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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
</TABLE>
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.
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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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.
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INPUT/OUTPUT, INC.
12300 CHARLES E. SELECMAN DRIVE
STAFFORD, TEXAS 77477
(281) 933-3339
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 25, 2000
To the Stockholders of Input/Output, Inc.:
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders of
Input/Output, Inc. will be held at the Stafford Civic Center, 1415 Constitution
Avenue, Stafford, Texas 77477, on Monday, September 25, 2000 at 3:00 p.m.,
Central Daylight Time, for the following purposes, as described in the
accompanying Proxy Statement:
1. To elect two directors for a three-year term expiring in 2003.
2. To consider and vote upon the Input/Output, Inc. 2000 Long-Term
Incentive Plan.
3. To ratify the appointment of KPMG LLP as the Company's independent
certified public accountants for the fiscal year ending May 31, 2001.
4. To transact any other business which properly may be brought before the
Annual Meeting or any adjournment thereof.
Only stockholders of record of the Company at the close of business on
August 14, 2000 are entitled to notice of and to vote at the Annual Meeting or
any adjournment thereof. A complete list of these stockholders will be open for
the examination of any stockholder of record at the Company's principal
executive offices at 12300 Charles E. Selecman Drive, Stafford, Texas 77477 for
a period of ten days prior to the Annual Meeting. The list will 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 the 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 C. ROBERT BUNCH
August 24, 2000 Secretary
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INPUT/OUTPUT, INC.
12300 CHARLES E. SELECMAN DRIVE
STAFFORD, TEXAS 77477
(281) 933-3339
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 25, 2000
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 25, 2000 at
3:00 p.m., Central Daylight Time, and at any adjournment thereof. This Proxy
Statement and the enclosed proxy are first being mailed to stockholders on or
about August 24, 2000.
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 24, 2000. The proxy permits
stockholders to withhold voting for any or all nominees for election to the
Company's Board of Directors and to abstain from voting on any other proposal if
the stockholder chooses.
All holders of record of outstanding shares of the Company's capital
stock at the close of business on August 14, 2000 (the "Record Date") are
entitled to notice of and to vote at the Annual Meeting. On the Record Date, the
Company had outstanding 51,152,845 shares of common stock, par value $0.01 per
share (the "Common Stock"), 40,000 shares of Series B Preferred Stock, par value
$0.01 per share and 15,000 shares of Series C Preferred Stock, $0.01 par value
per share (together, the "Preferred Stock").
On each matter to be considered at the Annual Meeting, the Common Stock
and Preferred Stock will vote together as a class. Each share of Common Stock is
entitled to one vote and each share of Preferred Stock is entitled to 125 votes
on each matter presented at the Annual Meeting. The holders of the Company's
capital stock having a majority of the voting power, represented in person or by
proxy, shall constitute a quorum for purposes of transacting business at the
Annual Meeting. A plurality of the votes of holders of the shares of Common
Stock and Preferred 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 require the approval of a majority of the votes
cast, provided a quorum is present.
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 other proposals and will be
counted as present for purposes of the item on which the abstention is noted.
Abstentions on these proposals will have the effect of negative votes because
these proposals require the approval of a majority of the votes cast. 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 their 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, the proposal to approve the 2000 Long-Term Incentive Plan and the
proposal to ratify the appointment of the independent certified public
accountants. Under 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.
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 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 the
subsequent proxy to the Secretary of the Company, or by voting in person at the
Annual Meeting (although attending the
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Annual Meeting without executing a ballot or executing a subsequent proxy will
not by itself revoke 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 specification is made, the shares will be voted (I) FOR the nominees for
director identified below, and (II) FOR the approval of the 2000 Long-Term
Incentive Plan, and (III) FOR the ratification of the appointment of KPMG LLP as
the Company's independent certified public accountants for the fiscal year
ending May 31, 2001.
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 2001
Annual Meeting of Stockholders, and the third class of directors will serve
until the 2002 Annual Meeting of Stockholders.
Theodore H. Elliott, Jr., who is currently a director of the Company
having a term expiring at this year's Annual Meeting, is a nominee for director
and will stand for election at this year's Annual Meeting for a three-year term
expiring at the 2003 Annual Meeting of Stockholders or until his successor is
duly elected and qualified or until his earlier death, resignation or removal.
James M. Lapeyre, Jr., who is Chairman of the Board and a director of the
Company having a term expiring at this year's Annual Meeting, is a nominee for
director and will stand for election at this year's Annual Meeting for a
three-year term expiring at the 2003 Annual Meeting of Stockholders or until his
successor is duly elected and qualified or until his earlier death, resignation
or removal. For additional information regarding Mr. Elliott and Mr. Lapeyre see
"Management - Directors and Executive Officers of the Company." The persons
named in the proxy will vote FOR these nominees, except where authority has been
withheld as to a particular nominee.
The nominees for director receiving a plurality of the votes
represented by the shares of Common Stock and Preferred Stock present in person
or represented by proxy at the Annual Meeting and entitled to vote thereon will
be elected as directors. The nominees have consented to being named in this
Proxy Statement and to serve their terms if elected. If the nominees 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 THESE NOMINEES FOR
ELECTION TO THE BOARD.
PROPOSAL TO ADOPT THE INPUT/OUTPUT, INC.
2000 LONG-TERM INCENTIVE PLAN
GENERAL
On June 29, 2000, the Company's Board of Directors adopted, subject to
stockholder approval, the Input/Output, Inc. 2000 Long-Term Incentive Plan (the
"2000 Plan"). The statements contained in this Proxy Statement concerning the
terms and provisions of the 2000 Plan are summaries only and are qualified in
their entirety by reference to the full text of the 2000 Plan, a copy of which
is attached hereto as Appendix I.
The 2000 Plan is not subject to the provisions of ERISA and is not a
"qualified plan" within the meaning of Section 401 of the Internal Revenue Code
(the "Code").
The primary objective of the 2000 Plan is to promote stockholder value
by providing appropriate incentives to key employees and certain other
individuals who perform services for the Company and its affiliates. The Plan is
administered by the Compensation Committee of the Board of Directors (the
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"Committee"), which consists exclusively of non-employee directors. The Plan
provides for the granting of stock options, stock appreciation rights,
performance share awards and other equity-based awards providing similar
benefits (collectively, "Awards"). Certain Awards under the Plan may be paid in
cash or Common Stock, as determined by the Committee. The Committee has
exclusive discretion to select the participants who will receive Awards and to
determine the type, size and terms of each Award; however, non-employee
directors are not eligible to receive Awards. The Committee will also make all
other determinations that it decides are necessary or desirable in the
interpretation and administration of the Plan.
SHARES SUBJECT TO THE 2000 PLAN.
Pursuant to the 2000 Plan, the Committee may grant Awards covering at
any one time up to 1,200,000 shares of Common Stock, plus 909,275 shares of
Common Stock which were reserved but not subject to grants awarded under the
Company's Amended and Restated 1990 Stock Option Plan (which expires on
September 1, 2000). Under the 2000 Plan, the maximum number of shares of Common
Stock underlying Awards that may be granted to any participant in any
consecutive four-year period is limited to 1,200,000 shares. In addition, the
maximum cash payout to any participant with respect to Awards is limited to
$20,000,000 in any calendar year. The number of shares of Common Stock available
under the 2000 Plan and outstanding Awards are subject to adjustment to prevent
the dilution of rights of plan participants resulting from stock dividends,
stock splits, recapitalizations or similar transactions.
AWARDS UNDER THE 2000 PLAN
Under the 2000 Plan, the Committee may grant Awards in the form of
Incentive Stock Options ("ISOs"), as defined in Section 422 of the Code,
"nonstatutory" stock options ("NSOs"), stock appreciation rights ("SARs"),
performance shares, and other stock-based awards. ISOs and NSOs together are
called "Options." The terms of each Award will be reflected in an incentive
agreement between the Company and the participant.
Options. Generally, Options must be exercised within 10 years of the
grant date, except with respect to ISO grants to a 10% or greater stockholder
which shall be 5 years. The exercise price of each ISO may not be less than 100%
of the fair market value of a share of common stock on the date of grant (110%
in the case of a 10% or greater stockholder). To the extent the aggregate fair
market value of shares of Common Stock for which ISOs are exercisable for the
first time by any employee during any calendar year exceeds $100,000, those
Options must be treated as NSOs. The exercise price of each Option is payable in
cash or, in the Committee's discretion, by the delivery of shares of Common
Stock owned by the optionee, or by any combination of these methods. At the
discretion of the Committee, a participant may be granted reload options under
the 2000 Plan that permit the participant to purchase an additional number of
shares equal to the number of previously owned shares surrendered by the
participant to pay for all or a portion of the option price or taxes upon
exercise of his Options.
SARs. Upon the exercise of an SAR, the holder will receive cash or
Common Stock (or may receive a combination thereof), the aggregate value of
which equals the amount by which the fair market value per share of the Common
Stock on the exercise date exceeds the exercise price of the SAR, multiplied by
the number of shares underlying the exercised portion of the SAR. An SAR may be
granted in tandem with or independently of an NSO. SARs will be subject to such
conditions and will be exercisable at such times as determined by the Committee,
but the exercise price per share must be at least the fair market value of a
share of Common Stock on the date of grant.
Performance Shares. Performance Shares are awards of Common Stock
contingent upon the degree to which performance objectives selected by the
Committee are achieved during a specified period, subject
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to such adjustments as the Committee may approve based on relevant factors. The
Committee establishes performance objectives that may be based upon Company,
business segment, participant and/or other performance objectives as well as the
period during which such performance objectives are to be achieved. Examples of
performance criteria shall include (but are not limited to) pre-tax or after-tax
profit levels, including: earnings per share, earnings before interest and
taxes, earnings before interest, taxes, depreciation and amortization, net
operating profits after tax, and net income; total shareholder return; return on
assets, equity, capital or investment; cash flow and cash flow return on
investment; economic value added and economic profit; growth in earnings per
share; levels of operating expense and maintenance expense or measures of
customer satisfaction and customer service as determined from time to time,
including the relative improvement therein. The Committee may make such
adjustments in the computation of any performance measure as it considers are
appropriate, provided that any such modification does not prevent an Award from
qualifying for the "Performance-Based Exception" under Section 162(m) of the
Code (described below). Performance Shares may be awarded alone or in
conjunction with other Awards. Payment of Performance Shares may be made only in
shares of Common Stock.
Other Stock-Based Awards. Other stock-based awards are denominated or
payable in, valued in whole or in part by reference to, or otherwise related to,
shares of Common Stock. Except to the extent that an other stock-based award is
granted in substitution for an outstanding Award or is delivered upon exercise
of an Option, the amount of consideration required to be received by the Company
shall be either (i) no consideration other than services actually rendered (in
the case of authorized and unissued shares), or (ii) in the case of an other
stock-based award in the nature of a purchase right, consideration (other than
services rendered or to be rendered) at least equal to 50% of the fair market
value of the shares covered by such grant on the date of grant (or such
percentage greater than 50% that is required by law). Subject to the terms of
the 2000 Plan, the Compensation Committee may determine the terms and conditions
of any stock-based awards, and those terms will be set forth in the incentive
agreement with the participant.
Supplemental Payments. The Committee, either at the time of grant or at
the time of exercise of NSO or SAR or the time of vesting of Performance Shares,
may provide for a Supplemental Payment by the Company to the participant in an
amount specified by the Committee, which amount shall not exceed the amount
necessary to pay the federal and state income tax payable with respect to the
exercise of the NSO or SAR, the vesting of the Performance Shares and the
receipt of a Supplemental Payment in connection therewith, assuming the
participant is taxed at either the maximum effective income tax rate applicable
thereto or at a lower tax rate as deemed appropriate by the Committee. The
Committee shall have the discretion to grant Supplemental Payments that are
payable in Common Stock or cash, as determined by the Committee at the time of
the payment.
TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
Except as otherwise provided in the applicable incentive agreement, if
a participant's employment or other service is terminated other than due to his
death, Disability, Retirement or for Cause (each capitalized term being defined
in the 2000 Plan), any non-vested portion of Options or other applicable Awards
will terminate and no further vesting will occur. In such event, such
participant's then exercisable Options and Awards will remain exercisable until
the earlier of (i) the expiration date set forth in the incentive agreement or
(ii) 180 days after the date of his termination, except with respect to
Incentive Stock Options, in which case such period shall be three months. If his
termination is due to disability or death, a participant's then exercisable
Options will remain exercisable until the earlier of (a) the expiration date of
such Options and (b) one year following termination. On retirement, a
participant's then exercisable Options will remain exercisable for the earlier
of (a) the expiration date of such Awards and (b) one year following termination
(except for ISOs, which will remain exercisable for only three months following
termination). On a termination for Cause, all his Options will expire at the
termination date. Upon a
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Change in Control, any restrictions on other stock-based awards will be deemed
satisfied, all outstanding Options and SARs will accelerate and become
immediately exercisable and all the performance shares and any other stock-based
awards will become fully vested and deemed earned in full, if the incentive
agreement so provides.
PERFORMANCE-BASED EXCEPTION
Under Section 162(m) of the Code, the Company may deduct, for federal
income-tax purposes, compensation paid to its chief executive officer and four
other most highly compensated executive officers only to the extent that such
compensation does not exceed $1,000,000 for any individual during any year,
provided that compensation that qualifies as "performance-based compensation" is
not counted toward the $1,000,000 limit (the "Performance-Based Exception"). The
2000 Plan includes features necessary for certain awards thereunder to qualify
as "performance-based compensation." To so qualify, Options granted under the
2000 Plan to these covered individuals must have an exercise price per share
that is not less than the fair market value of a share of the Company's Common
Stock on the date of grant. Performance Shares may qualify for the exemption
only if (i) the Committee establishes in writing objective performance goals for
such awards no later than 90 days after the commencement of the performance
period and (ii) no payments are made to participants pursuant to the Awards
until the Committee certifies in writing that the applicable performance goals
have been met.
FEDERAL TAX CONSEQUENCES
The federal income tax discussion set forth below is intended for
general information only. State and local income tax consequences are not
discussed, and may vary from locality to locality.
NSOs. Under present regulations, an optionee who is granted an NSO will
not realize taxable income at the time the Option is granted. In general, an
optionee will be subject to tax for the year of exercise on an amount of
ordinary income equal to the excess of the fair market value of the shares on
the date of exercise over the option price, and the Company will receive a
corresponding deduction. Income tax withholding requirements apply upon
exercise. The optionee's basis in the shares so acquired will be equal to the
option price plus the amount of ordinary income upon which he is taxed. Upon
subsequent disposition of the shares, the optionee will realize capital gain or
loss, long-term or short-term, depending upon the length of time the shares are
held after the option is exercised.
ISOs. An optionee is not taxed at the time an ISO is granted. The tax
consequences upon exercise and later disposition depend upon whether the
optionee was an employee of the Company or a subsidiary at all times from the
date of grant until three months preceding exercise (one year in the case of
death or disability) and on whether the optionee holds the shares for more than
one year after exercise and two years after the date of grant of the option. If
the optionee satisfies both the employment rule and the holding rule, for
regular tax purposes the optionee will not realize income upon exercise of the
Option and the Company will not be allowed an income tax deduction at any time.
The difference between the option price and the amount realized upon disposition
of the shares by the optionee will constitute a long-term capital gain or a
long-term capital loss, as the case may be. Neither the employment rule nor the
holding rule will apply to the exercise of an Option by the estate of an
optionee, provided that the optionee satisfied the employment rule as of the
date of such optionee's death. If the optionee meets the employment rule but
fails to observe the holding rule (a "disqualifying disposition"), the optionee
generally recognizes as ordinary income, in the year of the disqualifying
disposition, the excess of the fair market value of the shares at the date of
exercise over the option price. Any excess of the sales price over the fair
market value at the date of exercise will be recognized by the optionee as
capital gain (long-term or short-term depending on the length of time the stock
was held after the option was exercised). If, however, the sales price is less
than the fair market value
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at the date of exercise, then the ordinary income recognized by the optionee is
generally limited to the excess of the sales price over the option price. In
both situations, the Company's tax deduction is limited to the amount of
ordinary income recognized by the optionee. Different consequences will apply
for an optionee subject to the alternative minimum tax.
Performance Shares. A participant is not taxed upon the grant of
Performance Shares. Upon receipt of the underlying shares or cash, he will be
taxed at ordinary income tax rates on the amount of cash received and/or the
current fair market value of stock received, and the Company will be entitled to
a corresponding tax deduction. The participant's basis in any shares acquired
pursuant to the settlement of performance shares will be equal to the amount of
ordinary income on which he was taxed and, upon subsequent disposition, any gain
or loss will be capital gain or loss.
