<PAGE> 1
==============================================================================
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant []
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Section 240.14a-11(c) or Section
240.14a-12
MTI Technology Corporation
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction
applies:
______________________________________________________________
2) Aggregate number of securities to which transaction applies:
______________________________________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
______________________________________________________________
4) Proposed maximum aggregate value of transaction:
______________________________________________________________
5) Total fee paid:
______________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box, if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
______________________________________________________________
2) Form, Schedule or Registration Statement No.:
______________________________________________________________
3) Filing Party:
______________________________________________________________
4) Date Filed:
______________________________________________________________
==============================================================================
<PAGE> 2
MTI TECHNOLOGY CORPORATION
4905 EAST LA PALMA AVENUE
ANAHEIM, CALIFORNIA 92807
September 3, 1996
Dear Stockholder:
You are cordially invited to attend the 1996 Annual Meeting of
Stockholders of MTI Technology Corporation, to be held on Thursday, October 3,
1996, at the Company's offices, 4905 East La Palma Avenue, Anaheim, California
92807, beginning at 10:00 a.m. local time.
The business to be conducted at the meeting includes the election
of directors, ratification of the selection of independent accountants,
approval of certain warrants to NFT Ventures, Inc., approval of a new Stock
Incentive Plan, and consideration of any other matters that may properly come
before the meeting and any adjournment thereof.
It is important that your shares be represented, so, even if you
presently plan to attend the meeting, please complete, sign, date and promptly
return the enclosed proxy card. If you do attend the meeting and wish to vote
in person, you may withdraw your proxy at that time.
Sincerely,
Earl M. Pearlman
President and Chief Executive Officer
<PAGE> 3
MTI TECHNOLOGY CORPORATION
4905 EAST LA PALMA AVENUE
ANAHEIM, CALIFORNIA 92807
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 3, 1996
The Annual Meeting of Stockholders of MTI Technology Corporation, a
Delaware corporation (the "Company"), will be held at the Company's offices,
4905 East La Palma Avenue, Anaheim, California 92807, on Thursday, October 3,
1996 at 10:00 a.m., local time, for the following purposes:
(1) To elect two members of the Board of Directors to serve for a term of
3 years or until his or her successor is elected and qualified;
(2) To consider and act upon the ratification of the selection of KPMG
Peat Marwick LLP as the Company's independent auditors for the Company
for fiscal year 1997;
(3) To approve the issuance of a warrant for 750,000 shares of Common
Stock of the Company to NFT Ventures, Inc. in connection with the NRE
Funding Agreement;
(4) To approve the issuance of a warrant for 500,000 shares of Common
Stock of the Company to NFT Ventures, Inc. in connection with the Loan
Guaranty;
(5) To approve the 1996 Stock Incentive Plan; and
(6) To transact any such other business as may properly come before the
Annual Meeting or any adjournment thereof.
A copy of the Company's Annual Report for the fiscal year ended April
6, 1996, containing consolidated financial statements, is included with this
mailing.
The Board of Directors has fixed the close of business on August 27,
1996 as the record date for determining stockholders entitled to receive notice
of and to vote at the Annual Meeting and at any adjournment thereof. A list of
such stockholders will be available for examination by any stockholder at the
Annual Meeting and, for any purpose germane to the Annual Meeting, at the
office of the Secretary of the Company, 4905 East La Palma Avenue, Anaheim,
California for a period of ten days prior to the Annual Meeting. The officers
and directors of the Company cordially invite you to attend the Annual Meeting.
By Order of the Board of Directors
Anaheim, California
September 3, 1996
Dale R. Boyd
Chief Financial Officer and Secretary
- -------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD,
DATE, SIGN AND RETURN IT IN THE ENVELOPE PROVIDED, WHICH IS ADDRESSED FOR YOUR
CONVENIENCE AND NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. IN ORDER TO
AVOID THE ADDITIONAL EXPENSE TO THE COMPANY OF FURTHER SOLICITATION, WE ASK
YOUR COOPERATION IN PROMPTLY MAILING IN YOUR PROXY CARD.
- -------------------------------------------------------------------------------
<PAGE> 4
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of MTI Technology Corporation ("MTI" or the
"Company") for use at the Company's Annual Meeting of Stockholders to be held
on Thursday, October 3, 1996 (the "Annual Meeting"), at 10:00 a.m., local time,
at the Company's offices, 4905 East La Palma Avenue, Anaheim, California 92807
and at any adjournment thereof. This Proxy Statement and the accompanying
proxy are first being sent to stockholders entitled to vote at the Annual
Meeting on or about September 3, 1996.
THE PROXY
The persons named as proxyholders, Earl M. Pearlman and Dale R. Boyd,
were selected by the Board of Directors of the Company and are executive
officers of the Company.
All shares represented by each properly executed, unrevoked proxy
received in time for the Annual Meeting will be voted in the manner specified
therein. If no specification is made on the proxy as to any one or more of the
proposals, the Common Stock of the Company represented by the proxy will be
voted for the election of the directors named in the attached Proxy Statement,
for the ratification of the selection of KPMG Peat Marwick LLP as the Company's
independent auditors for the 1997 fiscal year, for the approval of the issuance
of a warrant for 750,000 shares of Common Stock of the Company to NFT Ventures,
Inc. in connection with the NRE Agreement, for the approval of the issuance of
a warrant for 500,000 shares of Common Stock of the Company to NFT Ventures,
Inc. in connection with the Loan Guaranty, for approval of the 1996 Stock
Incentive Plan, and, with respect to any other matters that may come before the
Annual Meeting, at the discretion of the proxyholders. The Company does not
presently know of any other such business. An executed proxy may be revoked at
any time before its exercise by filing with the Secretary of the Company a
written notice of revocation or a duly executed proxy bearing a later date.
The execution of the enclosed proxy will not affect a stockholder's right to
vote in person should such stockholder find it convenient to attend the Annual
Meeting and desire to vote in person.
VOTING AT THE ANNUAL MEETING
The only issued and outstanding voting securities of the Company are its
shares of Common Stock, $.001 par value (the "Common Stock"), of which
_________ shares were outstanding at the close of business on August 27, 1996.
Only holders of record at the close of business on August 27, 1996 are entitled
to receive notice of and to vote at the Annual Meeting and any adjournment
thereof. Except as described below, the holders of the Common Stock of the
Company are entitled to one vote per share on each matter submitted to a vote
of the stockholders. The Company's Bylaws do not provide for cumulative voting
by stockholders.
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<PAGE> 5
The holders of a majority of the Company's outstanding Common Stock,
present in person or by Proxy, will constitute a quorum for the transaction of
business at the Annual Meeting or any adjournment thereof. While there is no
definitive statutory or case law authority in Delaware as to the proper
treatment of abstentions (also referred to as withheld votes), the Company
believes that abstentions should be counted for purposes of determining if a
quorum is present at the Annual Meeting for the transaction of business. With
respect to broker nominee votes, the Delaware Supreme Court has held that
broker nominee votes may be counted as present or represented for purposes of
determining the presence of a quorum. Abstentions are included in determining
the number of shares voted on the proposals submitted to stockholders (other
than the election of directors) and will have the same effect as a no vote on
such proposals, whereas broker non-votes are not counted. Directors are
elected by plurality of the votes of the shares of Common Stock represented and
voted at the meeting and abstentions and broker non-votes will have no effect
on the outcome of the election of directors. The affirmative vote of a
majority of the shares of Common Stock represented and voted at the meeting is
required for approval of Proposal Two, Proposal Three, Proposal Four and
Proposal Five.
SOLICITATION
The expense of soliciting proxies will be borne by the Company. Proxies
will be solicited principally through the use of the mail, but directors,
officers and regular employees of the Company may solicit proxies personally or
by telephone or special letter without any additional compensation. The
Company also will reimburse banks, brokerage houses and other custodians,
nominees and fiduciaries for any reasonable expenses in forwarding proxy
materials to beneficial owners. The Company may engage Bank of Boston to
supplement the Company's solicitation efforts, in which case the Company will
pay the customary fee, estimated to be approximately $5,000.
PROPOSAL ONE - ELECTION OF DIRECTORS
At the Annual Meeting, two individuals will be elected as directors for
three year terms and until his or her successor is elected. The Board of
Directors has nominated Earl Pearlman and Val Kreidel for election at the
Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE NOMINEES FOR ELECTION
AS MEMBERS OF THE BOARD OF DIRECTORS.
The proxies given to the proxyholders will be voted or not voted as
directed thereon, and if no direction is given, will be voted FOR approval of
the nominees. The Board of Directors knows of no reason why the nominees
should be unable or unwilling to serve, but if either of the nominees should,
for any reason, be unable or unwilling to serve, the proxies will be voted for
the election of such other person to the office of director as the Board of
Directors may recommend in the place of such nominee.
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<PAGE> 6
NOMINEES FOR DIRECTOR
The following table sets forth the names, ages and positions of all
directors and the nominees as of July 15, 1996. A summary of the background and
experience of each of these individuals is set forth after the table.
Information regarding MTI's executive officers is set forth in Part I of its
Annual Report on Form 10-K under the heading "Executive Officers of the
Registrant."
DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
<S> <C> <C>
*Raymond J. Noorda 72 Chairman of the Board of Directors
Steven J. Hamerslag 40 Director
*Val Kreidel 41 Director
*David Proctor 56 Director
Earl Pearlman 53 Nominee, President and Chief Executive Officer
</TABLE>
-------------------
*Member of Audit Committee and Compensation Committee.
MTI's Bylaws provide for the Board of Directors to be divided into three
classes, with each class to be as nearly equal in number of directors as
possible. At each annual meeting of stockholders, the successors to the class of
directors whose term expires at that time are elected to hold office for a term
of three years until their respective successors are elected and qualified, so
that the term of one class of directors expires at each such annual meeting. The
terms of office expire as follows: Mr. Noorda, 1998; Mr. Hamerslag, 1998; Mr.
Proctor, 1997; Ms. Kreidel, 1996; and a vacancy in the 1996 class.
Ms. Kreidel is the daughter of Mr. Noorda. There are no other family
relationships among the directors or executive officers of MTI.
Raymond J. Noorda has been Chairman of the Board of Directors of the
Company since 1987. Mr. Noorda previously served as the President, Chief
Executive Officer and Chairman of the Board of Directors of Novell, Inc. Prior
to joining Novell, Inc., Mr. Noorda served as Chief Executive Officer of
Boschert, Inc. and System Industries, Inc.
Steven J. Hamerslag has been a Director of the Company since 1987 and
served as President and Chief Executive Officer from 1987 until March 1996.
Prior to joining the Company, Mr. Hamerslag was Senior Vice President of System
Industries, Inc. Mr. Hamerslag presently serves on the Board of Directors of
Corvel, Inc., a medical cost containment company.
Val Kreidel was elected a Director of the Company in January 1994. Ms.
Kreidel has served as a financial analyst for NFT Ventures, Inc. and DSC
Ventures, Inc., private investment companies, since May 1989. From May 1985 to
May 1989, Ms. Kreidel served as a Vice President of Atlantic Financial Savings
Bank in its Real Estate Loan Department.
David Proctor was elected a Director of the Company in October 1995. Mr.
Proctor has been President and Chief Operating Officer of Platinum Software
Corporation, a supplier of financial software application programs, from May
1994 to December 1995. Prior to joining Platinum Software, Mr. Proctor was Vice
President of software products for the Personal Software Products Division of
IBM from April 1993 to May 1994. From October 1991 to April 1993, Mr. Proctor
was a private consultant providing executive management services to technology
companies. From May 1990 to October 1991, Mr. Proctor was with Ashton-Tate
Corporation, a supplier of business applications software products, and served
3
<PAGE> 7
as both the Vice President of the Database Division and as President and Chief
Operating Officer. Prior to joining Ashton-Tate, Mr. Proctor spent 23 years with
IBM in several executive capacities.
Earl Pearlman was named President and Chief Executive Officer of the
Company in April 1996. From April 1995 to March 1996, Mr. Pearlman was Vice
President, U.S. Sales for the Company. Prior to joining the Company, Mr.
Pearlman was the President and Chief Executive Officer of National Peripherals,
Inc., a supplier of cross-platform RAID - based storage products, which he
founded in 1980, acquired by the Company in 1995.
