<TABLE>
<CAPTION>
Number Percent of total
of securities options granted Hypothetical
underlying to employees in Exercise or Grant Date
Name options granted fiscal year base price Expiration date Value (4)
- --------------------------------- ---------------- ---------------- -------------- ----------------- -------------
(#) (%) ($/Sh)
<S> <C> <C> <C> <C> <C>
W. J. Zeringue 500,000 20.03 $30,375(1) 12/10/07 $ 7,030,000
100,000 4.01 30.375(2) 12/10/07(2) 1,406,000
Charles E. Selecman 200,000 8.01 17.50(3) 12/31/98 1,654,000
Axel M. Sigmar 80,000 3.20 29.6875(1) 09/17/07 1,109,600
200,000 8.01 20.0625(1) 02/02/08 1,850,000
Robert P. Brindley 120,000 4.81 29.6875(1) 09/17/07 1,664,400
Robert A. Brook 80,000 3.20 29.6875(1) 09/17/07 1,109,600
Dennis N. Jordhoy 20,000 0.80 29.8125(1) 09/30/07 278,600
Executive Group 1,300,000 52.08 $17.50-30.375 12/31/98-2/2/08 $16,102,200
Non-Executive Officer-Employee Group 1,196,168 47.92 $17.50-29.8125
</TABLE>
- ----------------------
(1) These options will vest in four equal annual increments beginning on the
first anniversary date of the grant. The 1990 Plan provides that in the
event of a "change in control" of the Company (as defined in the 1990
Plan), all stock options will become fully vested (unless the successor to
the Company assumes or replaces on substantially equivalent terms the
options outstanding). See "Proposal to Adopt Amendments to the
Input/Output, Inc. Amended and Restated 1990 Stock Option Plan -- Terms of
the 1990 Plan and Agreements." In
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<PAGE>
addition, Mr. Zeringue's options provide that they will become
automatically vested upon a termination of his employment with the
Company for any reason other than for "cause" (as defined in his
employment agreement).
(2) These options will vest in full on December 10, 1998, but will be
exercisable commencing upon that date only if the fair market value per
share of the Common Stock is at least equal to 120% of the exercise price.
If the fair market value of the Common Stock on December 10, 1998 is not
equal to at least 120% of the exercise price, then this option will
terminate.
(3) These options vested in full on December 31, 1997 which was the date of Mr.
Selecman's termination of employment.
(4) The options are valued pursuant to the Black-Scholes valuation model, based
upon the following assumptions: (a) expected stock price volatility
calculated using monthly changes in stock price since May 1995, resulting
in a stock price volatility of 44%; (b) a risk-free rate of return
calculated using the interest rates of five-year U.S. Treasury notes as of
the date of the grant and (c) a time of exercise assumption of five years
(although the actual option term generally is ten years, that period was
reduced for valuation purposes to reflect the non-transferability, vesting
schedule and risk of forfeiture of the options).
The following table shows the number of shares covered by all
exercisable and non-exercisable stock options held by the Named Executive
Officers as of May 31, 1998. Also reported are the year-end values for their
unexercised "in-the-money" options, which represent the positive spread
between the exercise price of any option and the year-end market price of the
Common Stock.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Shares Value of Unexercised In-the-
Acquired on Number of Unexercised Money Options at Fiscal Year End
Name Exercise Value Realized Options at Fiscal Year End (#) ($)
- ------------------------ ------------- -------------- ------------------------------ ---------------------------------
Exercisable/Unexercisable Exercisable/Unexercisable
------------------------- -------------------------
<S> <C> <C> <C> <C>
W. J. Zeringue 0 0 0/600,000 $0/$0
Charles E. Selecman 0 0 251,666/58,334 $1,170,703/$118,360
Axel M. Sigmar 0 0 63,550/345,150 $473,500/$469,844
Robert P. Brindley 37,700 $973,034 89,016/213,484 $501,979/$122,136
Robert A. Brook 56,200 $1,106,825 28,050/158,200 $98,256/$54,519
Dennis N. Jordhoy 0 0 1,300/35,200 $6,662/$19,988
</TABLE>
On May 31, 1998, the last reported sales price of the Common Stock on the
New York Stock Exchange composite tape was $22.00 per share. The Named
Executive Officers exercised Company stock options covering a total of 93,900
shares during fiscal 1998.
EMPLOYMENT AGREEMENTS
In December 1997, the Company entered into an employment agreement with Mr.
Zeringue (the "Employment Agreement"), pursuant to which the Company agreed to
employ Mr. Zeringue as the Company's Chairman of the Board, President and Chief
Executive Officer from January 1, 1998 through December 31, 1998. The
Employment Agreement is automatically renewable for additional one year terms,
unless either party provides prior written notice of termination. This
agreement provides for an annual salary of $420,000 and a sign-on bonus of
$200,000 which was paid on January 2, 1998. If the Employment Agreement is
terminated by the Company without cause (as defined), the Company will pay Mr.
Zeringue an amount equal to two times the average of his annual salary and bonus
for the past three
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<PAGE>
fiscal years of the Company. In addition, if within one year after a change
of control (as defined), the Company terminates Mr. Zeringue's employment for
any reason other than for "cause" or if Mr. Zeringue terminates his
employment with the Company for good reason (as defined), the Company shall
pay Mr. Zeringue an amount equal to two times the average of his annual
salary and bonus for the past three fiscal years of the Company. In the
event that Mr. Zeringue is deemed to receive a "parachute payment" (as
described in Section 280G of the Code), the total amount payable to Mr.
Zeringue pursuant to change of control payments will be limited to one dollar
less than three times Mr. Zeringue's "base amount" (defined below). Pursuant
to the Employment Agreement, Mr. Zeringue is also entitled to receive certain
bonus payments ($400,000 payable on December 31, 1998), as well as stock
options covering a total of 600,000 shares of Common Stock. See
"Compensation Committee Report on Executive Compensation -- Compensation of
the Chief Executive Officer."
The Company's employment agreement with Mr. Brindley provides for automatic
two-year extensions. This agreement provides that if Mr. Brindley's employment
is terminated for a reason other than (a) his death, disability or retirement,
(b) for cause or (c) his voluntary termination other than for good reason, he
would be entitled to receive from the Company a lump sum severance payment equal
to the sum of the following amounts: (i) his full base salary through his date
of termination at the rate then in effect, (ii) an amount equal to two times the
average of his annual base salary plus bonus for the preceding three fiscal
years, (iii) certain relocation and indemnity payments, and (iv) in the event he
is subject to the excise tax imposed by Section 4999 of the Code as a result of
a change in control, an amount equal to the product of (a) 25% multiplied by (b)
the amount of any "excess parachute payment" received by him as described in the
provisions of Section 280G(b) of the Code. In the event that he is deemed to
receive a "parachute payment" as the result of a change in control, such
payment would be deemed to be an "excess parachute payment" if it equaled or
exceeded 300 percent of his "base amount," generally the average annual
compensation received by him over the most recent five tax years. The "excess
parachute payment" is computed as that portion of the "parachute payment" which
exceeds the "base amount." In addition, unless he is terminated for cause, the
Company must maintain in full force and effect for his continued benefit for a
two-year period after the date of termination all benefit plans and programs or
arrangements in which he was entitled to participate immediately prior to the
date of termination.
CHANGE OF CONTROL AND SEVERANCE AGREEMENTS
In August 1998, the Company entered into severance and change of control
agreements with Messrs. Sigmar, Brook, Connolly, Harris, Jordhoy, Ridyard and
Wolfe and Ms. Mayeux, executive officers of the Company. Under the terms of the
severance and change of control agreements, in the event of a termination of
employment of a covered executive officer during the 18-month period following a
"change of control" of the Company (as defined in the agreements) other than a
voluntary resignation or retirement by the officer (except as stated below) or a
termination of employment for "cause" (as defined in the agreements) or by
reason of death or disability, the officer will be entitled to receive certain
severance payments and other benefits. A voluntary resignation by the officer
following a "change of duties" (as defined in the agreements) of the officer
will also entitle the officer to the severance benefits and other benefits. The
severance payment amount, payable in one lump sum on or before the 30th day
following termination, shall be equal to two times the sum of (a) the greater of
such officer's annual base salary on the effective date of the change of control
or the date of the termination of employment plus (b) the amount of the
applicable "Target Bonus" for the officer as determined under the management
bonus or incentive program then in effect. In addition, the officer under those
circumstances will be entitled to receive continued medical, dental, vision and
group life coverage under the Company's applicable plans (to the extent
permitted by law or by the plan carriers) for a period of one year or until the
officer becomes eligible to obtain comparable coverage from a subsequent
employer. Furthermore, to the extent the officer's stock options and restricted
stock have not fully vested, such options and restricted stock shall thereupon
accelerate and immediately become fully vested. In the event that any payment
under any agreement would constitute an "excess parachute payment" under Section
280G of the Code (see " -
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<PAGE>
Employment Agreements" above), the severance amounts and other benefits would
be reduced to an amount so that the present value of all amounts so
receivable would be less than the threshold amount of any excess parachute
payment. The term of each agreement is for three years, but each agreement
will automatically renew for additional three-year terms absent prior written
notice from the officer or the Company. Each agreement also effectively
amends the terms of any stock option agreement or restricted stock award
between the Company and the officer to provide that in the event of a change
of control of the Company and the full assumption by the successor to the
Company of the Company's options or restricted stock or their replacement
with equivalent options or restricted stock awards, the Company's options and
restricted stock held by that officer will not be accelerated and become 100%
vested upon the change of control event.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Input/Output, Inc. Supplemental Executive Retirement Plan (the "SERP")
was established in 1992 and amended and restated in 1998. The SERP is designed
to defer taxation of participants until their receipt of benefits. The Board,
in its sole discretion, is authorized to determine eligibility for participation
in the SERP. A Board-appointed committee administers the SERP. The SERP
provides to each participant, upon such participant's retirement from the
Company at age 65, an annual deferred benefit equal to 60% of the participant's
average annual compensation for those three consecutive calendar years during
his employment that results in the highest annual compensation, reduced by
certain social security benefits and certain actuarial equivalents of annual
matching contributions made by the Company and credited to the participant under
the Company's Section 401(k) Plan. If a participant who has attained age 55 and
has completed 10 years of service with the Company terminates employment prior
to his 65th birthday due to death, total disability or early retirement that is
approved by the Board, the participant will be entitled to receive the actuarial
equivalent of his vested deferred benefit. A participant is fully vested in his
deferred benefit at age 65, or upon the participant's completing 10 years of
service with the Company, or upon total disability of the participant or a
"change of control" of the Company. In addition, the SERP provides that the
Company shall pay a participant an amount equal to any excise tax pursuant to
Section 280G of the Code and any income or other tax liability arising in
connection therewith, in the event that payment of a deferred benefit results in
liability for such tax.
"Change of control" for purposes of the SERP is defined to include the
following: (i) mergers or consolidations in which the Company is not the
surviving corporation (unless the proportionate ownership of the Company's
stockholders in the surviving corporation is unchanged), (ii) any sale or other
disposition of all or substantially all of the Company's assets, (iii) the
approval by the Company's stockholders of any plan of liquidation or
dissolution, (iv) the acquisition by a third party of beneficial ownership of
40% of the Company's outstanding voting securities and (v) during any two-year
period, persons who constituted at least a majority of the entire Board of
Directors at the beginning of such period cease for any reason (other than
death) to constitute a majority of the directors, unless the new director was
approved by at least two-thirds of the directors then still in office who were
directors at the beginning of such period.
-22-
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
reviews, evaluates and establishes the salary levels of corporate officers and
administers the Company's stock option, restricted stock and management
incentive plans. The current members of the Committee are Shelby H. Carter,
Jr., Chairman, and Ernest E. Cook. The following report presents the Committee's
summary of the Company's compensation programs and policies and describes the
bases for compensation of the Company's executive officers and its chief
executive officer.
COMPENSATION POLICY
The principal goals of the Company's executive compensation policy are to
provide competitive compensation opportunities to attract and retain highly
qualified and productive executive employees; to motivate executives to
generate corporate revenue growth and profits; and to create meaningful links
between corporate performance, individual performance and rewards. It is the
Company's policy that a significant portion of the compensation paid to the
executive officers should be based on the Company's results of operations and
the growth in value of its equity. This policy aligns the interests of the
Company's management and stockholders by placing increased emphasis on
performance-based pay and reduced emphasis on fixed pay in overall total
compensation. To achieve its goals, the Company's executive compensation
policies have been designed to provide competitive levels of compensation that
integrate annual base compensation with bonuses based upon corporate performance
and individual initiatives and performance. Also, since 1990, the Company has
adopted and maintained stock option plans and a restricted stock plan under
which the benefits realized by executives are directly related to stock price
performance.
In its assessment of compensation levels, the Committee takes into
consideration performance relative to the individual responsibilities of the
executive officers, and considerations of internal equity, as well as the
financial performance of the Company relative to its goals and relative to the
financial performance of other companies. The Committee also considers the
competitiveness of the entire executive compensation package and each of its
individual components. The Committee reviews the performance of the Company
and each officer individually to determine salary and bonus adjustments and to
determine stock option awards.
During 1998, the Committee retained the compensation consulting firm of
iQuantics, Inc. to perform a full review of the Company's compensation programs
in place and advise the Committee as to the competitiveness of compensation paid
to the Company's senior officers. The Committee has on numerous occasions since
1991 retained outside compensation consultants to review the Company's
compensation programs and goals and compare them to companies within and outside
the Company's competitive peer group. The Committee reviews the data compiled
by and the recommendations of its consultants, but is not bound to accept any of
their recommendations. As a result of its review in 1998, iQuantics reported to
the Committee that the cash compensation of the Company's executive officers for
fiscal 1998 was within current market practice.
As a result of iQuantics, Inc.'s review and recommendations, the Committee
also recommended a number of changes to the Company's executive compensation
programs. The Company's 1996 Management Incentive Program had been previously
amended during fiscal 1998 to provide for annual cash bonuses to the officers
and other key employees of the Company that were tied to actual profits
performance compared to budgeted pretax profits, and pretax return on operating
assets. See "Proposal to Adopt the Input/Output 1999 Management Incentive
Program." As a result of its review of the 1996 Incentive Program during fiscal
1998, the Committee determined to recommend a new incentive program to be based
on key strategic and financial objectives to be determined from year to year by
the Committee. The Committee also reviewed and recommended an executive
severance and change of control program
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<PAGE>
for its officers and key employees, which had not previously been implemented
on an officer-wide basis by the Company. Finally, the Committee recommended
that the Company amend the provisions under its Supplemental Executive
Retirement Plan to increase the number of participants and to increase the
benefits available to participants. See "-- Change of Control and Severance
Agreements" and "-- Supplemental Executive Retirement Plan" above.
The Committee has considered the impact of Section 162(m) regarding the
corporate limitations on deducting certain compensation expenses. It is the
Committee's intent to adopt policies to obtain maximum tax deductibility of
executive compensation, consistent with providing motivational and competitive
compensation which is truly performance-based. In furtherance of this goal, the
new incentive program and the Company's option plans are intended to assure that
the Company's executive compensation plans meet the requirements of
Section 162(m) to achieve maximum deductibility of executive compensation
expense. However, it is also the Committee's intent to balance the
effectiveness of its plans and compensation policies against the materiality of
any possible lost deductions.
Company executive compensation has principally consisted of two key
elements: A long-term component (stock options - and in less frequent instances,
restricted stock awards) and an annual component (base salary and bonus).
Following is a description of the elements of the Company's current executive
compensation program and how each relates to the objectives and policies
outlined above.
STOCK OPTIONS AND RESTRICTED STOCK. The Committee believes that long-term
incentives should be provided to management to increase shareholder value, as
measured by stock price. The Committee believes that stock incentives are
appropriate, not only for senior management, but also for other employees of the
Company and its subsidiaries. All options provide for the purchase of shares at
an exercise price equal to fair market value on the date of grant. Restricted
stock awards have also been made, but on much more limited occasions,
principally to attract and retain qualified senior executive candidates. See
"Summary Compensation Table" and "Stock Options" above for information
concerning these grants and awards.
INCENTIVE PLAN. The Committee believes that key employees should have a
significant portion of their total compensation based on the Company's relative
financial performance compared to the Company's financial performance plan. The
new 1999 Management Incentive Program grants the Committee wide discretion and
flexibility to determine the particular financial determinants for corporate
performance goals, but also permits the Committee to weigh individual
performance attributes in determining a participant's annual cash bonus. For
1999, the key determinants for corporate performance goals are expected to be
free cash flow and return on operating assets. The 1999 Management Incentive
Program, like its predecessor plans, assigns each participant to a group within
the plan, which reflects his or her responsibility level within the Company.