Withholding. The Company shall have the right to reduce the number of
shares of Common Stock deliverable pursuant to the 2000 Plan by an amount which
would have a fair market value equal to the amount of all federal, state or
local taxes to be withheld, based on the tax rates then in effect or the tax
rates that the Company reasonably believes will be in effect for the applicable
tax year, or to deduct the amount of such taxes from any cash payment to be made
to the participant, pursuant to the 2000 Plan or otherwise.
NEW PLAN BENEFITS
It is not possible to predict the individuals who will receive future
awards under the 2000 Plan or the number of shares of Common Stock covered by
any future award because such awards are wholly within the discretion of the
Committee. On August 14, 2000, the closing price of a share of the Company's
Common Stock on the NYSE composite tape transactions was $9.125.
TERMINATION OR AMENDMENT OF THE 2000 PLAN
The Board may at any time amend, discontinue, or terminate all or any
part of the 2000 Plan, provided, however, that unless otherwise required by law,
the rights of a participant may not be impaired without his or her consent. In
addition, the Company will seek the approval of the Company's stockholders for
any amendment if approval is necessary to comply with the Internal Revenue Code,
federal or state securities laws or any other applicable rules or regulations.
Unless sooner terminated, the Plan will expire on July 1, 2010 and no awards may
be granted after that date.
Approval of the 2000 Plan requires the affirmative vote of holders of a
majority of the votes cast, so long as the total votes cast on this proposal
exceeds 50% of the total votes entitled to be cast.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE
THE COMPANY'S 2000 LONG-TERM INCENTIVE PLAN.
PROPOSAL TO RATIFY APPOINTMENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board has selected KPMG LLP as independent certified public
accountants to audit the consolidated financial statements of the Company for
its fiscal year ending May 31, 2001. Stockholders are being asked to ratify this
appointment. The Company has been informed that neither KPMG 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.
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Representatives of KPMG LLP are expected to be present at the Annual
Meeting with the opportunity to make a statement if they desire and to be
available to respond to appropriate questions.
The affirmative vote of a majority of the votes cast at the Annual
Meeting, 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 LLP AS THE COMPANY'S INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS FOR THE FISCAL YEAR ENDING MAY 31, 2001.
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>
James M. Lapeyre, Jr. 47 Director and Chairman of the Board
Timothy J. Probert 49 Director, President and Chief Executive Officer
C. Robert Bunch 46 Vice President, Chief Administrative Officer,
and Secretary
Thomas C. Connolly 51 Vice President - Manufacturing
Kenneth W. Pope 44 Vice President - Land Division
Rex K. Reavis 57 Vice President - Marine Division
David C. Baldwin 37 Director
Robert P. Brindley 50 Director
Ernest E. Cook 74 Director
Theodore H. Elliott, Jr. 64 Director
Robert P. Peebler 53 Director
Sam K. Smith 68 Director
William F. Wallace 61 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
James M. Lapeyre, Jr. was appointed to the Board in December 1998,
following the Company's acquisition of DigiCourse, Inc. from The Laitram
Corporation. He was elected Chairman of the Board in May 1999. The DigiCourse,
Inc. acquisition agreement dated September 30, 1998 provided that Mr. Lapeyre
would be elected as a director of the Company following the acquisition. See
"Voting and Stock Ownership of Management and Principal Stockholders." Mr.
Lapeyre has held various positions at The Laitram
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Corporation since 1979, and has served as its President since 1989. The Laitram
Corporation is a privately-owned, New Orleans-based manufacturer of food
processing equipment and modular conveyor belts, and was the previous owner of
DigiCourse, Inc. Mr. Lapeyre, whose term as a director of the Company expires at
the 2000 Annual Meeting of Stockholders, is a nominee for election at the Annual
Meeting.
Timothy J. Probert was appointed a director and elected President and
Chief Executive Officer of the Company in March 2000. Mr. Probert spent the
previous 27 years with various operating units of Baker Hughes Incorporated.
Beginning his career as a field geologist in 1972, he progressed through various
management roles in several Baker Hughes divisions. Mr. Probert was president of
Baker Hughes Process, Eastman Teleco, Eastman Christensen, and Milpark Drilling
Fluids. Most recently, Mr. Probert was president of Baker Hughes' INTEQ
division, one of the leading providers of technical solutions to the drilling
and production sectors of the energy industry. Mr. Probert's term as director
will expire at the 2001 Annual Meeting. Mr. Probert also serves as a supervisory
director of Core Laboratories N.V.
C. Robert Bunch was elected Vice President and Chief Administrative
Officer ("CAO") in October 1999. As CAO, Mr. Bunch's duties encompass the
traditional roles of the chief financial officer and general counsel. Mr.
Bunch's prior experience includes operations, finance and law. From May 1997 to
October 1999, Mr. Bunch was a partner at King & Pennington, L.L.P. of Houston,
where he practiced in several areas of business law. His previous legal
experience includes serving as an attorney at Scott, Douglass & McConnico,
L.L.P. from December 1994 to May 1997 where he concentrated on oil and gas
matters. His operations and finance experience include serving as Executive Vice
President and Chief Financial Officer and, later, Chief Operating Officer of OYO
Geospace Corporation; Chief Financial Officer of Siberian American Oil Company;
and Chief Financial Officer, and, later, President and Chief Operating Officer
of Tescorp, Inc. Mr. Bunch also serves on the Board of Directors of Maverick
Tube Corporation.
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 Services in Dallas from January 1984 to April 1994, center
manager of Halliburton Energy Services from May 1994 to March 1996, Vice
President Manufacturing/Engineering of Halliburton Energy Services from March
1996 to October 1996 and as President of CRC Evans, a division of Weatherford
Inc., from October 1996 to July 1997.
Kenneth W. Pope was elected Vice President - Land Division in June 2000,
after being elected as Vice President - Business Development in April 2000. Mr.
Pope has served as President of Green Mountain Geophysics, Inc. since 1991.
Green Mountain Geophysics became a wholly-owned subsidiary of the Company in
1997. Prior to joining Green Mountain Geophysics, Mr. Pope held various senior
management positions at Solbourne Computer, Inc. and NBI, Inc., manufacturers
and distributors of proprietary workstations and computer systems. Mr. Pope
began his career as a certified public accountant with Peat Marwick & Mitchell.
Rex K. Reavis was elected Vice President - Marine Division in June
2000. He was formerly Vice President of the Company's Land Division since
December 1998. Prior to that, Mr. Reavis served in various management positions
at Schlumberger from 1991 to 1998 and also served as Chief Operating Officer of
Terra Marine Engineering from 1985 to 1991 and Chief Executive Officer of M&I
Industries from 1979 to 1985.
8
<PAGE> 11
DIRECTORS
David C. Baldwin was elected to the Company's Board of Directors in
June 1999, and served as Vice President and Chief Financial Officer from June
1999 to January 2000. Mr. Baldwin is a managing director of SCF Partners, a
Houston-based investment firm. He also currently serves on the board of Newpark
Resources, a NYSE-listed company. Mr. Baldwin serves on the Company's Board as
the designee of SCF - IV, L.P., the owner of the Company's Preferred Stock,
pursuant to the terms of Certificates of Designation for the Preferred Stock.
The designee of the Preferred Stockholder serves one-year terms; it is
contemplated that the holder of the Preferred Stock will nominate and elect Mr.
Baldwin to continue to serve as its designee.
Robert P. Brindley has served as a director of the Company since July
1994. Mr. Brindley served as Executive Vice President and Chief Financial
Officer of the Company from June 1997 to August 1999. He previously served as
Senior Vice President and Chief Financial Officer of the Company from 1991 to
June 1997, Vice President and Chief Financial Officer - Finance from 1987 to
1991, Vice President and Controller from 1982 to 1987, and Controller from 1975
to 1982. He also served as Secretary of the Company from 1987 to July 1998. Mr.
Brindley currently serves as Chairman and CEO of Blue Water Ventures, Inc., a
Houston-based venture capital company, and as CFO of RTON, Ltd., a
privately-held contract cable assembly company. Mr. Brindley also serves on the
boards of Spinnaker Capital, Inc. and Reservoir Technologies, Inc. Mr.
Brindley'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's term as a director of the Company
expires at the 2001 Annual Meeting of Stockholders.
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,
whose term as a director of the Company expires at the 2000 Annual Meeting of
Stockholders, is a nominee for election at the Annual Meeting.
Robert P. Peebler was elected to the Board in November 1999. Mr.
Peebler was appointed Vice President of e-Business Strategy and Ventures of the
Halliburton Company in May 2000, after serving since 1992 as President and Chief
Executive Officer of Landmark Graphics Corporation, a Houston-based provider of
workstation technical software for the petroleum industry. Prior to such time he
held a variety of executive positions at Landmark including Chief Operating
Officer and president of Landmark's seismic products division. Mr. Peebler is an
author and speaker about information technology trends shaping the exploration
and production industry. Mr. Peebler's term as a director expires at the 2002
Annual Meeting of Stockholders.
Sam K. Smith was appointed to the Company's Board of Directors in June
1999, and served as Chief Executive Officer from May 1999 to March 2000. Mr.
Smith is a former chairman of the board of Landmark Graphics Corporation,
serving in that capacity from 1989 to 1996. Prior to that time, he was a special
limited partner at Sevin-Rosen Management, a Texas-based venture capital firm
from 1983 to 1993, and spent 26 years prior to that at Texas Instruments, Inc.
Mr. Smith serves as a director for three private companies. Mr. Smith's term as
a director expires at the 2002 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
9
<PAGE> 12
Exploration and Production, Inc. Mr. Wallace currently serves on the boards of
directors of KMOC Oil Corp. and Westport Oil and Gas Company, Inc., both of
which are privately owned. Mr. Wallace's term as a director of the Company
expires at the 2001 Annual Meeting of Stockholders.
No director is related to any other director or executive officer of
the Company or its subsidiaries, and except as described above, 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 10 Board meetings during fiscal 2000. Each director
attended at least 75% of the total meetings of the Board and each committee on
which that director served.
The Company has the following standing Committees:
THE AUDIT COMMITTEE, which currently consists of Messrs. Elliott
(Chairman), Wallace and Brindley, met five times during fiscal 2000. The audit
committee is appointed by the Board to assist the Board in reviewing with
management the Company's financial statements and our compliance with certain
legal and regulatory compliance requirements, and reviewing the independence and
performance of our external auditors. More specifically, the Committee has the
authority to
o review the annual audited financial statements with management,
including major issues regarding accounting and auditing
principles and practices, as well as the adequacy of internal
controls;
o review with management and the independent auditors our quarterly
financial statements; and
o receive periodic reports from the independent auditor regarding
the auditor's independence.
THE COMPENSATION COMMITTEE, which currently consists of Messrs. Wallace
(Chairman), Cook and Peebler, held four meetings during fiscal 2000. The
Compensation Committee has the authority to
o review and recommend the cash and non-cash compensation of each
officer on a periodic basis; and
o review, recommend and in certain instances make grants and awards
under the Company's profit sharing plans and stock option or other
stock-based benefit plans, and incentive and other employee
benefit plans provided to the Company's employees, officers and
directors.
THE NOMINATING COMMITTEE, which currently consists of Messrs. Cook
(Chairman), Baldwin and Lapeyre, met one time during fiscal 2000. 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's Corporate Secretary at the
address set forth on the first page of this Proxy Statement on or before April
26, 2001.
10
<PAGE> 13
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, 2000, 1999 and 1998,
paid or accrued by the Company to or on behalf of those persons who were during
the fiscal year ended May 31, 2000 the Company's Chief Executive Officers, and
certain other of the most highly compensated executive officers of the Company
(the Company's Chief Executive Officers and the other officers named in the
table below are collectively referred to as the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ALL OTHER
ANNUAL COMPENSATION LONG-TERM COMPENSATION COMPENSATION
----------------------------------- ------------------------- ----------------
Securities Restricted
Fiscal Underlying Stock Awards
Year Salary Bonus Options (4)(5)
------ ------------- ----------- ---------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Timothy J. Probert (1) 2000 $ 75,000 - 0 - 300,000 $ 393,750(4) --
Director, President and
Chief Executive Officer
Sam K. Smith (1)(2) 2000 $ 202,295(2) - 0 - 30,000 - 0 - --
Chief Executive Officer 1999 - 0 - - 0 - - 0 - - 0 - --
Axel M. Sigmar 2000 $ 187,500 - 0 - - 0 - -- $1,094,155(3)
President and 1999 $ 291,667 - 0 - 400,000 -- $ 33,013(9)(10)
Chief Operating Officer 1998 $ 207,000 $ 195,300 280,000 -- $ 49,246(9)(10)
Rex K. Reavis 2000 $ 199,993 $ 30,000 7,500 $ 157,500(4) --
Vice President - Marine Division 1999 $ 183,329 $ 45,000 80,000 -- --
Bruce A. Reichert 2000 $ 151,961 - 0 - -- -- --
Vice President - Engineering 1999 $ 120,000 $ 60,000 50,000 -- --
1998 $ 45,000(6) -- 10,000 -- --
Thomas C. Connolly 2000 $ 170,000 $ 30,000 15,000 -- --
Vice President - Manufacturing 1999 $ 170,000 -- 35,000 -- --
1998 $ 42,500(7) $ 30,000 35,000 -- --
Kenneth W. Pope 2000 $ 127,083 -- 22,500 $ 216,875(5)(4) --
Vice President - Land Division 1999 $ 110,000 $ 10,000 5,000 -- --
1998 $ 50,416(8) $ 27,019 10,000 -- --
</TABLE>
----------
(1) Mr. Probert joined the Company on March 1, 2000 as President and Chief
Executive Officer, replacing Mr. Smith who was Chief Executive Officer from
May 28, 1999 to March 1, 2000.
(2) Under Mr. Smith's compensation agreement with the Company, Mr. Smith
received, in addition to his cash compensation of $66,670, $135,625 paid to
Mr. Smith through the issuance of a total of 17,500 shares of Common Stock.
The shares of Common Stock were issued in quarterly installments in fiscal
2000, each in a transaction exempt from registration under the Securities
Act of 1933. See "-- Employment and Consulting Agreements" below.
(3) Represents payments pursuant to Mr. Sigmar's separation agreement and
termination of employment effective January 2000. See "-- Employment and
Consulting Agreements" below.
(4) Represents grants under the Company's 2000 Restricted Stock Plan. 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 issued under the 2000 Restricted Stock
Plan is three years for 33.3% of the shares awarded, four years for an
additional 33.3% of the shares awarded and five years for the remaining
33.3% of the shares awarded. Dividend and voting rights of restricted stock
are the same as those for all other shares of the Company's outstanding
Common Stock. Based on the last reported sales price on May 5, 2000 (the
date of grant for these awards) of Common Stock on the New York Stock
Exchange of $7.875 per share, Mr. Probert's holdings were 50,000 shares
with a value of $393,750, Mr. Reavis's holdings were 20,000 shares with a
value of $157,500, and Mr. Pope's holdings were 20,000 shares with a value
of $157,500.
11
<PAGE> 14
(5) Represents grants under the Company's 1990 Restricted Stock plan. 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 under its 1990 Restricted Stock Plan is
two years 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
those for all other shares of the Company's outstanding Common Stock. Based
on the last reported sales price on March 1, 2000 (the date of grant for
Mr. Pope) of Common Stock on the New York Stock Exchange of $5.9375 per
share, Mr. Pope's holding were 10,000 shares, having the value of $59,375.
(6) Mr. Reichert joined the Company on January 14, 1998.
(7) Mr. Connolly joined the Company on March 9, 1998.
(8) Mr. Pope joined the Company as part of the purchase of Green Mountain
Geophysics, Inc. in December 1997.
(9) During fiscal 1998, the Company contributed to its Section 401(k) Plan as
follows: Mr. Sigmar: $18,345. During fiscal 1999, the Company contributed
to its Section 401(k) Plan as follows: Mr. Sigmar: $2,112.
(10) During fiscal 1998 and 1999, 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.
During fiscal 2000, 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 $50,000 or 10% of such officer's salary and
bonus.
STOCK OPTIONS
The options shown below were awarded during fiscal 2000 to the Company's
Named Executive Officers under the Company's Amended and Restated 1990 Stock
Option Plan (the "1990 Stock Option Plan"), except as otherwise noted below:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------------------------------------------------------
Percent of
Number total options
of securities granted to Exercise or Hypothetical
underlying employees in base price Expiration Grant Date
Name options granted fiscal year (1) date Value (2)
-------------------- ---------------- ------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
(#) (%) ($/Sh)
Timothy J. Probert 150,000 8.15 $ 5.9375 03/01/10 $ 429,015
150,000 8.15 $ 6.1250 04/14/10 $ 439,599
Sam K. Smith 30,000 1.63 $10.0000 06/01/09 $ 141,722
Axel M. Sigmar 100,000 5.41 $ 8.02 (3) (3)
Rex K. Reavis 7,500 0.41 $ 5.8125 04/01/10 $ 20,859
Bruce A. Reichert 0 -- -- -- --
Thomas C. Connolly 15,000 0.81 $ 5.8125 04/01/10 $ 41,717
Kenneth W. Pope 15,000 0.81 $ 5.8750 10/21/09 $ 41,893
7,500 0.41 $ 5.8125 04/01/10 $ 20,859
</TABLE>
----------
(1) These options generally vest in four equal annual increments beginning on
the first anniversary date of the date of the grant. The 1990 Stock Option
Plan provides that in the event of a "change of control" of the Company
(as defined in the 1990 Stock Option Plan), all stock options will become
fully vested (unless the successor to the Company assumes or replaces on
substantially equivalent terms the options outstanding).