DIRECTORS' FEES
The Company's directors did not receive cash compensation for serving on
the Board of Directors for the fiscal year ended April 6, 1996, but they were
reimbursed for expenses incurred in attending Board meetings.
Each non-employee director of the Company is granted a nonqualified option
to purchase 10,000 shares of Common Stock under the Directors' Non-Qualified
Stock Option Plan and upon the closing of the Company's initial public offering
or upon his or her first election or appointment to the Board of Directors, if
subsequent to that offering. Pursuant to the provisions of the Directors' Plan,
Mr. Noorda and Ms. Kreidel each received an option for 10,000 shares with an
exercise price of $9.00 per share following the April 14, 1994 closing of the
Company's initial public offering and Mr. Proctor received an option for 10,000
shares with an exercise price of $3.00 per share following his election to
office on October 6, 1995. In addition, the Directors' Plan provides that each
non-employee director who is a director immediately prior to an annual meeting
of the Company's stockholders and who continues to be a director after such
meeting (i.e., Mr. Noorda, Mr. Hamerslag and Mr. Proctor, and Ms. Kreidel in the
event she is re-elected) will be granted an option to purchase 2,500 shares of
Common Stock, provided that such director has served as such for at least one
year. Mr. Noorda and Ms. Kreidel each received options to purchase 2,500 shares
of Common Stock with an exercise price of $3.00 per share following the
Company's 1995 Annual Meeting. Each option granted under the Directors' Plan has
an exercise price equal to the fair market value of the Common Stock on the date
of grant and vests monthly over a 12-month period.
COMMITTEES OF THE BOARD
The Company currently has two committees, the Audit Committee and the
Compensation Committee. The Audit Committee, currently consisting of Mr. Noorda,
Mr. Proctor and Ms. Kreidel, recommends the appointment of the independent
public accountants of the Company, reviews and approves the scope of the annual
audit and reviews the results thereof with the Company's independent
accountants. The Audit Committee also assists the Board in fulfilling its
fiduciary responsibilities relating to accounting and reporting policies,
practices and procedures, and reviews the continuing effectiveness of the
Company's business ethics and conflicts of interest policies. The Company does
not have an executive committee.
The Compensation Committee, currently consisting of Mr. Noorda, Mr. Proctor
and Ms. Kreidel, recommends to the Board of Directors the salaries, bonuses and
stock awards received by the officers of the Company. The Compensation Committee
is also responsible for administering the Company's Stock Incentive Plan. The
Compensation Committee determines the recipients of awards, sets the exercise
price of shares granted, and determines the terms, provisions and conditions of
all rights granted.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1996, the Compensation Committee consisted of Mr.
Noorda, Mr. Proctor and Ms. Kreidel. None of these persons is or has been an
officer or employee of the Company or any of its subsidiaries. In addition,
there are no Compensation Committee interlocks between MTI and other entities
involving MTI executive officers and Board members who serve as executive
officers of such entities.
On July 19, 1995, the Company entered into a Loan Agreement (the "Loan
Agreement") with NFT Ventures II, LLC ("NFTII"). Mr. Noorda is the Chairman of
the Board of NFTII. Pursuant to the Loan Agreement, NFTII provided the Company
$10.0 million at an interest rate of 10-3/4% per annum. Repayment was due in
two equal installments, 18 and 24 months after funding. As contemplated by the
Loan Agreement, NFTII and the Company have executed
4
<PAGE> 8
mutually satisfactory licenses granting NFTII a source code license (with the
right of sublicense) for the Company's BACKUP.UNET and XpresServe products
within thirty (30) days of the date of the Loan Agreement. Therefore, NFTII has
forgiven $650,000 of principal or interest due under the Loan Agreement. On
April 11, 1996, the principal and interest accrued under the Loan Agreement was
converted, in whole, to Common Stock of the Company at $1.6875 per share, the
then-current market price per share (the "Conversion Right") for an aggregate of
5,992,665 shares. The Conversion Right was approved by the Company's
stockholders at the 1995 Annual Meeting.
Pursuant to an agreement (the "NRE Funding Agreement"), dated as of June
27, 1996, between the Company and NFT Ventures, Inc. ("NFT"), NFT has agreed to
fund the non-recoverable direct operating expenses for certain development
projects for one year, up to an aggregate of $2.4 million. The development
projects consist of the Company's Sterling, Virginia Software Product
Development Center, the RLM Software Products Group, and the Open Media Products
Group. In return for the development project funding, NFT will receive 40% of
the net sales prices of all products arising out of the development projects
through April 7, 2000. In addition, the Company has agreed, subject to
stockholder approval, to issue NFT a warrant to purchase up to 750,000 shares of
Common Stock with an exercise price of $2.25 per share, vesting 25% at each
funding date. See "Proposal Three." The aggregate number of shares of Common
Stock subject to the warrant will be reduced pro rata, to the extent the
maximum funding obligation is not reached. Mr. Noorda is the Chairman of NFT.
On May 3, 1996, an affiliate of NFT provided a guaranty (the "Loan
Guaranty") for the Company's $10.0 million bank financing with Greyrock Business
Credit. As consideration for such Loan Guaranty, the Company has agreed to issue
NFT a warrant to purchase up to 500,000 shares of Common Stock at $2.00 per
share, subject to approval of the Company's disinterested stockholders. See
"Proposal Four."
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
During the fiscal year ended April 6, 1996, the Board of Directors met four
times. In addition, the Audit Committee and Compensation Committee met one and
three times, respectively. No director attended fewer than 75% of the aggregate
number of meetings held by the Board of Directors and all committees of the
Board on which such director served.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires that the Company's executive officers and directors file reports of
beneficial ownership on Form 3 and changes in beneficial ownership on Forms 4
and 5 with the Securities and Exchange Commission ("SEC"). Executive officers
and directors are also required by the SEC rules to furnish the Company with
copies of all Section 16(a) reports they file. As part of a Section 16
compliance program established by the Company for its executive officers and
directors, the Company undertakes to file these reports on behalf of such
individuals. Based solely on its review of the Forms 3, 4 and 5 filed on behalf
of its executive officers and directors, as well as written representations from
certain individuals that no Forms 5 are required by such individuals, the
Company believes that, during the fiscal year ended April 6, 1996, all Section
16(a) filing requirements applicable to its executive officers and directors
were complied with pursuant to the SEC rules, except that Richard L. Hicksted
and a related trust were nine days late in filing Form 4s reflecting sales of
Common Stock.
5
<PAGE> 9
VOTING SECURITIES
AND
PRINCIPAL HOLDERS THEREOF
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of July 15, 1996 by (i) each person
known by the Company to own more than 5% of such shares, (ii) each of the
Company's directors, (iii) the Company's Chief Executive Officer and each of its
four most highly compensated executive officers who served as executive officers
at April 6, 1996, and (iv) all directors and executive officers as a group. As
of July 15, 1996, there were 25,549,886 issued and outstanding shares of Common
Stock of the Company, not including treasury shares or shares issuable upon
exercise of options or warrants. Ownership information has been supplied by the
person concerned.
SECURITY OWNERSHIP TABLE
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED (1)
---------------------------
NAME NUMBER PERCENT
---- ---------- -------
<S> <C> <C>
NFT Ventures, Inc. (2) 13,699,461 52.90%
10050 N. Wolfe Road SW2
Cupertino, CA 95014
Raymond J. Noorda (3) 13,711,753 52.93%
Val Kreidel (4) 12,292 *
David Proctor (5) 9,167 *
Steven J. Hamerslag (6) 2,450,092 9.59%
Earl M. Pearlman (7) 51,667 *
Dale R. Boyd (8) 6,250 *
John M. Hiett (9) 95,000 *
Thomas P. Raimondi, Jr. (10) 149,375 *
Gary M. Scott (11) 413,750 1.61%
Bob Goetz (12) 341,250 1.33%
All directors and executive
officers as a group (10
persons) (13) 17,165,596 64.96%
</TABLE>
- -------------------
*Less than 1%
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the Company believes that the persons
named in the table have sole voting and investment power with respect to
all shares.
(2) Includes 345,000 shares issuable upon exercise of warrants held by NFT,
exercisable within 60 days of July 15, 1996.
(3) The address for Mr. Noorda is c/o MTI Technology Corporation, 4905 East La
Palma Avenue, Anaheim, California 92807. Represents shares owned by NFT,
including shares subject to certain warrants as disclosed in note (2)
above, and 12,292 shares issuable to Mr. Noorda upon exercise of options
exercisable within 60 days of July 15, 1996. Mr. Noorda, Chairman of the
Board of Directors of the Company, is Chairman of the Board of NFT. Mr.
Noorda disclaims beneficial ownership of all shares held by NFT.
(4) Includes 12,292 shares issuable upon exercise of options exercisable
within 60 days of July 15, 1996.
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<PAGE> 10
(5) Includes 9,167 shares issuable upon exercise of options exercisable within
60 days of July 15, 1996.
(6) Includes 2,362,592 shares held in a family trust in which Mr. Hamerslag
has shared voting and investment power with his wife. Mr. Hamerslag is a
Director of the Company. Mr. Hamerslag's address is P.O. Box 7227, Rancho
Santa Fe, California 92067.
(7) Includes 41,667 shares issuable upon exercise of options exercisable
within 60 days of July 15, 1996.
(8) Includes 6,250 shares issuable upon exercise of options exercisable within
60 days of July 15, 1996.
(9) Includes 95,000 shares issuable upon exercise of options exercisable
within 60 days of July 15, 1996.
(10) Includes 114,375 shares issuable upon exercise of options exercisable
within 60 days of July 15, 1996.
(11) Includes 163,750 shares issuable upon exercise of options exercisable
within 60 days of July 15, 1996.
(12) Includes 171,250 shares issuable upon exercise of options exercisable
within 60 days of July 15, 1996. Includes 170,000 shares held in a family
trust.
(13) Includes shares held by entities affiliated with directors and executive
officers of the Company as described above, including 876,043 shares
issuable upon exercise of stock options and warrants exercisable within 60
days of July 15, 1996.
7
<PAGE> 11
<PAGE> 12
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
AND OTHER INFORMATION
SUMMARY OF EXECUTIVE COMPENSATION
The following table sets forth for each of the Company's last three
completed fiscal years the compensation of Steve Hamerslag, the Company's former
President and Chief Executive Officer, the four most highly compensated
executive officers other than Mr. Hamerslag whose total annual salary and bonus
for the last fiscal year exceeded $100,000, and two former executive officers
(collectively, the "Named Executive Officers").
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<PAGE> 13
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
------------
Annual Compensation Number of
------------------- Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($)(1) Options(#) Compensation($)(2)
- --------------------------- ---- --------- -------- ------------------ ---------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earl M. Pearlman (3) 1996 186,362 0 * 375,000 14,068
Steven J. Hamerslag (4) 1996 200,000 0 * 0 1,674
1995 200,000 0 * 0 1,130
1994 200,000 0 20,013 0 1,313
Gary M. Scott (5) 1996 216,116 0 31,938 315,000 1,169
Senior Vice President, European 1995 199,111 32,773 25,195 100,000 1,130
Operations 1994 129,661 20,700 38,065 20,000 0
Dale R. Boyd (6) 1996 122,500 0 * 50,000 39
Vice President, Chief 1995 16,490 0 * 25,000 0
Financial Officer
Thomas P. Raimondi, Jr. (7) 1996 175,000 0 * 232,500 1,189
Senior Vice President, General Manager 1995 158,828 25,000 * 80,000 1,050
1994 109,304 39,996 * 12,500 0
Jack Hiett (8) 1996 105,000 0 32,820 175,000 0
Senior Vice President, 1995 109,039 0 * 60,000 0
Customer Service 1994 92,885 22,000 * 20,000 0
Bob P. Goetz (9) 1996 200,008 0 * 320,000 0
Senior Vice President, Sales 1995 199,994 0 * 100,000 1,220
1994 200,008 0 * 20,000 0
</TABLE>
- ------------------------
* Amount does not exceed the lesser of $50,000 or ten percent of the total
annual salary and bonus reported for the individual.
(1) 1996 amount for Mr. Scott includes $615 for medical insurance, $11,861 for
tax services, and $19,462 for an automobile allowance. 1996 amount for Mr.
Hiett includes $32,820 for medical insurance and expense reimbursement.