During fiscal 1997, in accordance with the terms of the 1996 Management
Incentive Plan then in effect, none of the named executive officers at that time
received any cash bonuses. Payments of cash bonuses for fiscal 1998 to the
Named Executive Officers reflected the Company's record revenues and earnings
for fiscal 1998, which, in turn, resulted in the applicable performance criteria
being achieved to a high degree. The terms of Mr. Zeringue's Employment
Agreement (discussed below) did not permit him to be a participant in the
Company's incentive program in effect for fiscal 1998.
BASE SALARY. The Committee approves the annual salaries for all officers
of the Company. The Committee reviews recommendations made by the Chief
Executive Officer with regard to salary adjustments for officers other than
himself, and then either approves or changes these recommended salary
adjustments. The Committee independently reviews performance of the Chief
Executive Officer and determines an appropriate salary based on the criteria set
forth above, as well as input from outside consultants and other sources.
-24-
<PAGE>
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
On May 16, 1997, Charles E. Selecman, then the Company's Chairman of the
Board, assumed the additional positions of President and Chief Executive Officer
of the Company, and entered into an Executive Agreement with the Company.
Under the Agreement, Mr. Selecman received a salary of $40,000 for each month
of service as the Company's President and Chief Executive Officer and an initial
fee of $150,000 (in part to defray his relocation costs). Mr. Selecman was also
paid a $1,200,000 cash bonus under the terms of his employment agreement with
the Company, which was determined by reference to the average of the closing
prices for the Common Stock on the NYSE for the ten consecutive trading days
preceding December 15, 1997 (the day on which the initial term of his employment
agreement expired). Additionally, the Company granted Mr. Selecman on June 4,
1997, a non-qualified stock option under the 1990 Plan to purchase 200,000
shares of Common Stock at an exercise price of $17.50 per share. On June 4,
1997, the closing price per share of Company Common Stock as reported on the
NYSE composite transactions was $17.50.
In determining Mr. Selecman's compensation, the Committee considered the
extraordinary nature of Mr. Selecman's services, his efforts in reorganizing
Company management and his willingness to come out of retirement on an expedited
basis to serve the Company as its Chief Executive Officer. The Committee also
considered Mr. Selecman's prior experience as President and Chief Executive
Officer of the Company from 1989 to 1993.
Following Mr. Selecman's assumption of duties as Chief Executive Officer in
May 1997, the Committee authorized an executive search for a new President and
Chief Executive Officer. Effective January 1, 1998, W. J. Zeringue became
President and Chief Executive Officer of the Company. The Committee negotiated
with Mr. Zeringue an Employment Agreement, providing for an annual base salary
of $420,000, a sign-on bonus of $200,000, and a bonus of $400,000 payable
December 31, 1998 so long as Mr. Zeringue is then still employed at that date.
Additionally, the Committee granted to Mr. Zeringue two non-qualified stock
options: an option to purchase 500,000 shares of Common Stock vesting in four
annual installments and an option for 100,000 shares of Common Stock, which will
be exercisable in full on December 10, 1998 only if the fair market value per
share of the Company's Common Stock (determined on the basis of an average price
per share over a 30 consecutive trading day period prior to that date) is $36.45
or more (which amount is equal to 120% of the closing price for the Common Stock
on December 10, 1997). The Employment Agreement also authorized the award to
Mr. Zeringue of 53,000 shares of restricted stock under the Company's 1990
Restricted Stock Plan.
Mr. Zeringue's compensation as the Company's President and Chief Executive
Officer was determined through arms-length negotiations of his Employment
Agreement, as well as by reference to Mr. Zeringue's prior employment experience
and a review of compensation amounts paid chief executive officers of comparable
companies in the Company's industry peer group considered relevant under the
circumstances.
SUMMARY
The Committee believes that the Company's executive compensation policies
and programs serve the interests of the stockholders and the Company
effectively. The various compensation programs are believed appropriately
balanced to provide motivation for executives to contribute to the Company's
overall success and enhance the value of the Company for the stockholders'
benefit. When performance goals are met or exceeded, resulting in increased
value to stockholders, executives are rewarded commensurately. When performance
goals are not met, the executives' overall cash compensation is negatively
impacted. The Committee will continue to monitor the effectiveness of the
Company's total compensation program and continue to make proposals where
applicable, to meet the current and future needs of the Company.
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<PAGE>
This report has been provided by the Compensation Committee.
Shelby H. Carter, Jr., Chairman
Ernest E. Cook
The Compensation Committee Report on executive compensation shall not be
deemed incorporated by reference by any general statement incorporating by
reference this Proxy Statement into any filing under the Securities Act of 1933
or the Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
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<PAGE>
STOCK PERFORMANCE GRAPH
The following performance graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
The following performance graph compares the yearly percentage change in
the cumulative total stockholder return on the Company's Common Stock (as
measured by dividing: (i) the difference between the Common Stock share price at
the end and the beginning of the measurement period by (ii) the Common Stock
share price at the beginning of the measurement period) with the cumulative
total return assuming reinvestment of dividends of (1) the Standard and Poor's
500 Index and (2) the Standard and Poor's Electronics Index:
[Graph]
-27-
<PAGE>
COMPENSATION OF DIRECTORS
As compensation for serving on the Company's Board of Directors, each
director who is not an employee of the Company receives $1,500 for each
meeting attended and $1,500 for each committee meeting attended. In
addition, each non-employee director receives an annual stipend of $25,000.
DIRECTORS RETIREMENT PLAN. In 1992, the Company adopted the Directors
Retirement Plan. Under the Directors Retirement Plan, participation was limited
to directors who served as outside directors for an aggregate of not less than
five years or whose service on the Board as an outside director terminated due
to death or disability or a change in control of the Company. Payment of
benefits under the Directors Retirement Plan is payable commencing at the
beginning of the Company's fiscal quarter next following the later date at which
a director (i) attains age sixty-five or (ii) retires from the Board. (During
fiscal 1996, the Board determined to accelerate the vesting in full of
Mr. Selecman's years of service as an outside director.)
In 1996, the Board determined to discontinue the Directors Retirement Plan.
Under the terms adopted by the Board, all benefit accruals relating to years of
service through the date of discontinuation were frozen; in addition,
participation by any individual not then an outside director was prohibited.
During 1998, the Board determined to further amend the Plan to provide, in lieu
of payments of benefits in quarterly installments, a lump sum payment equivalent
to the present value of the product of the "Applicable Stipend" times the
"Applicable Period." The Applicable Stipend is an amount equal to the greater
of (i) the outside director's annual stipend effective for the fiscal year in
which he retires or (ii) the outside director's annual stipend payable in the
fiscal year prior to retirement. The "Applicable Period" is a period of years
equal to the lesser of (a) the actual number of years and portions thereof,
rounded upwards to the nearest six months, during which such director served as
an outside director, and (b) ten years. The present value will be computed on
the basis of the actuarial equivalent of the stream of payments represented by
the Applicable Stipend paid in quarterly installments over a period of time
equal to the Applicable Period.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN. For a description of the
Input/Output, Inc. Amended and Restated 1996 Non-Employee Director Stock Option
Plan, see "Proposal to Adopt Amendments to the Input/Output, Inc. Amended and
Restated 1996 Non-Employee Director Stock Option Plan."
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<PAGE>
VOTING AND STOCK OWNERSHIP OF MANAGEMENT
AND PRINCIPAL STOCKHOLDERS
At the Record Date, there were outstanding 44,586,434 shares of Common
Stock which were held of record by 359 stockholders, and the Company believes
that there were approximately 9,800 beneficial owners of Common Stock on such
date. Each share of Common Stock is entitled to one vote on each matter to come
before the Annual Meeting. The holders of the Common Stock have no appraisal or
similar rights with respect to any of the matters to be voted on at the Annual
Meeting.
The following table sets forth certain information with regard to the
beneficial ownership as of July 31, 1998 of Common Stock by (i) all persons
known by the Company to be the beneficial owners of more than five percent of
the outstanding Common Stock, (ii) each director of the Company, (iii) each
Named Executive Officer of the Company and (iv) all executive officers and
directors as a group (11 persons).
<TABLE>
<CAPTION>
Common Stock
------------------------------------------------
Name of Beneficial Owner(1) Number of Shares(1) Percent of Class
---------------------------- ------------------------ -------------------
<S> <C> <C>
J. P. Morgan & Co., Inc. 4,760,000 10.7%
60 Wall Street
New York, NY 10260
Crabbe Huson Company 2,666,000 6.0%
121 SW Morrison
Portland, OR 97204
Pilgrim Baxter & Associates 2,450,000 5.5%
825 Duportail Rd
Wayne, PA 19087
AIM Management 2,400,000 5.4%
11 Greenway Plaza
Houston, TX 77046
W. J. Zeringue (2) 53,000 0.1%
Axel M. Sigmar (3) 106,050 0.2%
Robert P. Brindley (4) 158,070 0.4%
Robert A. Brook (5) 53,982 0.1%
Dennis N. Jordhoy (6) 6,350 *
Shelby H. Carter, Jr. (7) 18,166 *
Ernest E. Cook (8) 35,666 0.1%
Theodore H. Elliott, Jr. (9) 51,666 0.1%
G. Thomas Graves III (10) 45,566 0.1%
Charles E. Selecman (11) 255,666 0.6%
William F. Wallace 0 *
All officers and directors as a group (11 784,182 1.8%
persons) (12)
</TABLE>
----------------------
*Less than 0.1%.
(1) Except as otherwise indicated, the persons named in the table possess sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them. The table also includes shares of
Common Stock held by wives and minor children of such persons and
corporations and partnerships in which such persons hold a controlling
interest, but excludes any controlling interest which may be deemed solely
to exist by virtue of such person being a director of a corporation.
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<PAGE>
(2) Represents 53,000 shares of restricted stock.
(3) Includes 96,050 shares which are subject to a currently exercisable option
granted under the Amended and Restated 1990 Stock Option Plan.
(4) Includes 139,016 shares which are subject to a currently exercisable option
granted under the Amended and Restated 1990 Stock Option Plan.
(5) Includes 53,000 shares which are subject to a currently exercisable option
granted under the Amended and Restated 1990 Stock Option Plan.
(6) Represents 6,350 shares which are subject to a currently exercisable option
granted under the Amended and Restated 1990 Stock Option Plan.
(7) Represents 18,166 shares which are subject to currently exercisable options
granted under the 1991 Directors Stock Option Plan and the Amended and
Restated 1996 Non-Employee Directors Stock Option Plan.
(8) Includes 18,166 shares which are subject to currently exercisable options
granted under the 1991 Directors Stock Option Plan and the Amended and
Restated 1996 Non-Employee Directors Stock Option Plan.
(9) Includes 40,666 shares which are subject to currently exercisable options
granted under the 1991 Directors Stock Option Plan and the Amended and
Restated 1996 Non-Employee Directors Stock Option Plan.
(10) Includes 38,166 shares which are subject to currently exercisable options
granted under the 1991 Directors Stock Option Plan and the Amended and
Restated 1996 Non-Employee Directors Stock Option Plan.
(11) Represents 200,000 shares which are subject to a currently exercisable
option granted under the Amended and Restated 1990 Stock Option Plan and
55,666 shares which are subject to currently exercisable options granted
under the 1991 Directors Stock Option Plan and the Amended and Restated
1996 Non-Employee Directors Stock Option Plan.
(12) Includes an aggregate of 494,416 shares which are subject to currently
exercisable options granted under the Amended and Restated 1990 Stock
Option Plan and 170,830 shares which are subject to currently exercisable
options granted under the 1991 Directors Stock Option Plan and the Amended
and Restated 1996 Non-Employee Directors Stock Option Plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a) of
the Securities Exchange Act of 1934 requires the Company's directors, executive
officers and persons who own more than 10% of the Company's Common Stock to file
with the Securities and Exchange Commission ("SEC") initial reports of ownership
and reports of changes of ownership of Common Stock and other equity securities
of the Company. Such persons are required by SEC regulations to furnish the
Company with copies of all Section 16(a) reports they file. Based solely upon
its review of Forms 3, 4 and 5 and amendments thereto provided to the Company,
during the fiscal year ended May 31, 1998, the Company's directors and executive
officers and the persons who own more than 10% of the Company's Common Stock had
complied with all Section 16(a) filing requirements, except that Shelby H.
Carter, Jr., filed one day late a Form 4 showing a disposition of 45,000 shares
of Common Stock in December 1997.
STOCKHOLDER PROPOSALS AT 1998 ANNUAL MEETING
In order for stockholder proposals to receive consideration for inclusion
in the Company's Proxy Statement for its 1998 Annual Meeting of Stockholders,
such proposals must be received at the Company's offices at 11104 West Airport
Blvd., Stafford, Texas 77477, Attention: Secretary, on or before May 3, 1999.
All stockholder proposals must comply with Rule 14a-8 promulgated by the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended.
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OTHER MATTERS
The Company will bear all costs of this proxy solicitation. In addition to
soliciting proxies by mail, directors, executive officers and employees of the
Company, without receiving additional compensation, may solicit proxies by
telephone, by telegram or in person. Arrangements will also be made with
brokerage firms and other custodians, nominees and fiduciaries to forward
solicitation materials to the beneficial owners of shares of the Common Stock,
and the Company will reimburse such brokerage firms and other custodians,
nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them
in connection with forwarding such materials. In addition, the Company has
retained Kissel-Blake, Inc., a proxy solicitation firm, for assistance in
connection with the Annual Meeting at a cost of approximately $5,000 plus
reimbursement of reasonable out-of-pocket expenses.
The Board does not know of any business to be presented for consideration
at the Annual Meeting other than that stated in the accompanying Notice. It is
intended, however, that the persons authorized under the proxies may, in the
absence of instructions to the contrary, vote or act in accordance with their
judgment with respect to any other proposal properly presented for action at
such meeting.
The Annual Report of Stockholders for the fiscal year ended May 31, 1998,
which includes financial statements, is enclosed herewith. The Annual Report
does not form a part of this Proxy Statement or the materials for the
solicitation of proxies to be voted at the Annual Meeting.
Information contained in the Proxy Statement relating to the security
holdings of and related information concerning directors and officers of the
Company is based upon information received from the individual directors and
officers.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD AT YOUR EARLIEST
CONVENIENCE IN THE ENCLOSED RETURN ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED
IN THE UNITED STATES. A PROMPT RETURN OF YOUR PROXY CARD WILL BE APPRECIATED AS
IT WILL SAVE THE EXPENSE OF FURTHER MAILINGS.
By Order of the Board of Directors,
Chris E. Wolfe
Secretary
Stafford, Texas
August 27, 1998
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APPENDIX I
INPUT/OUTPUT, INC.
1998 RESTRICTED STOCK PLAN
The Input/Output, Inc. 1998 Restricted Stock Plan (hereinafter called the
"Plan") was adopted by the Board of Directors of Input/Output, Inc., a Delaware
corporation (hereinafter called the "Sponsoring Company"), effective as of
June 1, 1998.
ARTICLE 1
PURPOSE
The purpose of the Plan is to attract and retain the services of key
management employees of the Company and its Subsidiaries and to provide such
persons with a proprietary interest in the Company through the granting of
restricted stock that will
(a) increase the interest of such persons in the Company's welfare;
(b) furnish an incentive to such persons to continue their services
for the Company;
(c) provide a means through which the Company may attract able
persons as employees; and
(d) in instances where authorized by the Committee, provide certain
key employees additional incentives to make substantial
contributions to the Company's growth measured by the attainment
of performance goals.
ARTICLE 2
DEFINITIONS
For the purpose of the Plan, unless the context requires otherwise, the
following terms shall have the meanings indicated:
2.1 "Award" means a grant of Restricted Stock.
2.2 "Award Agreement" means a written agreement between a Participant and
the Company which sets out the terms of the grant of an Award.
2.3 "Board" means the board of directors of the Company.
2.4 "Change of Control" means the occurrence of any of the following
events: (i) there shall be consummated any merger or consolidation pursuant to
which shares of the Company's Common Stock would be converted into cash,
securities or other property, or any sale, lease, exchange or other disposition
(excluding disposition by way of mortgage, pledge or hypothecation), in one
transaction or a series of related transactions, of all or substantially all the
assets of the Company (a "Business Combination"), in each case unless, following
such Business Combination, the holders of the outstanding Common Stock of the
Company immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 51% of the outstanding common stock or
equivalent equity interests of the corporation or entity resulting from such
Business Combination (including, without limitation, a corporation which as a
result of such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such
Business Combination, of the outstanding common stock, (ii) the stockholders of
the Company approve any plan or proposal for the complete liquidation or
dissolution of the Company, (iii) any "person"
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(as such term is defined in Section 3(a)(9) or Section 13(d)(3) under the
Securities Exchange Act of 1934 (the "1934 Act") or any "group" (as such term
is used in Rule 13d-5 promulgated under the 1934 Act) other than an Employer
or a successor of an Employer, or any employee benefit plan of an Employer
(including such plan's trustee), becomes a beneficial owner for purposes of
Rule 13d-3 promulgated under the 1934 Act, directly or indirectly, of
securities of the Company representing 40% or more of the Company's then
outstanding common securities having the right to vote in the election of
directors, or (iv) during any period of two consecutive years, individuals
who, at the beginning of such period constituted the entire Board, cease for
any reason (other than death) to constitute a majority of the directors,
unless the elections, or the nomination for election by the Company's
stockholders, of each new director was approved by a vote of at least a
majority of the directors then still in office who were directors at the
beginning of the period. For purposes of this definition, the term "Company"
shall include any successor or assignee of such corporation, which successor
or assignee assumes such status other than pursuant to an event or occurrence
constituting a "Change of Control."