12
<PAGE> 15
(2) 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 49%; (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).
(3) These options were canceled pursuant to Mr. Sigmar's separation agreement
and termination of employment effective January 2000.
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, 2000. 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.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Shares Value of Unexercised
Acquired on Value Number of Unexercised Options at In-the-Money Options at Fiscal
Name Exercise Realized Fiscal Year End (#) Year End ($)
------------------ ----------- -------- -------------------------------- ------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Timothy J. Probert 0 0 0 300,000 $ 0 $ 553,125
Sam K. Smith 0 0 6,667 53,333 $ 2,083 $ 30,417
Axel M. Sigmar 0 0 418,650 -0- $59,530 -0-
Rex K. Reavis 0 0 20,000 67,500 $18,750 $ 71,719
Bruce Reichart 0 0 22,500 47,500 $ 7,500 $ 56,250
Thomas C. Connolly 0 0 30,000 55,000 $ 1,875 $ 53,437
Kenneth W. Pope 0 0 6,250 31,250 $ 0 $ 51,094
</TABLE>
----------
On May 31, 2000, the last reported sales price of the Common Stock on the
New York Stock Exchange composite tape was $7.875 per share. None of the Named
Executive Officers exercised Company stock options during fiscal 2000.
13
<PAGE> 16
EMPLOYMENT AND CONSULTING AGREEMENTS
In February 2000, the Company entered into an employment agreement with
Mr. Probert. The agreement expires on February 28, 2004, but is automatically
renewable for additional one year terms, unless either party provides prior
written notice of termination. This agreement provides for an annual base salary
of $300,000. If the employment agreement is terminated by the Company without
cause (as defined in the agreement), or Mr. Probert resigns for good reason (as
defined), in either case prior to a "change of control" (as defined), the
Company will pay Mr. Probert over a two-year period following termination the
sum of two times Mr. Probert's annual base salary in effect on his termination
date, plus two times the average of his annual bonus for the past three fiscal
years. In addition, if within 18 months after a change of control the Company
terminates Mr. Probert's employment for any reason other than for "cause" or if
Mr. Probert terminates his employment with the Company for good reason, the
Company shall pay Mr. Probert an amount equal to the sum of three times Mr.
Probert's annual base salary in effect on his termination date, plus three times
the average of his annual bonus payments for the three fiscal years prior to his
termination. This amount may be less, depending upon the specific "good reason"
termination event. Under certain circumstances, the Company will be obligated to
pay certain cash tax "gross-up" amounts to Mr. Probert in the event that he
becomes subject to the excise tax imposed by Section 4999 of the Code as the
result of a change in control under Section 280G of the Code. Under the
employment agreement, Mr. Probert is entitled to receive bonuses pursuant to the
Company's Annual Incentive Plan, subject to a minimum bonus for fiscal 2001
equal to 50% of Mr. Probert's annual base salary reduced by the value of his
restricted stock grants. In addition, under the agreement Mr. Probert was
granted stock options in March 2000 covering a total of 150,000 shares of Common
Stock, and a stock option in May 2000 for an additional 150,000 shares based
upon the Company's obligation under the agreement to grant Mr. Probert stock
options covering shares in an amount equal to three times the number of shares
that he purchased in the open market in March and April 2000. See "-- 2000
Restricted Stock Plan" and Compensation Committee Report on Executive
Compensation -- Compensation of the Chief Executive Officer."
In June 1999, the Board approved the compensation arrangements between
the Company and Mr. Smith in his capacity as Chief Executive Officer. Effective
June 1, 1999, Mr. Smith was to receive compensation valued at $20,000 per month.
One-third of this amount was paid in cash, and two-thirds were paid by the
Company's issuance to Mr. Smith of Common Stock of the Company, valued monthly
at the last reported sales price per share on the NYSE composite transactions
tape on the last trading day of each month. Under his agreement, Mr. Smith
received a total of 17,500 shares of unregistered Common Stock between June 1999
and March 2000. Additionally, the Compensation Committee granted to Mr. Smith
nonqualified stock options to purchase 30,000 shares of Common Stock under the
terms of the Company's Amended and Restated 1990 Stock Option Plan. The exercise
price for this grant is $10.00 per share, the term of the stock option is for
one year, and vesting will accelerate in the event that Mr. Smith is removed
from the Board of Directors. On June 1, 1999, the date of grant, the closing
sales price for the Company's Common Stock as reported on the NYSE composite
transactions tape was $8.4375 per share. Mr. Smith's agreement terminated upon
Mr. Smith's resignation as an officer of the Company in March 2000.
Mr. Brindley's employment agreement with the Company terminated in August
1999 pursuant to the terms of a separation agreement which provided for
aggregate severance and related payments to Mr. Brindley of $640,834. In October
1999, Mr. Brindley and the Company entered into a Consulting and Collection
Agreement, whereby the Company engaged Mr. Brindley on a commissions basis
(ranging from 4.4% to 2.0%, depending upon the particular geographic region) to
assist the Company with respect to the collection of certain past-due foreign
accounts. Under this agreement, Mr. Brindley earned during fiscal 2000 total
commissions of $487,000 on actual amounts collected. The agreement expires on
September 1, 2000.
Effective August 17, 1999, the Company and Mr. Sigmar entered into an
employment agreement. The employment agreement provided for an annual base
salary of $300,000 and for Mr. Sigmar to be eligible to participate in the
Company's management incentive plans. Also, the agreement provided upon its
effective date for full vesting for Mr. Sigmar as a participant in the Company's
Supplemental Executive Retirement
14
<PAGE> 17
Plan (SERP), the grant of a non-qualified stock option for 100,000 shares of
Common Stock under the 1990 Stock Option Plan and accelerated vesting and
extension of post-employment exercise periods for certain other stock options.
In addition, the Company repurchased 100,000 shares of Common Stock owned by Mr.
Sigmar at a purchase price of $8.02 per share on the agreement's effective date.
The agreement provided for severance payments to Mr. Sigmar by the Company upon
his termination of employment in an amount of up to two years' annual base
salary plus 24 months' aggregate cash bonuses, a lump sum amount equal to the
present value of his SERP vested deferred benefit accrued through termination,
continuation of participation in Company group health plans, plus vesting and
extension of post-employment exercise periods of certain previous stock option
grants. In January 2000, Mr. Sigmar's employment as an officer and employee with
the Company terminated, and Mr. Sigmar received $1,094,155 calculated under the
terms of his employment agreement. Mr. Sigmar resigned as a director of the
Company in May 2000.
CHANGE OF CONTROL AND SEVERANCE AGREEMENTS
The Company has entered into severance and change of control agreements
with Messrs. Connolly, Pope, Reavis and Reichert. 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, 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.
2000 RESTRICTED STOCK PLAN
In March 2000, the Company's Board of Directors adopted the Input/Output,
Inc. 2000 Restricted Stock Plan (the "2000 Restricted 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 2000
Restricted Plan provides that the maximum number of shares of Common Stock
("Restricted Stock") that may be delivered pursuant to awards under the
Restricted Plan is 200,000, subject to adjustment. No individual participant may
receive, during any fiscal year, awards covering an aggregate
15
<PAGE> 18
of more than 50,000 shares of Common Stock. As of August 14, 2000, the Company
had granted 123,000 shares of Restricted Stock under the Restricted Plan. Unless
sooner terminated by action of the Board, the 2000 Restricted Plan will
terminate on March 13, 2010.
During March 2000, the Company implemented an executive "matching"
program whereby the Company agreed to grant one share of restricted stock for
each share purchased by certain senior executives in open-market transactions in
March and April 2000. As a result, the Company issued in May 2000 a total of
123,000 shares of restricted stock under the 2000 Restricted Plan to these
executives. In connection with the repurchase program, Messrs. Bunch and Pope
incurred bank indebtedness in the original principal amount of $200,000 and
$125,000, respectively. The Company is a guarantor of this indebtedness and
would be liable for the entire amount of either loan in the event of a default
thereunder.
Pursuant to the terms of the 2000 Restricted Plan, the Company enters
into individual award agreements with plan participants designated by the
Compensation Committee, which agreements will provide the number of shares of
Restricted Stock granted pursuant to the award, 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. The Restricted Plan is
administered by the Compensation Committee, and the Board may from time to time
discontinue or further amend the 2000 Restricted Plan without the consent of the
participants.
ANNUAL INCENTIVE PLAN
In November 1999, the Board adopted and approved the terms of the
Input/Output, Inc. Annual Incentive Plan (the "Incentive Plan"). The purpose of
the Incentive Plan is to advance the interests of the Company and its
stockholders by providing certain of the Company's 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.
All employees of the Company are eligible to participate in the
Incentive Plan after six months of service. Approximately 60 days after the end
of the Company's fiscal year, the Compensation Committee will calculate a bonus
pool based on the difference between the Company's profits before taxes and the
Company's return on its book equity. One-half of the bonus pool is then
distributed pro rata to participants based on their base pay for the prior
fiscal year. The remaining 50% of the bonus pool is allocated by the
Compensation Committee, in its discretion, among the participants. The minimum
bonus pool for fiscal 2000 and fiscal 2001 is $500,000, all of which is
distributable on a discretionary basis. The Incentive Plan is administered by
the Compensation Committee, and the Board may from time to time discontinue or
further amend the Incentive Plan without the consent of the participants.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors 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 William F. Wallace (Chairman), Ernest E.
Cook, and Robert Peebler. 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.
16
<PAGE> 19
COMPENSATION POLICY
The principal goals of the Company's executive compensation policy are
to provide competitive compensation opportunities to attract and retain
qualified and productive executive employees; to motivate executives to meet and
exceed corporate financial goals; and to create meaningful links between
corporate performance, individual performance and rewards. It has been the
Company's traditional executive compensation 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 in prior years has aligned 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. Historically, the Company's
executive compensation policies have been designed to provide competitive levels
of compensation that integrated annual base compensation with bonuses based upon
corporate performance and individual initiatives and performance. Also, the
Company has adopted and maintained stock option plans and restricted stock plans
under which the benefits realized by executives are directly related to stock
price performance.
In response to the seismic services industry downturn in fiscal 1999
continuing through fiscal 2000, the Compensation Committee determined to adjust
certain components of the Company's compensation and benefits programs in order
for the Company to attract and retain talented managers and personnel. First of
all, the Committee recommended and the Company adopted during fiscal 2000 a new
Annual Incentive Plan, providing for cash incentives to employees and executives
based upon annual before-tax profits and returns on average stockholders' equity
during a fiscal year. This new Annual Incentive Plan is designed to reward
executives and employees consistent with market median compensation levels when
the Company returns to appropriate profitability levels.
Secondly, the Committee retained the services of William M. Mercer,
Incorporated, principally to review the Company's long-term incentives.
Following Mercer's report and recommendations, the Committee recommended that
the Board of Directors adopt a restricted stock plan and a new long-term
incentive plan. Participation by executives in the restricted stock plan during
fiscal 2000 was limited to those who bought shares of Company Common Stock in
open-market transactions during a specified period in March and April 2000. The
Company then matched the amount of shares purchased by the executive by awarding
to him the same number of shares of restricted stock.
The 2000 Long-Term Incentive Plan was adopted by the Board partially
due to the fact that the Company's 1990 Employees Stock Option Plan expires in
September 2000. The Long-Term Incentive Plan incorporates non-utilized shares
under the 1990 Employees Stock Option Plan plus an additional 1,200,000 shares
reserved for issuance in grants of Incentive Awards under the Plan. The 2000
Long-Term Incentive Plan authorizes the Committee to grant incentive stock
options and non-qualified stock options, stock appreciation rights, performance
shares and other stock-based awards. No grants under this Plan have been made
and no grants will be made unless stockholder approval of the 2000 Long-Term
Incentive Plan at the 2000 Annual Meeting has been obtained.
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 awards.
Company executive compensation has traditionally consisted of three key
elements: a long-term incentive component (stock options and in less frequent
instances, restricted stock awards); a short-term
17
<PAGE> 20
incentive component (cash bonus for attainment of established financial and
performance goals); and 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 amends 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 compensation consultants and other
sources.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Probert's compensation for fiscal 2000 was determined under the
terms of his February 2000 employment agreement. Under his employment agreement,
Mr. Probert is to receive an annual base salary of $300,000 beginning March 1,
2000 and will be eligible to participate in the Input/Output, Inc. Annual
Incentive Plan for the Company's fiscal year commencing June 1, 2000. Under his
agreement, Mr. Probert was granted a non-qualified stock option effective March
1, 2000 to purchase 150,000 shares of common stock of the Company under the 1990
Stock Option Plan having an exercise price equal to the fair market value of the
stock on the date of grant ($5.94 per share). This option will vest in equal
installments over a four year period beginning on the date of the grant. This
option has a term of ten (10) years. In April 2000, Mr. Probert was granted an
option for an additional 150,000 shares by virtue of the terms of his employment
agreement, which provided that the Company would grant stock options to him
covering shares in an amount three times that which he purchased in the open
market in March and April. This option has identical terms concerning vesting
and acceleration events as his March stock option. Mr. Probert also received in
May 2000 a grant of 50,000 shares of restricted stock under the terms of the
2000 Restricted Stock Plan and the Company's fiscal 2000 executive "matching"
program.
SUMMARY
The Committee has considered the impact of Section 162(m) of the Code
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 2000 Long-Term Incentive Plan is intended to 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.
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. The Committee
will continue to monitor the effectiveness of the Company's total compensation
program and continue to make proposals where appropriate, in order to meet the
current and future needs of the Company.
This report has been provided by the Compensation Committee.
William F. Wallace, Chairman
Ernest E. Cook
Robert Peebler
18
<PAGE> 21
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.
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, (2) the Standard and Poor's Electronics Index, and (3) the Standard
and Poor's Oil and Gas Field Services Index. The Company believes that the
companies included within the Standard and Poor's Oil and Gas Field Services
Index are more indicative of its market and competitors and will discontinue use
of the Standard and Poor's Electronics Index after this year.
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
----------------------------------------------------------------
COMPANY/INDEX/MARKET 5/31/1995 5/31/1996 5/30/1997 5/29/1998 5/28/1999 5/31/2000
<S> <C> <C> <C> <C> <C> <C>
Input/Output Inc 100.00 237.50 104.41 129.41 50.00 46.32
Electronics (Instrumentation) 100.00 126.95 172.61 180.69 232.39 496.25
Oil & Gas Drilling & Equip 100.00 133.51 182.56 232.25 192.77 256.74
S&P Composite 100.00 128.44 166.22 217.23 262.90 290.45
</TABLE>
The graph assumes that $100.00 was invested on June 1, 1995 in each of
the Company's Common Stock, the Standard & Poor's 500 Index, the Standard &
Poor's Electronics Index and the Standard & Poor's Oil and Gas Field Services
Index and assumes that all dividends were re-invested.
COMPENSATION OF DIRECTORS
Each director who is not an employee of the Company receives $1,500 for
each meeting attended ($500 for telephonic meetings) and $1,000 for each
committee meeting attended. In addition, each non-employee director receives an
annual stipend of $15,000, and each Committee Chairman will receive an
additional annual stipend of $3,000.
DIRECTORS RETIREMENT PLAN. In 1992, the Company adopted its 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
19
<PAGE> 22
death or disability or a change in control of the Company. Payment of benefits
under the Directors Retirement Plan commences at the beginning of the Company's
fiscal quarter next following the later of the dates on which a director (i)
attains age sixty-five and (ii) retires from the Board.
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 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. In June 1999, at the Company's Board of Directors
meeting the "Annual Stipend" definition was amended to be $15,000. 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.
Currently, only Messrs. Cook and Elliott are entitled to receive any
benefits under the Directors Retirement Plan.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN. 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 (the
"Directors Plan") was adopted in 1996. In 1998, the Company's stockholders
approved certain amendments to the plan, increasing the total shares of Common
Stock authorized for issuance under the Directors Plan to 700,000 shares.
Under the terms of the Directors Plan, each non-employee director of
the Company is to be granted an option to purchase 20,000 shares of Common Stock
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. The initial 20,000 share grant vests in 33.33%
installments on the first, second and third anniversary dates of the initial
grant; the first 10,000 share grant after the initial grant vests in 50%
installments on the first and second anniversary dates of its grant; and the
second 10,000 share grant after the initial grant will be fully exercisable on
and after the first anniversary date of that grant. Any subsequent annual grants
are each fully exercisable on their dates of grant. Messrs. Smith, Peebler, and
Baldwin were each granted 20,000-share options effective upon their appointment
to the Board during fiscal 2000. See "Management".