1995 amount for Mr. Scott includes $2,155 for medical insurance, $10,515
for tax services, and $12,525 for an automobile allowance. 1994 amount for
Mr. Hamerslag represents an automobile allowance of $10,833 and amounts
paid by the Company for medical insurance, disability insurance and
miscellaneous items. 1994 amount for Mr. Scott represents an automobile
allowance of $11,664, foreign service tax equalizing payments in the
amount of $15,463, tax services and medical insurance.
(2) Amounts represent the dollar value of insurance premiums paid by the
Company during the fiscal year with respect to term life insurance for the
benefit of the Named Executive Officer.
(3) Mr. Pearlman was elected President and Chief Executive Officer of the
Company effective April 8, 1996. From April 1995 to March 1996, he was
Vice President, U.S. Sales for the Company. Mr. Pearlman joined the
Company in April 1995. Includes options to purchase an aggregate of
125,000 shares that were repriced in May 1995.
(4) Mr. Hamerslag served as the Company's President and Chief Executive
Officer until March 29, 1996.
(5) Includes options to purchase an aggregate of 190,000 shares granted in
previous fiscal years that were repriced in May 1995.
(6) Mr. Boyd joined the Company on February 8, 1995, during fiscal 1995.
Includes options to purchase an aggregate of 25,000 shares that were
repriced in May 1995.
9
<PAGE> 14
(7) Includes options to purchase an aggregate of 132,500 shares granted in
previous fiscal years that were repriced in May 1995.
(8) Includes options to purchase an aggregate of 115,000 shares granted in
previous fiscal years that were repriced in May 1995.
(9) Mr. Goetz served as an executive office of the Company until October 1995.
Includes options to purchase an aggregate of 195,000 shares granted in
previous fiscal years that were repriced in May 1995.
SUMMARY OF OPTION GRANTS
The following table sets forth the individual grants of stock options
made by the Company during the fiscal year ended April 6, 1996 to each of the
Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
- --------------------------------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK
UNDERLYING GRANTED TO PRICE APPRECIATION
OPTIONS EMPLOYEES EXERCISE FOR OPTION TERM (2)
GRANTED IN FISCAL PRICE EXPIRATION ---------------------
NAME (#) YEAR (1) ($/sh) (1) DATE 5%($) 10%($)
---- --- -------- ---------- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Earl M. Pearlman 125,000 3% $ 1.75 03/30/05 137,571 348,631
125,000 3% $ 2.25 02/08/03 114,497 266,827
125,000 3% $ 2.875 03/30/05 226,009 572,751
Dale R. Boyd 25,000 1% $ 1.75 02/27/05 27,514 69,726
25,000 1% $ 3.00 10/06/05 47,167 119,531
John M. Hiett 60,000 1% $ 1.75 05/26/05 66,034 167,343
60,000 1% $ 1.75 09/06/04 66,034 167,343
20,000 0% $ 1.75 05/07/03 22,011 55,781
20,000 0% $ 1.75 04/23/02 22,011 55,781
15,000 0% $ 1.75 06/12/98 10,688 24,904
Thomas P. Raimondi, Jr. 100,000 2% $ 1.75 05/26/05 110,057 278,905
80,000 2% $ 1.75 09/06/04 88,045 223,124
12,500 0% $ 1.75 05/07/03 13,757 34,863
30,000 1% $ 1.75 04/23/02 33,017 83,671
10,000 0% $ 1.75 12/09/98 7,124 16,602
Gary Scott 125,000 3% $ 1.75 05/26/05 137,571 348,631
100,000 2% $ 1.75 09/06/04 110,057 278,905
30,000 1% $ 1.75 05/07/03 33,017 83,671
60,000 1% $ 1.75 04/23/02 66,034 167,343
Bob Goetz 125,000 3% $ 1.75 05/26/05 137,571 348,631
100,000 2% $ 1.75 09/06/04 110,057 278,905
20,000 0% $ 1.75 05/07/03 22,011 55,781
75,000 2% $ 1.75 04/23/02 82,542 209,179
</TABLE>
- -----------------------
10
<PAGE> 15
(1) Based on an aggregate of 4,300,900 options granted to directors and
employees of the Company in fiscal year 1996, including the Named
Executive Officers. The total number of options granted during fiscal year
1996 include 2,039,400 that represent options granted in previous years
that were repriced May 26, 1995.
(2) The potential realizable value is calculated based on the term of the
option at its time of grant (7-10 years). It is calculated by assuming
that the stock price appreciates at the indicated annual rate compounded
annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated stock
price. No gain to the option holder is possible unless the stock price
increases over the option term.
The options described above were granted under the Company's Stock
Incentive Plan and 1987 Plan, and with the exception of those options
granted to Mr. Pearlman, vest ratably 25% per year over four years
commencing on the date of the individual respective grant. Mr. Pearlman's
option grant to purchase 125,000 shares at $1.75, which expires March 30,
2005, vest ratably 33.3% per year over three years. Mr. Pearlman's option
grant to purchase 125,000 shares at $2.25, which expires on February 8,
2003, vest 100% on April 1, 1998.
SUMMARY OF OPTIONS EXERCISED
The following table sets forth information concerning exercises of
stock options during the year ended April 6, 1996 by each of the Named Executive
Officers and the value of unexercised options at April 6, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR FISCAL YEAR
SHARES END (#) END ($)
ACQUIRED ON VALUE ------------- -------------
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($)(1) UNEXERCISABLE UNEXERCISABLE (2)
---- ----------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Earl M. Pearlman 0 0 0/250,000 0/54,688
Dale R. Boyd 0 0 0/50,000 0/10,938
John M. Hiett 0 0 0/175,000 0/76,563
Thomas P. Raimondi, Jr. 0 0 0/232,500 0/101,719
Gary Scott 0 0 0/315,000 0/137,813
Bob Goetz 0 0 0/320,000 0/140,000
</TABLE>
- -----------------------
(1) Value realized is based on estimated fair market value of Common Stock on
the date of exercise minus the exercise price.
(2) Value is based on estimated fair market value of Common Stock as of April
6, 1996 ($2.1875) minus the exercise price.
COMPENSATION PLANS
The Stock Incentive Plan. In April 1992, the Company and its
stockholders adopted the Stock Incentive Plan (the "1992 Plan"). The Company
currently has approximately 513 employees. The purpose of the 1992 Plan is to
provide incentives to selected individuals (generally employees and consultants)
and entities for increased efforts and successful achievement on behalf of or in
the interest of MTI and its subsidiaries.
11
<PAGE> 16
The 1992 Plan has three components: a stock option component, a stock
bonus/stock purchase component and a stock appreciation rights component. The
stock option component of the 1992 Plan provides a means whereby participants
are given an opportunity to purchase shares of Common Stock pursuant to: (i)
options that qualify as incentive stock options ("ISOs") under Section 422A of
the Internal Revenue Code of 1986, as amended (the "Code"), or (ii) nonqualified
stock options ("NQSOs"). ISOs may be granted only to persons who are officers or
employees of the Company or any of its subsidiaries. ISOs may not be granted to
any person who, at the time that the ISO is granted, owns stock possessing more
than 10% of the combined voting power of all classes of the Company's stock or
any of the Company's subsidiaries' stock ("10% Stockholders"), unless the
exercise price of the shares of the Common Stock covered by the option is at
least 110% of the fair market value of such shares at the date of grant and such
ISO by its terms is not exercisable after the expiration of five years from the
date of grant.
Options, stock bonuses and rights to purchase Common Stock may be
granted under the 1992 Plan to exercise or purchase an aggregate of not more
than 4,079,960 shares of Common Stock, but in no event may the aggregate number
of shares subject to outstanding options exceed the greater of 5% of the
authorized shares of Common Stock or 15% of the total number of shares
outstanding as of the close of business on the last day of the Company's prior
fiscal year. The 1992 Plan was amended in February 1996 to allow for the grant
of options for 300,000 additional shares of Common Stock. Notwithstanding the
foregoing, no option may be issued under the 1992 Plan if, at the time of any
such grant, the aggregate number of shares subject to outstanding options and
rights to purchase stock would exceed 30% of the then outstanding shares of the
Common Stock of the Company. The 1992 Plan has no aggregate limit for individual
stockholder grants. As of July 15, 1996, options to purchase an aggregate of
3,034,650 shares of Common Stock were outstanding under the 1992 Plan at an
average price of $1.89 per share and 6,275 options had been exercised under the
1992 Plan during fiscal year 1996 with an average exercise price of $1.80.
The 1987 Incentive Stock Option and Nonqualified Stock Option Plan. In
October 1987, the Company and its stockholders adopted the 1987 Incentive Stock
Option and Nonqualified Stock Option Plan (the "1987 Plan") for employees and
consultants of the Company. As of July 15, 1996, options to purchase an
aggregate of 463,000 shares of Common Stock were outstanding under the 1987 Plan
at an average price of $2.01 per share and 11,250 options had been exercised
under the 1987 Plan during fiscal year 1996 with an average exercise price of
$2.36. The Company does not intend to grant any further options under the 1987
Plan.
SF2 Stock Options. In March 1992, the Company acquired SF2 and assumed
the outstanding stock options of employees and consultants of SF2 under SF2's
1988 Stock Option Plan, which as a result of the merger became exercisable for
235,691 shares of Common Stock. The aggregate number of shares of Common Stock
subject to outstanding SF2 options at July 15, 1996 was 13,324.
Other Options. In February 1994, the Company granted stock options to
acquire an aggregate of 24,000 shares of Common Stock, at an exercise price of
$5.00 per share, to five former System Industries employees in connection with
their employment with the Company.
Employee Stock Purchase Plan. In March 1994, the Company adopted the
1994 Employee Stock Purchase Plan (the "Purchase Plan") covering an aggregate of
500,000 shares of Common Stock. The Purchase Plan is intended to qualify as an
employee stock purchase plan within the meaning of Section 423 of the Code.
Under the Purchase Plan, the Board may authorize participation by eligible
employees, including officers, in periodic six month offerings following the
commencement of the Purchase Plan. The initial offering under the Purchase Plan
commenced on July 1, 1994.
Employees are eligible to participate if they are employed by the
Company or a subsidiary of the Company designated by the Board for at least 20
hours per week and are customarily employed by the Company or a subsidiary of
the Company designated by the Board for at least five months per calendar year.
Participating employees may elect to have up to 10% of their earnings withheld
pursuant to the Purchase Plan. The amount withheld is then used to purchase
shares of Common Stock on specified dates determined by the Board. The price of
Common Stock purchased under the Purchase Plan is equal to 85% of the lower of
the fair market value of the Common Stock at the commencement date of each
offering period or the relevant purchase date. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the Company.
In the event of a merger, reorganization, consolidation or liquidation
involving the Company, the Board has discretion to provide that each right to
purchase Common Stock will be assumed or an equivalent right substituted by the
successor corporation, or the Board may shorten the offering period and provide
for all sums collected by payroll
12
<PAGE> 17
deductions to be applied to purchase stock immediately prior to such merger or
other transaction. The Purchase Plan will terminate in March 2004. The Board has
the authority to amend or terminate the Purchase Plan, provided, however, that
no such action may adversely affect any outstanding rights to purchase Common
Stock.
Directors' Non-Qualified Stock Option Plan. The Company adopted the
Directors' Non-Qualified Stock Option Plan (the "Director Plan") in March 1994.
A total of 150,000 shares of Common Stock are reserved for issuance under the
Director Plan.
The Director Plan grants to each non-employee director of the Company
("Non-Employee Director") a nonqualified option to purchase 10,000 shares of
Common Stock (an "Initial Grant") upon the closing of the Company's initial
public offering, or upon his or her first election or appointment to the Board
of Directors, if subsequent to that offering. In addition, the Director Plan
provides that each Non-Employee Director who is a director immediately prior to
an annual meeting of the Company's stockholders and who continues to be a
director after such meeting will be granted an option to purchase 2,500 shares
of Common Stock (a "Subsequent Grant"); provided that no Subsequent Grant will
be made to any Non-Employee Director who has not served as a director of the
Company, as of the time of such annual meeting, for at least one year. Each
Subsequent Grant will be made on the date of the annual stockholders' meeting in
question.