2.5 "Code" means the Internal Revenue Code of 1986, as amended.
2.6 "Committee" means the committee appointed or designated by the Board
to administer the Plan in accordance with ARTICLE 3 of this Plan.
2.7 "Common Stock" means the common stock, par value $0.01 per share,
which the Company is currently authorized to issue or may in the future be
authorized to issue.
2.8 "Date of Grant" means the effective date on which an Award is made to
a Participant as set forth in the applicable Award Agreement; provided, however,
that solely for purposes of Section 16 of the 1934 Act and the rules and
regulations promulgated thereunder, the Date of Grant of an Award shall be the
date of stockholder approval of the Plan if such date is later than the
effective date of such Award as set forth in the Award Agreement.
2.9 "Employee" means common law employee (as defined in accordance with
the Regulations and Revenue Rulings then applicable under Section 3401(c) of the
Code) of the Company or any Subsidiary of the Company.
2.10 "Employer" shall mean the Company or any affiliated company or
Subsidiary of the Company that adopts the Plan.
2.11 "Fair Market Value" of a share of Common Stock is the closing sales
price per share on the New York Stock Exchange Consolidated Tape, or such
reporting service as the Committee may select, on the appropriate date, or in
the absence of reported sales on such day, the most recent previous day for
which sales were reported.
2.12 "Participant" shall mean an Employee of the Company or a Subsidiary to
whom an Award is granted under this Plan.
2.13 "Plan" means this Input/Output, Inc. 1998 Restricted Stock Plan, as
amended from time to time.
2.14 "Reporting Participant" means a Participant who is subject to the
reporting requirements of Section 16 of the 1934 Act.
2.15 "Restricted Stock" means shares of Common Stock issued or transferred
to a Participant pursuant to this Plan which are subject to restrictions or
limitations set forth in this Plan and in a related Award Agreement.
2.16 "Restriction Period" shall have the meaning set forth in SECTION
6.5(a) hereof.
2.17 "Retirement" means any Termination of Service solely due to retirement
after attaining age 65, or permitted early retirement as determined by the
Committee.
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2.18 "Subsidiary" means (i) any corporation in an unbroken chain of
corporations beginning with the Company, if each of the corporations other than
the last corporation in the unbroken chain owns stock possessing a majority of
the total combined voting power of all classes of stock in one of the other
corporations in the chain, (ii) any limited partnership, if the Company or any
corporation described in item (i) above owns a majority of the general partner
interests and a majority of the limited partners' interests entitled to vote on
the removal and replacement of the general partner, and (iii) any general
partnership or limited liability company, if the partners or members thereof are
composed only of the Company, any corporation listed in item (i) above or any
limited partnership listed in item (ii) above. "Subsidiaries" means more than
one of any such corporations, limited partnerships, general partnerships or
limited liability companies.
2.19 "Termination of Service" occurs when a Participant who is an Employee
of the Company or any Subsidiary shall cease to serve as an Employee of the
Company and its Subsidiaries, for any reason.
2.20 "Total and Permanent Disability" means the Participant's total and
permanent disability, as that term is described in Section 22(e) of the Code.
ARTICLE 3
ADMINISTRATION
The Plan shall be administered by the Compensation Committee of the Board
or another committee appointed by the Board (the "Committee"). The Committee
shall consist of not fewer than two persons. Any member of the Committee may be
removed at any time, with or without cause, by resolution of the Board. Any
vacancy occurring in the membership of the Committee may be filled by
appointment by the Board.
The Committee shall select one of its members to act as its Chairman. A
majority of the Committee shall constitute a quorum, and the act of a majority
of the members of the Committee present at a meeting at which a quorum is
present shall be the act of the Committee.
The Committee shall determine and designate from time to time the eligible
persons to whom Awards will be granted and shall set forth in each related Award
Agreement, the Date of Grant and such other terms, provisions, limitations, and
performance requirements, as are approved by the Committee, but not inconsistent
with the Plan.
The Committee, in its discretion, shall (i) interpret the Plan, (ii)
prescribe, amend, and rescind any rules and regulations necessary or appropriate
for the administration of the Plan, and (iii) make such other determinations and
take such other action as it deems necessary or advisable in the administration
of the Plan. Any interpretation, determination, or other action made or taken
by the Committee shall be final, binding, and conclusive on all interested
parties.
With respect to restrictions in the Plan that are based on the requirements
of Rule 16b-3 promulgated under the 1934 Act, Section 162(m) of the Code, the
rules of any securities exchange or inter-dealer quotation system upon which the
Company's securities are listed or quoted, or any other applicable law, rule or
restriction (collectively, "applicable law"), to the extent that any such
restrictions are no longer required by applicable law, the Committee shall have
the sole discretion and authority to grant Awards that are not subject to such
mandated restrictions and/or to waive any such mandated restrictions with
respect to outstanding Awards.
ARTICLE 4
ELIGIBILITY
Employees who are eligible to participate in the Plan (including an
Employee who is also a director or an officer) are those Employees whom the
Committee determines are key Employees. The Committee, upon its own action, may
grant, but shall not be required to grant, an Award to any Employee or potential
Employee of the Company or any Subsidiary. Awards may be granted by the
Committee at any time and from time to time to new Participants,
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or to existing Participants, or to a greater or lesser number of
Participants, and may include or exclude previous Participants, as the
Committee shall determine. Except as required by this Plan, all Awards shall
not be required to contain the same or similar provisions. The Committee's
determinations under the Plan (including without limitation determinations of
which Employees or potential Employees, if any, are to receive Awards, the
form, amount and timing of such Awards, the terms and provisions of such
Awards and the agreements evidencing same) need not be uniform and may be
made by it selectively among Employees who receive, or are eligible to
receive, Awards under the Plan.
ARTICLE 5
SHARES SUBJECT TO PLAN
Subject to adjustment as provided in ARTICLES 9 AND 10, the maximum number
of shares of Common Stock that may be delivered pursuant to Awards granted under
the Plan is (a) One Hundred Thousand (100,000) shares; plus (b) shares of Common
Stock previously subject to Awards which are forfeited, terminated, settled in
cash in lieu of Common Stock, or exchanged for Awards that do not involve Common
Stock. Shares to be issued may be made available from authorized but unissued
Common Stock, Common Stock held by the Company in its treasury, or Common Stock
purchased by the Company on the open market or otherwise. During the term of
this Plan, the Company will at all times reserve and keep available the number
of shares of Common Stock that shall be sufficient to satisfy the requirements
of this Plan.
ARTICLE 6
GRANT OF AWARDS
6.1 IN GENERAL. The grant of an Award shall be authorized by the
Committee and shall be evidenced by an Award Agreement setting forth the Award
being granted, the total number of shares of Common Stock subject to the Award,
the Date of Grant, and such other terms, provisions, limitations, and
performance objectives, as are approved by the Committee, but not inconsistent
with the Plan. The Company shall execute an Award Agreement with a Participant
after the Committee approves the issuance of an Award. Any Award granted
pursuant to this Plan must be granted within ten (10) years of the date of
adoption of this Plan. The Plan shall be submitted to the Company's stockholders
for approval; however, the Committee may grant Awards under the Plan prior to
the time of stockholder approval. Any such Award granted prior to such
stockholder approval shall be made subject to such stockholder approval. The
grant of an Award to a Participant shall not be deemed either to entitle the
Participant to, or to disqualify the Participant from, receipt of any other
Award under the Plan.
If the Committee establishes a purchase price for an Award, the Participant
must accept such Award within a period of 30 days (or such shorter period as the
Committee may specify) after the Date of Grant by executing the applicable Award
Agreement and paying such purchase price.
6.2 MAXIMUM INDIVIDUAL GRANTS. No Participant may receive, during any
fiscal year of the Company, Awards covering an aggregate of more than Fifty
Thousand (50,000) shares of Common Stock.
6.3 AWARD AGREEMENT. The Committee shall set forth in the related Award
Agreement: (i) the number of shares of Common Stock awarded, (ii) the price, if
any, to be paid by the Participant for such Restricted Stock, (iii) the time or
times within which such Award may be subject to forfeiture, (iv) specified
performance goals (if applicable) of the Company, a Subsidiary, any division
thereof or any group of Employees of the Company, or any other criteria, which
the Committee determines must be met in order to remove any restrictions
(including vesting) on such Award, and (v) all other terms, limitations,
restrictions, and conditions of the Restricted Stock, which shall be consistent
with this Plan. The provisions of Restricted Stock need not be the same with
respect to each Participant.
6.4 CUSTODY OF SHARES; LEGEND ON SHARES. Each Participant who is awarded
Restricted Stock shall be issued a stock certificate or certificates in respect
of such shares of Common Stock. Such certificate(s) shall be registered in the
name of the Participant, and shall bear an appropriate legend referring to the
terms, conditions, and
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restrictions applicable to such Restricted Stock, substantially as provided
in SECTION 13.8 of the Plan. The Committee may require that the stock
certificates evidencing shares of Restricted Stock be held in custody by the
Company until the restrictions thereon shall have lapsed, and that the
Participant deliver to the Committee a stock power or stock powers, endorsed
in blank, relating to the shares of Restricted Stock.
6.5 RESTRICTIONS AND CONDITIONS. Shares of Restricted Stock shall be
subject to the following restrictions and conditions:
(a) NO DISPOSITION DURING RESTRICTION PERIOD. Subject to the other
provisions of this Plan and the terms of the particular Award Agreements,
during such period as may be determined by the Committee commencing on the
Date of Grant (the "Restriction Period"), the Participant shall not be
permitted to sell, transfer, pledge, assign, or otherwise dispose of shares
of Restricted Stock. The Restriction Period for shares of Restricted Stock
shall commence on the Date of Grant of such shares and, subject to ARTICLE
10 of the Plan, shall expire upon satisfaction of the conditions set forth
in the Award Agreement; such conditions may provide for vesting based on
(i) length of continuous service, (ii) achievement of specific business
objectives, (iii) increases in specified indices, (iv) attainment of
specified growth rates, or (v) other comparable measurements of Company
performance (or that of any Subsidiary or division thereof), as may be
determined by the Committee in its sole discretion. If the Committee
imposes conditions upon vesting, then subsequent to the Date of Grant, the
Committee may, in its sole discretion, accelerate the date on which all or
any portion of the Award may be vested.
(b) RIGHTS DURING RESTRICTION PERIOD. Except as provided in
paragraph (a) above, the Participant shall have, with respect to his or her
Restricted Stock, all of the rights of a stockholder of the Company,
including the right to vote the shares, and the right to receive any
dividends thereon.
(c) LAPSE OF RESTRICTIONS. Certificates for shares of Common Stock
free of restriction under this Plan shall be delivered to the Participant
promptly after, and only after, the Restriction Period shall expire as a
result of satisfaction of the conditions set forth in the Award Agreement.
(d) FORFEITURE. Subject to the provisions of the particular Award
Agreement, upon Termination of Service for any reason other than the
Participant's death, Total and Permanent Disability, or Retirement during
the Restriction Period, the nonvested shares of Restricted Stock shall be
forfeited by the Participant. In addition, an Award Agreement may provide
for forfeiture of shares of Restricted Stock upon the occurrence of other
events, including failure to achieve certain goals or objectives during a
specified period of time. In the event a Participant has paid any
consideration to the Company for such forfeited Restricted Stock, the
Company shall, as soon as practicable after the event causing forfeiture
(but in any event within five (5) business days), pay to the Participant,
in cash, an amount equal to the total consideration paid by the Participant
for such forfeited shares. Upon any forfeiture, all rights of a Participant
with respect to the forfeited shares of the Restricted Stock shall cease
and terminate, without any further obligation on the part of the Company.
Certificates for the shares of Common Stock forfeited under the provisions
of the Plan and the applicable Award Agreement shall be promptly returned
to the Company by the forfeiting Participant. Each Award Agreement shall
require that (i) each Participant, by his or her acceptance of Restricted
Stock, irrevocably grants to the Company a power of attorney to transfer to
the Company any shares so forfeited, and agrees to execute any documents
requested by the Company in connection with such forfeiture and transfer,
and (ii) such provisions regarding returns and transfers of stock
certificates with respect to forfeited shares of Common Stock shall be
specifically performable by the Company in a court of equity or law.
ARTICLE 7
AMENDMENT OR DISCONTINUANCE
Subject to the limitations set forth in this ARTICLE 7, the Board may at
any time and from time to time, without the consent of the Participants, alter,
amend, revise, suspend, or discontinue the Plan in whole or in part. Any such
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amendment shall, to the extent deemed necessary or advisable by the Committee,
be applicable to any outstanding Awards theretofore granted under the Plan,
notwithstanding any contrary provisions contained in any Award Agreement. In
the event of any such amendment to the Plan, the holder of any Award outstanding
under the Plan shall, upon request of the Committee and as a condition to the
vesting thereof, execute a conforming amendment to his applicable Award
Agreement in the form prescribed by the Committee. Notwithstanding anything
contained in this Plan to the contrary, unless required by law, no action
contemplated or permitted by this ARTICLE 7 shall adversely affect any rights of
Participants or obligations of the Company to Participants with respect to any
Award theretofore granted under the Plan without the consent of the affected
Participant.
ARTICLE 8
TERM
The Plan shall be effective from the date that this Plan is approved by the
Board. Unless sooner terminated by action of the Board, the Plan will terminate
on June 1, 2008, but Awards granted before that date will continue to be
effective in accordance with their terms and conditions.
ARTICLE 9
CAPITAL ADJUSTMENTS
If at any time while the Plan is in effect, or Awards are outstanding,
there shall be any increase or decrease in the number of issued and outstanding
shares of Common Stock resulting from (a) the declaration or payment of a stock
dividend, (b) any recapitalization resulting in a stock split-up, combination,
or exchange of shares of Common Stock, or (c) other increase or decrease in such
shares of Common Stock effected without receipt of any consideration by the
Company, then and in such event:
(i) An appropriate adjustment shall be made in the maximum
number of shares of Common Stock then subject to being awarded under the
Plan and in the maximum number of shares of Common Stock that may be
awarded to a Participant to the end that the same proportion of the
Company's issued and outstanding shares of Common Stock shall continue to
be subject to being so awarded; and
(ii) Appropriate adjustments shall be made in the number of
outstanding shares of Restricted Stock with respect to which the applicable
Restriction Period has not expired prior to any such change.
Except as otherwise expressly provided herein, the issuance by the Company
of shares of its capital stock of any class, or securities convertible into
shares of capital stock of any class, either in connection with direct sale or
upon the exercise of rights, options, or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number of outstanding shares of Restricted Stock.
Upon the occurrence of each event requiring an adjustment with respect to
any Award, the Company shall mail to each affected Participant its computation
of such adjustment which shall be conclusive and shall be binding upon each such
Participant.
ARTICLE 10
RECAPITALIZATION, MERGER AND
CONSOLIDATION; CHANGE IN CONTROL
The existence of this Plan and Awards granted hereunder shall not affect in
any way the right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations, reorganizations, or other
changes in the Company's capital structure and its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred or
preference stocks ranking prior to or otherwise affecting the Common Stock or
the rights thereof (or any rights, options, or warrants to purchase same), or
the dissolution or liquidation of the
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Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise.
Subject to any required action by the stockholders, if the Company shall be
the surviving or resulting corporation in any merger, consolidation or share
exchange, any Award granted hereunder shall pertain to and apply to the
securities or rights (including cash, property, or assets) to which a holder of
the number of shares of Common Stock subject to the Award would have been
entitled.
In the event of any merger, consolidation or share exchange pursuant to
which the Company is not the surviving or resulting corporation, there shall be
substituted for each share of Common Stock subject to the unexercised portions
of such outstanding Awards, that number of shares of each class of stock or
other securities or that amount of cash, property, or assets of the surviving,
resulting or consolidated company which were distributed or distributable to the
stockholders of the Company in respect to each share of Common Stock held by
them.
In the event of a Change of Control, then, notwithstanding any other
provision in this Plan to the contrary, all Restriction Periods applicable to
all outstanding Awards of Restricted Stock shall automatically expire.
The determination of the Committee that any of the foregoing conditions has
been met shall be binding and conclusive on all parties.