The Directors Plan also provides for discretionary grants of stock
options to Non-Employee Directors as determined from time to time by the Board.
As of June 30, 2000, the Company had options covering 356,000 shares of
Common Stock available for future grant under the Directors Plan.
20
<PAGE> 23
VOTING AND STOCK OWNERSHIP OF MANAGEMENT
AND PRINCIPAL STOCKHOLDERS
At the Record Date, there were outstanding 51,152,845 shares of Common
Stock which were held of record by 426 stockholders, and the Company believes
that there were approximately 17,000 beneficial owners of Common Stock on that
date. Each share of Common Stock is entitled to one vote on each matter to come
before the Annual Meeting.
The following table sets forth certain information with regard to the
beneficial ownership as of June 30, 2000 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 or Preferred Stock, (ii) each director and nominee
for director of the Company, (iii) each Named Executive Officer of the Company
and (iv) all executive officers and directors as a group (15 persons).
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
----------------------- -------------------------
Number of Percent of Number of Percent of
Name of Beneficial Owner(1) Shares(1) Class Shares Class
--------------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
PRIMECAP Management Company 5,363,600 10.5% -- --
225 S. Lake Avenue
Pasadena, CA 91101-3005
Vanguard Horizon Funds 2,823,000 5.5% -- --
P.O. Box 2600
Valley Forge, PA 19482-2600
SCF-IV, L.P. (14) -- -- 40,000(2) 100%
600 Travis, Suite 6600 Series B
Houston, TX 77002 15,000 100%
Series C
The Laitram Corporation 5,794,000 11.3% -- --
220 Laitram Lane
Harahan, LA 70123
James M. Lapeyre (3) 145,167 0.3% -- --
Timothy J. Probert (4) 150,000 0.3% -- --
Kenneth W. Pope (5) 56,250 0.1% -- --
Tom C. Connolly (6) 30,619 * -- --
Rex K. Reavis (7) 71,957 0.1% -- --
David C. Baldwin (8) 6,667 * -- --
Robert Peebler -- --
Ernest E. Cook (9) 118,000 0.2% -- --
Theodore H. Elliott, Jr. (10) 140,500 1.3% -- --
Robert P. Brindley (11) 185,733 0.4%
Sam K. Smith (12) 54,167 0.1% -- --
William F. Wallace(13) 11,667 * -- --
All officers and directors as a
group (15 persons) 1,479,877 2.9% -- --
</TABLE>
----------
*Less than 0.1%.
21
<PAGE> 24
(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.
(2) The Preferred Stock may be converted into an aggregate of 8,175,889
shares of Common Stock (based upon the current conversion price of $7.22
per share) upon the earlier to occur of the third anniversary of the
issuance of the Preferred Stock or a change of control (as defined) of
the Company, and is mandatorily convertible on May 7, 2004. David C.
Baldwin, the designee of the holder of the Preferred Stock to the
Company's Board of Directors, is a managing director of SCF Partners, an
affiliate of SCF-IV, L.P. Mr. Baldwin disclaims any beneficial ownership
of the Preferred Stock or the Common Stock into which it may be
converted. Each share of Preferred Stock is currently entitled to 125
votes on each matter presented at the Annual Meeting.
(3) Represents 6,667 shares which are subject to currently exercisable
options granted under the Amended and Restated 1996 Non-Employee
Directors Stock Option Plan and 40,500 shares held as custodian or
trustee for the benefit of his minor children, of which Mr. Lapeyre
disclaims any beneficial interest.
(4) Includes 50,000 shares subject to the 2000 Restricted Stock Plan.
(5) Includes 20,000 shares subject to the 2000 Restricted Stock Plan, 10,000
shares issued under the 1998 Restricted Stock Plan, and 6,250 shares
which are subject to currently exercisable options granted under the
Amended and Restated 1990 Stock Option Plan.
(6) Includes 30,000 shares which are subject to currently exercisable options
granted under the Amended and Restated 1990 Stock Option Plan and 619
shares purchased through the Company's Employee Stock Purchase Plan.
(7) Includes 20,000 shares subject to the 2000 Restricted Stock Plan, 20,000
shares which are subject to currently exercisable options granted under
the Amended and Restated 1990 Stock Option Plan, and 7,291 shares
purchased through the Company's Employee Stock Purchase Plan.
(8) Includes 6,667 shares which are subject to currently exercisable options
granted under the Amended and Restated 1996 Non-Employee Directors Stock
Option Plan.
(9) Includes 99,500 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 129,500 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) Includes 185,733 shares which are subject to currently exercisable
options granted under the 1990 Stock Option Plan.
(12) Includes 6,667 shares which are subject to currently exercisable options
granted under the Amended and Restated 1996 Non-Employee Directors Stock
Option Plan and 30,000 shares which are subject to currently exercisable
options granted under the Amended and Restated 1990 Stock Option Plan.
(13) Includes 11,667 shares which are subject to currently exercisable options
granted under 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 (the 1934 Act) 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.
22
<PAGE> 25
Based solely upon management's review of Forms 3, 4 and 5 provided to
the Company during the fiscal year ended May 31, 2000, the Company believes that
the Company's officers and directors and the persons who own more than 10% of
the Company's Common Stock had complied will all Section 16 filing requirements,
except that Sam K. Smith filed five days late a Form 4 showing the acquisition
of 1,750 shares of Common Stock in May 2000.
CERTAIN TRANSACTIONS
In connection with the Company's acquisition of DigiCourse, Inc. in
1998, the Company entered into a Continued Services Agreement with The Laitram
Corporation under which Laitram agreed to provide accounting, software,
manufacturing and maintenance services to the Company. Mr. Lapeyre, the
Company's Chairman of the Board, is the chairman and principal stockholder of
Laitram. Under the terms of the Service Agreement, Laitram bills the Company for
facility lease and machine shop services rendered on a monthly basis. For the
fiscal year ended May 31, 2000, the Company paid Laitram an aggregate of
$1,500,000 under the Continued Services Agreement. The facility lease portion of
the Service Agreement has a term expiring September 30, 2001 and the machine
shop portion term expired on November 17, 1999.
STOCKHOLDER PROPOSALS AT 2001 ANNUAL MEETING
The Board presently intends to hold the Company's next Annual Meeting
of Stockholders on or about September 25, 2001. A proxy statement and notice of
this meeting will be mailed to all stockholders approximately one month prior to
that date. In order to be eligible for inclusion in the Company's proxy
statement for the 2001 Annual Meeting of Stockholders, a proposal of a
stockholder must be received by the Company at its principal executive offices
in Stafford, Texas, by April 26, 2001. All stockholder proposals of this nature
must comply with SEC Rule 14a-8 under the 1934 Act.
In addition, in order for a stockholder proposal to be raised from the
floor during the next year's annual meeting, written notice about that proposal
must be received by the Company by no later than April 26, 2001 and must contain
the necessary information as required by the Company's bylaws. In order for a
stockholder to make a director nomination at an annual meeting, it is necessary
to notify the Company not fewer than 120 days in advance of the day specified in
the Proxy Statement for this year's Annual Meeting.
Since August 24, 2000 is specified as the mailing date in this year's
Proxy Statement, in order for any nomination notice or stockholder proposal to
be timely for next year's annual meeting, it must be received by the Company not
later than April 26, 2001 (that is, 120 days prior to August 24). Also, the
notice must meet the other requirements contained in the Company's bylaws. A
copy of the relevant bylaw provisions containing the requirements for making
stockholder proposals may be obtained by contacting the Company's Secretary at
the executive headquarters of the Company. Also, please refer to
"Management-Meetings of Directors and Committees" for information about
suggestions for nominations to the Board of Directors.
23
<PAGE> 26
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 these 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 Georgeson Shareholder Communications, Inc., a proxy solicitation firm,
for assistance in connection with the Annual Meeting at a cost of approximately
$4,000.00 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,
2000, 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,
C. Robert Bunch
Secretary
Stafford, Texas
August 24, 2000
24
<PAGE> 27
APPENDIX I
INPUT/OUTPUT, INC.
2000 LONG-TERM INCENTIVE PLAN
SECTION 1.
GENERAL PROVISIONS RELATING
TO PLAN GOVERNANCE, COVERAGE AND BENEFITS
1.1 PURPOSE
The purpose of the Plan is to foster and promote the long-term financial
success of Input/Output, Inc. (the "COMPANY") and its Subsidiaries and to
increase stockholder value by: (a) encouraging the commitment of selected key
Employees and Consultants, (b) motivating superior performance of key Employees
and Consultants by means of long-term performance related incentives, (e)
encouraging and providing key Employees and Consultants with a program for
obtaining ownership interests in the Company which link and align their personal
interests to those of the Company's stockholders, (d) attracting and retaining
key Employees and Consultants by providing competitive incentive compensation
opportunities, and (e) enabling key Employees and Consultants to share in the
long-term growth and success of the Company.
The Plan provides for payment of various forms of incentive compensation.
It is not intended to be a plan that is subject to the Employee Retirement
Income Security Act of 1974, as amended (ERISA). The Plan will be interpreted,
construed and administered consistent with its status as a plan that is not
subject to ERISA.
Subject to approval by the Company's stockholders pursuant to Section
6.1, the Plan will become effective as of July 1, 2000 (the "EFFECTIVE DATE").
The Plan will commence on the Effective Date, and will remain in effect, subject
to the right of the Board to amend or terminate the Plan at any time pursuant to
Section 6.7, until all Shares subject to the Plan have been purchased or
acquired according to its provisions. However, in no event may an Incentive
Award that is an Incentive Stock Option be granted under the Plan after the
expiration of ten (10) years from the Effective Date.
1.2 DEFINITIONS
The following terms shall have the meanings set forth below:
(a) APPRECIATION. The difference between the Fair Market Value of a
share of Common Stock on the date of exercise of a Tandem SAR and the
option exercise price per share of the Nonstatutory Stock Option to which
the Tandem SAR relates.
(b) AUTHORIZED OFFICER. The Chairman of the Board, the CEO or any
other senior officer of the Company to whom either of them delegate the
authority to execute any Incentive Agreement for and on behalf of the
Company. No officer or director shall be an Authorized Officer with
respect to any Incentive Agreement for himself.
(c) BOARD. The Board of Directors of the Company.
(d) CAUSE. When used in connection with the termination of a
Grantee's Employment, shall mean the termination of the Grantee's
Employment or Grantee's services as a Consultant by the Company or any
Subsidiary by reason of (i) the conviction of the Grantee by a court of
competent jurisdiction as to which no further appeal can be taken of a
crime involving moral turpitude or a felony; (ii) the proven commission
by the Grantee of a material act of fraud upon the Company or any
Subsidiary, or any customer or supplier thereof; (iii) the willful and
proven misappropriation of any funds or property of the Company or any
Subsidiary, or any customer or supplier thereof; (iv) the willful,
continued and unreasonable failure by the
I-1
<PAGE> 28
Grantee to perform the material duties assigned to him which is not cured
to the reasonable satisfaction of the Company within 30 days after
written notice of such failure is provided to Grantee by the Board or by
a designated officer of the Company or a Subsidiary; (v) the knowing
engagement by the Grantee in any direct and material conflict of interest
with the Company or any Subsidiary without compliance with the Company's
or Subsidiary's conflict of interest policy, if any, then in effect; or
(vi) the knowing engagement by the Grantee, without the written approval
of the Board, in any material activity which competes with the business
of the Company or any Subsidiary or which would result in a material
injury to the business, reputation or goodwill of the Company or any
Subsidiary; or (vii) the material breach by a Consultant of such
Grantee's contract with the Company.
(e) CEO. The Chief Executive Officer of the Company.
(f) CHANGE IN CONTROL. Any of the events described in and subject to
Section 5.7.
(g) CODE. The Internal Revenue Code of 1986, as amended, and the
regulations and other authority promulgated thereunder by the appropriate
governmental authority. References herein to any provision of the Code
shall refer to any successor provision thereto.
(h) COMMITTEE. A committee appointed by the Board consisting of at
least two directors, who fulfill the "outside directors" requirements of
Section 162(m) of the Code, to administer the Plan. The Committee may be
the Compensation Committee of the Board, or any subcommittee of the
Compensation Committee.
The Board shall have the power to fill vacancies on the Committee
arising by resignation, death, removal or otherwise. The Board, in its
sole discretion, may bifurcate the powers and duties of the Committee
among one or more separate committees, or retain all powers and duties of
the Committee in a single Committee. The members of the Committee shall
serve at the discretion of the Board.
(i) COMMON STOCK. The common stock of the Company, $.01 per value
per share, and any class of common stock into which such common shares
may hereafter be converted, reclassified, re-capitalized, or exchanged.
(j) COMPANY. Input/Output, Inc., Inc., a corporation organized under
the laws of the State of Delaware, and any successor in interest thereto.
(k) CONSULTANT. An independent agent, consultant, attorney, an
individual who has agreed to become an Employee within the next six
months, or any other individual who is not a Director or employee of the
Company (or any Parent or Subsidiary) and who, in the opinion of the
Committee, is in a position to contribute to the growth or financial
success of the Company (or any Parent or Subsidiary), (ii), is a natural
person and (iii) provides bona fide services to the Company (or any
Parent or Subsidiary), which services are not in connection with the
offer or sale of securities in a capital raising transaction, and do not
directly or indirectly promote or maintain a market for the Company's
securities.
(l) COVERED EMPLOYEE. A named executive officer who is one of the
group of covered employees, as defined in Section 162(m) of the Code and
Treasury Regulation Section 1.162-27(c) (or its successor), during any
such period that the Company is a Publicly Held Corporation.
(m) DEFERRED STOCK. Shares of Common Stock to be issued or
transferred to a Grantee under an Other Stock-Based Award granted
pursuant to Section 4. at the end of a specified deferral period, as set
forth in the Incentive Agreement pertaining thereto.
(n) DISABILITY. As determined by the Committee in its discretion
exercised in good faith, a physical or mental condition of the Employee
that would entitle him to disability income payments under the Company's
long term disability insurance policy or plan for employees, as then
effective, if any; or in the event that the Grantee is not covered, for
whatever reason, under the Company's long-term disability
I-2
<PAGE> 29
insurance policy or plan, "Disability" means a permanent and total
disability as defined in Section 22(e)(3) of the Code. A determination of
Disability may be made by a physician selected or approved by the
Committee and, in this respect, the Grantee shall submit to any
reasonable examination by such physician upon request.
(o) EMPLOYEE. Any employee of the Company (or any Parent or
Subsidiary) within the meaning of Section 3401(c) of the Code who, in the
opinion of the Committee, is in a position to contribute to the growth,
development or financial success of the Company (or any Parent or
Subsidiary), including, without limitation, officers who are members of
the Board.
(p) EMPLOYMENT. Employment by the Company (or any Parent or
Subsidiary), or by any corporation issuing or assuming an Incentive Award
in any transaction described in Section 424(a) of the Code, or by a
parent corporation or a subsidiary corporation of such corporation
issuing or assuming such Incentive Award, as the parent-subsidiary
relationship shall be determined at the time of the corporate action
described in Section 424(a) of the Code. In this regard, neither the
transfer of a Grantee from Employment by the Company to Employment by any
Parent or Subsidiary, nor the transfer of a Grantee from Employment by
any Parent or Subsidiary to Employment by the Company, shall be deemed to
be a termination of Employment of the Grantee. Moreover, the Employment
of a Grantee shall not be deemed to have been terminated because of an
approved leave of absence from active Employment on account of temporary
illness, authorized vacation or granted for reasons of professional
advancement, education, health, government service or military leave, or
during any period required to be treated as a leave of absence by virtue
of any applicable statute, Company personnel policy or agreement. Whether
an authorized leave of absence shall constitute termination of Employment
hereunder shall be determined by the Committee in its discretion.
Unless otherwise provided in the Incentive Agreement, the term
"Employment" for purposes of the Plan is also defined to include
compensatory or advisory services performed by a Consultant for the
Company (or any Parent or Subsidiary).
(q) EXCHANGE ACT. The Securities Exchange Act of 1934, as amended.
(r) FAIR MARKET VALUE. While the Company is a Publicly Held
Corporation, the Fair Market Value of one share of Common Stock on the
date in question is deemed to be the closing sales price on the
immediately preceding business day of a share of Common Stock as reported
on the New York Stock Exchange or other principal securities exchange on
which Shares are then listed or admitted to trading, or as quoted on any
national interdealer quotation system, if such shares are not so listed.
(s) GRANTEE. Any Employee or Consultant who is granted an Incentive
Award under the Plan.
(t) IMMEDIATE FAMILY. With respect to a Grantee, the Grantee's
child, stepchild, grandchild, parent, stepparent, grandparent, spouse,
former spouse, sibling, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, including adoptive
relationships.