The exercise price per share of each option granted under the Director
Plan will be the fair market value of the Company's Common Stock on the date the
option is granted, except that, in the case of the Initial Grants to directors
in office as of the public offering, the exercise price per share for such
grants was the price to the public in the offering. Payment of the exercise
price of any option to purchase Common Stock granted under the Director Plan may
be made in whole or in part in (i) cash, (ii) Common Stock held by the
Non-Employee Director, (iii) notes or (iv) such other valuable consideration as
the Board, in its discretion, determines to be consistent with the Director
Plan's purpose and applicable law. Options granted under the Director Plan vest
monthly over a 12 month period.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During the fiscal year ended April 6, 1996, the Compensation Committee,
consisting of Mr. Noorda, Mr. Proctor and Ms. Kreidel, was responsible for
establishing and administering the policies that govern the compensation of
executive officers, including the Named Executive Officers. The Compensation
Committee has furnished the following report on executive compensation:
COMPENSATION COMMITTEE REPORT
The Compensation Committee ("Committee") of the Board of Directors is
composed of independent outside directors. The Committee reviews and administers
the Company's various incentive plans, including the cash compensation levels of
members of management, the Company's bonus plan and the Company's stock
incentive plan.
General Compensation Policy. The Committee's fundamental compensation
policy is to make a substantial portion of an executive's total potential
compensation contingent upon the financial performance of the Company.
Accordingly, in addition to each executive's base salary, the Company offers the
opportunity for an annual cash bonus which is tied to the Company's achievement
of financial performance goals, and stock option awards to provide incentives to
the executive officers through an equity interest of the Company. The Committee
believes that the stockholders benefit by aligning the long-term interests of
stockholders and employees.
Base Salary. For the fiscal year 1996, the Committee reviewed the
recommendations of the Chief Executive Officer as to proposed base salaries for
all executives. Base salaries generally remained unchanged unless the
individual's responsibilities had increased over the prior fiscal year,
including recognition of efforts relating to the Company's recent acquisitions,
or the individual's performance in the prior fiscal year was determined to be
particularly strong. The Committee's review of each individual's base salary and
performance in fiscal 1996 was based on the individual's overall performance. No
specific quantitative weight was given to any particular performance
measurement. In the future the Committee will perform annual reviews of the base
salary of each of the executive officers with reference to the executive's
performance, level of responsibility and experience to determine whether the
current base salary is appropriate and competitive. The Committee will evaluate
the reasonableness of the base salary based upon the median salary range paid to
executive officers with comparable duties at companies of similar size in the
same geographic area in the computer technology industry. The base salary of
executive officers other than the Chief
13
<PAGE> 18
Executive Officer will ultimately be fixed by the Committee after consultation
with the Chief Executive Officer. The base salary of the Chief Executive Officer
will be recommended by the Committee and approved by the Board.
Cash Bonuses. The Company does not have a formal executive bonus plan.
Cash bonuses are targeted for executive officers based upon individual
performance and achievement of financial goals. For fiscal 1996, bonuses were
based on the individual's overall performance and consideration was also given
to the overall performance of the Company. No specific quantitative weight was
given to any particular performance measurement.
Stock Option Awards. The Company has granted stock options under its
various stock option plans generally at prices equal to the estimated fair
market value of the Company's common stock at the date of grant. The plans
provide for the grant by the Company of stock options, stock bonuses/purchases
and stock appreciation rights to acquire under the current plan up to an
aggregate of not more than the greater of 5 percent of the authorized shares of
the Company's common stock or 15 percent of the total number of shares
outstanding as of the Company's prior fiscal year-end. Grants to executive
officers are based on their responsibilities and relative positions in the
Company, and are considered an integral component of total compensation. The
Committee believes the granting of options to be beneficial to stockholders
because it increases management's interest in the enhancement of stockholder
value. Grants were proposed by the Chief Executive Officer and reviewed by the
Committee based on the individual's overall performance. No specific
quantitative weight was given to any particular performance measure. The
Committee believes that stock option grants are necessary to retain and motivate
key employees of the Company.
Chief Executive Officer Compensation. Mr. Hamerslag participated in the
same executive compensation plans as those described above for the other
executive officers. As is true of the other executives officers, the Committee's
policy is to have a large portion of the Chief Executive Officer's compensation
based on the Company's financial performance. Mr. Hamerslag's base salary for
fiscal 1996 was unchanged from that set prior to the Company's initial public
offering by negotiations between Mr. Hamerslag and the Board of Directors, based
upon the Company's financial performance for fiscal year 1996. In addition, as
in prior years, Mr. Hamerslag did not receive any bonus or stock option grants.
Policy Regarding Deductibility of Compensation. Section 162(m) of the
Internal Revenue Code (the "Section ") provides that for federal income tax
purposes, the otherwise allowable deduction for compensation paid or accrued to
a covered employee of a publicly held corporation is limited to no more than $1
million per year. The Company is not presently affected by the Section because,
for the fiscal year ended April 6, 1996, no executive officer's compensation
exceeded $1 million, and the Company does not believe that the compensation of
any executive officer will exceed $1 million for the 1997 fiscal year.
COMPENSATION COMMITTEE
RAYMOND J. NOORDA
DAVID PROCTOR
VAL KREIDEL
14
<PAGE> 19
COMPANY STOCK PRICE PERFORMANCE
The following performance graph assumes an investment of $100 on April 7, 1994
(the date the Company became subject to Section 12 of the Exchange Act) and
compares the change to April 6, 1996 in the market prices of the Common Stock
with a broad market index (Nasdaq Stock Market - U.S.) and an industry index
(Nasdaq Computer Manufacturer Index). The Company paid no dividends during the
periods shown; the performance of the indexes is shown on a total return
(dividend reinvestment) basis. The graph lines merely connect the prices on the
dates indicated and do not reflect fluctuations between those dates.
[GRAPH APPEARS HERE]
COMPARISON OF 24 MONTH CUMULATIVE TOTAL RETURN AMONG MTI
TECHNOLOGY CORPORATION, THE NASDAQ STOCK MARKET - U.S.
INDEX AND THE NASDAQ COMPUTER MANUFACTURER INDEX
<TABLE>
<CAPTION>
NAME 4/7/94 3/31/95 3/31/96
---- ------ ------- -------
<S> <C> <C> <C>
MTI Technology Corporation 100 36 21
Nasdaq Stock Market - U.S. 100 109 149
Nasdaq Computer Manufacturer Index 100 117 180
</TABLE>
THE FOREGOING REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON
EXECUTIVE COMPENSATION AND THE PERFORMANCE GRAPH THAT APPEARS IMMEDIATELY ABOVE
SHALL NOT BE DEEMED TO BE SOLICITING MATERIAL OR TO BE FILED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934, OR INCORPORATED
BY REFERENCE IN ANY DOCUMENT SO FILED.
15
<PAGE> 20
REPORT OF COMPENSATION COMMITTEE ON REPRICING
In May 1995, the Compensation Committee of the Board of Directors
announced a repricing of all outstanding stock options with exercise prices in
excess of $1.75 per share (excluding options under the Directors' Plan). The
Company's stock option plans are intended to encourage Company employees,
through their individual efforts, to improve the Company's overall performance
and to promote profitability by providing them an opportunity to participate in
the increased value they help create. In May 1995, the Compensation Committee
determined, based upon the recommendation of management, that the imbalance
between the exercise prices under many of the stock options then outstanding
(equal to the respective market prices for the Common Stock at the times they
were granted) and the lower market price that prevailed for the Common Stock in
May 1995 was not an incentive for the employees holding such options to exert
their best efforts to achieve the Company's long-term goals. To restore that
incentive, the repriced options have exercise prices of $1.75 per share, the
fair market value on the date of the repricing, and the option holders were not
permitted to exercise any repriced options until the earlier of May 26, 1996 or
30 days prior to the date on which such options expired. Except as disclosed
above, each new option continues to be governed by the same terms as applied to
the prior option (including the vesting schedule).
COMPENSATION COMMITTEE
RAY NOORDA
DAVID PROCTOR
VAL KREIDEL
The following chart describes all repricings of options held by an
executive officer during the completed fiscal years subsequent to the date on
which the Company became a reporting company.
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING LENGTH OF ORIGINAL
OPTIONS/SARS MARKET PRICE OF EXERCISE PRICE OPTION TERM
REPRICED OR STOCK AT TIME OF AT TIME OF REMAINING AT DATE
AMENDED REPRICING EXERCISE REPRICING OR NEW EXERCISE OF REPRICING OR
NAME DATE (#) OR AMENDMENT ($) AMENDMENT ($) PRICE ($) AMENDMENT
- ---- ---- ---- ---------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Earl M. Pearlman, 5/26/95 125,000 $1.75 $2.875 $1.75 118 mos.
President and
Chief Executive
Officer
Dale R. Boyd, 5/26/95 25,000 $1.75 $3.375 $1.75 117 mos.
Vice President, Chief
Financial Officer
John M. Hiett 5/26/95 55,000 $1.75 $5.00 $1.75 36-111 mos.
Senior Vice President, 60,000 $1.75 $4.00 $1.75
Customer Service
Thomas P. Raimondi, Jr. 5/26/95 80,000 $1.75 $4.00 $1.75 42-117 mos.
Senior Vice President, 52,500 $1.75 $5.00 $1.75
General Manager
Gary M. Scott 5/26/95 90,000 $1.75 $5.00 $1.75 84-111 mos.
Senior Vice President, 100,000 $1.75 $4.00 $1.75
European Operations
Venki Venkataraman -- -- -- -- -- --
Vice President,
Operations
</TABLE>
16
<PAGE> 21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NFTII Conversion Right. On July 19, 1995, the Company entered into the
Loan Agreement with NFTII. Mr. Noorda is the Chairman of the Board of NFTII.
Pursuant to the Loan Agreement, NFTII provided the Company $10.0 million at an
interest rate of 10-3/4% per annum. Repayment was due in two equal
installments, 18 and 24 months after funding.
As contemplated by the Loan Agreement, NFTII and the Company have
executed mutually satisfactory licenses granting NFTII a source code license
(with the right of sublicense) for the Company's BACKUP.UNET and XpresServe
products within thirty (30) days of the date of the Loan Agreement. Therefore,
NFTII has forgiven $650,000 of principal or interest due under the Loan
Agreement.
On April 11, 1996, the principal and interest accrued under the Loan
Agreement was converted, in whole, to Common Stock of the Company at $1.6875 per
share, the then-current market price per share (the "Conversion Right") for an
aggregate of 5,992,665 shares. The Conversion Right was approved by the
Company's stockholders at the 1995 Annual Meeting.
NRE Funding Agreement. Pursuant to the NRE Funding Agreement, dated as
of June 27, 1996, between the Company and NFT, NFT has agreed to fund the
non-recoverable direct operating expenses for certain development projects for
one year, up to an aggregate of $2.4 million. The development projects consist
of the Company's Sterling, Virginia Software Product Development Center, the RLM
Software Products Group, and the Open Media Products Group. In return for the
development project funding, NFT will receive 40% of the net sales prices of all
products arising out of the development projects through April 7, 2000. In
addition, the Company has agreed, subject to stockholder approval, to issue NFT
a warrant to purchase up to 750,000 shares of Common Stock with an exercise
price of $2.25 per share, vesting 25% at each funding date. See "Proposal
Three." The aggregate number of shares of Common Stock subject to the warrant
will be reduced pro rata, to the extent the maximum funding obligation is not
reached. Ray Noorda, the Company's Chairman and a major stockholder, is the
Chairman of NFT.
Loan Guaranty Warrants. On May 3, 1996, an affiliate of NFT provided
the Loan Guaranty for the Company's $10.0 million bank financing with Greyrock
Business Credit. As consideration for such Loan Guaranty, the Company has
agreed to issue NFT a warrant to purchase up to 500,000 shares of Common Stock
at $2.00 per share, subject to approval of the Company's disinterested
stockholders. See "Proposal Four." Ray Noorda, the Company's Chairman and a
major stockholder is the Chairman of NFT.
Option Grants. In June 1996, the Compensation Committee of the Board of
Directors approved stock option grants to the following executive officers: Earl
Pearlman (250,000); Dale Boyd (70,000); and Venki Venkataraman (35,000).
PROPOSAL TWO
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has recommended that the stockholders ratify the
selection of KPMG Peat Marwick LLP to serve as independent auditors for the
Company for the fiscal year ending April 5, 1997, or until a successor is
appointed.