ARTICLE 11
LIQUIDATION OR DISSOLUTION
In case the Company shall, at any time while any Award under this Plan
shall be in force and its Restriction Period remains unexpired, (i) sell all or
substantially all of its property, or (ii) dissolve, liquidate, or wind up its
affairs, then each Participant shall be thereafter entitled to receive, in lieu
of each share of Common Stock of the Company which such Participant would have
been entitled to receive under the Award, the same kind and amount of any
securities or assets as may be issuable, distributable, or payable upon any such
sale, dissolution, liquidation, or winding up with respect to each share of
Common Stock of the Company.
ARTICLE 12
AWARDS IN SUBSTITUTION FOR
AWARDS GRANTED BY OTHER CORPORATIONS
Awards may be granted under the Plan from time to time in substitution for
similar instruments held by employees of a corporation who become or are about
to become key Employees of the Company or any Subsidiary as a result of a merger
or consolidation of the employing corporation with the Company or the
acquisition by the Company of stock of the employing corporation. The terms and
conditions of the substitute Awards so granted may vary from the terms and
conditions set forth in this Plan to such extent as the Committee at the time of
grant may deem appropriate to conform, in whole or in part, to the provisions of
the Awards in substitution for which they are granted.
ARTICLE 13
MISCELLANEOUS PROVISIONS
13.1 INVESTMENT INTENT. The Company may require that there be presented to
and filed with it by any Participant under the Plan, such evidence as it may
deem necessary to establish that the Award granted or the shares of Common Stock
to be transferred to the Participants are being acquired for investment and not
with a view to their distribution.
13.2 NO RIGHT TO CONTINUED EMPLOYMENT. Neither the Plan nor any Award
granted under the Plan shall confer upon any Participant any right with respect
to continuance of employment by the Company or any Subsidiary.
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13.3 INDEMNIFICATION OF BOARD AND COMMITTEE. No member of the Board or the
Committee, nor any officer or Employee of the Company acting on behalf of the
Board or the Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to the
Plan, and all members of the Board or the Committee, and each officer or
employee of the Company acting on their behalf shall, to the extent permitted by
law, be fully indemnified and protected by the Company in respect of any such
action, determination, or interpretation.
13.4 EFFECT OF THE PLAN. Neither the adoption of this Plan nor any action
of the Board or the Committee shall be deemed to give any person any right to be
granted an Award or any other rights except as may be evidenced by an Award
Agreement, or any amendment thereto, duly authorized by the Committee and
executed on behalf of the Company, and then only to the extent and upon the
terms and conditions expressly set forth therein.
13.5 COMPLIANCE WITH OTHER LAWS AND REGULATIONS. Notwithstanding anything
contained herein to the contrary, the Company shall not be required to issue
shares of Common Stock under any Award if the issuance thereof would constitute
a violation by the Participant or the Company of any provisions of any law or
regulation of any governmental authority or any national securities exchange or
inter-dealer quotation system or other forum in which shares of Common Stock are
quoted or traded (including without limitation Section 16 of the 1934 Act and
Section 162(m) of the Code); and, as a condition of any sale or issuance of
shares of Common Stock under an Award, the Committee may require such agreements
or undertakings, if any, as the Committee may deem necessary or advisable to
assure compliance with any such law or regulation. The Plan, the grant of
Awards hereunder, and the obligation of the Company to deliver shares of Common
Stock, shall be subject to all applicable federal and state laws, rules and
regulations and to such approvals by any government or regulatory agency as may
be required.
13.6 TAX REQUIREMENTS. The Company shall have the right to deduct from all
amounts hereunder paid in cash or other form, any Federal, state, or local taxes
required by law to be withheld with respect to such payments. The Participant
receiving shares of Common Stock issued under the Plan shall be required to pay
the Company the amount of any taxes which the Company is required to withhold
with respect to such shares of Common Stock.
13.7 USE OF PROCEEDS. Proceeds from any sale of shares of Common Stock
pursuant to Awards granted under this Plan shall constitute general funds of the
Company.
13.8 LEGEND. Each certificate representing shares of Restricted Stock
issued to a Participant shall bear the following legend, or a similar legend
deemed by the Company to constitute an appropriate notice of the provisions
hereof (any such certificate not having such legend shall be surrendered upon
demand by the Company and so endorsed):
On the face of the certificate:
"Transfer of this stock is restricted in accordance with
conditions printed on the reverse of this certificate."
On the reverse:
"The shares of stock evidenced by this certificate are subject to
and transferrable only in accordance with that certain
Input/Output, Inc. 1998 Restricted Stock Plan, a copy of which is
on file at the principal executive offices of the Company in
Stafford, Texas. No transfer or pledge of the shares evidenced
hereby may be made except in accordance with and subject to the
provisions of said Plan. By acceptance of this certificate, any
holder, transferee or pledgee hereof agrees to be bound by all of
the provisions of said Plan."
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<PAGE>
The following legend shall be inserted on each certificate evidencing
Common Stock issued under the Plan if the shares were not issued in a
transaction registered under the applicable federal and state securities laws:
"Shares of stock represented by this certificate have been
acquired by the holder for investment and not for resale,
transfer or distribution, have been issued pursuant to exemptions
from the registration requirements of applicable state and
federal securities laws, and may not be offered for sale, sold or
transferred other than pursuant to effective registration under
such laws, or in transactions otherwise in compliance with such
laws, and upon evidence satisfactory to the Company of compliance
with such laws, as to which the Company may rely upon an opinion
of counsel satisfactory to the Company."
A copy of this Plan shall be kept on file in the principal executive
offices of the Company in Stafford, Texas.
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<PAGE>
APPENDIX II
INPUT/OUTPUT, INC.
AMENDED AND RESTATED 1990 STOCK OPTION PLAN
(Effective as of June 1, 1998)
1. PURPOSE.
The Amended and Restated 1990 Stock Option Plan (the "Plan") is intended to
provide a means of attracting and retaining, in the service of Input/Output,
Inc. (the "Company") and its Subsidiaries, certain key employees of ability and
potential, and to provide consideration for services rendered by consultants and
independent contractors for the Company and its Subsidiaries, to encourage such
persons to exert their best efforts on behalf of the Company and to align their
interests more closely with those of the stockholders. It is intended that
these purposes will be effected through the granting of options, which may be in
the form of stock options intended to qualify ("Incentive Stock Options") under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") or
stock options which are not intended to so qualify ("Non-Qualified Stock
Options").
2. ADMINISTRATION.
The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"), which
Committee shall consist of at least two members.
The Committee shall have full power and authority to select the key
employees, consultants and independent contractors to be granted options
hereunder at such time or times, in such amounts, and upon such terms and
conditions as the Committee may prescribe. The Committee shall have full power
and authority to interpret and construe the Plan and to establish and amend
general rules and regulations for the administration of the Plan. The
Committee's interpretation and construction of the Plan shall be conclusive and
binding upon all persons. Administrative costs in connection with the Plan
shall be paid by the Company. The Committee may delegate to officers of the
Company or any affiliate of the Company the authority, subject to such terms as
the Committee shall determine, to perform specified functions under the Plan;
provided however, that any function relating to an optionee then subject to
Section 16 of the Securities Exchange Act of 1934, as amended (the "1934 Act"),
or relating to a "covered employee" as that term is defined under Section 162(m)
of the Code, shall be performed solely by the Committee in order to ensure
compliance with applicable requirements of Rule 16b-3 promulgated under the 1934
Act and Section 162(m) of the Code.
No current or previous member of the Board or the Committee, nor any
officer or employee of the Company acting on behalf of the Board or the
Committee, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and all
such members of the Board or the Committee and each and any officer or employee
of the Company acting on their behalf shall, to the extent permitted by law, be
fully indemnified and protected by the Company in respect of any such action,
determination or interpretation. The foregoing right of indemnification shall
not be exclusive of any other rights of indemnification to which such
individuals may be entitled under the Company's Certificate of Incorporation or
Bylaws, as a matter of law, or otherwise.
Each option shall be evidenced by a written stock option agreement. Unless
otherwise provided in the resolution approving such grant, the date on which the
Committee approves the granting of an option shall be considered the date on
which such option is granted. The Committee shall prescribe the terms of each
option agreement, which terms shall not be inconsistent with the terms of this
Plan.
3. ELIGIBILITY.
The individuals who shall be eligible to participate in the Plan shall be
such key employees (including officers and directors who are employees) of the
Company or of any corporation or entity (hereinafter called a "Subsidiary") in
which the Company has a proprietary interest by reason of stock ownership or
otherwise (including any corporation
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or entity in which the Company acquires a proprietary interest after the
adoption of this Plan), but only if the Company owns, directly or indirectly,
stock or equity interests possessing not less than 50% of the total combined
voting power of all classes of stock or equity interests in such corporation.
Such key employees shall be executive, administrative, professional or
technical personnel of the Company or of any Subsidiary who have principal or
shared responsibility for the management, direction and financial success of
the Company. The Committee may select, by the grant of options under this
Plan, certain consultants and independent contractors to be optionees. The
granting of options under this Plan shall be entirely discretionary and
nothing in this Plan shall be deemed to give any employee, consultant or
independent contractor a right to participate in this Plan or to be granted
an option.
More than one (1) option may be granted from time to time to any employee,
consultant, or independent contractor. The holders of options shall not be, or
have any of the rights or privileges of, a stockholder of the Company in respect
of any shares purchasable upon the exercise of any part of an option unless and
until certificates representing such shares shall have been issued by the
Company to such holders.
4. STOCKHOLDER APPROVAL AND TERM.
This Plan shall become effective as of the date approved by the
stockholders of the Company. Subject to its termination pursuant to Section 12,
the Plan shall remain in effect until all options granted hereunder shall have
been exercised, earned, or distributed, or shall have expired or have been
canceled; PROVIDED however, that no options hereunder shall be granted after
September 1, 2000.
5. SHARES SUBJECT TO THE PLAN.
Subject to adjustment pursuant to Section 9, the total number of shares of
common stock of the Company, $.01 par value ("Common Stock"), with respect to
which stock options may be granted hereunder shall not exceed 8,500,000. In the
event that shares of Common Stock are delivered to the Company in full or
partial payment of the exercise price for the exercise of a stock option granted
under the Plan in accordance with Section 6 of this Plan, the number of shares
available for future grants of options under the Plan shall be reduced only by
the net number of shares issued upon the exercise of the option.
The aggregate number of shares of Common Stock that may be represented by
grants of stock options made to any optionee during any consecutive four-year
period may not exceed in any event 1,200,000 shares. Should any option granted
under this Plan expire or terminate unexercised, in whole or in part, the shares
of Common Stock formerly subject to such option shall again be available for
grant under the Plan. Shares granted or issued hereunder may be authorized but
unissued Common Stock or shares reacquired by the Company and held in its
treasury, as may from time to time be determined by the Committee.
6. STOCK OPTIONS.
All stock options granted hereunder shall be evidenced by written stock
option agreements setting forth the following terms and conditions:
(a) NUMBER OF SHARES. The option agreement shall state the total
number of shares to which it pertains.
(b) EXERCISE PRICE. The exercise price shall be not less than the
fair market value, as defined in Section 11(a) hereof, for each share of
Common Stock on the date of grant of the option. If an Incentive Stock
Option is granted to an employee and if the employee owns or is deemed to
own (by reason of the attribution rules applicable under Section 424(d) of
the Code) more than 10% of the combined voting power of all classes of
stock of the Company (or of any parent corporation or Subsidiary of the
Company), the exercise price for each share (to the extent required by the
Code at the time of grant) shall not be less than 110% of the fair market
value of a share of Common Stock on the date such Incentive Stock Option is
granted.
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<PAGE>
With respect to the 1,500,000 additional shares of Common Stock
authorized for issuance by the amendment to this Plan effective as of June
1, 1998 ("Additional Shares") and notwithstanding any provision contained
in this Plan to the contrary, neither the Board nor the Committee shall (i)
cancel and regrant any stock options granted hereunder covering Additional
Shares or (ii) lower the exercise price of stock options granted hereunder
covering Additional Shares.
(c) EXERCISE OF STOCK OPTION. The Committee, in its sole discretion,
shall prescribe in each option agreement the time or times at which a stock
option shall be exercisable, in full or in part; PROVIDED that the
Committee, in its sole discretion, may accelerate the time or times at
which stock options shall became exercisable. In no event may an option be
exercised or shares be issued pursuant to an option if any necessary
listing of the shares on a securities exchange or any registration or
qualification required under applicable state or federal securities laws
has not been accomplished. Unless the Committee directs otherwise, an
option granted hereunder may be exercised no sooner than as follows:
<TABLE>
<CAPTION>
EXERCISE DATE NUMBER OF SHARES
- ----------------------------------------------------------------------------------------------------------
<S> <C>
1. One (1) year from the date of grant Up to 25% of the total optioned shares under the option
2. Two (2) years from the date of grant Up to an additional 25% of the total optioned shares
3. Three (3) years from the date of grant Up to an additional 25% of the total optioned shares
4. Four (4) years from the date of grant Up to an additional 25% of the total optioned shares
</TABLE>
(d) EXERCISE PROCEDURES. A stock option shall be exercised by
delivery of written notice of exercise to the Secretary of the Company and
payment of the full exercise price of the shares for which the option is
being exercised. The exercise price may be paid:
(1) in cash or by check payable to the order of the Company, or
(2) through the delivery of Common Stock owned by the optionee,
having an aggregate fair market value on the date of
exercise equal to the exercise price, or
(3) by any combination of (1) and (2) above.
The Committee may impose such limitations and prohibitions on the use of
shares of Common Stock to exercise an option as it deems appropriate.
Additionally, shares covered by a stock option may be purchased upon
exercise, in whole or in part, in accordance with the applicable stock
option agreement, by authorizing a third party to sell the shares (or a
sufficient portion thereof) acquired upon exercise of a stock option, and
assigning the delivery to the Company of a sufficient amount of the sale
proceeds to pay for all the shares acquired through such exercise and any
tax withholding obligations resulting from such exercise.
(e) PERIOD OF OPTIONS. The Committee shall prescribe in each stock
option agreement the period during which a stock option may be exercised;
PROVIDED HOWEVER, that no stock option shall be granted for a period of
longer than ten years. However, if an employee owns or is deemed to own
(by reason of the attribution rules of Section 424(d) of the Code) more
than 10% of the combined voting power of all classes of stock of the
Company (or any parent corporation or Subsidiary of the Company) and an
Incentive Stock Option is granted to such employee, the term of such
Incentive Stock Option (to the extent required by the Code at the time of
grant) shall be no more than five years from the date of grant.
(f) INCENTIVE STOCK OPTIONS. To the extent required by the Code for
incentive stock options, the exercise of Incentive Stock Options granted
under the Plan shall be subject to the $100,000 calendar year limit as set
forth in Section 422(d) of the Code; to the extent that any grant exceeds
such $100,000 calendar year limit, the portion of such granted Stock Option
shall be deemed a Non-Qualified Stock Option. Only employees of the
Company and its subsidiaries may receive grants of Incentive Stock Options.
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<PAGE>
If Common Stock acquired upon exercise of an Incentive Stock Option is
disposed of by an optionee prior to the expiration of either two years from
the date of grant of such option or one year from the transfer of shares to
the optionee pursuant to the exercise of such option or in any other
disqualifying disposition within the meaning of Section 422 of the Code,
then such optionee shall promptly notify the Company in writing of the date
and terms of such disposition. A disqualifying disposition by an optionee
shall not affect the status of any other option granted under the Plan as
an Incentive Stock Option within the meaning of Section 422 of the Code.
Notwithstanding the provisions of Section 7, the option period of an
optionee's Incentive Stock Options shall terminate no later than ninety
(90) days after termination of such optionee's employment with the Company
and its Subsidiaries; PROVIDED that if such employment terminates by reason
of the death or total and permanent disability (as defined in Section 22(e)
of the Code) of the optionee, then the option period of such optionee's
Incentive Stock Options shall terminate no later than one hundred eighty
(180) days after such termination by reason of death or disability.
(g) GRANTS OF NON-QUALIFIED OPTIONS TO NEW FULL-TIME EMPLOYEES.
Effective December 19, 1996 and thereafter, the Committee shall be
authorized, at any time and from time, to adopt a policy or policies to
grant non-qualified stock options under the Plan to individuals on and
effective as of the date any such individual becomes a full-time employee
of the Company or a Subsidiary, to purchase a number of shares to be from
time to time designated by the Committee, each such stock option to have an
exercise price equal to the fair market value for each share of Common
Stock as of the date of grant in accordance with sub-Section (b) of this
Section 6, to have a term of ten years from the date of grant and to vest
and become exercisable in accordance with the terms of sub-Section (c) of
Section 6. Notwithstanding the foregoing, nothing contained in this
sub-Section (g) shall confer on any person any contractual or similar
rights to any such grant, or be evidence of any agreement, contract or
understanding, express or implied, that any particular person will be
employed by the Company or any Subsidiary or have rights to any
non-qualified stock option.