(u) INCENTIVE AWARD. A grant of an award under the Plan to a
Grantee, including any Nonstatutory Stock Option, Incentive Stock Option,
Reload Option, Stock Appreciation Right, Performance Share, or Other
Stock-Based Award, as well as any Supplemental Payment.
(v) INCENTIVE AGREEMENT. The written agreement entered into between
the Company and the Grantee setting forth the terms and conditions
pursuant to which an Incentive Award is granted under the Plan, as such
agreement is further defined in Section 5.1 (a).
(w) INCENTIVE STOCK OPTION OR ISO. A Stock Option granted by the
Committee to an Employee under Section 2 which is designated by the
Committee as an Incentive Stock Option and intended to qualify as an
Incentive Stock Option under Section 422 of the Code.
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(x) INDEPENDENT SAR. A Stock Appreciation Right described in Section
2.5.
(y) INSIDER. While the Company is a Publicly Held Corporation, an
individual who is, on the relevant date, an officer, director or ten
percent (10%) beneficial owner of any class of the Company's equity
securities that is registered pursuant to Section 12 of the Exchange Act,
all as defined under Section 16 of the Exchange Act.
(z) NONSTATUTORY STOCK OPTION. A Stock Option granted by the
Committee to a Grantee under Section 2 that is not designated by the
Committee as an Incentive Stock Option or to which Section 421 of the
Code does not apply.
(aa) OPTION PRICE. The exercise price at which a Share may be
purchased by the Grantee of a Stock Option.
(bb) OTHER STOCK-BASED AWARD. An award granted by the Committee to a
Grantee under Section 2 that is valued in whole or in part by reference
to, or is otherwise based upon, Common Stock.
(cc) PARENT. Any corporation (whether now or hereafter existing)
which constitutes a "Parent" of the Company, as defined in Section 424(e)
of the Code.
(dd) PERFORMANCE-BASED EXCEPTION. The performance-based exception
from the tax deductibility limitations of Section 162(m) of the Code, as
prescribed in Code Section 162(m) and Treasury Regulation Section
1.162-27(e) (or its successor), which is applicable during such period
that the Company is a Publicly Held Corporation.
(ee) PERFORMANCE PERIOD. A period of time determined by the
Committee over which performance is measured for the purpose of
determining a Grantee's right to and the payment value of any Performance
Share or Other Stock-Based Award.
(ff) PERFORMANCE SHARE. An Incentive Award representing a contingent
right to receive shares of Common Stock at the end of a Performance
Period.
(gg) PLAN. Input/Output, Inc. 2000 Long-Term Incentive Plan, as set
forth herein and as it may be amended from time to time.
(hh) PUBLICLY HELD CORPORATION. A corporation issuing any class of
common equity securities required to be registered under Section 12 of
the Exchange Act.
(ii) RETIREMENT. The voluntary termination of Employment from the
Company or any Parent or Subsidiary constituting retirement for age on
any date after the Employee attains the normal retirement age of 65
years, or such other age as may be designated by the Committee in the
Employee's Incentive Agreement.
(jj) SHARE. A share of Common Stock of the Company.
(kk) SHARE POOL. The number of shares authorized for issuance under
Section 1.4 as adjusted for awards and payouts under Section 1.5 and as
adjusted for changes in corporate capitalization under Section 5.5.
(ll) SPREAD. The difference between the exercise price per Share
specified in any SAR grant and the Fair Market Value of a Share on the
date of exercise of the SAR.
(mm) STOCK APPRECIATION RIGHT OR SAR. A Tandem SAR described in
Section 2.4 or an Independent SAR described in Section 2.5.
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(nn) STOCK OPTION OR OPTION. Pursuant to Section 2, (i) an Incentive
Stock Option granted to an Employee, or (ii) a Nonstatutory Stock Option
granted to an Employee or Consultant, whereunder such option the Grantee
has the right to purchase Shares of Common Stock. In accordance with
Section 422 of the Code, only an Employee of the Company, Parent or
Subsidiary may be granted an Incentive Stock Option.
(oo) SUBSIDIARY. Any corporation (whether now or hereafter existing)
which constitutes a "subsidiary" of the Company, as defined in Section
424(f) of the Code.
(pp) SUPPLEMENTAL PAYMENT. Any amount, as described in Sections 2.7,
and/or 3.2, that is dedicated to payment of income taxes which are
payable by the Grantee resulting from an Incentive Award.
(qq) TANDEM SAR. A Stock Appreciation Right that is granted in
connection with a related Stock Option pursuant to Section 2.4, the
exercise of which shall require forfeiture of the right to purchase a
Share under the related Stock Option (and when a Share is purchased under
the Stock Option, the Tandem SAR with respect thereto, shall similarly be
canceled).
1.3 PLAN ADMINISTRATION
(a) AUTHORITY OF THE COMMITTEE. Except as may be limited by law and
subject to the provisions herein, the Committee shall have full power to
(i) select Grantees who shall participate in the Plan; (ii) determine the
sizes, duration and types of Incentive Awards; (iii) determine the terms
and conditions of Incentive Awards and Incentive Agreements; (iv)
determine whether any Shares subject to Incentive Awards will be subject
to any restrictions on transfer; (v) construe and interpret the Plan and
any Incentive Agreement or other agreement entered into under the Plan;
and (vi) establish, amend, or waive rules for the Plan's administration.
Further, the Committee shall make all other determinations which may be
necessary or advisable for the administration of the Plan.
(b) MEETINGS. The Committee shall designate a chairman from among
its members who shall preside at all of its meetings, and shall designate
a secretary, without regard to whether that person is a member of the
Committee, who shall keep the minutes of the proceedings and all records,
documents, and data pertaining to its administration of the Plan.
Meetings shall be held at such times and places as shall be determined by
the Committee and the Committee may hold telephonic meetings.
(c) DECISIONS BINDING. All determinations and decisions made by the
Committee shall be made in its discretion pursuant to the provisions of
the Plan, and shall be final, conclusive and binding on all persons
including the Company, Employees, Grantees, and their estates and
beneficiaries. The Committee's decisions and determinations with respect
to any Incentive Award need not be uniform and may be made selectively
among Incentive Awards and Grantees, whether or not such Incentive Awards
are similar or such Grantees are similarly situated.
(d) MODIFICATION OF OUTSTANDING INCENTIVE AWARDS. Subject to the
stockholder approval requirements of Section 6.7 if applicable, the
Committee may, in its discretion, provide for the extension of the
exercisability of an Incentive Award, accelerate the vesting or
exercisability of an Incentive Award, eliminate or make less restrictive
any restrictions contained in an Incentive Award, waive any restriction
or other provisions of an Incentive Award, or otherwise amend or modify
an Incentive Award in any manner that is either (i) not adverse to the
Grantee to whom such Incentive Award was granted or (ii) consented to by
such Grantee. With respect to an Incentive Award that is an incentive
stock option (as described in Section 422 of the Code), no adjustment to
such option shall be made to the extent constituting a "modification"
within the meaning of Section 424(h)(3) of the Code unless otherwise
agreed to by the optionee in writing.
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(e) DELEGATION OF AUTHORITY. The Committee may delegate to
designated officers or other employees of the Company any of its duties
and authority under the Plan pursuant to such conditions or limitations
as the Committee may establish from time to time; provided, however, the
Committee may not delegate to any person the authority to (i) grant
Incentive Awards, or (ii) take any action which would contravene the
requirements of Rule 16b-3 under the Exchange Act or the
Performance-Based Exception under Section 162(m) of the Code.
(f) EXPENSES OF COMMITTEE. The Committee may employ legal counsel,
including, without limitation, independent legal counsel and counsel
regularly employed by the Company, and other agents, as the Committee may
deem appropriate for the administration of the Plan. The Committee may
rely upon any opinion or computation received from any such counsel or
agent. All expenses incurred by the Committee in interpreting and
administering the Plan, including, without limitation, meeting expenses
and professional fees, shall be paid by the Company.
(g) INDEMNIFICATION. Each person who is or was a member of the
Committee, or of the Board, shall be indemnified by the Company against
and from any damage, loss, liability, cost and expense that may be
imposed upon or reasonably incurred by him in connection with or
resulting from any claim, action, suit, or proceeding to which he may be
a party or in which he may be involved by reason of any action taken or
failure to act under the Plan, except for any such act or omission
constituting willful misconduct or gross negligence. Such person shall be
indemnified by the Company for all amounts paid by him in settlement
thereof, with the Company's approval, or paid by him in satisfaction of
any judgment in any such action, suit, or proceeding against him,
provided he shall give the Company an opportunity, at its own expense, to
handle and defend the same before he undertakes to handle and defend it
on his own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons
may be entitled under the Company's Articles or Certificate of
Incorporation or Bylaws, by contract, as a matter of law, or otherwise,
or any power that the Company may have to indemnify them or hold them
harmless.
(h) AWARDS IN FOREIGN COUNTRIES. The Board shall have the authority
to adopt modifications, procedures, sub-plans, and other similar plan
documents as may be necessary or desirable to comply with provisions of
the laws of foreign countries in which the Company or its subsidiaries
may operate to assure the viability of the benefits of Incentive Awards
made to individuals employed in such countries and to meet the objectives
of the Plan.
1.4 SHARES OF COMMON STOCK AVAILABLE FOR INCENTIVE AWARDS
Subject to adjustment under Section 5.5, there shall be available for
Incentive Awards that are granted wholly or partly in Common Stock (including
rights or Options that may be exercised or settled in Common Stock) 1,200,000
Shares of Common Stock. In addition to the 1,200,000 Shares reserved pursuant to
the previous sentence, there also be available for grants of Incentive Awards
under the Plan, an additional 909,275 Shares which represents the number of
Shares that were reserved under the Company's now terminated Amended and
Restated 1990 Stock Option Plan (but not covered by exercised or outstanding
options thereunder) and have been assumed under this Plan as of the Effective
Date.
The number of Shares of Common Stock that are the subject of Incentive
Awards under this Plan, that are forfeited or terminated, expire unexercised,
are settled in cash in lieu of Common Stock or in a manner such that all or some
of the Shares covered by an Incentive Award are not issued to a Grantee or are
exchanged for Incentive Awards that do not involve Common Stock, shall again
immediately become available for Incentive Awards hereunder; provided, however,
the aggregate number of Shares which may be issued upon exercise of ISOs shall
in no event exceed 1,200,000 Shares (subject to adjustment pursuant to Section
5.5). The Committee may from time to time adopt and observe such procedures
concerning the counting of Shares against the Plan maximum as it may deem
appropriate.
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While the Company is a Publicly Held Corporation, then unless and until
the Committee determines that a particular Incentive Award granted to a Covered
Employee is not intended to comply with the Performance-Based Exception which
shall be done in accordance with the time periods in Code Section 162(m) and the
regulations thereunder, the following rules shall apply to grants of Incentive
Awards to Covered Employees:
(a) Subject to adjustment as provided in Section 5.5, the maximum
aggregate number of Shares of Common Stock (including Stock Options,
SARS, Performance Shares paid out in Shares, or Other Stock-Based Awards
paid out in Shares) that may be granted or that may vest, as applicable,
in any consecutive four year period pursuant to any Incentive Awards held
by any individual Covered Employee shall be 1,200,000 Shares.
(b) The maximum aggregate cash payout (including SARS and
Performance Shares paid out in cash, or Other Stock-Based Awards paid out
in cash) with respect to Incentive Awards granted in any calendar year
which may be made to any Covered Employee shall be Twenty Million dollars
($20,000,000).
(c) With respect to any Stock Option or Stock Appreciation Right
granted to a Covered Employee that is canceled, the number of Shares
subject to such Stock Option or Stock Appreciation Right shall continue
to count against the maximum number of Shares that may be the subject of
Stock Options or Stock Appreciation Rights granted to such Covered
Employee hereunder and, in this regard, such maximum number shall be
determined in accordance with Section 162(m) of the Code.
1.5 SHARE POOL ADJUSTMENTS FOR AWARDS AND PAYOUTS.
The following Incentive Awards and payouts shall reduce, on a one Share
for one Share basis, the number of Shares authorized for issuance under the
Share Pool:
(a) Stock Option;
(b) SAR (except a Tandem SAR);
(c) A payout of a Performance Share in Shares;
(d) A payout of an Other Stock-Based Award in Shares.
The following transactions shall restore, on a one Share for one Share
basis, the number of Shares authorized for issuance under the Share Pool:
(a) A payout of an SAR or Other Stock-Based Award in the form of
cash;
(b) A cancellation, termination, expiration, forfeiture, or lapse
for any reason (with the exception of the termination of a Tandem SAR
upon exercise of the related Stock Option, or the termination of a
related Stock Option upon exercise of the corresponding Tandem SAR) of
any Shares subject to an Incentive Award; and
(c) Payment of an Option Price with previously acquired Shares or by
withholding Shares which otherwise would be acquired on exercise (i.e.,
the Share Pool shall be increased by the number of Shares turned in or
withheld as payment of the Option Price plus any Shares withheld to pay
withholding taxes).
1.6 COMMON STOCK AVAILABLE.
The Common Stock available for issuance or transfer under the Plan
shall be made available from Shares now or hereafter (a) held in the treasury of
the Company, (b) authorized but unissued shares, or (c) shares to be
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purchased or acquired by the Company. No fractional shares shall be issued under
the Plan; payment for fractional shares shall be made in cash.
1.7 PARTICIPATION
(a) ELIGIBILITY. The Committee shall from time to time designate
those Employees or Consultants, if any, to be granted Incentive Awards
under the Plan, the type of Incentive Awards granted, the number of
Shares, Stock Options, rights, as the case may be, which shall be granted
to each such person, and any other terms or conditions relating to the
Incentive Awards as it may deem appropriate to the extent consistent with
the provisions of the Plan. A Grantee, who has been granted an Incentive
Award may, if otherwise eligible, be granted additional Incentive Awards
at any time.
(b) INCENTIVE STOCK OPTION ELIGIBILITY. No Consultant shall be
eligible for the grant of any Incentive Stock Option. In addition, no
Employee shall be eligible for the grant of any Incentive Stock Option
who owns or would own immediately before the grant of such Incentive
Stock Option, directly or indirectly, stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock
of the Company, or any Parent or Subsidiary. This restriction does not
apply if, at the time such Incentive Stock Option is granted, the
Incentive Stock Option exercise price is at least one hundred and ten
percent (110%) of the Fair Market Value on the date of grant and the
Incentive Stock Option by its terms is not exercisable after the
expiration of five (5) years from the date of grant. For the purpose of
the immediately preceding sentence, the attribution rules of Section
424(d) of the Code shall apply for the purpose of determining an
Employee's percentage ownership in the Company or any Parent or
Subsidiary. This paragraph shall be construed consistent with the
requirements of Section 422 of the Code.
1.8 TYPES OF INCENTIVE AWARDS
The types of Incentive Awards under the Plan are Stock Options, Stock
Appreciation Rights and Supplemental Payments as described in Section 2,
Performance Shares and Supplemental Payments as described in Section 3, Other
Stock-Based Awards and Supplemental Payments as described in Section 5, and any
combination of the foregoing.
SECTION 2.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
2.1 GRANT OF STOCK OPTIONS
The Committee is authorized to grant (a) Nonstatutory Stock Options to
Employees or Consultants and (b) Incentive Stock Options to Employees only, in
accordance with the terms and conditions of the Plan, and with such additional
terms and conditions, not inconsistent with the Plan, as the Committee shall
determine in its discretion. Successive grants may be made to the same Grantee
whether or not any Stock Option previously granted to such person remains
unexercised.
2.2 STOCK OPTION TERMS
(a) WRITTEN AGREEMENT. Each grant of a Stock Option shall be
evidenced by a written Incentive Agreement. Among its other provisions,
each Incentive Agreement shall set forth, subject to Section 422 of the
Code, the extent to which the Grantee shall have the right to exercise
the Stock Option following termination of the Grantee's Employment. Such
provisions shall be determined in the discretion of the Committee, shall
be included in the Grantee's Incentive Agreement, and need not be uniform
among all Stock Options issued pursuant to the Plan.
(b) NUMBER OF SHARES. Each Stock Option shall specify the number of
Shares of Common Stock to which it pertains.
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(c) EXERCISE PRICE. The exercise price per Share of Common Stock
under each Stock Option shall be determined by the Committee; provided,
however, that in the case of an Incentive Stock Option, such exercise
price shall not be less than 100% of the Fair Market Value per Share on
the date the Incentive Stock Option is granted (110% for 10% or greater
shareholders pursuant to Section 1.7(b)). To the extent that the Company
is a Publicly Held Corporation and the Stock Option is intended to
qualify for the Performance-Based Exception, the exercise price shall not
be less than 100% of the Fair Market Value per Share on the date the
Stock Option is granted. Each Stock Option shall specify the method of
exercise which shall be consistent with the requirements of Section
2.3(a).