KPMG Peat Marwick LLP has been the principal independent certified public
accounting firm utilized by the Company since March 1986. During this time,
KPMG has examined the Company's consolidated financial statements, made limited
reviews of the interim financial reports, reviewed filings with the Securities
and Exchange Commission and provided general advice regarding related
accounting matters.
The matter is being submitted to the stockholders for approval by the
affirmative vote of the holders of record of a majority of the shares
represented and voting, in person or by proxy, at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THE ADOPTION OF THE FOLLOWING
RESOLUTION WHICH WILL BE PRESENTED TO THE MEETING:
RESOLVED, that the stockholders of MTI Technology Corporation hereby
ratify the selection of KPMG Peat Marwick LLP as independent auditors for the
fiscal year ending April 5, 1997.
The persons designated in the enclosed proxy will vote your shares FOR
appointment unless instructions to the contrary are indicated in the enclosed
proxy.
Representatives of KPMG Peat Marwick LLP are expected to be present at
the Annual Meeting of Stockholders to respond to appropriate questions and to
make statements should they desire to do so.
17
<PAGE> 22
PROPOSAL THREE
APPROVAL OF THE NRE FUNDING AGREEMENT WARRANT
The Board of Directors has recommended that the stockholders approve the
issuance of a warrant in connection with the NRE Funding Agreement.
Pursuant to an agreement (the "NRE Funding Agreement"), dated as of June
27, 1996, between the Company and NFT Ventures, Inc. ("NFT"), NFT has agreed to
fund the non-recoverable direct operating expenses for certain development
projects for one year, up to an aggregate of $2.4 million. The development
projects consist of the Company's Sterling, Virginia Software Product
Development Center, the RLM Software Products Group, and the Open Media
Products Group. In return for the development project funding, NFT will
receive 40% of the net sales prices of all products arising out of the
development projects through April 7, 2000. In addition, the Company has
agreed, subject to stockholder approval, to issue NFT a warrant to purchase up
to 750,000 shares of Common Stock with an exercise price of $2.25 per share,
vesting 25% at each funding date. The aggregate number of shares of Common
Stock subject to the warrant will be reduced pro rata, to the extent the
maximum funding obligation is not reached. The warrant expires June 27, 2001.
Ray Noorda, the Company's Chairman and a major stockholder, is the Chairman of
NFT.
NFT currently beneficially owns 13,699,461 shares of the Company's Common
Stock or 52.9% of the amount outstanding (assuming exercise of warrants and
options). See "Voting Securities and Principal Holders Thereof." If such
approval is not received, the Company would be unable to meet its obligations
under the Agreement, and the Agreement could be terminated by NFT. The
resulting loss of funding from NFT in the event the Agreement is canceled would
necessitate a reduction of the Company's future software research and
development efforts, which could have a negative effect on the Company's future
operating results and market competitiveness.
The Company's Board of Directors believes that it is in the best
interests of the Company and its stockholders to approve the warrant in
connection with the NRE Funding Agreement. Stockholders should balance the
benefits to the Company of ongoing research and development capability and the
beneficial impact of the NRE Funding Agreement on the Company's results against
the potential dilution of their ownership interest. In addition, NFT would
beneficially own a substantial amount of the Company's outstanding Common
Stock, which could further enable it to influence the direction and future
operations of the Company including decisions regarding acquisitions and other
business opportunities, the declaration of dividends and the issuance of
additional shares of common or preferred stock.
The matter is being submitted to the stockholders for approval by the
affirmative vote of the holders of record of a majority of the shares
represented and voting, in person or by proxy, at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THE ADOPTION OF THE FOLLOWING
RESOLUTION, WHICH WILL BE PRESENTED TO THE MEETING:
18
<PAGE> 23
RESOLVED, that the stockholders of MTI Technology Corporation hereby
approve the issuance of a warrant to NFT Ventures, Inc. for 750,000 shares of
Common Stock, at an exercise price of $2.25 per share.
The persons designated in the enclosed proxy will vote your shares FOR
approval unless instructions to the contrary are indicated in the enclosed
proxy.
PROPOSAL FOUR
APPROVAL OF LOAN GUARANTY WARRANT
The Board of Directors has recommended that the stockholders
approve the issuance of a warrant in connection with the Loan Guaranty. Mr.
Noorda did not participate in the consideration or approval of this matter by
the Board.
On May 3, 1996, an affiliate of NFT provided the Loan Guaranty for
the Company's $10.0 million bank financing with Greyrock Business Credit. As
consideration for the Loan Guaranty, the Company has agreed to issue NFT a
warrant to purchase up to 500,000 shares of Common Stock at $2.00 per share,
subject to approval of the Company's disinterested stockholders. The warrant
expires July 1, 2001. Ray Noorda, the Company's Chairman and a major
stockholder, is the Chairman of NFT.
The Company's Board of Directors believes that it is in the best
interests of the Company and its stockholders to approve the warrant in
connection with the Loan Guaranty. Stockholders should balance the cost to the
Company of refinancing the outstanding bank financing without such a guaranty
against the potential dilution of their ownership interest. In addition, NFT
would beneficially own a substantial amount of the Company's outstanding Common
Stock, which could further enable NFT to influence the direction and future
operations of the Company, including decisions regarding acquisitions and other
business opportunities, the declaration of dividends, and the issuance of
additional shares of common or preferred stock.
The matter is being submitted to the stockholders for approval by
the affirmative vote of the holders of record of a majority of the shares held
by disinterested stockholders represented and voting, in person or by proxy, at
the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THE ADOPTION OF THE FOLLOWING
RESOLUTION WHICH WILL BE PRESENTED TO THE MEETING:
RESOLVED, that the stockholders of MTI Technology Corporation
hereby approve the issuance of a warrant to NFT for 500,000 shares of Common
Stock, at an exercise price of $2.00 per share.
The persons designated in the enclosed proxy will vote your shares
FOR approval unless instructions to the contrary are indicted in the enclosed
proxy.
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<PAGE> 24
PROPOSAL FIVE
APPROVAL OF STOCK INCENTIVE PLAN
At the Annual Meeting, the Company's stockholders will be asked to
vote on a proposal to adopt the 1996 Stock Incentive Plan (the "Stock Incentive
Plan"). The Stock Incentive Plan would authorize the issuance of up to
2,250,000 shares of Common Stock, subject to increase as described below.
The 1992 Stock Incentive Plan (the "1992 Plan"), which was approved by
the stockholders prior to the Company's initial public offering, provides for
the issuance of up to 4,079,960 shares of Common Stock; provided that in no
event may options be granted under the 1992 Plan if at the time of any grant,
the aggregate number of shares subject to outstanding options and rights to
purchase stock would exceed the greater of 5% of the authorized shares of
Common Stock or 15% of the total number of shares outstanding as of the close
of business on the last day of the Company's prior fiscal year. In February
1996, the Board increased the number of shares issuable under the 1992 Plan by
300,000 shares. As of June 27,1996, options exercisable for an aggregate of
3,034,650 shares of Common Stock are outstanding under the 1992 Plan and
128,508 shares are available for issuance under the 1992 Plan.
The Board of Directors has concluded that the number of shares
authorized and remaining available for issuance under the 1992 Plan will not be
sufficient to achieve the Company's objectives. In addition, the Board
concluded that the Company should take advantage of changes to applicable laws
that allow the Company to adopt a more flexible incentive plan. The Board has
concluded that given the Company's current objectives, a new stock incentive
plan is in the best interests of the Company and its stockholders.
The essential features of the Stock Incentive Plan are discussed below.
Purposes. The purposes of the Stock Incentive Plan are to attract and
retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to employees, directors and
consultants of the Company and its subsidiaries, and to promote the success of
the Company's business.
Administration. With respect to grants of awards to employees who are
also officers or directors of the Company, the Stock Incentive Plan will be
administered by either the Board of Directors or a Committee (as applicable,
the "Administrator") designated by the Board. The Administrator will be
constituted so as to satisfy applicable laws and to permit grants and related
transactions under the Plan to be exempt from Section 16(b) of the Exchange
Act. With respect to grants of awards to employees or consultants who are
neither directors nor officers of the Company, the Administrator may authorize
any officer(s) to grant awards, provided all grants are ratified by the Board
within 6 months of the grant date. Grants to individuals who are "covered
employees" under Section 162(m)(3) of the Internal Revenue Code (the "Code")
that are intended to qualify as performance-based compensation will be
administered only by a committee consisting solely of two or more "outside
directors" for purposes of Section 162(m). Subject to the provisions of the
Stock Incentive Plan, the Administrator has the final power to construe and
interpret the Plan and the awards granted under it, and to determine, among
other matters, the persons
20
<PAGE> 25
to whom stock awards will be granted and the number of shares with respect to
which awards shall be granted.
Types of Awards. Any type of arrangement to an employee or consultant
that is not inconsistent with the provisions of the Plan and that by its terms
involves or might involve the issuance of (i) shares of Common Stock of the
Company, (ii) an option, SAR or similar right with an exercise or conversion
privilege at a fixed or variable price related to the Common Stock or the
passage of time, the occurrence of one or more events, or the satisfaction of
performance criteria or other conditions, or (iii) any other security with the
value derived from the value of the Common Stock. Performance criteria may be
based on any one of, or combination of, an increase in share price, earnings
per share, total stockholder return, return on equity, return on assets, return
on investment, net operating income, cash flow, revenue, economic value added,
personal management objectives, or other measure of performance selected by the
Administrator.
In the case of stock options, each option will be either an incentive
stock option or a non-qualified stock option. However, if the aggregate fair
market value of shares subject to incentive stock options which become
exercisable for the first time by an individual during any calendar year under
any Company plan exceeds $100,000, such excess options will be treated as
non-qualified stock options. Incentive stock options may not be transferred,
but all other awards may be transferred in accordance with the terms of the
grant. The exercise price of any incentive stock option may not be less than
100% of the fair market value per share on the date of grant (110% in the case
of a stockholder ("10% Holder") holding 10% or more of the voting power of the
Company's and its subsidiaries' stock). The exercise price of non-qualified
stock options may not be less than 85% of the fair market value on the date of
grant.
The Administrator may accept the following types of consideration for
shares issued under the Stock Incentive Plan: (i) cash; (ii) check; (iii)
surrender of shares of Common Stock (including the withholding of shares
otherwise deliverable upon exercise) with a fair market value equal to the
aggregate exercise price; (iv) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and the broker, if
applicable, require to effect an exercise of the award and delivery to the
Company of the sale or loan proceeds required to pay the exercise price; or (v)
any combination of the foregoing.
The Administrator may establish programs to permit grantees to defer
receipt of consideration upon exercise of an award, satisfaction of performance
criteria, or other event that absent the election would entitle the grantee to
payment or receipt of shares or consideration. In addition, the Administrator
may establish one or more programs under the Plan to permit a grantee to
exchange an award for one or more other types of awards.
No shares of Common Stock may be issued under the Stock Incentive Plan
until the grantee has made arrangements satisfactory to the Administrator for
the satisfaction of federal, state and local income and employment tax
withholding obligations.
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<PAGE> 26
The term of each Award will be stated in the Award agreement, provided
that the term of an Incentive Stock Option may not exceed 10 years from the
date of grant or 5 years from the date of grant if the grantee is a 10% Holder.
In the event of any actual or anticipated Corporate Transaction,
Change in Control or Subsidiary Disposition (all as described below), the
Administrator may cause each outstanding award automatically to become fully
vested and exercisable and be released from any restrictions on transfer and
repurchase or forfeiture rights immediately prior to the date of such
transaction. The Administrator may also condition any such acceleration or
termination of restriction on termination of the employee or consultant within
a specified time of the transaction. Effective upon the consummation of the
transaction, all outstanding awards under the Plan terminate unless assumed by
the successor. A "Corporate Transaction" means any of the following
stockholder-approved transactions to which the Company is a party: (i) a
merger or consolidation in which the Company is not the surviving entity (other
than for a change in domicile); (ii) the sale, transfer or other disposition of
all or substantially all of the assets of the Company in connection with
complete liquidation or dissolution of the Company; or (iii) any reverse merger
in which the Company is the surviving entity, but in which securities
possessing more than 50% of the total combined voting power of the Company's
outstanding securities are transferred to a person or persons different from
those who held such securities immediately prior to such merger. A "Change in
Control" means a change in ownership or control of the Company effected through
either of the following transactions: (i) the direct or indirect acquisition
of beneficial ownership of securities with more than 50% of the total combined
voting power of the Company's outstanding securities pursuant to a tender or
exchange offer made directly to the Company's stockholders which a majority of
the disinterested directors did not approve (other than by the Company, a
Company-sponsored benefit plan, or any current beneficial owner or group
holding in excess of 50% of the combined voting power of such securities); or
(ii) a change in the composition of the board over 36 months or less such that
the majority of Board members ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who have been
Board members for at least 36 months or were elected or nominated by such Board
members. A "Subsidiary Disposition" means the disposition by the Company of
its equity holdings in any subsidiary corporation effected by a merger or
consolidation involving that subsidiary, the sale of all or substantially all
of the assets of that subsidiary, or the Company's sale or distribution of
substantially all of the outstanding capital stock of such subsidiary
corporation.