7. TERM OF EMPLOYMENT OR SERVICE.
In the event an employee shall cease to be employed by the Company, the
unexercised portions of such optionee's options which are eligible to be
exercised in accordance with this Plan as of the date of such termination of
employment may be exercised within one hundred eighty (180) days after such date
of termination; PROVIDED HOWEVER, that an option exercisable by an employee,
consultant, or independent contractor shall be exercisable as follows in the
event of death, disability or retirement:
(a) DEATH. In the event of death, all unmatured installments of the
stock option outstanding shall thereupon automatically be accelerated and
become fully vested and exercisable in full, and the stock option may be
exercised, for a period of twelve (12) months after the optionee's death or
until expiration of the option term (if sooner), by the optionee's estate
or personal representative, or by the person who acquired the right to
exercise the option by bequest or inheritance or by reason of the
optionee's death; and
(b) RETIREMENT OR DISABILITY. In the event of the termination of
employment of an employee as the result of retirement or disability, or the
termination of service as a consultant as the result of disability, all
unmatured installments of the stock option outstanding shall thereupon
automatically be accelerated and become fully vested and exercisable in
full, and the stock option may be exercised in full for a period of twelve
(12) months after such termination or until expiration of the option term
(if sooner). For the purposes of this Plan, the "retirement" of an
employee shall be deemed to be retirement after qualification therefor
pursuant to a retirement plan or a retirement policy of the Company. Also,
for the purposes of this Plan, the "disability" of an employee or a
consultant shall mean the total and permanent disability (as that term is
described in Section 22(e) of the Code) of such optionee.
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<PAGE>
Notwithstanding the foregoing provisions of this Section 7, the Committee, in
its sole discretion, may extend the option exercise period for a period beyond
that otherwise provided in this Section, but in no event past the expiration of
the option term.
8. CHANGE OF CONTROL.
In the event of a Change of Control (as defined below) affecting the
Company in which the outstanding stock options granted by the Company prior to
such Change of Control (and the Company's obligations in connection therewith)
are not fully assumed by the Successor (as defined below) or replaced by fully
equivalent substitute options, then (1) all such unmatured installments of
outstanding options shall automatically be accelerated and become fully vested
and exercisable in full, without regard to the provisions of subsection 6(c)
hereof, as of the effective date of the Change of Control and (2) the Company
shall provide reasonable prior written notice to each applicable optionee of (a)
the date such unexercised options will terminate and (b) the period during which
such optionee may exercise the fully vested options.
If there is a Change of Control of the Company in which the outstanding
stock options (including the unmatured installments thereof) granted by the
Company prior to such Change of Control (and the Company's obligations in
connection therewith) are fully assumed by the Successor pursuant to Section
9(d) of this Plan, or replaced by fully equivalent substitute options, then,
except as otherwise provided in this Section 8, no acceleration of vesting of
any unmatured installments of outstanding stock options granted by the Company
shall occur.
In addition, in the event that an optionee's employment is terminated by
the Company within the 18-month period following the effective date of a Change
of Control (i.e., with such period ending on the same day of the eighteenth
month following the effective date of the Change of Control) for any reason
(other than such optionee's (i) voluntary resignation or retirement, (ii)
termination as a result of death or disability, or (iii) termination by the
Company For Cause (as defined below)) or such optionee is subject to a Change in
Duties (as defined below) after the effective date of the Change of Control and
such optionee then resigns from his or her employment with the Company within
such 18-month period, then to the extent the stock options granted to such
optionee have not already become fully vested pursuant to this Section 8, all
unmatured installments of any outstanding stock options granted by the Company
to such optionee shall, without further action by any person, immediately become
fully vested and exercisable in full effective as of the date of such
termination of employment.
For the purposes of this Plan, a "Change of Control" shall mean the
occurrence of any of the following events: (i) there shall be consummated any
merger or consolidation pursuant to which shares of the Company's Common Stock
would be converted into cash, securities or other property, or any sale, lease,
exchange or other disposition (excluding disposition by way of mortgage, pledge
or hypothecation), in one transaction or a series of related transactions, of
all or substantially all of the assets of the Company (a "Business
Combination"), in each case unless, following such Business Combination, the
holders of the outstanding Common Stock immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 51% of the
outstanding common stock or equivalent equity interests of the corporation or
entity resulting from such Business Combination (including, without limitation,
a corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the outstanding Common Stock,
(ii) the stockholders of the Company approve any plan or proposal for the
complete liquidation or dissolution of the Company, (iii) any "person" (as such
term is defined in Section 3(a)(9) or Section 13(d)(3) under the Securities
Exchange Act of 1934 (the "1934 Act") or any "group" (as such term is used in
Rule 13d-5 promulgated under the 1934 Act), other than the Company, any
successor of the Company or any Subsidiary or any employee benefit plan of the
Company or any Subsidiary (including such plan's trustee), becomes a beneficial
owner for purposes of Rule 13d-3 promulgated under the 1934 Act, directly or
indirectly, of securities of the Company representing 40% or more of the
Company's then outstanding securities having the right to vote in the election
of directors, or (iv) during any period of two consecutive years, individuals
who, at the beginning of such period constituted the entire Board, cease for any
reason (other than death) to constitute a majority of the directors, unless the
election, or the nomination for election by the Company's stockholders, of each
new director was
II-5
<PAGE>
approved by a vote of at least a majority of the directors then still in
office who were directors at the beginning of the period.
For the purposes of this Section 8, a "Successor" shall mean the Company or
any successor or assign (whether directly or indirectly, as a result of a Change
of Control or otherwise) to all or substantially all of the business and/or
assets of the Company.
For the purposes of this Section 8, "Change in Duties" means, (i) a
significant reduction in the nature or scope of an optionee's authority or the
duties that an optionee performs; (ii) a reduction in an optionee's annual base
salary; (iii) a significant diminution in an optionee's employee benefits,
perquisites or incentive bonus opportunity (other than changes made as part of a
program or plan modification that applies to such optionee and his or her
peers); (iv) a change of more than ___ miles in the location of such optionee's
principal place of employment (not including business travel or temporary
assignments); or (v) a determination by the Board that such optionee is unable
to exercise his or her authority or perform his or her duties as a result of a
Change of Control.
For the purposes of this Section 8, an optionee shall be deemed terminated
"For Cause" if he or she is terminated for (i) theft, dishonesty or
falsification of any employment or Company records; (ii) improper disclosure of
the Company's confidential or proprietary information; (iii) any action by such
optionee which has a material detrimental effect on the Company's reputation or
business; (iv) such optionee's failure or inability to perform any reasonable
assigned duties after written notice of, and a reasonable opportunity to cure,
such failure or inability; or (v) such optionee's conviction of any criminal act
which impairs his or her ability to perform his or her duties for the Company.
9. ADJUSTMENTS.
(a) If at any time while the Plan is in effect or unexercised options
are outstanding, there shall be any increase or decrease in the number of
issued and outstanding shares of Common Stock through the declaration of a
stock dividend or through any recapitalization resulting in a stock
split-up, combination, or exchange of shares of Common Stock, then and in
such event:
(1) An appropriate adjustment shall be made in the maximum
number of shares of Common Stock then subject to being
awarded under the Plan to the end that the same proportion
of the Company's issued and outstanding shares of Common
Stock shall continue to be subject to being so awarded; and
(2) Appropriate adjustments shall be made in the number of
shares of Common Stock and the exercise price per share
thereof then subject to purchase pursuant to each option
previously granted, to the end that the same proportion of
the Company's issued and outstanding shares of Common Stock
in each such instance shall remain subject to purchase at
the same aggregate exercise price.
(b) Except as otherwise expressly provided herein, the issuance by
the Company of shares of its capital stock of any class, or securities
convertible into shares of capital stock of any class, either in connection
with direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of obligations of the Company convertible
into such shares or other securities, shall not affect, and no adjustment
by reason thereof shall be made with respect to, the number of or exercise
price of shares of Common Stock then subject to outstanding options granted
under the Plan.
Without limiting the generality of the foregoing, the presence of
outstanding options granted under the Plan shall not affect in any manner
the right or power of the Company to make, authorize or consummate (1) any
or all adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business; (2) any merger or
consolidation of the Company; (3) any issuance by the Company
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<PAGE>
of debt securities or preferred or preference stock which would rank senior
to the shares of Common Stock subject to outstanding options; (4) the
dissolution or liquidation of the Company; (5) any sale, transfer or
assignment of all or any part of the assets or business of the Company; or
(6) any other corporate act or proceeding, whether of a similar character
or otherwise.
(c) Subject to any required action by the stockholders, if the
Company shall be the surviving or resulting corporation in any
reorganization, merger or consolidation, any outstanding stock option
granted hereunder shall pertain to and apply to the securities or rights
(including cash, property or assets) to which a holder of the number of
shares of Common Stock subject to the stock option would have been
entitled. Notwithstanding any other provision of the Plan, and without
affecting the number of shares reserved or available hereunder, the
Committee shall authorize the issuance, continuation or assumption of
outstanding stock options or provide for other equitable adjustments after
changes in the shares of Common Stock resulting from any merger,
consolidation, sale of assets, acquisition of property or stock,
recapitalization, reorganization, or similar occurrence in which the
Company is the continuing or surviving corporation, upon such terms and
conditions as it may deem necessary in order to preserve optionees' rights
under the Plan.
(d) In the event of any reorganization, merger or consolidation
pursuant to which the Company is not the surviving or resulting
corporation, or of any proposed sale of all or substantially all of the
assets of the Company, there shall be substituted for each share of Common
Stock subject to the unexercised portions of such outstanding stock option
that number of shares of each class of stock or other securities or that
amount of cash, property or assets of the surviving or consolidated company
which were distributed or distributable to the stockholders of the Company
in respect of each share of Common Stock held by them, such outstanding
stock options to be thereafter exercisable for such stock, securities, cash
or property in accordance with their terms.
(e) Upon the occurrence of each event requiring an adjustment of the
exercise price and/or the number of shares purchasable pursuant to stock
options granted pursuant to the terms of this Plan, the Company shall mail
forthwith to each optionee a copy of its computation of such adjustment
which shall be conclusive and shall be binding upon each such optionee,
except as to any optionee who contests such computation by written notice
to the Company within thirty (30) days after receipt thereof by such
optionee.
10. OPTIONS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER CORPORATIONS.
Stock options may be granted under the Plan from time to time in
substitution for such options held by employees of a corporation or other entity
who become or are about to become key employees of the Company or a Subsidiary
as the result of a merger or consolidation of the employing corporation or
entity with the Company or a Subsidiary or the acquisition by the Company or a
Subsidiary of equity securities of the employing corporation or entity as the
result of which it becomes a Subsidiary. The terms and conditions of the
substitute options so granted may vary from the terms and conditions set forth
in Section 6 of this Plan to such extent as the Board or the Committee, as the
case may be, at the time of grant deem appropriate to conform, in whole or in
part, to the provisions of the options in substitution for which they are
granted.
11. MISCELLANEOUS PROVISIONS.
The following provisions shall apply hereunder:
(a) FAIR MARKET VALUE. For the purposes of this Plan, "fair market
value" of the Company's shares of Common Stock means (i) the closing sales
price per share on the principal securities exchange on which the Common
Stock is traded (or if there is no sale on the relevant date, then on the
last previous day on which a sale was reported), or (ii) the mean between
the closing or average (as the case may be) bid and asked prices per share
of Common Stock on the over-the-counter market, whichever is applicable.
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<PAGE>
(b) NO RIGHT TO CONTINUE EMPLOYMENT. Nothing in the Plan or in any
stock option agreement confers upon any employee the right to continue in
the employ of the Company or interferes with or restricts in any way the
right of the Company to discharge any employee at any time.
(c) STOCKHOLDERS' RIGHTS. The holder of a stock option shall have
none of the rights or privileges of a stockholder except with respect to
shares which have been issued.
(d) TAX REQUIREMENTS. The optionee receiving shares issued upon
exercise of any stock option shall be required to pay the Company the
amount of any taxes which the Company is required to withhold with respect
to such shares of Common Stock. Such payment shall be required to be made
prior to or concurrent with the delivery of any certificate representing
such shares of Common Stock. Such payment may be made in cash, by check,
or through the delivery of shares of Common Stock which the optionee owns
or is entitled to receive after payment of the exercise price, which shares
have an aggregate fair market value equal to the required withholding
payment, or any combination thereof. With respect to an Incentive Stock
Option, in the event of a subsequent disqualifying disposition of Common
Stock within the meaning of Section 422 of the Code, such payment of taxes
may be made in cash, by check or through the delivery of shares of Common
Stock which the optionee then owns, which shares have an aggregate fair
market value equal to the required withholding payment, or any combination
thereof.
(e) GOVERNMENT REGULATIONS. Notwithstanding any of the provisions
hereof, or of any written agreements evidencing options granted hereunder,
the obligation of the Company to sell and deliver shares shall be subject
to all applicable laws, rules and regulations and to such approvals by any
government agencies or national securities exchanges as may be required.
The optionee shall agree not to exercise any stock option, and the Company
shall not be obligated to issue any shares, if the exercise thereof or if
the issuance of shares shall constitute a violation by the optionee or the
Company of any provision of any law or regulation of any governmental
authority.
(f) BENEFIT PLAN COMPUTATIONS. Any benefits received or amounts paid
to an employee with respect to any option under the Plan shall not affect
the level of benefits provided to or received by any employee, or the
employee's estate or beneficiary, pursuant to any employee benefit plan of
the Company.
(g) LIMITED ASSIGNABILITY OF OPTION. A stock option granted to an
optionee may not be transferred or assigned other than (i) by will or the
laws of descent and distribution or (ii) pursuant to a qualified domestic
relations order (as defined in Section 401(a)(13) of the Internal Revenue
Code of 1986, as amended (the "Code") or Section 206(d)(3) of the Employee
Retirement Income Security Act of 1974, as amended). In addition, the
Committee may, in its discretion, authorize all or a portion of the stock
options granted to an optionee to be on terms which permit transfer by such
optionee to (A) the spouse, ex-spouse, children, step children or
grandchildren of the optionee ("Immediate Family Members"), (B) a trust or
trusts for the exclusive benefit of one or more Immediate Family Members,
(C) a partnership or limited liability company in which one or more
Immediate Family Members are the only partners or members, (D) an entity
exempt from federal income tax pursuant to Section 501(c)(3) of the Code or
any successor provision and/or (E) a split interest trust or pooled income
fund described in Section 2522(c)(2) of the Code or any successor
provision, so long as (x) the stock option agreement evidencing any option
granted pursuant to this Plan is approved by the Committee and expressly
provides for transferability in a manner consistent with this Section
11(g), and (y) subsequent transfers of such option shall be prohibited
except for transfers by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order (as described above).
Furthermore, the Committee may, in its discretion, authorize all or a
portion of the stock options granted to an optionee to be on terms which
permit transfer by such optionee to other entities or persons to whom the
Committee may in its discretion permit transfers of the option.
Notwithstanding any provision contained herein to the contrary, in the case
of an Incentive Stock Option, such transfer or assignment may occur only to
the extent it will not result in disqualifying such option as an incentive
stock option under Section 422 of the Code, or any successor provision.
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Following any such transfer permitted by the terms hereof, such option
shall continue to be subject to the same terms and conditions as were
applicable immediately prior to transfer, provided that for purposes of
Sections 1, 2, 5, 6, 8, 9, 11 and 12 of this Plan any reference to
"optionee" shall be deemed to include the transferee. The provisions of
Section 7 of this Plan concerning events of termination of service shall
continue to be applied with respect to the original optionee, following
which event(s) any such affected stock options shall be exercisable by the
transferee only to the extent and for the periods specified therein or in
the stock option agreement. The Committee and the Company shall have no
obligation to inform any transferee of a stock option of any expiration,
termination, lapse or acceleration of such stock option. Subject to the
foregoing, during an optionee's lifetime, stock options granted to an
optionee may be exercised only by the optionee or, provided the particular
stock option agreement so provides, by the optionee's guardian or legal
representative. The designation by an optionee of a beneficiary will not
constitute a transfer of the stock option.
(h) EMPLOYMENT. Employment by the Company shall be deemed to include
employment by a Subsidiary. The Committee shall have the authority to
determine whether or not an optionee has terminated his employment with the
Company.
(i) INVESTMENT INTENT. The Company may require that there be
presented to and filed with it by any optionee(s) under the Plan, such
evidence as it may deem necessary to establish that the options or the
shares of Common Stock to be purchased or transferred are being acquired
for investment and not with a view to their distribution.