(d) TERM. In the Incentive Agreement, the Committee shall fix the
term of each Stock Option which shall be not more than ten (10) years
from the date of grant (five years for ISO grants to 10% or greater
shareholders pursuant to Section 1.7(b)). In the event no term is fixed,
such term shall be ten (10) years from the date of grant.
(e) EXERCISE. The Committee shall determine the time or times at
which a Stock Option may be exercised in whole or in part. Each Stock
Option may specify the required period of continuous Employment and/or
the performance objectives to be achieved before the Stock Option or
portion thereof will become exercisable. Each Stock Option, the exercise
of which, or the timing of the exercise of which, is dependent, in whole
or in part, on the achievement of designated performance objectives, may
specify a minimum level of achievement in respect of the specified
performance objectives below which no Stock Options will be exercisable
and a method for determining the number of Stock Options that will be
exercisable if performance is at or above such minimum but short of full
achievement of the performance objectives. All such terms and conditions
shall be set forth in the Incentive Agreement.
(f) $100,000 ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS.
Notwithstanding any contrary provision in the Plan, to the extent that
the aggregate Fair Market Value (determined as of the time the Incentive
Stock Option is granted) of the Shares of Common Stock with respect to
which Incentive Stock Options are exercisable for the first time by any
Grantee during any single calendar year (under the Plan and any other
stock option plans of the Company and its Subsidiaries or Parent) exceeds
the sum of $100,000, such Incentive Stock Option shall be treated as a
Nonstatutory Stock Option to the extent in excess of the $ 100,000 limit,
and not an Incentive Stock Option, but all other terms and provisions of
such Stock Option shall remain unchanged. This paragraph shall be applied
by taking Incentive Stock Options into account in the order in which they
were granted and shall be construed in accordance with Section 422(d) of
the Code. In the absence of such regulations or other authority, or if
such regulations or other authority require or permit a designation of
the Options which shall cease to constitute Incentive Stock Options, then
such Incentive Stock Options, only to the extent of such excess, shall
automatically be deemed to be Nonstatutory Stock Options but all other
terms and conditions of such Incentive Stock Options, and the
corresponding Incentive Agreement, shall remain unchanged.
2.3 STOCK OPTION EXERCISES
(a) METHOD OF EXERCISE AND PAYMENT. Stock Options shall be exercised
by the delivery of a signed written notice of exercise to the Company as
of a date set by the Company in advance of the effective date of the
proposed exercise. The notice shall set forth the number of Shares with
respect to which the Option is to be exercised.
The Option Price upon exercise of any Stock Option shall be payable to
the Company in full either: (i) in cash or its equivalent, or (ii) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time of
exercise equal to the Option Price, or (iii) by withholding Shares which
otherwise would be acquired on exercise having an aggregate Fair Market Value at
the time of exercise equal to the total Option Price, or (iv) by any combination
of (i), (ii), and (iii) above. Any payment in Shares shall be effected by
surrender of such Shares to the Company in good form for transfer and shall be
valued at their Fair Market Value on the date when the Stock Option is
exercised. The Company shall not withhold shares, and the Grantee shall not
surrender, or attest to the ownership of, Shares in payment of the Option Price
if such action would cause the Company to recognize
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compensation expense (or additional compensation expense) with respect to the
Stock Option for financial reporting purposes.
While the Company is a Publicly Held Corporation, the Committee may
also allow the Option Price to be paid with such other consideration as shall
constitute lawful consideration for the issuance of Shares (including, without
limitation, effecting a "cashless exercise" with a broker or dealer), subject to
applicable securities law restrictions and tax withholdings, or by any other
means which the Committee determines to be consistent with the Plan's purpose
and applicable law.
As soon as practicable after receipt of a written notification of
exercise and full payment, the Company shall deliver, or cause to be delivered,
to or on behalf of the Grantee, in the name of the Grantee or other appropriate
recipient, Share certificates for the number of Shares purchased under the Stock
Option. Such delivery shall be effected for all purposes when the Company or a
stock transfer agent of the Company shall have deposited such certificates in
the United States mail, addressed to Grantee or other appropriate recipient.
Subject to Section 5.2 during the lifetime of a Grantee, each Option
granted to him shall be exercisable only by the Grantee (or his legal guardian
or personal representative in the event of his Disability) or by a broker or
dealer acting on his behalf pursuant to a cashless exercise under the foregoing
provisions of this Section 2.3(a).
(b) RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose
such restrictions on any Shares acquired pursuant to the exercise of a
Stock Option as it may deem advisable, including, without limitation,
restrictions under (i) any stockholders' agreement, buy/sell agreement,
right of first refusal, non-competition, and any other agreement between
the Company and any of its securities holders or employees, (ii) any
applicable federal securities laws, (iii) the requirements of any stock
exchange or market upon which such Shares are then listed and/or quoted,
or (iv) any blue sky or state securities law applicable to such Shares.
Any certificate issued to evidence Shares issued upon the exercise of an
Incentive Award may bear such legends and statements as the Committee
shall deem advisable to assure compliance with federal and state laws and
regulations.
Any Grantee or other person exercising an Incentive Award may be
required by the Committee to give a written representation that the Incentive
Award and the Shares subject to the Incentive Award will be acquired for
investment and not with a view to public distribution; provided, however, that
the Committee, in its sole discretion, may release any person receiving an
Incentive Award from any such representations either prior to or subsequent to
the exercise of the Incentive Award.
(c) NOTIFICATION OF DISQUALIFYING DISPOSITION OF SHARES FROM
INCENTIVE STOCK OPTIONS. Notwithstanding any other provision of the Plan,
a Grantee who disposes of Shares of Common Stock acquired upon the
exercise of an Incentive Stock Option by a sale or exchange either (i)
within two (2) years after the date of the grant of the Incentive Stock
Option under which the Shares were acquired or (ii) within one (1) year
after the transfer of such Shares to him pursuant to exercise, shall
promptly notify the Company of such disposition, the amount realized and
his adjusted basis in such Shares.
(d) PROCEEDS OF OPTION EXERCISE. The proceeds received by the
Company from the sale of Shares pursuant to Stock Options exercised under
the Plan shall be used for general corporate purposes.
(e) INFORMATION REQUIRED IN CONNECTION WITH EXERCISE OF INCENTIVE
STOCK OPTION. The Company shall provide the Grantee with a written
statement required by Code Section 6039 no later than January 31 of the
year following the calendar year during which the Grantee exercises an
Option that is intended to be an Incentive Stock Option.
2.4 STOCK APPRECIATION RIGHTS IN TANDEM WITH NONSTATUTORY STOCK OPTIONS
(a) GRANT. The Committee may, at the time of grant of a Nonstatutory
Stock Option, or at any time thereafter during the term of the
Nonstatutory Stock Option, grant Stock Appreciation Rights with respect
to all or any portion of the Shares of Common Stock covered by such
Nonstatutory Stock Option.
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A Stock Appreciation Right in tandem with a Nonstatutory Stock Option is
referred to herein as a "Tandem SAR."
(b) GENERAL PROVISIONS. The terms and conditions of each Tandem SAR
shall be evidenced by an Incentive Agreement. The Option Price per Share
of a Tandem SAR shall be fixed in the Incentive Agreement and shall not
be less than one hundred percent (100%) of the Fair Market Value of a
Share on the grant date of the Nonstatutory Stock Option to which it
relates.
(c) EXERCISE. A Tandem SAR may be exercised at any time the
Nonstatutory Stock Option to which it relates is then exercisable, but
only to the extent such Nonstatutory Stock Option is exercisable, and
shall otherwise be subject to the conditions applicable to such
Nonstatutory Stock Option. When a Tandem SAR is exercised, the
Nonstatutory Stock Option to which it relates shall terminate to the
extent of the number of Shares with respect to which the Tandem SAR is
exercised. Similarly, when a Nonstatutory Stock Option is exercised, the
Tandem SARs relating to the Shares covered by such Nonstatutory Stock
Option exercise shall terminate.
(d) SETTLEMENT. Upon exercise of a Tandem SAR, the holder shall
receive, for each Share specified in the Tandem SAR grant, an amount
equal to the Spread. The Spread shall be payable in cash, Common Stock,
or a combination of both, as specified in the Incentive Agreement. The
Appreciation shall be paid within 30 calendar days of the exercise of the
Tandem SAR. If the Appreciation is to be paid in Common Stock or cash
only, the resulting shares or cash shall be determined dividing (1) by
(2), where (1) is the number of Shares as to which the Tandem SAR is
exercised multiplied by the Appreciation in such shares and (2) is the
Fair Market Value of a Share on the exercise date. If a portion of the
Appreciation is to be paid in Shares, the Share amount shall be
determined by calculating the amount of cash payable pursuant to the
preceding sentence then by dividing (1) as defined herein, minus the
amount of cash payable, by (2) as defined herein.
2.5 STOCK APPRECIATION RIGHTS INDEPENDENT OF NONSTATUTORY STOCK OPTIONS
(a) GRANT. The Committee may grant Stock Appreciation Rights
independent of Nonstatutory Stock Options ("Independent SARs").
(b) GENERAL PROVISIONS. The terms and conditions of each Independent
SAR shall be evidenced by an Incentive Agreement. The exercise price per
share of Common Stock shall be not less than one hundred percent (100%)
of the Fair Market Value of a Share of Common Stock on the date of grant
of the Independent SAR. The term of an Independent SAR shall be
determined by the Committee.
(c) EXERCISE. Independent SARs shall be exercisable at such time and
subject to such terms and conditions as the Committee shall specify in
the Incentive Agreement for the Independent SAR grant.
(d) SETTLEMENT. Upon exercise of an Independent SAR, the holder
shall receive, for each Share specified in the Independent SAR grant, an
amount equal to the Spread. The Spread shall be payable in cash, Common
Stock, or a combination of both, as specified in the Incentive Agreement.
The Spread shall be paid within 30 calendar days of the exercise of the
Independent SAR. If the Appreciation is to be paid in Common Stock or
cash only, the resulting shares or cash shall be determined by dividing
(1) by (2), where (1) is the number of Shares as to which the Independent
SAR is exercised multiplied by the Spread in such Shares and (2) is the
Fair Market Value of a Share on the exercise date. If a portion of the
Appreciation is to be paid in Shares, the Share amount shall be
determined by calculating the amount of cash payable pursuant to the
preceding sentence then by dividing (1) as defined herein, minus the
amount of cash payable, by (2) as defined herein.
2.6 RELOAD OPTIONS
At the discretion of the Committee, the Grantee may be granted under an
Incentive Agreement, Stock Options under the Plan that permit the Grantee to
purchase an additional number of Shares equal to the number of
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previously owned Shares surrendered by the Grantee to pay for all or a portion
of the Option Price or taxes upon exercise of his Stock Options. The terms and
conditions of such Stock Options shall be set forth in the Incentive Agreement.
2.7 SUPPLEMENTAL PAYMENT ON EXERCISE OF NONSTATUTORY STOCK OPTIONS OR STOCK
APPRECIATION RIGHTS
The Committee, either at the time of grant or as of the time of
exercise of any Nonstatutory Stock Option or Stock Appreciation Right, may
provide in the Incentive Agreement for a Supplemental Payment by the Company to
the Grantee with respect to the exercise of any Nonstatutory Stock Option or
Stock Appreciation Right. The Supplemental Payment shall be in the amount
specified by the Committee, which amount shall not exceed the amount necessary
to pay the federal and state income tax payable with respect to both the
exercise of the Nonstatutory Stock Option and/or Stock Appreciation Right and
the receipt of the Supplemental Payment, assuming the holder is taxed at either
the maximum effective income tax rate applicable thereto or at a lower tax rate
as deemed appropriate by the Committee. The Committee shall have the discretion
to grant Supplemental Payments that are payable solely in cash or Supplemental
Payments that are payable in cash, Common Stock, or a combination of both, as
determined by the Committee at the time of payment.
SECTION 3.
PERFORMANCE SHARES
3.1 PERFORMANCE BASED AWARDS
(a) GRANT. The Committee is authorized to grant Performance Shares
to selected Grantees who are Employees or Consultants. Each grant of
Performance Shares shall be evidenced by an Incentive Agreement in such
amounts and upon such terms as shall be determined by the Committee. The
Committee may make grants of Performance Shares in such a manner that
more than one Performance Period is in progress concurrently. For each
Performance Period, the Committee shall establish the number of
Performance Shares and their contingent values which may vary depending
on the degree to which performance criteria established by the Committee
are met.
(b) PERFORMANCE CRITERIA. The Committee may establish performance
goals applicable to Performance Shares based upon criteria in one or more
of the following categories: (i) performance of the Company as a whole,
(ii) performance of a segment of the Company's business, and (iii)
individual performance. Performance criteria for the Company shall relate
to the achievement of predetermined financial objectives for the Company
and its Subsidiaries on a consolidated basis. Performance criteria for a
segment of the Company's business shall relate to the achievement of
financial and operating objectives of the segment for which the
participant is accountable. Examples of performance criteria shall
include (but are not limited to) pre-tax or after-tax profit levels,
including: earnings per share, earnings before interest and taxes,
earnings before interest, taxes, depreciation and amortization, net
operating profits after tax, and net income; total shareholder return;
return on assets, equity, capital or investment; cash flow and cash flow
return on investment; economic value added and economic profit; growth in
earnings per share; levels of operating expense and maintenance expense
or measures of customer satisfaction and customer service as determined
from time to time including the relative improvement therein. Individual
performance criteria shall relate to a participant's overall performance,
taking into account, among other measures of performance, the attainment
of individual goals and objectives. The performance goals may differ
among participants.
(c) MODIFICATION. If the Committee determines, in its discretion
exercised in good faith, that the established performance measures or
objectives are no longer suitable to the Company's objectives because of
a change in the Company's business, operations, corporate structure,
capital structure, or other conditions the Committee deems to be
appropriate, the Committee may modify the performance measures and
objectives to the extent it considers to be necessary. The Committee
shall not permit any such modification that would cause the Performance
Shares to fail to qualify for the Performance-Based Exception, if
applicable.
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(d) PAYMENT. The basis for payment of Performance Shares for a given
Performance Period shall be the achievement of those performance
objectives determined by the Committee at the beginning of the
Performance Period as specified in the Grantee's Incentive Agreement. If
minimum performance is not achieved for a Performance Period, no payment
shall be made and all contingent rights shall cease. If minimum
performance is achieved or exceeded, the number of Performance Shares may
be based on the degree to which actual performance exceeded the
pre-established minimum performance standards. The amount of payment
shall be determined by multiplying the number of Performance Shares
granted at the beginning of the Performance Period times the final
Performance Share value. Payments shall be made, in the discretion of the
Committee as specified in the Incentive Agreement, solely in Common
Stock.
(e) SPECIAL RULE FOR COVERED EMPLOYEES. No later than the ninetieth
(90th) day following the beginning of a Performance Period (or
twenty-five percent (25%) of the Performance Period) the Committee shall
establish performance goals as described in Section 3.1(b) applicable to
Performance Shares awarded to Covered Employees in such a manner as shall
permit payments with respect thereto to qualify for the Performance-Based
Exception, if applicable. If a Performance Share granted to a Covered
Employee is intended to comply with the Performance-Based Exception, the
Committee in establishing performance goals shall comply with Treasury
Regulation Section 1.162-27(e)(2) (or its successor). As soon as
practicable following the Company's determination of the Company's
financial results for any Performance Period, the Committee shall certify
in writing: (i) whether the Company achieved its minimum performance for
the objectives for the Performance Period, (ii) the extent to which the
Company achieved its performance objectives for the Performance Period,
(iii) any other terms that are material to the grant of Performance
Shares, and (iv) the calculation of the payments, if any, to be paid to
each Grantee for the Performance Period.
3.2 SUPPLEMENTAL PAYMENT ON VESTING OF PERFORMANCE SHARES
The Committee, either at the time of grant or at the time of vesting of
Performance Shares, may provide for a Supplemental Payment by the Company to the
Grantee in an amount specified by the Committee, which amount shall not exceed
the amount necessary to pay the federal and state income tax payable with
respect to both the vesting of such Performance Shares and receipt of the
Supplemental Payment, assuming the Grantee is taxed at either the maximum
effective income tax rate applicable thereto or at a lower tax rate as seemed
appropriate by the Committee. The Committee shall have the discretion to grant
Supplemental Payments that are payable in Common Stock.
SECTION 4.