The portion of any incentive stock option accelerated under the Stock
Incentive Plan in connection with a Corporate Transaction, Change in Control or
Subsidiary Disposition remains exercisable as an incentive stock option under
the Code only to the extent the $100,000 limitation of Section 422(d) of the
Code is not exceeded. Any excess portion will be exercisable as a
non-qualified stock option.
Available Shares. The maximum aggregate number of shares of Common
Stock which may be issued under the Stock Incentive Plan initially is 2,250,000
shares, increased by a number equal to 3% of the number of shares of Common
Stock outstanding as of December 31st of the immediately preceding fiscal year,
beginning on December 31, 1997. Notwithstanding the foregoing, the maximum
aggregate number of shares available for granting incentive stock options is
2,250,000 and is not subject to any annual adjustment.
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<PAGE> 27
Eligible Individuals. Awards other than incentive stock options,
which may only be granted to employees, may be granted to employees (including
officers and directors) and consultants of the Company or any parent or
subsidiary.
Amendment. The Board may amend the Stock Incentive Plan at any time
and for any reason, subject to certain restrictions on the ability to adversely
affect awards previously granted thereunder and to any legal requirement to
obtain stockholder approval.
Term. The Plan is effective from June 27, 1996, the date of adoption
by the Board, for a term of 10 years unless sooner terminated.
FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE STOCK INCENTIVE PLAN
The following is a brief summary of the current United States federal income
tax rules generally applicable to the awards under the Stock Incentive Plan.
Incentive Stock Options. There are generally no federal income tax
consequences to the optionee or the Company by reason of the grant or exercise
of an incentive stock option.
If an optionee holds stock for more than two years from the date on
which the option is granted and more than one year from the date on which the
shares are transferred to the optionee upon exercise of the option, any gain or
loss on a disposition of such stock will be long term capital gain or loss.
Generally, if the optionee disposes of the stock before the expiration of
either of these holding periods (a "disqualifying disposition"), at the time of
disposition the optionee will realize taxable ordinary income equal to the
excess of the fair market value on the date of exercise over the exercise
price. If the optionee disposes of the stock in a disqualifying disposition
involving a sale or exchange, however, the optionee will realize taxable
ordinary income equal to the optionee's actual gain, if any, on the sale or
exchange. The optionee's additional gain or any loss upon the disqualifying
disposition will be a capital gain or loss which will be long-term or
short-term depending on whether the stock was held for more than one year.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
Upon exercise of an incentive stock option, the excess of the stock's
fair market value on the date of exercise over the option exercise price will
constitute an adjustment in calculating the optionee's alternative minimum tax
liability, if any.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will be entitled (subject to the
requirement of reasonableness and perhaps, in the future, the satisfaction of a
withholding obligation) to a corresponding business expense deduction in the
tax year in which the disposition occurs.
Non-Qualified Stock Options. There generally are no tax consequences
to the optionee or the Company by reason of the grant of a non- qualified stock
option. Upon exercise of a non-qualified stock option normally the optionee
will recognize taxable ordinary income equal to the excess of the stock's fair
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<PAGE> 28
market value on the date of exercise over the exercise price. Subject to the
requirement of reasonableness and the satisfaction of any withholding
obligation, the Company will be entitled to a business expense deduction equal
to the taxable ordinary income realized by the optionee. Upon disposition of
stock, the optionee will recognize a capital gain or loss equal to the
difference between the selling price and the sum of the amount paid for such
stock plus any amount recognized as ordinary income upon exercise of the
option. Such gain or loss will be long or short-term depending on whether the
stock was held for more than one year. Slightly different rules may apply to
optionees who acquire stock subject to certain repurchase options or who are
subject to Section 16(b) of the Exchange Act.
Stock Grants, Restricted Stock Grants and Restricted Stock Purchases.
Generally, a recipient of stock under the Stock Incentive Plan would recognize
ordinary income equal to the difference between the market value of the stock
on the grant or purchase date and any amount paid or required to be paid for
the stock. If the stock is restricted and subject to vesting, then the
recipient of the stock would recognize ordinary income as the restrictions are
removed and the stock vests. On each vesting date, the recipient would
recognize ordinary income equal to the difference between the fair market value
of the shares of stock that have vested on such date and any amount paid or
required to be paid for the shares of stock. The recipient of the stock would
not recognize any income to the extent the rights to the stock have not vested.
A recipient of stock under the Stock Incentive Plan, however, may make an
election under Section 83(b) of the Code within 30 days of the stock award to
be taxed at the grant date at ordinary income rates on the difference between
the fair market value of the stock on the grant or purchase date and any amount
paid by the recipient for the stock. If a Section 83(b) election is made, the
recipient will not recognize income on subsequent vesting of the award.
However, no loss or deduction will be permitted the recipient if the restricted
stock is forfeited.
Subject to the requirement of reasonableness and the satisfaction of
any withholding obligation, the Company will be entitled to a business expense
deduction equal to the taxable ordinary income realized by the recipient.
Upon disposition of stock, the recipient will recognize a capital gain
or loss equal to the difference between the selling price and the sum of the
amount paid for such stock plus any amount recognized as ordinary income. Such
gain or loss will be long or short term depending on whether the stock was held
for more than one year.
Other Tax Consequences. The foregoing discussion is not a complete
description of the federal income tax aspects of stock awards under the Stock
Incentive Plan. In addition, administrative and judicial interpretations of
the application of the federal income tax laws are subject to change.
Furthermore, no information is given with respect to state or local taxes that
may be applicable or any stock awards other than options. Participants in the
Stock Incentive Plan who are residents or are employed in a country other than
the United States may be subject to taxation in accordance with the tax laws of
that particular country in addition to or in lieu of United States federal
income taxes.
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<PAGE> 29
NEW PLAN BENEFITS
Because stock awards under the Stock Incentive Plan are discretionary,
the benefits to be received under the stock incentive plan by any director,
officer or employee of the Company cannot presently be determined.
The matter is being submitted to the Stockholders for approval by the
affirmative vote of the holders of record of a majority of the shares
represented and voting, in person or by proxy, at the Annual Meeting.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE ADOPTION OF THE STOCK
INCENTIVE PLAN AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF SHARES OF COMMON
STOCK VOTE "FOR" APPROVAL OF THE FOLLOWING RESOLUTION WHICH WILL BE PRESENTED
TO THE MEETING:
RESOLVED, that the stockholders of MTI Technology Corporation hereby
approve the 1996 Stock Incentive Plan in substantially the form filed
as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended April 6, 1996.
The persons designated in the enclosed proxy will vote your shares FOR
approval unless instructions to the contrary are indicated in the enclosed
proxy.
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<PAGE> 30
OTHER BUSINESS
The Board of Directors is not aware of any other matters to come before
the Annual Meeting. If any matter not mentioned herein is properly brought
before the meeting, the persons named in the enclosed proxy will have
discretionary authority to vote all proxies with respect thereto in accordance
with their judgment.
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
APRIL 6, 1996 AS FILED WITH THE SEC WILL BE PROVIDED TO STOCKHOLDERS WITHOUT
CHARGE UPON WRITTEN REQUEST TO INVESTOR RELATIONS, MTI TECHNOLOGY CORPORATION,
4905 EAST LA PALMA AVENUE, ANAHEIM, CALIFORNIA 92807.
STOCKHOLDER PROPOSALS FOR THE
1997 ANNUAL MEETING
Stockholders who may wish to present proposals for inclusion in the
Company's proxy materials and for consideration at the 1997 Annual Meeting at
Stockholders must submit such proposals in writing to the Secretary at the
address shown at the top of page one above not later than May 6, 1997.
By Order of the Board of Directors
Anaheim, California
September 3, 1996
Earl M. Pearlman
President and Chief Executive Officer
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<PAGE> 31
APPENDIX "A"
MTI TECHNOLOGY CORPORATION
1996 STOCK INCENTIVE PLAN
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<PAGE> 32
I. Purposes of the Plan. The purposes of this Stock Incentive Plan are
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to employees, directors and
consultants of the Company and its subsidiaries and to promote the success of
the Company's business.
II. Definitions. As used herein, the following definitions shall apply:
A. "Administrator" means the Board or any of the Committees
appointed to administer the Plan.
B. "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange
Act.
C. "Applicable Laws" means the legal requirements relating to
the administration of stock incentive plans, if any, under applicable
provisions of federal securities laws, state corporate and securities laws, the
Code, and the rules of any applicable stock exchange or national market system.
D. "Award" means the grant of an Option, SAR, Dividend
Equivalent Right, Restricted Stock, Performance Unit, Performance Share, or
other right or benefit under the Plan.
E. "Award Agreement" means the written agreement evidencing
the grant of an Award executed by the Company and the Grantee, including any
amendments thereto.
F. "Board" means the Board of Directors of the Company.
G. "Change in Control" means a change in ownership or control
of the Company effected through either of the following transactions:
1. the direct or indirect acquisition by any person
or related group of persons (other than an acquisition from or by (A) the
Company or by a Company-sponsored employee benefit plan or by a person that
directly or indirectly controls, is controlled by, or is under common control
with, the Company or (B) any current beneficial stockholder or group, as
defined by Rule 13d-5 of the Securities Exchange Act of 1934, holding in excess
of 50% of the combined voting power of the Company's outstanding securities,
including the heirs, assigns and successors thereof) of beneficial ownership
(within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities pursuant to a tender or exchange offer made
directly to the Company's stockholders which a majority of the Continuing
Directors who are not Affiliates or Associates of the offeror do not recommend
such stockholders to accept, or
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<PAGE> 33
2. a change in the composition of the Board over a
period of thirty-six (36) months or less such that a majority of the Board
members (rounded up to the next whole number) ceases, by reason of one or more
contested elections for Board membership, to be comprised of individuals who
are Continuing Directors.
H. "Code" means the Internal Revenue Code of 1986, as amended.
I. "Committee" means any committee appointed by the Board to
administer the Plan.
J. "Common Stock" means the common stock of the Company, as
adjusted in accordance with the provisions of Section 10, below.
K. "Company" means MTI Technology Corporation, a Delaware
corporation.
L. "Consultant" means any person who is engaged by the
Company or any Parent or Subsidiary to render consulting or advisory services
and is compensated for such services.
M. "Continuing Directors" means members of the Board who
either (i) have been Board members continuously for a period of at least
thirty-six (36) months or (ii) have been Board members for less than thirty-six
(36) months and were elected or nominated for election as Board members by at
least a majority of the Board members described in clause (i) who were still in
office at the time such election or nomination was approved by the Board.
N. "Continuous Status as an Employee, Director or Consultant"
means that the employment, director or consulting relationship with the
Company, any Parent, or Subsidiary, is not interrupted or terminated.
Continuous Status as an Employee, Director or Consultant shall not be
considered interrupted in the case of (i) any leave of absence approved by the
Company or (ii) transfers between locations of the Company or between the
Company, its Parent, any Subsidiary, or any successor. A leave of absence
approved by the Company shall include sick leave, military leave, or any other
personal leave approved by an authorized representative of the Company. For
purposes of Incentive Stock Options, no such leave may exceed ninety (90) days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract.
O. "Corporate Transaction" means any of the following
stockholder-approved transactions to which the Company is a party:
1. a merger or consolidation in which the Company is
not the surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Company is incorporated,
2. the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital stock of
the Company's subsidiary corporations) in connection with complete liquidation
or dissolution of the Company, or
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<PAGE> 34
3. any reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding
securities are transferred to a person or persons different from those who held
such securities immediately prior to such merger.