(j) INTERPRETATION. Where the context requires, words in the
masculine gender shall include the feminine and neuter genders, the plural
form of a word shall include the singular form, and the singular form of a
word shall include the plural form. All references in this Plan to
sections of the Code or sections of ERISA shall be deemed to include any
successor provisions to such sections as contained in any laws or
regulations adopted subsequent to August 1, 1996.
12. SUSPENSION, TERMINATION OR AMENDMENT OF THE PLAN.
Subject to the limitations set forth in this Section 12, the Board may at
any time and from time to time, without the consent of the optionees, alter,
amend, revise, suspend, or discontinue the Plan in whole or in part, except that
the Board shall not amend this Plan in any manner which would have the effect of
preventing Incentive Stock Options granted under this Plan from being "incentive
stock options" as defined in Section 422 of the Code, although it is recognized
that stock options are not prevented from being "incentive stock options" at
grant solely because the requirements of Section 422 of the Code are not met
upon exercise of the stock option or sale of the Common Stock acquired upon
exercise, or as a result of any cancellation of the stock option.
Notwithstanding anything contained in this Plan to the contrary, unless
required by law, no action contemplated or permitted by this Section 12 shall
adversely affect any rights of optionees or obligations of the Company to
optionees with respect to any stock options theretofore granted under the Plan
without the consent of the affected optionee.
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APPENDIX III
INPUT/OUTPUT, INC. AMENDED AND RESTATED
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
(EFFECTIVE AS OF JUNE 1, 1998)
PURPOSE
The purpose of the Plan is to promote the long-term growth of the Company
by increasing the proprietary interest of Non-Employee Directors in the Company,
and to attract and retain highly qualified and capable Non-Employee Directors by
allowing these Non-Employee Directors to participate in the long-term growth and
financial success of the Company.
ARTICLE I
DEFINITIONS
For the purpose of this Plan, unless the context requires otherwise, the
following terms shall have the meanings indicated:
1.1 "Annual Grant" shall have the meaning set forth in Section 4.2 hereof.
1.2 "Board" means the board of directors of the Company.
1.3 "Change in Control" means the occurrence of any of the following
events: (i) there shall be consummated any merger or consolidation pursuant to
which shares of the Company's Common Stock would be converted into cash,
securities or other property, or any sale, lease, exchange or other disposition
(excluding disposition by way of mortgage, pledge or hypothecation), in one
transaction or a series of related transactions, of all or substantially all of
the assets of the Company (a "Business Combination"), in each case unless,
following such Business Combination, the holders of the outstanding Common Stock
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 51% of the outstanding common stock or equivalent equity
interests of the corporation or entity resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business Combination,
of the outstanding Common Stock, (ii) the stockholders of the Company approve
any plan or proposal for the complete liquidation or dissolution of the Company,
(iii) any "person" (as such term is defined in Section 3(a)(9) or
Section 13(d)(3) under the 1934 Act) or any "group" (as such term is used in
Rule 13d-5 promulgated under the 1934 Act), other than the Company, any
successor to the Company or any Subsidiary or any employee benefit plan of the
Company or any Subsidiary (including such plan's trustee), becomes a beneficial
owner for purposes of Rule 13d-3 promulgated under the 1934 Act, directly or
indirectly, of securities of the Company representing 40% or more of the
Company's then outstanding securities having the right to vote in the election
of directors, or (iv) during any period of two consecutive years, individuals
who, at the beginning of such period constituted the entire Board, cease for any
reason (other than death) to constitute a majority of the directors, unless the
election, or the nomination for election by the Company's stockholders, of each
new director was approved by a vote of at least a majority of the directors then
still in office who were directors at the beginning of the period.
1.4 "Code" means the Internal Revenue Code of 1986, as amended.
1.5 "Common Stock" means the common stock which the Company is currently
authorized to issue or may in the future be authorized to issue.
1.6 "Company" means Input/Output, Inc., a Delaware corporation.
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1.7 "Date of Grant" means the effective date on which an option is awarded
to a Participant as set forth in the relevant stock option agreement.
1.8 "Discretionary Grants" shall have the meaning set forth in Section 4.3
hereof.
1.9 "Fair Market Value" of the Company's shares of Common Stock means (i)
the closing sale price per share on the principal securities exchange on which
the Common Stock is traded (or if there is no sale on the relevant date, then on
the last previous day on which a sale was reported), or (ii) the mean between
the closing or average (as the case may be) bid and asked prices per share of
Common Stock on the over-the-counter market, whichever is applicable.
1.10 "First Grant" shall have the meaning set forth in Section 4.2 hereof.
1.11 "1934 Act" means the Securities Exchange Act of 1934, as amended.
1.12 "Non-Employee Director" means a director of the Company who is not an
employee of the Company or any Subsidiary.
1.13 "Nonqualified Stock Option" or "Stock Option" means an option to
purchase shares of Common Stock granted to a Participant pursuant to Article IV
and which is not intended to qualify as an incentive stock option under Section
422 of the Code.
1.14 "Participant" means any Non-Employee Director who is, or who is
proposed to be, a recipient of a Stock Option pursuant to the terms of this
Plan.
1.15 "Plan" means the Amended and Restated Input/Output, Inc. 1996
Non-Employee Director Stock Option Plan, as it may be amended from time to
time.
1.16 "Second Grant" shall have the meaning set forth in Section 4.2 hereof.
1.17 "Stock Dividend" means a dividend or other distribution declared on
the shares of Common Stock payable in (i) capital stock of the Company or any
Subsidiary of the Company, or (ii) rights, options or warrants to receive or
purchase capital stock of the Company or any Subsidiary of the Company, or
(iii) securities convertible into or exchangeable for capital stock of the
Company or any Subsidiary of the Company, or (iv) any capital stock received
upon the exercise of, or with respect to, the foregoing.
1.18 "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of granting of the Stock
Option, each of the corporations other than the last corporation in the unbroken
chain owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in the chain, and
"Subsidiaries" means more than one of any such corporations.
1.19 "Third Grant" shall have the meaning set forth in Section 4.2 hereof.
ARTICLE II
ADMINISTRATION
Except as expressly set forth in Section 4.3 concerning Discretionary
Grants, the Plan shall be administered in accordance with the terms of this
Article II by the Compensation Committee (the "Committee") of the Board, which
shall consist of at least two members. Any member of the Committee may be
removed at any time, with or without cause, by resolution of the Board. Any
vacancy occurring in the membership of the Committee may be filled by
appointment by the Board.
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The Board shall select one of its members to act as the Chairman of the
Committee, and the Committee shall make such rules and regulations for its
operation as it deems appropriate. A majority of the Committee shall constitute
a quorum, and the act of a majority of the members of the Committee present at a
meeting at which a quorum is present shall be the act of the Committee.
The Committee shall have full authority and responsibility to administer
the Plan, including authority to interpret and construe any provision of the
Plan and to adopt such rules and regulations for administering the Plan as it
may deem necessary. Except as provided below, any interpretation,
determination, or other action made or taken by the Committee shall be final,
binding, and conclusive on all interested parties, including the Company and all
Participants.
ARTICLE III
SHARES SUBJECT TO THE PLAN
Subject to the provisions of Articles X and XI of the Plan, the aggregate
number of shares which may be issued to Participants under grants of Stock
Options made by the Committee under the Plan shall not exceed 700,000. In the
event that shares of Common Stock are delivered to the Company in full or
partial payment of the exercise price for the exercise of a stock option granted
under the Plan in accordance with Article V of this Plan, the number of shares
available for future grants of options under the Plan shall be reduced only by
the net number of shares issued upon the exercise of the option.
Shares to be distributed and sold may be made available from either
authorized but unissued Common Stock or Common Stock held by the Company in its
treasury. Shares that by reason of the expiration or unexercised termination of
a Stock Option are no longer subject to purchase may be reoffered under the
Plan.
ARTICLE IV
STOCK OPTION GRANTS
4.1 ELIGIBILITY. Only Non-Employee Directors serving as such as of the
Date of Grant shall be eligible to receive grants of Stock Options under this
Plan.
4.2 NON-DISCRETIONARY GRANT OF STOCK OPTIONS. On the first business
day of November 1996, each person who is a then a Non-Employee Director shall
be granted a Nonqualified Stock Option to purchase 20,000 shares of Common
Stock. Thereafter, on the first business day of November 1997, each such
Non-Employee Director shall be granted a Nonqualified Stock Option to
purchase 10,000 shares; on the first business day of November 1998, each such
Non-Employee Director shall be granted a Nonqualified Stock Option to
purchase 10,000 shares; and on the first business day of November of each
year thereafter, so long as such Non-Employee Director is a Non-Employee
Director as of the Date of Grant in such year, each such Non-Employee
Director shall be granted a Nonqualified Stock Option to purchase 10,000
shares.
With respect to any Non-Employee Director who joins the Board after the
first business day of November 1996, on that date on which such person is
first elected or otherwise commences serving as a Non-Employee Director, such
person shall be granted a Nonqualified Stock Option to purchase 20,000
shares. Thereafter, on the first business day of the immediately succeeding
November following such date, such Non-Employee Director shall be granted a
Nonqualified Stock Option to purchase 10,000 shares; on the first business
day of the November immediately succeeding the date that such 10,000-share
Stock Option was granted, such Non-Employee Director shall be granted an
additional Nonqualified Stock Option to purchase 10,000 shares; and on the
first business day of November of each year thereafter, so long as such
Non-Employee Director is a Non-Employee Director as of the Date of Grant in
such year, each such Non-Employee Director shall be granted a Nonqualified
Stock Option to purchase 10,000 shares.
The first grant of a Nonqualified Stock Option for 20,000 shares pursuant
to this Section 4.2 is herein referred to as the "First Grant"; the second grant
and third grant of Nonqualified Stock Options for 10,000 shares each pursuant
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to this Section 4.2 is herein referred to as the "Second Grant" and the "Third
Grant," respectively; and each subsequent grant of a Nonqualified Stock Option
for 10,000 shares pursuant to this Section 4.2 is herein referred to as the
"Annual Grant."
Notwithstanding any provision contained herein to the contrary, any
non-elective grant made pursuant to this Section 4.2 shall be conditioned on
the availability of sufficient shares reserved for issuance under the terms
of the Plan at the Date of Grant of such Stock Option. In the event that
insufficient shares are then available, the number of shares under
Nonqualified Stock Options to be granted shall be reduced to the extent
shares are then so available, on the basis of the seniority of the
Non-Employee Directors then eligible for grants hereunder (with the
Non-Employee Directors having less time of service on the Board being first
subject to reduction of the number of shares to be granted under their
particular Stock Option), or on such other basis as deemed advisable or
appropriate under the circumstances as determined by the Committee.
4.3 DISCRETIONARY STOCK OPTION GRANTS. In addition to the Nonqualified
Stock Option grants provided for in Section 4.2, the Board shall have full power
and authority, in its sole discretion, to grant Nonqualified Stock Options
hereunder to any or all Non-Employee Directors at such time or times, in such
amounts, and upon such terms and conditions as the Committee, in its sole
discretion, may prescribe. Grants of Nonqualified Stock Options pursuant to
this Section 4.3 are referred to herein as "Discretionary Grants."
4.4 GRANTS EVIDENCED BY AGREEMENT. Each grant of Stock Options shall be
evidenced by a stock option agreement setting forth the number of shares subject
to the Stock Option, the option exercise price, the option period of the Stock
Option, and such other terms and provisions as, except to the extent permitted
herein, are not inconsistent with the Plan.
4.5 EXERCISE PRICE. The exercise price for a Stock Option shall be equal
to the Fair Market Value per share of the Common Stock on the Date of Grant.
Notwithstanding anything to the contrary contained in this Section 4.5, the
exercise price of each Stock Option granted pursuant to the Plan shall not be
less than the par value per share of the Common Stock.
With respect to the 300,000 additional shares of Common Stock authorized
for issuance by the amendment to this Plan effective as of June 1, 1998
("Additional Shares") and notwithstanding any provision contained in this Plan
to the contrary, neither the Board nor the Committee shall (i) cancel and
regrant any Stock Options granted hereunder covering Additional Shares or (ii)
lower the exercise price of Stock Options granted hereunder covering Additional
Shares.
4.6 VESTING; OPTION PERIOD. Each Stock Option shall vest and be
exercisable as follows: The First Grant Stock Options shall vest in 33.33%
installments on the first, second and third anniversary dates of the First
Grant; the Second Grant Stock Options shall vest in 50% installments on the
first and second anniversary dates of the Second Grant; the Third Grant Stock
Options shall be fully exercisable on and after the first anniversary date of
the Third Grant; and the Annual Grants shall each be fully exercisable on the
Date of Grant of each Annual Grant. In addition, Discretionary Grant Stock
Options shall vest in 33.33% consecutive annual installments commencing on the
first anniversary date of each such Discretionary Grant, or as the Committee
shall otherwise prescribe. In no event shall the period of time during which a
Nonqualified Stock Option may be exercised exceed ten years from the Date of
Grant of the Stock Option in question. No Stock Option may be exercised at any
time after the expiration of its option period. A Stock Option, or portion
thereof, may be exercised in whole or in part only with respect to whole shares
of Common Stock.
ARTICLE V
EXERCISE OF STOCK OPTIONS
Full payment for shares purchased upon exercise of a Stock Option shall be
made in cash or by the Participant's delivery to the Company of shares of Common
Stock which have a Fair Market Value equal to the exercise
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price (or in any combination of cash and shares of Common Stock having an
aggregate Fair Market Value equal to the exercise price). No shares may be
issued until full payment of the purchase price therefor has been made, and a
Participant will have none of the rights of a stockholder until shares are
issued to him. Additionally, shares covered by a Stock Option may be
purchased upon exercise, in whole or in part, in accordance with the
applicable stock option agreement, by authorizing a third party to sell the
shares (or a sufficient portion thereof) acquired upon exercise of a Stock
Option, and assigning the delivery to the Company of a sufficient amount of
the sale proceeds to pay for all the shares acquired through such exercise
and any tax withholding obligations resulting from such exercise.
ARTICLE VI
TERMINATION OF EMPLOYMENT OR SERVICE
In the event a Participant shall cease to serve in his capacity as a
director of the Company for any reason other than death, disability or
retirement pursuant to Company policies, such Participant's Stock Options may be
exercised by the Participant for a period of one hundred eighty (180) days after
the Participant's termination of service, or until expiration of the applicable
Option Period (if sooner), to the extent of the shares with respect to which
such Stock Options could have been exercised by the Participant on the date of
termination, and thereafter to the extent not so exercised, such Stock Options
shall terminate. In addition, a Participant's Stock Options may be exercised as
follows in the event of such Participant's death, disability or retirement:
(a) DEATH. In the event of death while serving as a director, all
unmatured installments of Stock Options outstanding shall thereupon
automatically be accelerated and become fully vested and exercisable in
full, and the Stock Option may be exercised for a period of twelve (12)
months after the Participant's death or until expiration of the Stock
Option period (if sooner), by the Participant's estate or personal
representative, or by the person who acquired the right to exercise the
Stock Option by bequest or inheritance or by reason of the Participant's
death; and
(b) DISABILITY OR RETIREMENT. In the event of termination of service
as a director as the result of a total and permanent disability (as defined
in Section 22(e) of the Code) or retirement as a director pursuant to
standard Company policies applicable to directors, then all unmatured
installments of Stock Options outstanding shall thereupon automatically be
accelerated and become fully vested and exercisable in full, and the Stock
Option may be exercised by the Participant or his guardian or legal
representative for a period of twelve (12) months after such termination or
until expiration of the Stock Option period (if sooner).
ARTICLE VII
AMENDMENT OR DISCONTINUANCE
The Board may at any time and from time to time, without the consent of the
Participants, alter, amend, revise, suspend, or discontinue the Plan in whole or
in part.
In addition, the Board shall have the power to amend the Plan in any manner
advisable in order for Stock Options granted under the Plan to qualify for the
exemption provided by Rule 16b-3 (or any successor rule relating to exemption
from Section 16(b) of the 1934 Act), including amendments as a result of changes
to Rule 16b-3 or the regulations thereunder to permit greater flexibility with
respect to Stock Options granted under the Plan, and any such amendment shall,
to the extent deemed necessary or advisable by the Committee, be applicable to
any outstanding Stock Options theretofore granted under the Plan,
notwithstanding any contrary provisions contained in any stock option agreement.
In the event of any such amendment to the Plan, the holder of any Stock Option
outstanding under the Plan shall, upon request of the Committee and as a
condition to the exercisability thereof, execute a conforming amendment in the
form prescribed by the Committee to any stock option agreement relating thereto
within such reasonable time as the Committee shall specify in such request.
Notwithstanding anything contained in this Plan to the contrary, unless required
by law, no action contemplated or permitted by this Article VII shall adversely
affect any rights of Participants or obligations of the Company to Participants
with respect to any Stock Options theretofore granted under the Plan without the
consent of the affected Participant.