OTHER STOCK-BASED AWARDS
4.1 GRANT OF OTHER STOCK-BASED AWARDS
Other Stock-Based Awards may be awarded by the Committee to selected
Grantees that are denominated or payable in, valued in whole or in part by
reference to, or otherwise related to, Shares of Common Stock, as deemed by the
Committee to be consistent with the purposes of the Plan and the goals of the
Company. Other types of Stock-Based Awards include, without limitation, Deferred
Stock, purchase rights, Shares of Common Stock awarded which are not subject to
any restrictions or conditions, convertible or exchangeable debentures, other
rights convertible into Shares, Incentive Awards valued by reference to the
value of securities of or the performance of a specified Subsidiary, division or
department, and settlement in cancellation of rights of any person with a vested
interest in any other plan, fund, program or arrangement that is or was
sponsored, maintained or participated in by the Company or any Parent or
Subsidiary. As is the case with other Incentive Awards, Other Stock-Based Awards
may be awarded either alone or in addition to or in tandem with any other
Incentive Awards.
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4.2 OTHER STOCK-BASED AWARD TERMS
(a) WRITTEN AGREEMENT. The terms and conditions of each grant of an
Other Stock-Based Award shall be evidenced by an Incentive Agreement.
(b) PURCHASE PRICE. Except to the extent that an Other Stock-Based
Award is granted in substitution for an outstanding Incentive Award or is
delivered upon exercise of a Stock Option, the amount of consideration
required to be received by the Company shall be either (i) no
consideration other than services actually rendered (in the case of
authorized and unissued shares) or to be rendered, or (ii) in the case of
an Other Stock-Based Award in the nature of a purchase right,
consideration (other than services rendered or to be rendered) at least
equal to 50% of the Fair Market Value of the Shares covered by such grant
on the date of grant (or such percentage higher than 50% that is required
by any applicable tax or securities law).
(c) PERFORMANCE CRITERIA AND OTHER TERMS. In its discretion, the
Committee may specify such criteria, periods or goals for vesting in
Other Stock-Based Awards and payment thereof to the Grantee as it shall
determine; and the extent to which such criteria, periods or goals have
been met shall be determined by the Committee. All terms and conditions
of Other Stock-Based Awards shall be determined by the Committee and set
forth in the Incentive Agreement. The Committee may also provide for a
Supplemental Payment similar to such payment as described in Section 3.2.
(d) PAYMENT. Other Stock-Based Awards may be paid in Shares of
Common Stock or other consideration related to such Shares, in a single
payment or in installments on such dates as determined by the Committee,
all as specified in the Incentive Agreement.
(e) DIVIDENDS. The Grantee of an Other Stock-Based Award may be
entitled to receive, currently or on a deferred basis, dividends or
dividend equivalents with respect to the number of Shares covered by the
Other Stock-Based Award, as determined by the Committee and set forth in
the Incentive Agreement. The Committee may also provide in the Incentive
Agreement that such amounts (if any) shall be deemed to have been
reinvested in additional Shares of Common Stock.
SECTION 5.
PROVISIONS RELATING TO PLAN PARTICIPATION
5.1 PLAN CONDITIONS
(a) INCENTIVE AGREEMENT. Each Grantee to whom an Incentive Award is
granted shall be required to enter into an Incentive Agreement with the
Company, in such a form as is provided by the Committee. The Incentive
Agreement shall contain specific terms as determined by the Committee, in
its discretion, with respect to the Grantee's particular Incentive Award.
Such terms need not be uniform among all Grantees or any
similarly-situated Grantees. The Incentive Agreement may include, without
limitation, vesting, forfeiture and other provisions particular to the
particular Grantee's Incentive Award, as well as, for example, provisions
to the effect that the Grantee (i) shall not disclose any confidential
information acquired during Employment with the Company, (ii) shall abide
by all the terms and conditions of the Plan and such other terms and
conditions as may be imposed by the Committee, (iii) shall not interfere
with the employment or other service of any employee, (iv) shall not
compete with the Company or become involved in a conflict of interest
with the interests of the Company, (v) shall forfeit an Incentive Award
as determined by the Committee (including if terminated for Cause), (vi)
shall not be permitted to make an election under Section 83(b) of the
Code when applicable, and (vii) shall be subject to any other agreement
between the Grantee and the Company regarding Shares that may be acquired
under an Incentive Award including, without limitation, a stockholders'
agreement or other agreement restricting the transferability of Shares by
Grantee. An Incentive Agreement shall include such terms and conditions
as are determined by the Committee, in its discretion, to be appropriate
with respect to any
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individual Grantee. The Incentive Agreement shall be signed by the
Grantee to whom the Incentive Award is made and by an Authorized Officer.
(b) NO RIGHT TO EMPLOYMENT. Nothing in the Plan or any instrument
executed pursuant to the Plan shall create any Employment rights
(including without limitation, rights to continued Employment or to
continue to provide services as a Consultant) by any Grantee or affect
the right of the Company to terminate the Employment or services of any
Grantee at any time without regard to the existence of the Plan.
(c) SECURITIES REQUIREMENTS. The Company shall be under no
obligation to effect the registration pursuant to the Securities Act of
1933 of any Shares of Common Stock to be issued hereunder or to effect
similar compliance under any state laws. Notwithstanding anything herein
to the contrary, the Company shall not be obligated to cause to be issued
or delivered any certificates evidencing Shares pursuant to the Plan
unless and until the Company is advised by its counsel that the issuance
and delivery of such certificates is in compliance with all applicable
laws, regulations of governmental authorities, and the requirements of
any securities exchange or national quotation system on which Shares are
traded or quoted. The Committee may require, as a condition of the
issuance and delivery of certificates evidencing Shares of Common Stock
pursuant to the terms hereof, that the recipient of such Shares make such
covenants, agreements and representations, and that such certificates
bear such legends, as the Committee, in its discretion, deems necessary
or desirable.
If the Shares issuable on exercise of an Incentive Award are not
registered under the Securities Act of 1933, the Company may imprint on the
certificate for such Shares the following legend or any other legend which
counsel for the Company considers necessary or advisable to comply with the
Securities Act of 1933:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR
TRANSFERRED EXCEPT UPON SUCH REGISTRATION OR UPON RECEIPT BY
THE CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION, IN FORM AND SUBSTANCE SATISFACTORY TO THE
CORPORATION, THAT REGISTRATION IS NOT REQUIRED FOR SUCH SALE
OR TRANSFER.
5.2 TRANSFERABILITY
Incentive Awards granted under the Plan shall not be transferable or
assignable, pledged, or otherwise encumbered other than by will or the laws of
descent and distribution. However, only with respect to Incentive Awards that
are not Incentive Stock Options, the Committee may, in its discretion, authorize
all or a portion of the Nonstatutory Stock Options to be granted on terms which
permit transfer by the Grantee to (i) the members of the Grantee's Immediate
Family, (ii) a trust or trusts for the exclusive benefit of Immediate Family
members, (iii) a partnership in which Immediate Family members are the only
partners, (iv) any other entity owned solely by Immediate Family members, or (v)
pursuant to a domestic relations order that would qualify under Code Section
414(p); provided that (A) the Incentive Agreement pursuant to which such
Nonstatutory Stock Options are granted must expressly provide for
transferability in a manner consistent with this Section 5.2, (B) the actual
transfer must be approved in advance by the committee, and (C) subsequent
transfers of transferred Nonstatutory Stock Options shall be prohibited except
in accordance with the first sentence of this section. Following any permitted
transfer, the Nonstatutory Stock Option shall continue to be subject to the same
terms and conditions as were applicable immediately prior to transfer, provided
that the term "Grantee" (subject to the immediately succeeding paragraph) shall
be deemed to refer to the transferee. The events of termination of employment,
as set out in Section 5.6 and in the Incentive Agreement, shall continue to be
applied with respect to the original Grantee, and the Incentive Award shall be
exercisable by the transferee only to the extent, and for the periods, specified
in the Incentive Agreement.
Except as may otherwise be permitted under the Code, in the event of a
permitted transfer of a Nonstatutory Stock Option hereunder, the original
Grantee shall remain subject to withholding taxes upon exercise. In addition,
the Company and the Committee shall have no obligation to provide any notices to
any Grantee or
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transferee thereof, including, for example, notice of the expiration of an
Incentive Award following the original Grantee's termination of employment.
The designation by a Grantee of a beneficiary of an Incentive Award
shall not constitute a transfer of the Incentive Award. No transfer by will or
by the laws of descent and distribution shall be effective to bind the Company
unless the Committee has been furnished with a copy of the deceased Grantee's
enforceable will or such other evidence as the Committee deems necessary to
establish the validity of the transfer. Any attempted transfer in violation of
this Section 5.2 shall be void and ineffective. The Committee in its discretion
shall make all determinations under this Section 5.2.
5.3 RIGHTS AS A STOCKHOLDER
(a) NO STOCKHOLDER RIGHTS. A Grantee of an Incentive Award (or a
permitted transferee of such Grantee) shall have no rights as a
stockholder with respect to any Shares of Common Stock until the issuance
of a stock certificate for such Shares.
(b) REPRESENTATION OF OWNERSHIP. In the case of the exercise of an
Incentive Award by a person or estate acquiring the right to exercise
such Incentive Award by reason of the death or Disability of a Grantee,
the Committee may require reasonable evidence as to the ownership of such
Incentive Award or the authority of such person and may require such
consents and releases of taxing authorities as the Committee may deem
advisable.
5.4 LISTING AND REGISTRATION OF SHARES OF COMMON STOCK
The exercise of any Incentive Award granted hereunder shall only be
effective at such time as counsel to the Company shall have determined that the
issuance and delivery of Shares of Common Stock pursuant to such exercise is in
compliance with all applicable laws, regulations of governmental authorities and
the requirements of any securities exchange or quotation system on which Shares
of Common Stock are traded or quoted. The Committee may, in its discretion,
defer the effectiveness of any exercise of an Incentive Award in order to allow
the issuance of Shares of Common Stock to be made pursuant to registration or an
exemption from registration or other methods for compliance available under
federal or state securities laws. The Committee shall inform the Grantee in
writing of its decision to defer the effectiveness of the exercise of an
Incentive Award.
5.5 CHANGE IN STOCK AND ADJUSTMENTS
(a) CHANGES IN LAW. Subject to Section 5.7 (which only applies in
the event of a Change of Control), in the event of any change in
applicable law which warrants equitable adjustment because it interferes
with the intended operation of the Plan, then, if the Committee should
determine, in its absolute discretion, that such change equitably
requires an adjustment in the number or kind of shares of stock or other
securities or property theretofore subject, or which may become subject,
to issuance or transfer under the Plan or in the terms and conditions of
outstanding Incentive Awards, such adjustment shall be made in accordance
with such determination. Such adjustments may include changes with
respect to (i) the aggregate number of Shares that may be issued under
the Plan, (ii) the number of Shares subject to Incentive Awards, and
(iii) the price per Share for outstanding Incentive Awards. Any
adjustment under this paragraph of an outstanding Incentive Stock Option
shall be made only to the extent not constituting a "modification" within
the meaning of Section 424(h)(3) of the Code unless otherwise agreed to
by the Grantee in writing. The Committee shall give notice to each
applicable Grantee of such adjustment which shall be effective and
binding.
(b) EXERCISE OF CORPORATE POWERS. The existence of the Plan or
outstanding Incentive Awards 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 ahead of or affecting the Common
Stock or the rights
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thereof, or the 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.
(c) RECAPITALIZATION OF THE COMPANY. Subject to Section 5.7 (which
only applies in the event of a Change in Control), in the event that the
Committee shall determine that any dividend or other distribution
(whether in the form of cash, Common Stock, other securities, or other
property), re-capitalization, stock split, reverse stock split, rights
offering, reorganization, merger, consolidation, split-up, spin-off,
split-off, combination, subdivision, repurchase, or exchange of Common
Stock or other securities of the Company, issuance of warrants or other
rights to purchase Common Stock or other securities of the Company, or
other similar corporate transaction or event affects the Common Stock
such that an adjustment is determined by the Committee to be appropriate
to prevent the dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan, then the Committee
shall, in such manner as it deems equitable, adjust any or all of (i) the
number of shares and type of Common Stock (or the securities or property)
which thereafter may be made the subject of Incentive Awards, (ii) the
number of shares and type of Common Stock (or other securities or
property) subject to outstanding Incentive Awards, (iii) the number of
shares and type of Common Stock (or other securities or property) subject
to the annual per-individual limitation under Section 1.4 (a) of the
Plan, (iv) the Option Price of each outstanding Incentive Award, and (v)
the number of or Option Price of shares of Common Stock then subject to
outstanding SARs previously granted and unexercised under the Plan 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 exercise
at the same aggregate Option Price; provided however, that the number of
shares of Common Stock (or other securities or property) subject to any
Incentive Award shall always be a whole number. In lieu of the forgoing,
if deemed appropriate, the Committee may make provision for a cash
payment to the holder of an outstanding Incentive Award. Notwithstanding
the foregoing, no such adjustment or cash payment shall be made or
authorized to the extent that such adjustment or cash payment would cause
the Plan or any Stock Option to violate Code Section 422. Such
adjustments shall be made in accordance with the rules of any securities
exchange, stock market, or stock quotation system to which the Company is
subject.
Upon the occurrence of any such adjustment or cash payment, the Company
shall provide notice to each affected Grantee of its computation of such
adjustment or cash payment, which shall be conclusive and shall be
binding upon each such Grantee.
(d) ISSUE OF COMMON STOCK BY THE COMPANY. Except as herein above
expressly provided in this Section 5.5 and subject to Section 5.7 in the
event of a Change in Control, the issue by the Company of shares of stock
of any class, or securities convertible into shares of stock of any
class, for cash or property, or for labor or services, either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or
upon any 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 Fair
Market Value of, any Incentive Awards then outstanding under previously
granted Incentive Awards.
(e) ASSUMPTION UNDER THE PLAN OF OUTSTANDING STOCK OPTIONS.
Notwithstanding any other provision of the Plan, the Committee, in its
absolute discretion, may authorize the assumption and continuation under
the Plan of outstanding and unexercised stock options or other types of
stock-based incentive awards that were granted under a stock option plan
(or other type of stock incentive plan or agreement) that is or was
maintained by a corporation or other entity that was merged into,
consolidated with, or whose stock or assets were acquired by, the Company
as the surviving corporation. Any such action shall be upon such terms
and conditions as the Committee, in its discretion, may deem appropriate,
including provisions to preserve the holder's rights under the previously
granted and unexercised stock option or other stock-based incentive
award, such as, for example, retaining an existing exercise price under
an outstanding stock option. Any such assumption and continuation of any
such previously granted and unexercised incentive award shall be treated
as an outstanding Incentive Award under the Plan and shall thus count
against the number of Shares reserved for issuance pursuant to Section
1.4. In addition,
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any Shares issued by the Company through the assumption or substitution
of outstanding grants from an acquired company shall reduce the Shares
available for grants under Section 1.4.
(f) ASSUMPTION OF INCENTIVE AWARDS BY A SUCCESSOR. Unless otherwise
determined by the Committee in its discretion pursuant to the next
paragraph, but subject to the accelerated vesting and other provisions of
Section 5.7 that apply in the event of a Change in Control, in the event
of a Corporate Event (defined below), each Grantee shall be entitled to
receive, in lieu of the number of Shares subject to Incentive Awards,
such shares of capital stock (or other securities or property) as may be
issuable or payable with respect to or in exchange for the number of
Shares which Grantee would have received had he exercised the Incentive
Award immediately prior to such Corporate Event, together with any
adjustments (including, without limitation, adjustments to the Option
Price and the number of Shares issuable on exercise of outstanding Stock
Options). A "Corporate Event" means any of the following: (i) a
dissolution or liquidation of the Company, (ii) a sale of all or
substantially all of the Company's assets, or (iii) a merger,
consolidation or combination involving the Company (other than a merger,
consolidation or combination (A) in which the Company is the continuing
or surviving corporation and (B) which does not result in the outstanding
Shares being converted into or exchanged for different securities, cash
or other property, or any combination thereof). The Committee shall take
whatever other action it deems appropriate to preserve the rights of
Grantees holding outstanding Incentive Awards.
Subject to the accelerated vesting and other provisions of Section 5.7
that apply in the event of a Change in Control, in the event of a
Corporate Event, the Committee in its discretion shall have the right and
power to:
i) cancel, effective immediately prior to the occurrence of
the Corporate Event, each outstanding Incentive Award (whether or
not then exercisable) and, in full consideration of such
cancellation, pay to the Grantee an amount in cash equal to the
excess of (A) the value, as determined by the Committee, of the
property (including cash) received by the holders of Common Stock as
a result of such Corporate Event over (B) the exercise price of such
Incentive Award, if any; or
ii) provide for the exchange or substitution of each
Incentive Award outstanding immediately prior to such Corporate
Event (whether or not then exercisable) for another award with
respect to the Common Stock or other property for which such
Incentive Award is exchangeable and, incident thereto, make an
equitable adjustment as determined by the Committee, in its
discretion, in the exercise price of the Incentive Award, if any, or
in the number of Shares or amount of property (including cash)
subject to the Incentive Award; or
iii) provide for the assumption of the Plan and such
outstanding Incentive Awards by the surviving entity or its parent.