P. "Covered Employee" means an Employee who is a "covered
employee" under Section 162(m)(3) of the Code.
Q. "Director" means a member of the Board.
R. "Dividend Equivalent Right" means a right entitling the
Grantee to compensation measured by dividends paid with respect to Common
Stock.
S. "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
T. "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
U. "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
1. Where there exists a public market for the Common
Stock, the Fair Market Value shall be (A) the closing sales price for a Share
for the last market trading day prior to the time of the determination (or, if
no sales were reported on that date, on the last trading date on which sales
were reported) on the New York Stock Exchange, the NASDAQ National Market or
the principal securities exchange on which the Common Stock is listed for
trading, whichever is applicable or (B) if the Common Stock is not traded on
any such exchange or national market system, the average of the closing bid and
asked prices of a Share on the NASDAQ Small Cap Market, in each case, as
reported in The Wall Street Journal or such other source as the Administrator
deems reliable; or
2. In the absence of an established market of the
type described in (i), above, for the Common Stock, the Fair Market Value
thereof shall be determined by the Administrator in good faith, and such
determination shall be conclusive and binding on all persons.
V. "Grantee" means an Employee, Director or Consultant who
receives an Award under the Plan.
W. "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
X. "Non-Qualified Stock Option" means an Option not intended
to qualify as an Incentive Stock Option.
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<PAGE> 35
Y. "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
Z. "Option" means a stock option granted pursuant to the
Plan.
AA. "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
BB. "Performance - Based Compensation" means compensation
qualifying as "performance-based compensation" under Section 162(m) of the
Code.
CC. "Performance Shares" means Shares or an award denominated
in Shares which may be earned in whole or in part upon attainment of
performance criteria established by the Administrator.
DD. "Performance Units" means an award which may be earned in
whole or in part upon attainment of performance criteria established by the
Administrator and which may be settled for cash, securities or a combination or
cash or securities as determined by the Administrator.
EE. "Plan" means this 1996 Stock Incentive Plan.
FF. "Restricted Stock" means Shares issued under the Plan to
the Grantee for such consideration, if any, and subject to such restrictions on
transfer, rights of first refusal, repurchase provisions, forfeiture
provisions, and other terms and conditions as established by the Administrator.
GG. "Rule 16b-3" means Rule 16b-3 promulgated under the
Exchange Act or any successor thereto.
HH. "SAR" means a stock appreciation right entitling the
Grantee to Shares or cash compensation measured by appreciation in the value of
Common Stock.
II. "Share" means a share of the Common Stock.
JJ. "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
KK. "Subsidiary Disposition" means the disposition by the
Company of its equity holdings in any subsidiary corporation effected by a
merger or consolidation involving that subsidiary corporation, the sale of all
or substantially all of the assets of that subsidiary corporation or the
Company's sale or distribution of substantially all of the outstanding capital
stock of such subsidiary corporation.
III. Stock Subject to the Plan.
A-5
<PAGE> 36
A. Subject to the provisions of Section 10, below, the
maximum aggregate number of Shares which may be issued pursuant to Awards
initially shall be 2,250,000 Shares, and commencing with the first business day
of each calendar year thereafter beginning with 1997, such maximum aggregate
number of Shares shall be increased by a number equal to three percent (3%) of
the number of Shares outstanding as of December 31st of the immediately
preceding calendar year. Notwithstanding the foregoing, the maximum aggregate
number of Shares available for grant of Incentive Stock Options shall be
2,250,000 Shares, and such number shall not be subject to annual adjustment as
described above. The Shares to be issued pursuant to Awards may be authorized,
but unissued, or reacquired Common Stock.
B. If an Award expires or becomes unexercisable without having
been exercised in full, or is surrendered pursuant to an Award exchange
program, or if any unissued Shares are retained by the Company upon exercise of
an Award in order to satisfy the exercise price for such Award or any
withholding taxes due with respect to such Award, such unissued or retained
Shares shall become available for future grant or sale under the Plan (unless
the Plan has terminated). Shares that actually have been issued under the Plan
pursuant to an Award shall not be returned to the Plan and shall not become
available for future distribution under the Plan, except that if unvested
Shares are forfeited, or repurchased by the Company at their original purchase
price, such Shares shall become available for future grant under the Plan.
IV. Administration of the Plan.
A. Plan Administrator.
1. Administration with Respect to Directors and
Officers. With respect to grants of Awards to Directors or Employees who are
also Officers or Directors of the Company, the Plan shall be administered by
(A) the Board or (B) a Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy the Applicable Laws and to permit
such grants and related transactions under the Plan to be exempt from Section
16(b) of the Exchange Act in accordance with Rule 16b-3. Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board.
2. Administration With Respect to Consultants and
Other Employees._ With respect to grants of Awards to Employees or Consultants
who are neither Directors nor Officers of the Company, the Plan shall be
administered by (A) the Board or (B) a Committee designated by the Board, which
Committee shall be constituted in such a manner as to satisfy the Applicable
Laws. Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. The Board may authorize one or
more Officers to grant such Awards and may limit such authority by requiring
that such Awards must be reported to and ratified by the Board or a Committee
within six (6) months of the grant date, and if so ratified, shall be effective
as of the grant date.
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3. Administration With Respect to Covered Employees.
Notwithstanding the foregoing, grants of Awards to any Covered Employee
intended to qualify as Performance-Based Compensation shall be made only by a
Committee (or subcommittee of a Committee) which is composed solely of two or
more Directors eligible to serve on a committee making Awards qualifying as
Performance-Based Compensation. In the case of such Awards granted to Covered
Employees, references to the "Administrator" or to a "Committee" shall be
deemed to be references to such Committee or subcommittee.
B. Powers of the Administrator. Subject to Applicable Laws,
the provisions of the Plan (including any other powers given to the
Administrator hereunder) and except as otherwise provided by the Board, the
Administrator shall have the authority, in its discretion:
1. to select the Employees, Directors and
Consultants to whom Awards may from time to time be granted hereunder;
2. to determine whether and to what extent Awards
are granted hereunder;
3. to determine the number of Shares to be covered
by each Award granted hereunder;
4. to approve forms of Award Agreement for use under
the Plan;
5. to determine the terms and conditions of any
Award granted hereunder;
6. to amend the terms of any outstanding Award
granted under the Plan including a reduction in the exercise price (or base
amount on which appreciation is measured) of any Award to reflect a reduction
in the Fair Market Value of the Common Stock since the grant date of the Award,
provided that any amendment that would adversely affect the Grantee's rights
under an outstanding Award shall not be made without the Grantee's written
consent;
7. to construe and interpret the terms of the Plan
and Awards granted pursuant to the Plan; and
8. to take such other action, not inconsistent with
the terms of the Plan, as the Administrator deems appropriate.
C. Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on the Grantees and any other holders of Awards intended by the
Administrator to be affected thereby.
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V. Eligibility. Awards other than Incentive Stock Options may be
granted to employees, directors and consultants. Incentive Stock Options may
be granted only to employees. An employee, director or consultant who has been
granted an award may, if otherwise eligible, be granted additional awards.
Awards may be granted to such employees of the company and its subsidiaries who
are residing in foreign jurisdictions as the administrator in its sole
discretion may determine from time to time. The administrator may establish
additional terms, conditions, rules or procedures to accommodate the rules or
laws of applicable foreign jurisdictions and to afford grantees favorable
treatment under such laws; provided, however, that no award shall be granted
under any such additional terms, conditions, rules or procedures with terms or
conditions which are inconsistent with the provisions of the plan.
VI. Terms and Conditions of Awards.
A. Type of Awards. The Administrator is authorized under the
Plan to award any type of arrangement to an Employee, Director or Consultant
that is not inconsistent with the provisions of the Plan and that by its terms
involves or might involve the issuance of (i) Shares, (ii) an Option, a SAR or
similar right with an exercise or conversion privilege at a fixed or variable
price related to the Common Stock and/or the passage of time, the occurrence of
one or more events, or the satisfaction of performance criteria or other
conditions, or (iii) any other security with the value derived from the value
of the Common Stock. Such awards include, without limitation, Options, SARs,
sales or bonuses of Restricted Stock, Dividend Equivalent Rights, Performance
Units or Performance Shares, and an Award may consist of one such security or
benefit, or two or more of them in any combination or alternative.
B. Designation of Award. Each Award shall be designated in
the Award Agreement. In the case of an Option, the Option shall be designated
as either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of Shares subject to Options designated as Incentive Stock Options which
become exercisable for the first time by a Grantee during any calendar year
(under all plans of the Company or any Parent or Subsidiary) exceeds $100,000,
such excess Options, to the extent of the Shares covered thereby in excess of
the foregoing limitation, shall be treated as Non-Qualified Stock Options.
For this purpose, Incentive Stock Options shall be taken into account in the
order in which they were granted, and the Fair Market Value of the Shares shall
be determined as of the date the Option with respect to such Shares is granted.
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C. Conditions of Award. Subject to the terms of the Plan,
the Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, increase in share price, earnings per share, total stockholder
return, return on equity, return on assets, return on investment, net operating
income, cash flow, revenue, economic value added, personal management
objectives, or other measure of performance selected by the Administrator.
Partial achievement of the specified criteria may result in a payment or
vesting corresponding to the degree of achievement as specified in the Award
Agreement.
D. Deferral of Award Payment. The Administrator may
establish one or more programs under the Plan to permit selected Grantees the
opportunity to elect to defer receipt of consideration upon exercise of an
Award, satisfaction of performance criteria, or other event that absent the
election would entitle the Grantee to payment or receipt of Shares or other
consideration under an Award. The Administrator may establish the election
procedures, the timing of such elections, the mechanisms for payments of, and
accrual of interest or other earnings, if any, on amounts or Shares so
deferred, and such other terms, conditions, rules and procedures that the
Administrator deems advisable for the administration of any such deferral
program.
E. Term of Award. The term of each Award shall be the term
stated in the Award Agreement, provided, however, that the term of an Incentive
Stock Option shall be no more than ten (10) years from the date of grant
thereof. However, in the case of an Incentive Stock Option granted to a
Grantee who, at the time the Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Incentive Stock Option
shall be five (5) years from the date of grant thereof or such shorter term as
may be provided in the Award Agreement.
F. Transferability of Awards. Incentive Stock Options may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in
any manner other than by will or by the laws of descent or distribution and may
be exercised, during the lifetime of the Grantee, only by the Grantee. Other
Awards shall be transferable to the extent provided in the Award Agreement.
G. Time of Granting Awards. The date of grant of an Award
shall for all purposes be the date on which the Administrator makes the
determination to grant such Award, or such other date as is determined by the
Administrator. Notice of the grant determination shall be given to each
Employee, Director or Consultant to whom an Award is so granted within a
reasonable time after the date of such grant.
VII. Award Exercise or Purchase Price, Consideration, Taxes and Reload
Options.
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A. Exercise or Purchase Price. The exercise or purchase
price, if any, for an Award shall be as follows:
1. In the case of an Incentive Stock Option:
a) granted to an Employee who, at the time
of the grant of such Incentive Stock Option owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be not less than
one hundred ten percent (110%) of the Fair Market Value per Share on the date
of grant.
b) granted to any Employee other than an
Employee described in the preceding paragraph, the per Share exercise price
shall be not less than one hundred percent (100%) of the Fair Market Value per
Share on the date of grant.
2. In the case of a Non-Qualified Stock Option, the per Share
exercise price shall be not less than eighty-five percent (85%) of the Fair
Market Value per Share on the date of grant unless otherwise determined by the
Administrator.
3. In the case of other Awards, such price as is determined by
the Administrator.
B. Consideration. Subject to Applicable Laws, the
consideration to be paid for the Shares to be issued upon exercise or purchase
of an Award including the method of payment, shall be determined by the
Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). In addition to any other types of
consideration the Administrator may determine, the Administrator is authorized
to accept as consideration for Shares under the Plan the following:
1. cash;
2. check;
3. surrender of Shares (including withholding of Shares
otherwise deliverable upon exercise of the Award) which have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Award shall be exercised (but only to the extent that
such exercise of the Award would not result in an accounting compensation
charge with respect to the Shares used to pay the exercise price unless
otherwise determined by the Administrator);
4. delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Award and delivery to the Company of
the sale or loan proceeds required to pay the exercise price; or
5. any combination of the foregoing methods of payment.