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ARTICLE VIII
EFFECT OF THE PLAN
Neither the adoption of this Plan nor any action of the Board or the
Committee shall be deemed to give any director any right to be granted a Stock
Option, to purchase or receive Common Stock of the Company or any other rights
except as may be evidenced by a stock option agreement, or any amendment
thereto, duly authorized by and executed on behalf of the Company and then only
to the extent of and upon the terms and conditions expressly set forth therein.
ARTICLE IX
TERM
The Plan shall be submitted to the Company's stockholders for their
approval. Unless sooner terminated by action of the Board, the Plan will
terminate on the 12th day of July, 2006. Stock Options under the Plan may not
be granted after that date, but Stock Options granted before that date will
continue to be effective in accordance with their terms and conditions.
ARTICLE X
CAPITAL ADJUSTMENTS
If at any time while the Plan is in effect or unexercised Stock Options are
outstanding there shall be any increase or decrease in the number of issued and
outstanding shares of Common Stock through the declaration of a Stock Dividend
or through any recapitalization resulting in a stock split-up, combination, or
exchange of shares of Common Stock, then and in such event:
(i) An appropriate adjustment shall be made in the maximum
number of shares of Common Stock then subject to being awarded under
grants pursuant to the Plan, to the end that the same proportion of
the Company's issued and outstanding shares of Common Stock shall
continue to be subject to being so awarded; and
(ii) Appropriate adjustments shall be made in the number of
shares of Common Stock and the exercise price per share thereof then
subject to purchase pursuant to each such Stock Option previously
granted and unexercised, to the end that the same proportion of the
Company's issued and outstanding shares of Common Stock in each
instance shall remain subject to purchase at the same aggregate
exercise price.
Any fractional shares resulting from any adjustment made pursuant to this
Article X shall be eliminated for the purposes of such adjustment. Except as
otherwise expressly provided herein, the issuance by the Company of shares of
its capital stock of any class, or securities convertible into shares of capital
stock of any class, either in connection with direct sale or upon the exercise
of rights or warrants to subscribe therefor, or upon conversion of shares or
obligations of the Company convertible into such shares or other securities,
shall not affect, and no adjustment by reason thereof shall be made with respect
to, the number of or exercise price of shares of Common Stock then subject to
outstanding Stock Options granted under the Plan.
ARTICLE XI
RECAPITALIZATION, MERGER AND CONSOLIDATION
11.1 The existence of this Plan and Stock Options granted hereunder shall
not affect in any way the right or power of the Company or its stockholders to
make or authorize any or all adjustments, recapitalizations, reorganizations or
other changes in the Company's capital structure or its business, or any merger
or consolidation of the Company, or any issue of bonds, debentures, preferred or
prior preference stocks ranking prior to or otherwise affecting the Common Stock
or the rights thereof (or any rights, options or warrants to purchase same), or
the
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dissolution or liquidation of the Company, or any sale or transfer of all or
any part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
11.2 Subject to any required action by the stockholders, if the Company
shall be the surviving or resulting corporation in any merger or consolidation,
any outstanding Stock Option granted hereunder shall pertain to and apply to the
securities or rights (including cash, property or assets) to which a holder of
the number of shares of Common Stock subject to the Stock Option would have been
entitled. Notwithstanding any other provision of the Plan, and without affecting
the number of shares reserved or available hereunder, the Committee shall
authorize the issuance, continuation or assumption of outstanding Stock Options
or provide for other equitable adjustments after changes in the shares of Common
Stock resulting from any merger, consolidation, sale of assets, acquisition of
property or stock, recapitalization, reorganization, or similar occurrence in
which the Company is the continuing or surviving corporation, upon such terms
and conditions as it may deem necessary in order to preserve Participants'
rights under the Plan.
11.3 In the event of any reorganization, merger or consolidation pursuant
to which the Company is not the surviving or resulting corporation, or of any
proposed sale of substantially all of the assets of the Company, there may be
substituted for each share of Common Stock subject to the unexercised portions
of such outstanding Stock Option that number of shares of each class of stock or
other securities or that amount of cash, property or assets of the surviving or
consolidated company which were distributed or distributable to the stockholders
of the Company in respect of each share of Common Stock held by them, such
outstanding Stock Options to be thereafter exercisable for such stock,
securities, cash or property in accordance with their terms.
11.4 In the event of a Change in Control of the Company, then,
notwithstanding any other provision in the Plan to the contrary, all unmatured
installments of Stock Options outstanding shall thereupon automatically be
accelerated and exercisable in full.
11.5 Upon the occurrence of each event requiring an adjustment of the
exercise price and/or the number of shares purchasable pursuant to Stock Options
granted pursuant to the terms of this Plan, the Company shall mail forthwith to
each Participant a copy of its computation of such adjustment which shall be
conclusive and shall be binding upon each such Participant, except as to any
Participant who contests such computation by written notice to the Company
within thirty (30) days after receipt thereof by such Participant.
ARTICLE XII
OPTIONS IN SUBSTITUTION FOR STOCK OPTIONS
GRANTED BY OTHER CORPORATIONS
Stock Options may be granted under the Plan from time to time in
substitution for such stock options held by directors of a corporation who
become or are about to become directors of the Company as the result of a merger
or consolidation of the corporation with the Company or a Subsidiary or the
acquisition by either of the foregoing of stock of the corporation as the result
of which it becomes a Subsidiary.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1 EXERCISE OF STOCK OPTIONS. Stock Options granted under the Plan may
be exercised during the option period, at such times and in such amounts, in
accordance with the terms and conditions and subject to such restrictions as are
set forth herein and in the applicable stock option agreements. Notwithstanding
anything to the contrary contained herein, Stock Options may not be exercised,
nor may shares be issued pursuant to a Stock Option if any necessary listing of
the shares on a stock exchange or any registration or qualification under state
or federal securities laws required under the circumstances has not been
accomplished.
13.2 LIMITED ASSIGNABILITY. A Stock Option granted to a Participant may
not be transferred or assigned, other than (i) by will or the laws of descent
and distribution or (ii) pursuant to a qualified domestic relations order (as
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defined in Section 401(a)(13) of the Code or Section 206(d)(3) of the Employee
Retirement Income Security Act of 1974, as amended). In addition, the Committee
may, in its discretion, authorize all or a portion of the Stock Options granted
to a Participant to be on terms which permit transfer by such Participant to (A)
the spouse, ex-spouse, children, step children or grandchildren of the
Participant ("Immediate Family Members"), (B) a trust or trusts for the
exclusive benefit of one or more Immediate Family Members, (C) a partnership or
limited liability company in which one or more Immediate Family Members are the
only partners or members, (D) an entity exempt from federal income tax pursuant
to Section 501(c)(3) of the Code or any successor provision and/or (E) a split
interest trust or pooled income fund described in Section 2522(c)(2) of the Code
or any successor provision, so long as (x) the stock option agreement evidencing
any Stock Option granted pursuant to this Plan is approved by the Committee and
expressly provides for transferability in a manner consistent with this Section
13.2, and (y) subsequent transfers of such Stock Option shall be prohibited
except for transfers by will or the laws of descent and distribution or pursuant
to a qualified domestic relations order (as described above). Furthermore, the
Committee may, in its discretion, authorize all or a portion of the Stock
Options granted to a Participant to be on terms which permit transfer by such
Participant to other entities or persons to whom the Committee may in its
discretion permit transfers of Stock Options.
Following transfer, such Stock Option shall continue to be subject to the
same terms and conditions as were applicable immediately prior to transfer,
provided that for purposes of Articles II, III, V, VII, X, XI and XIII of this
Plan the term "Participant" shall be deemed to include the transferee. The
provisions of Article VI of this Plan concerning events of termination of
service shall continue to be applied with respect to the original Participant,
following which event(s) any such affected stock options shall be exercisable by
the transferee only to the extent and for the periods specified therein or in
the stock option agreement. The Committee and the Company shall have no
obligation to inform any transferee of a Stock Option of any expiration,
termination, lapse or acceleration of such Stock Option. Subject to the
foregoing, during a Participant's lifetime, Stock Options granted to a
Participant may be exercised only by the Participant or, if the particular stock
option agreement so provides, by the Participant's guardian or legal
representative. The designation by a Participant of a beneficiary will not
constitute a transfer of the Stock Option.
13.3 INVESTMENT INTENT. The Company may require that there be presented to
and filed with it by any Participant(s) under the Plan, such evidence as it may
deem necessary to establish that the Stock Options granted or the shares of
Common Stock to be purchased or transferred are being acquired for investment
and not with a view to their distribution.
13.4 STOCKHOLDERS' RIGHTS. The holder of a Stock Option shall have none of
the rights or privileges of a stockholder except with respect to shares which
have been actually issued.
13.5 INDEMNIFICATION OF BOARD AND COMMITTEE. No current or previous member
of the Board or the Committee, nor any officer or employee of the Company acting
on behalf of the Board or the Committee, shall be personally liable for any
action, determination, or interpretation taken or made in good faith with
respect to the Plan, and all such members of the Board or the Committee and each
and any officer or employee of the Company acting on their behalf shall, to the
extent permitted by law, be fully indemnified and protected by the Company in
respect of any such action, determination or interpretation. The foregoing
right of indemnification shall not be exclusive of any other rights of
indemnification to which such individuals may be entitled under the Company's
Certificate of Incorporation or Bylaws, as a matter of law, or otherwise.
13.6 INTERPRETATION. Where the context permits, words in the masculine
gender shall include the feminine and neuter genders, the plural form of a word
shall include the singular form, and the singular form of a word shall include
the plural form. All references in this Plan to sections of the Code or ERISA
shall be deemed to include any successor provisions to such sections as
contained in any laws or regulations adopted or promulgated subsequent to August
1, 1996.
III-8
<PAGE>
ARTICLE XIV
EFFECTIVE DATE
This Plan was approved by the stockholders of the Company at the 1996
annual meeting of stockholders of the Company and became effective as of the
date of its approval by the Board and will continue in effect until the
expiration of its term or until earlier terminated, amended, or suspended in
accordance with the terms hereof.
III-9
<PAGE>
APPENDIX IV
INPUT/OUTPUT, INC.
1999 MANAGEMENT INCENTIVE PROGRAM
PURPOSE
The purpose of the Input/Output, Inc. 1999 Management Incentive Program is
to advance the interests of Input/Output, Inc. and its stockholders by providing
certain key employees with annual incentive compensation which is tied to the
achievement of preestablished and objective performance goals. The Plan is
intended to provide Participants with annual incentive compensation which is not
subject to the deduction limitation rules prescribed under Section 162(m) of the
Code, and should be construed to the extent possible as providing for
remuneration which is "performance-based compensation" within the meaning of
Section 162(m) of the Code and the regulations promulgated thereunder.
ARTICLE I
DEFINITIONS
For the purposes of this Plan, unless the context requires otherwise, the
following terms shall have the meanings indicated:
"BASE SALARY" for any Participant and for any Bonus Year, means the
actual base salary of such Participant (exclusive of any Bonus paid under
this Plan and any compensation under any other employee compensation or
benefit plan of the Company) which is paid to such Participant with respect
to the Bonus Year in question, according to the books and records of the
Company and its Subsidiaries.
"BOARD" means the board of directors of the Company.
"BONUS" means the incentive compensation payment awarded to a
Participant pursuant to the Plan.
"BONUS YEAR" means the fiscal year of the Company and its Subsidiaries
with respect to which a Bonus is calculated.
"CHIEF EXECUTIVE OFFICER" means the chief executive officer of the
Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" has the meaning assigned to it in Article II.
"COMPANY" means Input/Output, Inc., a Delaware corporation.
"CORPORATE PERFORMANCE GOALS" for any Bonus Year, shall mean the key
financial and strategic objectives established by the Committee for such
Bonus Year, which shall be based on such measures and objectives as are
determined by the Committee, including (without limitation): free cash
flow; earnings before interest, taxes, depreciation and amortization;
revenue growth; return on operating assets; and return on equity.
"COVERED EMPLOYEE" shall have the same meaning as the term "covered
employee" (or its counterpart, as such term may be changed from time to
time) contained in the treasury regulations promulgated under Code Section
162(m), or their respective successor provision or provisions, that being
an employee for whom the limitation on deductibility for compensation
pursuant to Code Section 162(m) is applicable.
IV-1
<PAGE>
"EMPLOYEE" means any person employed full-time by the Company or a
Subsidiary on a salaried basis, and the term "EMPLOYMENT" shall mean
full-time salaried employment by the Company or a Subsidiary.
"GROUP" and "GROUPS" have the meanings assigned to them in Article IV.
"INCENTIVE SCHEDULE" means for any Bonus Year, the schedule approved
by the Committee setting forth: the Participants; the Corporate Performance
Goals; Individual Performance Goals; Threshold Performance, Target
Performance, and Maximum Performance levels; the Target Bonus (expressed as
a percentage of Base Salary) for each Participant; the maximum Bonus
(expressed as a percentage of Base Salary) for each Participant; and any
other information necessary to calculate Bonuses for Participants for such
Bonus Year.
"INDIVIDUAL PERFORMANCE GOALS" means for any Bonus Year, for each
Participant selected to participate for such Bonus Year, the specific
individual performance goals and objectives established by the Committee.
"MAXIMUM PERFORMANCE" means with respect to any Bonus Year, the level
of performance in relation to Performance Goals that will permit the
maximum Bonus, expressed as a percentage of Base Salary, to be paid under
this Plan.
"PARTICIPANT" means any key Employee of the Company or any of its
Subsidiaries that the Committee has determined to be eligible for
participation in the Plan.
"PAYMENT DATE" means the business day selected by the Committee upon
which the Committee shall calculate and declare Bonuses in accordance with
Section 7.1, which shall be a date after the Company's independent
accounting firm has completed its field work regarding its annual audit of
the Company's financial statements for, and as of the end of, the Bonus
Year in question, and which in any event shall not be later than ninety
(90) days after the end of the applicable Bonus Year.
"PERFORMANCE GOALS" means with respect to any Bonus Year, the
Corporate Performance Goals and Individual Performance Goals established by
the Committee.
"PLAN" means the Input/Output, Inc. 1999 Management Incentive Program,
as it may be amended from time to time.
"SUBSIDIARY" means any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of granting of the
Bonus, each of the corporations other than the last corporation in the
unbroken chain owns stock possessing more than 50% of the total combined
voting power of all classes of stock in one of the other corporations in
the chain, and "SUBSIDIARIES" means more than one of any such corporations.
"TARGET BONUS" means with respect to any Bonus Year, the amount of a
Participant's Bonus that may be paid if the Company achieves at least the
Target Performance for Corporate Performance Goals for such Bonus Year and
the Participant achieves at least the Target Performance for his Individual
Performance Goals for such Bonus Year
"TARGET PERFORMANCE" means with respect to any Bonus Year, the level
of performance in relation to the Performance Goals that has been
established as the target for payment of the Target Bonus for a Participant
under this Plan.
"THRESHOLD PERFORMANCE" means with respect to any Bonus Year, the
minimum level of performance in relation to the Performance Goals for
payment of any Bonus under this Plan.
IV-2
<PAGE>
ARTICLE II
ADMINISTRATION
Subject to the terms of this Article II, the Plan shall be administered by
the Compensation Committee (the "Committee") of the Board, which shall consist
of at least two members. Any member of the Committee may be removed at any
time, with or without cause, by resolution of the Board. Any vacancy occurring
in the membership of the Committee may be filled by appointment by the Board.
The Board shall select one of its members to act as the Chairman of the
Committee, and the Committee shall make such rules and regulations for its
operation as it deems appropriate. A majority of the Committee shall constitute
a quorum, and the act of a majority of the members of the Committee present at a
meeting at which a quorum is present shall be the act of the Committee. Subject
to the terms hereof, the Committee shall have the discretionary power and
authority to construe and interpret the Plan, to supply any omissions therein,
to reconcile and correct any errors or inconsistencies, to decide any questions
in the administration and application of the Plan, and to make equitable
adjustments for any mistakes or errors made in the administration of the Plan.
Except as provided below, all such actions or determinations made by the
Committee, and the application of rules and regulations to a particular case or
issue by the Committee, in good faith, shall not be subject to review by any
person, but shall be final, binding and conclusive on all persons ever
interested hereunder.
The Committee shall have full authority to select the key Employees who
will participate in the Plan, to designate the Groups in which they will
participate, to establish Performance Goals with respect to each Group and
certify the extent of their achievement, establish and certify the achievement
of any other criteria or objective for payment of Bonuses hereunder, and
generally to administer the Plan, including authority to interpret and construe
any provision of the Plan.
With respect to participation in the Plan by a Covered Employee, any
decision concerning the awarding of a Bonus hereunder (including, without
limitation, establishment of Performance Goals, Target Bonus, Target
Performance, Threshold Performance, Maximum Performance, maximum Bonus, and any
other information necessary to calculate Bonuses for such Covered Employees for
such Bonus Year shall be made exclusively by the members of the Committee who
are at that time "outside" directors, as that term is used in Code Section
162(m) and the treasury regulations promulgated thereunder.