The Committee, in its discretion, shall have the authority to take whatever
action it deems to be necessary or appropriate to effectuate the provisions of
this subsection (f).
5.6 TERMINATION OF EMPLOYMENT, DEATH, DISABILITY AND RETIREMENT
(a) TERMINATION OF EMPLOYMENT. Unless otherwise expressly provided
in the Grantee's Incentive Agreement, if the Grantee's Employment or
services as a Consultant is terminated for any reason other than due to
his death, Disability, Retirement, or for Cause, any non-vested portion
of any Stock Option or other applicable Incentive Award at the time of
such termination shall automatically expire and terminate and no further
vesting shall occur after the termination date. In such event, except as
otherwise expressly provided in his Incentive Agreement, the Grantee
shall be entitled to exercise his rights only with respect to the portion
of the Incentive Award that was vested as of his termination of
Employment date for a period that shall end on the earlier of (i) the
expiration date set forth in the Incentive Agreement or (ii) one hundred
eighty (180) days after the date of his termination, except with respect
to Incentive Stock Options, in which case such period shall be three (3)
months.
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(b) TERMINATION OF EMPLOYMENT FOR CAUSE. Unless otherwise expressly
provided in the Grantee's Incentive Agreement, in the event of the
termination of a Grantee's Employment for Cause, all vested and
non-vested Stock Options and other Incentive Awards granted to such
Grantee shall immediately expire, and shall not be exercisable to any
extent, as of 12:01 a.m., Houston, Texas time, on the date of such
termination of Employment for cause.
(c) RETIREMENT. Unless otherwise expressly provided in the Grantee's
Incentive Agreement, upon the termination of Employment due to the
Retirement of any Employee who is a Grantee:
i) any non-vested portion of any outstanding Option or other
Incentive Award shall thereupon automatically be accelerated and
become fully vested; and
ii) any vested Option or other Incentive Award shall expire
on the earlier of (A) the expiration date set forth in the Incentive
Agreement for such Incentive Award; or (B) the expiration of (1)
twelve months after the date of his termination of Employment due to
Retirement in the case of any Incentive Award other than an
Incentive Stock Option or (2) three months after his termination
date in the case of an Incentive Stock Option.
(d) DISABILITY OR DEATH. Unless otherwise expressly provided in the
Grantee's Incentive Agreement, upon termination of employment as a result
of the Grantee's Disability or death:
i) any non-vested portion of any outstanding Option or other
applicable incentive Award shall immediately terminate upon
termination of Employment and no further vesting shall occur; and
ii) any vested Incentive Award shall expire on the earlier
of either (A) the expiration date set forth in the Incentive
Agreement or (B) the one year anniversary date of the Grantee's
termination of Employment date.
In the case of any vested Incentive Stock Option held by an Employee
following termination of Employment, notwithstanding the definition of
"Disability" in Section 1.2, whether the Employee has incurred a
"Disability" for purposes of determining the length of the Option
exercise period following termination of Employment under this paragraph
(d) shall be determined by reference to Section 22(e)(3) of the Code to
the extent required by Section 422(c)(6) of the Code. The Committee shall
determine whether a Disability for purposes of this subsection (d) has
occurred.
(d) CONTINUATION. Subject to the conditions and limitations of the
Plan and applicable law and regulation in the event that a Grantee ceases
to be an Employee or Consultant, as applicable, for whatever reason, the
Committee and Grantee may mutually agree with respect to any outstanding
Option or other Incentive Award then held by the Grantee (i) for an
acceleration or other adjustment in any vesting schedule applicable to
the Incentive Award, (ii) for a continuation of the exercise period
following termination for a longer period than is otherwise provided
under such Incentive Award, or (iii) to any other change in the terms and
conditions of the Incentive Award. In the event of any such change to an
outstanding Incentive Award, a written amendment to the Grantee's
Incentive Agreement shall be required.
5.7 CHANGE IN CONTROL
In the event of a Change in Control (as defined below), the following
actions shall automatically occur as of the day immediately preceding the Change
in Control date unless expressly provided otherwise in the Grantee's Incentive
Agreement:
(a) all of the Stock Options and Stock Appreciation Rights then
outstanding shall become 100% vested and immediately and fully
exercisable;
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<PAGE> 46
(b) all of the restrictions and conditions of any Other Stock-Based
Awards then outstanding shall be deemed satisfied, and the Restriction
Period with respect thereto shall be deemed to have expired, and thus
each such Incentive Award shall become free of all restrictions and fully
vested; and
(c) all of the Performance Shares and any Other Stock-Based Awards
shall become fully vested, deemed earned in full, and promptly paid
within thirty (30) days to the affected Grantees without regard to
payment schedules and notwithstanding that the applicable performance
cycle, retention cycle or other restrictions and conditions have not been
completed or satisfied.
Notwithstanding any other provision of this Plan, unless otherwise
expressly provided in the Grantee's Incentive Agreement, the provisions of this
Section 5.7 may not be terminated, amended, or modified to adversely affect any
Incentive Award theretofore granted under the Plan without the prior written
consent of the Grantee with respect to his outstanding Incentive Awards,
subject, however, to the last paragraph of this Section 5.7.
For all purposes of this Plan, a "Change in Control" of the Company means
the occurrence of any one or more of the following events:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Person"))
of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of forty percent (40%) or more of either (i) the
then outstanding shares of common stock of the Company (the "Outstanding
Company Stock") or (ii) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a
Change in Control: (i) any acquisition directly from the Company or any
Subsidiary, (ii) any acquisition by the Company or any Subsidiary or by
any employee benefit plan (or related trust) sponsored or maintained by
the Company or any Subsidiary, or (iii) any acquisition by any
corporation pursuant to a reorganization, merger, consolidation or
similar business combination involving the Company (a "Merger"), if,
following such Merger, the conditions described in clauses (i) and (ii)
of Section 5.7(c) (below) are satisfied;
(b) Individuals who, as of the Effective Date, constitute the Board
of Directors of the Company (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to the Effective Date whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as
a result of either an actual or threatened election contest (a
solicitation by any person or group of persons for the purpose of
opposing a solicitation of proxies or consents by the Board with respect
to the election or removal of Directors at any annual or special meeting
of stockholders) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board;
(c) Approval by the stockholders of the Company of a Merger, unless
immediately following such Merger, (i) substantially all of the holders
of the Outstanding Company Voting Securities immediately prior to Merger
beneficially own, directly or indirectly, more than 50% of the common
stock of the corporation resulting from such Merger (or its parent
corporation) in substantially the same proportions as their ownership of
Outstanding Company Voting Securities immediately prior to such Merger
and (ii) at least a majority of the members of the board of directors of
the corporation resulting from such Merger (or its parent corporation)
were members of the Incumbent Board at the time of the execution of the
initial agreement providing for such Merger;
(d) The sale or other disposition of all or substantially all of the
assets of the Company.
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<PAGE> 47
5.8 EXCHANGE OF INCENTIVE AWARDS
The Committee may, in its discretion, permit any Grantee to surrender
outstanding Incentive Awards in order to exercise or realize his rights under
other Incentive Awards or in exchange for the grant of new Incentive Awards, or
require holders of Incentive Awards to surrender outstanding Incentive Awards
(or comparable rights under other plans or arrangements) as a condition
precedent to the grant of new Incentive Awards.
SECTION 6.
GENERAL
6.1 EFFECTIVE DATE AND GRANT PERIOD
This Plan is adopted by the Board effective as of July 1, 2000 (the
"EFFECTIVE DATE") subject to the approval of the stockholders of the Company
within one year from the Effective Date. Incentive Awards may be granted under
the Plan at any time prior to receipt of such stockholder approval; provided,
however, if the requisite stockholder approval is not obtained then any
Incentive Awards granted hereunder shall automatically become null and void and
of no force or effect. No Incentive Award that is an Incentive Stock Option
shall be granted under the Plan after ten (10) years from the Effective Date.
6.2 FUNDING AND LIABILITY OF COMPANY
No provision of the Plan shall require the Company, for the purpose of
satisfying any obligations under the Plan, to purchase assets or place any
assets in a trust or other entity to which contributions are made, or otherwise
to segregate any assets. In addition, the Company shall not be required to
maintain separate bank accounts, books, records or other evidence of the
existence of a segregated or separately maintained or administered fund for
purposes of the Plan. Although bookkeeping accounts may be established with
respect to Grantees who are entitled to cash, Common Stock or rights thereto
under the Plan, any such accounts shall be used merely as a bookkeeping
convenience. The Company shall not be required to segregate any assets that may
at any time be represented by cash, Common Stock or rights thereto. The Plan
shall not be construed as providing for such segregation, nor shall the Company,
the Board or the Committee be deemed to be a trustee of any cash, Common Stock
or rights thereto. Any liability or obligation of the Company to any Grantee
with respect to an Incentive Award shall be based solely upon any contractual
obligations that may be created by this Plan and any Incentive Agreement, and no
such liability or obligation of the Company shall be deemed to be secured by any
pledge or other encumbrance on any property of the Company. Neither the Company,
the Board nor the Committee shall be required to give any security or bond for
the performance of any obligation that may be created by the Plan.
6.3 WITHHOLDING TAXES
(a) TAX WITHHOLDING. The Company shall have the power and the right
to deduct or withhold, or require a Grantee to remit to the Company, an
amount sufficient to satisfy federal, state, and local taxes, domestic or
foreign, required by law or regulation to be withheld with respect to any
taxable event arising as a result of the Plan or an Incentive Award
hereunder.
(b) SHARE WITHHOLDING. With respect to tax withholding required upon
the exercise of Stock Options or SARs, or upon any other taxable event
arising as a result of any Incentive Awards, Grantees may elect, subject
to the approval of the Committee in its discretion, to satisfy the
withholding requirement, in whole or in part, by having the Company
withhold Shares having a Fair Market Value on the date the tax is to be
determined equal to the minimum withholding tax which could be imposed on
the transaction. All such elections shall be made in writing, signed by
the Grantee, and shall be subject to any restrictions or limitations that
the Committee, in its discretion, deems appropriate.
(c) INCENTIVE STOCK OPTIONS. With respect to Shares received by a
Grantee pursuant to the exercise of an Incentive Stock Option, if such
Grantee disposes of any such Shares within (i) two years from the date of
grant of such Option or (ii) one year after the transfer of such shares
to the Grantee, the
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<PAGE> 48
Company shall have the right to withhold from any salary, wages or other
compensation payable by the Company to the Grantee an amount sufficient
to satisfy federal, state and local tax withholding requirements
attributable to such disqualifying disposition.
6.4 NO GUARANTEE OF TAX CONSEQUENCES
Neither the Company nor the Committee makes any commitment or guarantee
that any federal, state or local tax treatment will apply or be available to any
person participating or eligible to participate hereunder.
6.5 DESIGNATION OF BENEFICIARY BY PARTICIPANT
Each Grantee may, from time to time, name any beneficiary or
beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his death before he receives any
or all of such benefit. Each such designation shall revoke all prior
designations by the same Grantee, shall be in a form prescribed by the
Committee, and will be effective only when filed by the Grantee in writing with
the Committee during the Grantee's lifetime. In the absence of any such
designation, benefits remaining unpaid at the Grantee's death shall be paid to
the Grantee's estate.
6.6 DEFERRALS
The Committee may authorize and establish deferred compensation
agreements and arrangements in connection with Incentive Awards under the Plan
and may establish trusts and other arrangements including "rabbi trusts", with
respect to such agreements and appoint one or more trustees for such trusts.
The Committee may permit a Grantee to defer such Grantee's receipt of the
payment of cash or the delivery of Shares that would, otherwise be due to such
Grantee by virtue of the satisfaction of any requirements or goals with respect
to Performance Shares or Other Stock-Based Awards. If any deferral election is
permitted hereunder, the Committee may, in its discretion, establish rules and
procedures for such payment deferrals to the extent required for tax deferral of
compensation under applicable sections of the Code.
6.7 AMENDMENT AND TERMINATION
The Board shall have the power and authority to terminate or amend the
Plan at any time. No termination, amendment, or modification of the Plan shall
adversely affect in any material way any outstanding Incentive Award previously
granted to a Grantee under the Plan, without the written consent of such Grantee
or other designated holder of such Incentive Award.
In addition, to the extent that the Committee determines that (a) the
listing or qualification requirements of any national securities exchange or
quotation system on which the Company's Common Stock is then listed or quoted,
if applicable, or (b) the Code (or regulations promulgated thereunder), require
stockholder approval in order to maintain compliance with such listing or
quotation system requirements or to maintain any favorable tax advantages or
qualifications, then the Plan shall not be amended in such respect without
approval of the Company's stockholders.
6.8 GOVERNMENTAL ENTITIES AND SECURITIES EXCHANGES
The granting of Incentive Awards and the issuance of Shares under the
Plan shall be subject to all applicable laws, rules, and regulations, and to
such approvals by any governmental agencies or national securities exchanges as
may be required. Certificates evidencing shares of Common Stock delivered under
this Plan (to the extent that such shares are so evidenced) may be subject to
such stop transfer orders and other restrictions as the Committee may deem
advisable under the rules and regulations of the Securities and Exchange
Commission, any securities exchange or transaction reporting system upon which
the Common Stock is then listed or to which it is admitted for quotation, and
any applicable federal or state securities law, if applicable. The Committee may
cause a legend or legends to be placed upon such certificates (if any) to make
appropriate reference to such restrictions.
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<PAGE> 49
6.9 SUCCESSORS TO COMPANY
All obligations of the Company under the Plan with respect to Incentive
Awards granted hereunder shall be binding on any successor to the Company,
whether the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of
the business and/or assets of the Company.
6.10 MISCELLANEOUS PROVISIONS
(a) No Employee or Consultant, or other person shall have any claim
or right to be granted an Incentive Award under the Plan. Neither the
Plan, nor any action taken hereunder, shall be construed as giving any
Employee or Consultant, any right to be retained in the Employment or
other service of the Company or any Parent or Subsidiary.
(b) By accepting any Incentive Award, each Grantee and each person
claiming by or through him shall be deemed to have indicated his
acceptance of the Plan.
6.11 SEVERABILITY
In the event that any provision of this Plan shall be held illegal,
invalid or unenforceable for any reason, such provision shall be fully
severable, but shall not affect the remaining provisions of the Plan, and the
Plan shall be construed and enforced as if the illegal, invalid, or
unenforceable provision was not included herein.
6.12 GENDER, TENSE AND HEADINGS
Whenever the context so requires, words of the masculine gender used
herein shall include the feminine and neuter, and words used in the singular
shall include the plural. Section headings as used herein are inserted solely
for convenience and reference and constitute no part of the interpretation or
construction of the Plan.
6.13 GOVERNING LAW
The Plan shall be interpreted, construed and constructed in accordance
with the laws of the State of Texas without regard to its conflicts of law
provisions, except as may be superseded by applicable laws of the United States
or applicable provisions of the Delaware General Corporation Law.
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<PAGE> 50
PROXY PROXY
INPUT/OUTPUT, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS--SEPTEMBER 25, 2000
The undersigned stockholder acknowledges receipt of the Notice of Annual
Meeting of Stockholders and the Proxy Statement, each dated August 24, 2000,
and hereby appoints Timothy J. Probert and C. Robert Bunch, or either of them,
proxies for the undersigned, each with 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 Stockholders of the Company to be held at
the Stafford Civic Center, 1415 Constitution Avenue, Stafford, Texas 77477, on
Monday, September 25, 2000 at 3:00 p.m. Central Daylight Time, and at any
adjournments or postponements thereof.
PLEASE SIGN, DATE AND RETURN THIS 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 AND 3 AND
WILL GRANT DISCRETIONARY AUTHORITY PURSUANT TO ITEM 4. THIS PROXY WILL REVOKE
ALL PRIOR PROXIES SIGNED BY YOU.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
--------------------------------------------------------------------------------
<PAGE> 51
INPUT/OUTPUT, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
1. ELECTION OF DIRECTORS - For Withhold For All 3. The ratification of the For Against Abstain
Nominees : 01- Theodore H. Elliott, Jr. and All All Except appointment of KPMG Peat [ ] [ ] [ ]
02- James M. Lapeyre, Jr. [ ] [ ] [ ] Marwick LLP as the Company's
independent certified public
accountants for the fiscal
year ending May 31, 2001.
-------------------------------------------
(Except nominee(s) written above)
2. The approval of the Input/Output, Inc. 2000 For Withhold Abstain 4. In their discretion upon For Against Abstain
Long-Term Incentive Plan. such other matters as [ ] [ ] [ ]
[ ] [ ] [ ] may properly come before the
meeting.
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 nominees and proposals.
Dated:_________________________,2000
Signature(s)________________________________
____________________________________________
Signature should agree with name printed
herein. 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.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
o FOLD AND DETACH HERE o
YOUR VOTE IS IMPORTANT!
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