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<PAGE> 41
C. Taxes. No Shares shall be delivered under the Plan to any
Grantee or other person until such Grantee or other person has made
arrangements acceptable to the Administrator for the satisfaction of federal,
state, and local income and employment tax withholding obligations, including,
without limitation, obligations incident to the receipt of Shares or the
disqualifying disposition of Shares received on exercise of an Incentive Stock
Option. Upon exercise of an Award, the Company shall withhold from Grantee an
amount sufficient to satisfy such tax obligations.
D. Reload Options. In the event the exercise price or tax
withholding of an Option is satisfied by the Company or the Grantee's employer
withholding Shares otherwise deliverable to the Grantee, the Administrator may
issue the Grantee an additional Option, with terms identical to the Award
Agreement under which the Option was exercised, but at an exercise price as
determined by the Administrator in accordance with the Plan.
VIII. Exercise of Award.
A. Procedure for Exercise; Rights as a Stockholder.
1. Any Award granted hereunder shall be exercisable
at such times and under such conditions as determined by the Administrator
under the terms of the Plan and specified in the Award Agreement.
2. An Award shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance
with the terms of the Award by the person entitled to exercise the Award and
full payment for the Shares with respect to which the Award is exercised has
been received by the Company. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to Shares subject to an Award, notwithstanding the exercise of an
Option or other Award. The Company shall issue (or cause to be issued) such
stock certificate promptly upon exercise of the Award. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in the Award Agreement
or Section 10, below.
B. Exercise of Award Following Termination of Employment,
Director or Consulting Relationship.
1. An Award may not be exercised after the
termination date of such Award set forth in the Award Agreement and may be
exercised following the termination of a Grantee's Continuous Status as an
Employee, Director or Consultant only to the extent provided in the Award
Agreement.
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<PAGE> 42
2. Where the Award Agreement permits a Grantee to
exercise an Award following the termination of the Grantee's Continuous Status
as an Employee, Director or Consultant for a specified period, the Award shall
terminate to the extent not exercised on the last day of the specified period
or the last day of the original term of the Award, whichever occurs first.
3. Any Award designated as an Incentive Stock Option
to the extent not exercised within the time permitted by law for the exercise
of Incentive Stock Options following the termination of a Grantee's Continuous
Status as an Employee, Director or Consultant shall convert automatically to a
Non-Qualified Stock Option and thereafter shall be exercisable as such to the
extent exercisable by its terms for the period specified in the Award
Agreement.
C. Buyout Provisions. The Administrator may at any time
offer to buy out for a payment in cash or Shares, an Award previously granted,
based on such terms and conditions as the Administrator shall establish and
communicate to the Grantee at the time that such offer is made.
IX. Conditions Upon Issuance of Shares.
A. Shares shall not be issued pursuant to the exercise of an Award
unless the exercise of such Award and the issuance and delivery of such Shares
pursuant thereto shall comply with all Applicable Laws, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
B. As a condition to the exercise of an Award, the Company may
require the person exercising such Award to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment
and without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
Applicable Laws.
A-12
<PAGE> 43
X. Adjustments upon Changes in Capitalization. Subject to any
required action by the stockholders of the Company, the number of shares
covered by each outstanding award, and the number of shares which have been
authorized for issuance under the Plan but as to which no awards have yet been
granted or which have been returned to the Plan, as well as the price per share
of Common Stock covered by each such outstanding award, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
similar event resulting in an increase or decrease in the number of issued
shares of Common Stock. Such adjustment shall be made by the administrator,
and its determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason hereof shall be made with
respect to, the number or price of shares subject to an award.
XI. Corporate Transactions/Changes in Control/Subsidiary Dispositions.
(a) The Administrator shall have the authority exercisable
either in advance of any actual or anticipated Corporate Transaction or at the
time of an actual Corporate Transaction and either at the time of the grant of
any Award or at any time while an Award remains outstanding to provide for the
automatic full vesting and exercisability of one or more outstanding unvested
Awards under the Plan and the termination of restrictions on transfer and
repurchase or forfeiture rights on such Awards, in connection with a Corporate
Transaction. The Administrator also shall have the authority to condition any
such Award vesting and exercisability or release from such limitations upon the
subsequent termination of the Continuous Status of an Employee or Consultant of
the Grantee within a specified period following the effective date of the
Corporate Transaction. The Administrator may provide that any Awards so vested
or released from such limitations in connection with a Corporate Transaction,
shall remain fully exercisable until the expiration or sooner termination of
the Award.
(b) Effective upon the consummation of the Corporate
Transaction, all outstanding Awards under the Plan shall terminate and cease to
remain outstanding, except to the extent assumed by the successor company or
its Parent.
(c) The Administrator shall have the authority, exercisable
either in advance of any actual or anticipated Change in Control (other than a
Change in Control which is also a Corporate Transaction) or at the time of an
actual Change in Control and either at the time of the grant of an Award or at
any time while an Award remains outstanding, to provide for the automatic full
vesting and exercisability of one or more outstanding unvested Awards under the
Plan and the termination of restrictions on transfer and repurchase or
forfeiture rights on such Awards, in connection with a Change in Control. The
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<PAGE> 44
Administrator also shall have the authority to condition any such Award vesting
and exercisability or release from such limitations upon the subsequent
termination of the Continuous Status as an Employee or Consultant of the
Grantee within a specified period following the effective date of the Change in
Control. The Administrator may provide that any Awards so vested or released
from such limitations in connection with a Change in Control, shall remain
fully exercisable until the expiration or sooner termination of the Award.
(d) The Administrator shall have the authority, exercisable
either in advance of any actual or anticipated Subsidiary Disposition or at the
time of an actual Subsidiary Disposition and either at the time of the grant of
an Award or at any time while an Award remains outstanding, to provide for the
automatic full vesting and exercisability of one or more outstanding unvested
Awards under the Plan and the termination of restrictions on transfer and
repurchase or forfeiture rights on such Awards, in connection with a Subsidiary
Disposition, but only with respect to those Grantees who are at the time
engaged primarily in Continuous Service as an Employee or Consultant with the
subsidiary corporation involved in such Subsidiary Disposition. The
Administrator also shall have the authority to condition any such Award vesting
and exercisability or release from such limitations upon the subsequent
termination of the affected Grantee's Continuous Service as an Employee or
Consultant with that subsidiary corporation within a specified period following
the effective date of the Subsidiary Disposition. The Administrator may
provide that any Awards so vested or released from such limitations in
connection with a Subsidiary Disposition, shall remain fully exercisable until
the expiration or sooner termination of the Award.
(e) The portion of any Incentive Stock Option accelerated under
this Section 11 in connection with a Corporate Transaction, Change in Control
or Subsidiary Disposition shall remain exercisable as an Incentive Stock Option
under the Code only to the extent the $100,000 dollar limitation of Section
422(d) of the Code is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated excess portion of such Option shall be exercisable as
a Non-Qualified Stock Option.
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<PAGE> 45
XII. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the stockholders of the
Company. It shall continue in effect for a term of ten (10) years unless
sooner terminated.
XIII. Amendment, Suspension or Termination of the Plan.
A. The Board may at any time amend, suspend or terminate the
Plan. To the extent necessary and desirable to comply with Applicable Laws, the
Company shall obtain stockholder approval of any Plan amendment in such a
manner and to such a degree as required.
B. No Award may be granted during any suspension or after
termination of the Plan.
C. Any amendment, suspension or termination of the Plan shall
not affect Awards already granted, and such Awards shall remain in full force
and effect as if the Plan had not been amended, suspended or terminated, unless
mutually agreed otherwise between the Grantee and the Administrator, which
agreement must be in writing and signed by the Grantee and the Company.
XIV. Reservation of Shares.
A. The Company, during the term of the Plan, will at all
times reserve and keep available such number of Shares as shall be sufficient
to satisfy the requirements of the Plan.
B. The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of the failure
to issue or sell such Shares as to which such requisite authority shall not
have been obtained.
XV. No Effect on Terms of Employment. The Plan shall not confer
upon any grantee any right with respect to continuation of employment or
consulting relationship with the Company, nor shall it interfere in any way with
his or her right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
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<PAGE> 46
XVI. Stockholder Approval. Continuance of the Plan with respect to
the grant of incentive stock options and the grant of options and SARS to
covered employees shall be subject to approval by the stockholders of the
Company within twelve (12) months before or after the date the Plan is adopted.
Such stockholder approval shall be obtained in the degree and manner required
under applicable laws.
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<PAGE> 47
APPENDIX "B"
MTI TECHNOLOGY CORPORATION
4905 EAST LA PALMA AVENUE
ANAHEIM, CALIFORNIA 92807
THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS FOR THE SPECIAL MEETING OF STOCKHOLDERS OF
MTI TECHNOLOGY CORPORATION TO BE HELD ON OCTOBER 3, 1996
The undersigned hereby appoints Earl M. Pearlman and Dale R. Boyd,
each with full power of substitution, as proxy of the undersigned, to attend
the Annual Meeting of Stockholders of MTI Technology Corporation (the
"Company") to be held at the Company's offices, 4905 East La Palma Avenue,
Anaheim, California 92807, on October 3, 1996, at 10:00 a.m. local time, and at
any and all adjournments thereof, and to vote all Common Stock of the Company,
as designated on the reverse side of this proxy card, with all the powers the
undersigned would possess if personally present at the meeting.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
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<PAGE> 48
<TABLE>
<S> <C> <C> <C>
Please mark your VOTE FOR
votes as in this nominees listed VOTE THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
example at right except WITHHELD FOLLOWING PROPOSALS:
as set forth for all nominees
[X] below:
1. Election of [ ] [ ]
Directors
Nominees: Val Kreidel
Earl Pearlman FOR AGAINST ABSTAIN
2. RATIFICATION OF SELECTION of [ ] [ ] [ ]
KPMG Peat Marwick LLP as the
Company's independent auditors
for the fiscal year 1997.
FOR AGAINST ABSTAIN
Vote Withheld (name nominee):__________________ 3. APPROVAL of the warrant relating [ ] [ ] [ ]
to the NRE Funding Agreement.
FOR AGAINST ABSTAIN
4. APPROVAL of the warrant relating [ ] [ ] [ ]
to Loan Guaranty.
FOR AGAINST ABSTAIN
5. APPROVAL of the 1996 Stock [ ] [ ] [ ]
Incentive Plan.
</TABLE>
THIS PROXY WILL BE VOTED OR WITHHELD FROM BEING VOTED IN ACCORDANCE
WITH THE INSTRUCTIONS SPECIFIED. WHERE NO CHOICE IS SPECIFIED,
THIS PROXY WILL CONFER DISCRETIONARY AUTHORITY AND WILL BE VOTED
FOR THE NOMINEES LISTED AT LEFT AND FOR APPROVAL OF PROPOSALS 2, 3,
4 AND 5. THIS PROXY CONFERS AUTHORITY FOR THE ABOVE NAMED PERSONS,
OR ANY ONE OF THEM, TO VOTE IN HIS DISCRETION WITH RESPECT TO
AMENDMENTS OR VARIATIONS TO THE MATTERS IDENTIFIED IN THE NOTICE OF
MEETING ACCOMPANYING THIS PROXY AND ANY OTHER MATTER WHICH MAY
PROPERLY COME BEFORE THE MEETING. A STOCKHOLDER HAS THE RIGHT TO
APPOINT A PERSON, WHO NEED NOT BE A STOCKHOLDER, TO ATTEND AND ACT
ON HIS BEHALF AT THE MEETING, OTHER THAN THE PERSON DESIGNATED IN
THIS FORM OF PROXY, SUCH RIGHT MAY BE EXERCISED BY INSERTING THE
NAME OF SUCH PERSON IN THE BLANK SPACE PROVIDED.
________________________________________________________________
THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL
MEETING AND PROXY STATEMENT FOR THE 1996 ANNUAL MEETING.
PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE
ENCLOSED ENVELOPE.
Please Sign Here
_________________________________________________________________
Signature (if held jointly)
Dated:_____________________________________________________, 1996
NOTE: Please sign exactly as name appears. When signing as executor,
administrator, attorney, trustee or guardian please give your full
title as such. If a corporation, please sign in full corporation
name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person. If a joint
tenancy, please have both tenants sign.
B-2