ARTICLE III
ELIGIBILITY
The Committee shall, on a date within the first ninety (90) days of the
Bonus Year in question, select the particular key members of management of the
Company and the particular key Employees of the Company and its Subsidiaries to
whom Bonuses under the Plan may be awarded for such Bonus Year. Except as
otherwise provided in Article IV, Employees who participate in the Plan may also
participate in other incentive or benefit plans of the Company or any
Subsidiary.
ARTICLE IV
INCENTIVE PLAN GROUPS
Each Participant in the Plan shall be designated as a member of a Group by
the Committee in accordance with the terms of the Plan. The initial Groups of
Participants under the Plan shall be constituted as follows:
Group I: Chief Executive Officer, President, and Chief Operating
Officer of the Company
Group II: Executive Vice Presidents, Senior Vice Presidents, and Vice
Presidents of the Company
IV-3
<PAGE>
Group III: Tier One key Employees of the Company and its Subsidiaries,
as determined by the Committee
Group IV: Tier Two key Employees of the Company and its Subsidiaries
as determined by the Committee
The Committee may hereafter establish different Groups or classes of Groups with
respect to any Bonus Year if such designation is accomplished within the first
90 days of such Bonus Year.
In addition, certain officers and key Employees may participate in similar
Subsidiary-only management incentive plans adopted by that Subsidiary and, by
reason of such participation, as determined by the Committee, may or may not be
eligible for participation in this Plan.
ARTICLE V
INDIVIDUAL PERFORMANCE GOALS
For each Bonus Year, the Committee may establish one or more Individual
Performance Goals for each Participant or Group. Any Individual Performance Goal
established for Participants in Group I shall be determined solely in the
discretion of the Committee, and the level of achievement of any such Individual
Performance Goal shall be determined solely by the Committee. The Chief
Executive Officer may recommend Individual Performance Goals for any one or more
Participants in Groups II, III, and IV, and the Chief Executive Officer may
deliver a written report to the Committee within 60 days after the end of a
Bonus Year setting forth his or her determination of the level of achievement of
such Individual Performance Goals by Participants in such Group. The Committee
shall consider, but shall not be bound by, the recommendations and
determinations of the Chief Executive Officer with respect to such Individual
Performance Goals.
ARTICLE VI
CALCULATION OF BONUS
On a date which is not later than the 90th day of the Bonus Year in
question, the Committee shall determine and set forth in an Incentive Schedule
the following information for such Bonus Year: (i) the Threshold Performance,
Target Performance, and Maximum Performance amounts; (ii) the key Employees
designated as Participants for the Bonus Year and the appropriate Group for each
such Participant; (iii) the Target Bonus (expressed as a percentage of Base
Salary) for each Participant; (iv) the Performance Goal(s) with respect to each
Participant; (v) the maximum Bonus (expressed as a percentage of Base Salary)
for each Participant, and (vi) the percentage of the Bonus for each Group that
is to be paid on the basis of the level of achievement of Corporate Performance
Goals and the percentage of the Bonus that is to be paid on the basis of the
level of achievement of the Individual Performance Goal(s) (also referred to
herein as weighting).
Following the end of each Bonus Year, the Committee shall calculate the
Bonuses for the Participants for such Bonus Year on the basis of the Incentive
Schedule approved for such Bonus Year and the level of achievement of
Performance Goals for each Participant. After such Bonus amounts have been
calculated, the Committee, in its sole discretion, may adjust the Bonus for any
Participant who is not a Covered Employee by increasing it in amount of up to
20% or decreasing it in an amount of up to 20%, so long as the amount of all
such increases is equal to the amount of all decreases for the Plan as a whole
for the Bonus Year. The resulting amount for each Participant shall be his or
her Bonus for such Bonus Year. The potential Bonus amounts calculated in
accordance with Article VI of this Plan for any Participant who is a Covered
Employee with respect to the Bonus Year in question may be reduced by an amount
of up to 20% by the Committee in its sole discretion; PROVIDED, HOWEVER, that
under no circumstances may the amount of a potential Bonus determined under this
Article VI with respect to any Participant who is a Covered Employee with
respect to the Bonus Year in question be increased.
IV-4
<PAGE>
ARTICLE VII
PAYMENT OF BONUSES AND GENERAL PROVISIONS
7.1 PAYMENT. As a condition to eligibility for payment of a Bonus with
respect to any particular Bonus Year, a Participant shall be required to be in
the employ of the Company or one of its Subsidiaries through the applicable
Payment Date, UNLESS (i) such Participant terminated his or her Employment
during such period due to retirement from the Company and its Subsidiaries in
accordance with standard retirement policies of the Company and its Subsidiaries
then in effect, or (ii) the Participant, while in the employ of the Company or
one of its Subsidiaries, became totally and permanently disabled (as that term
is defined in Section 22(e) of the Code) or died during such period. In the
event of such retirement, death or disability, the Participant (or, in the case
of death or disability, the Participant's estate or legal representative, as the
case may be, or a designated beneficiary in accordance with Section 11.6) shall
receive a prorated portion of his Bonus based on the portion of the Bonus Year
that the Participant was in the employ of the Company or one of its
Subsidiaries.
In the event that a person becomes an Employee of the Company or one of its
Subsidiaries during a Bonus Year and the Committee determines to designate such
person as a member of Group III or Group IV (or their successor Group(s), if
subsequently designated by the Committee in accordance with Article IV), such
person will become a Participant as of the date of each designation, and shall
be entitled to receive a prorated portion of his Bonus based on the portion of
the Bonus Year that the Participant was in the employ of the Company or one of
its Subsidiaries. If a Participant who is a member of Group I or Group II (or
their successor Group(s), if designated by the Committee) ceases to be employed
by the Company or any Subsidiary or such Participant's status with the Company
or any Subsidiary as an officer changes as a result of a reassignment of duties,
any person who succeeds the Participant in the same or a comparable position
within the Company or any Subsidiary, may be designated by the Committee as a
Participant and a member of Group I or Group II (or their successor(s)), as may
be applicable, for the duration of the applicable Bonus Year, effective as of
the date such person assumes such position.
7.2 CERTIFICATION. As soon as practicable following verification by the
Company's independent public accountants of the Company's financial results for
any Bonus Year and receipt of the report of the Chief Executive Officer (where
applicable) regarding the Participants' actual performance against the
Individual Performance Goals for the Bonus Year, the Committee shall certify:
(i) whether or not the Company achieved its Threshold Performance for its
Corporate Performance Goals; (ii) the level of achievement of Performance Goals
for the Company and each Participant; and (iii) the amount of Bonus payable to
each Participant under the Plan for the Bonus Year (subject in all respects to
Section 2.5 hereof).
The Committee shall instruct the Company, or instruct the Company to cause
any Subsidiary, as applicable, to pay to each Participant his Bonus in
accordance with this Article VII, as promptly as reasonably practicable after
such Payment Date.
7.3 PARTIAL FISCAL YEARS. In the event that the Company and its
Subsidiaries adopt any different fiscal year which results in a fiscal year
having less than twelve months, the Committee shall, in its sole discretion,
award Bonuses computed as provided in Articles V and VI, but reduced by the
Committee for such shortened fiscal year, or defer any awards of Bonuses for
such fiscal period until a Payment Date following such full twelve-month fiscal
year.
7.4 NO RIGHTS TO BONUS. The prospective recipient of a Bonus shall not
have any rights with respect to any Bonus, or any portion thereof, until the
award thereof on the Payment Date to which the particular Bonus amount relates.
7.5 LIMITATION ON TOTAL BONUS. Notwithstanding any provision to the
contrary contained herein, the maximum Bonus payable to any Participant with
respect to any Bonus Year shall not exceed $1,200,000.
IV-5
<PAGE>
ARTICLE VIII
AMENDMENT OR DISCONTINUANCE
The Committee may at any time and from time to time, without the consent of
the Participants, alter, amend, revise, suspend, or discontinue the Plan in
whole or in part; provided that any amendment that modifies any preestablished
performance goal for a Participant in Group I or Group II who is a Covered
Employee (or his successor(s), as may be applicable) under this Plan with
respect to any particular Bonus Year may only be effected on or prior to that
date which is 90 days following the commencement of such Bonus Year. In
addition, the Board shall have the power to amend the Plan in any manner
advisable in order for Bonuses granted under the Plan to qualify as
"performance-based" compensation under Section 162(m) of the Code (including
amendments as a result of changes to Section 162(m) or the regulations
thereunder to permit greater flexibility with respect to Bonuses granted under
the Plan).
ARTICLE IX
EFFECT OF THE PLAN
Neither the adoption of this Plan nor any action of the Board or the
Committee shall be deemed to give any Participant any right to be granted a
Bonus or any other rights. In addition, nothing contained in this Plan and no
action taken pursuant to its provisions shall be construed to (a) give any
Participant any right to any compensation, except as expressly provided herein;
(b) be evidence of any agreement, contract or understanding, express or implied,
that the Company or any Subsidiary will employ a Participant in any particular
position; (c) give any Participant any right, title, or interest whatsoever in
or to any investments which the Company may make to aid it in meeting its
obligations hereunder; or (d) create a trust of any kind or a fiduciary
relationship between the Company and a Participant or any other person.
ARTICLE X
TERM
The effective date of this Plan shall be as of June 1, 1998, subject to
stockholder approval. This Plan and any benefits granted hereunder shall be
null and void if stockholder approval is not obtained at the next annual meeting
of stockholders of the Company. This Plan shall remain in effect until it is
terminated by the Board.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 NO RIGHT TO CONTINUE EMPLOYMENT. Nothing in the Plan confers upon any
Participant the right to continue in the employ of the Company or any Subsidiary
or interferes with or restricts in any way the right of the Company or any
Subsidiary to discharge any Employee at any time (subject to any contract rights
of such Employee).
11.2 TAX REQUIREMENTS. The Company (and, where applicable, its
Subsidiaries) shall have the power and the right to deduct or withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
applicable taxes required by law to be withheld with respect to any payment of
any Bonus to a Participant.
11.3 INDEMNIFICATION OF BOARD AND COMMITTEE. No member of the Committee,
nor any officer, Employee or agent of the Company or any Subsidiary acting on
behalf of the Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to the
Plan, and all members of the Committee and each and every officer, employee or
agent of the Company or any Subsidiary acting on their behalf shall, to the
fullest extent permitted by law, be fully indemnified and protected by the
Company in respect of any such action, determination or interpretation. Each
member of the Committee shall, in the performance of his or her duties under the
Plan, be fully protected in relying in good faith upon the financial statements
of the Company as contemplated by the terms of the Plan.
IV-6
<PAGE>
11.4 EFFECT ON PARTICIPATION. The award of a Bonus to a Participant shall
not by itself be deemed either to entitle the Participant to, or to disqualify
the Participant from, as the case may be, participation in any other future
grant of bonuses under the Plan or otherwise, or in any other compensation or
benefit plan of the Company or any of its Subsidiaries currently existing or
hereafter established.
11.5 OTHER COMPENSATION AGREEMENTS. Nothing contained in this Plan shall
prevent the Board from adopting other or additional compensation arrangements,
subject to stockholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in specific
cases.
11.6 APPLICABILITY TO SUCCESSORS. The Plan shall be binding upon and inure
to the benefit of the Company and each Participant, the successors and assigns
of the Company, and the beneficiaries, personal representatives and heirs of
each Participant. Any interests of Participants under the Plan may not be
voluntarily sold, transferred, alienated, assigned or encumbered, other than by
will or pursuant to the laws of descent and distribution; provided however, that
a Participant may designate a beneficiary or beneficiaries to receive payments
after the Participant's death, by written notice to the Committee. If the
Company becomes a party to any merger, consolidation or reorganization, the Plan
shall remain in full force and effect as an obligation of the Company or its
successors in interest.
11.7 REORGANIZATION, MERGER OR CONSOLIDATION. In the event of a merger,
consolidation, sale of assets, reorganization or other business combination in
which the Company is not the surviving or continuing corporation, or pursuant to
which shares of the Company's Common Stock would be converted into cash,
securities or other property (other than a merger of the Company in which the
holders of the Company's Common Stock immediately prior to the merger have the
same proportionate ownership of Common Stock of the surviving corporation
immediately after the merger), the Bonus Year will be deemed to have ended on
the date such transaction is consummated. The calculations required to
determine Participants' eligibility for Bonuses, including achievement of
Performance Goals, will be determined based on the Bonus Year-to-date
performance of the Company and the Participants, relative to the pro rated
Threshold Performance and Maximum Performance levels for the Bonus Year-to-date.
Such calculations will be based upon the Company's consolidated financial
statements for the portion of the Bonus Year ending upon, and as of, the last
day of the month ended immediately prior to the date of consummation of the
sale, merger, reorganization or business combination.
11.8 GENDER AND NUMBER. Where the context permits, words in the masculine
gender shall include the feminine and neuter genders, the plural form of a word
shall include the singular form, and the singular form of a word shall include
the plural form.
11.9 STOCKHOLDER VOTE. The material terms of this Plan shall be disclosed
to the stockholders of the Company for approval in accordance with Section
162(m) of the Code. No award or payment of any Bonus under this Plan to any
Covered Employee shall made unless such stockholder approval is obtained.
11.10 GOVERNING LAW. This Plan shall be construed in accordance with the
laws of the State of Delaware and the rights and obligations created hereby
shall be governed by the laws of the State of Delaware.
ARTICLE XII
UNFUNDED STATUS OF PLAN
The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any Bonuses granted but not yet paid to a
Participant by the Company, nothing contained herein shall give any such
Participant any rights that are greater than those of a general unsecured
creditor of the Company.
IV-7
<PAGE>
INPUT/OUTPUT, INC.
PROXY THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
SEPTEMBER 28, 1998
FOR
The undersigned stockholder acknowledges receipt
of the Notice of Annual Meeting of Stockholders and the
ANNUAL Proxy Statement, each dated August 27, 1998, and hereby
appoints W.J. Zeringue and Robert P. Brindley, or
either of them, proxies for the undersigned, each with
MEETING full power of substitution, to vote all of the
undersigned's shares of common stock of Input/Output,
Inc. (the "Company") at the Annual Meeting of
OF Stockholders of the Company to be held at the Stafford
Civic Center, 1415 Constitution Avenue, Stafford, Texas
77477, on Monday, September 28, 1998 at 10:00 a.m.,
STOCKHOLDERS Stafford, Texas time, and at any adjournments or
postponements thereof.
SEPTEMBER 28, 1998
(PLEASE SIGN ON REVERSE SIDE)
<PAGE>
INPUT/OUTPUT, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY / /
<TABLE>
<CAPTION>
For Withhold For All
All All Except
<S> <C> <C> <C>
1. Election of Directors, Nominees: W.J. ("Zeke") Zeringue, / / / / / /
Ernest E. Cook and William F. Wallace.
For all, except nominee(s) written in below:
_______________________________________________
For Against Abstain
2. The adoption of the Input/Output, Inc. 1998 Restricted / / / / / /
Stock Plan.
For Against Abstain
3. The adoption of certain amendments to the / / / / / /
Input/Output, Inc. Amended and Restated 1990 Stock
Option Plan.
For Against Abstain
4. The adoption of certain amendments to the / / / / / /
Input/Output, Inc. Amended and Restated 1996 Non-
Employee Director Stock Option Plan.
For Against Abstain
5. The adoption of the Input/Output, Inc. 1999 / / / / / /
Management Incentive Program.
For Against Abstain
6. The ratification of the appointment of KPMG Peat / / / / / /
Marwick LLP as the Company's independent certified
public accountants for the fiscal year ending May 31,
1999.
For Against Abstain
7. In their discretion, upon such other matters as may / / / / / /
properly come before the meeting.
</TABLE>
The board of directors recommends a vote FOR the nominees
and proposals above and if no specification is made, the
shares will be voted for such nominees and proposals.
Dated _________________________ , 1998
_________________________________________
Stockholder's Signature
_________________________________________
Stockholder's Signature
Signature should agree with name printed
hereon. If stock is held in the name of
more than one person, EACH joint owner
should sign. Executors, administrators,
trustees, guardians, and attorneys
should indicate the capacity in which
they sign. Attorneys should submit
powers of attorney.
FOLD AND DETACH HERE
PLEASE SIGN, DATE AND RETURN THE PROXY IN THE ENVELOPE ENCLOSED. THIS PROXY
WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF
NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES
IN ITEM 1, FOR THE PROPOSALS SET FORTH IN ITEMS 2-6 AND WILL GRANT DISCRETIONARY
AUTHORITY PURSUANT TO ITEM 7. THIS PROXY WILL REVOKE ALL PRIOR PROXIES SIGNED
BY YOU.
