<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:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] 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] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
--------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box, if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
1) Amount Previously Paid:
--------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------
3) Filing Party:
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4) Date Filed:
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<PAGE> 2
LOGO
MTI TECHNOLOGY CORPORATION
4905 EAST LA PALMA AVENUE
ANAHEIM, CALIFORNIA 92807
July 30, 1997
Dear Stockholder:
You are cordially invited to attend the 1997 Annual Meeting of Stockholders
of MTI Technology Corporation, to be held on Thursday, September 25, 1997, 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 amendments to the 1996 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,
/s/ EARL M. PEARLMAN
-------------------------------------
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 SEPTEMBER 25, 1997
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, September 25,
1997 at 10:00 a.m., local time, for the following purposes:
(1) To elect one member of the Board of Directors to serve for a term of
3 years or until his 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 1998;
(3) To approve certain amendments to, and the restatement of, the 1996
Stock Incentive Plan; and
(4) 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 5,
1997, containing consolidated financial statements, is included with this
mailing.
The Board of Directors has fixed the close of business on July 28, 1997 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
[SIG]
Dale R. Boyd
Chief Financial Officer and Secretary
Anaheim, California
July 30, 1997
- --------------------------------------------------------------------------------
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, September 25, 1997 (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 August 8, 1997.
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 director 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 1998 fiscal year, for the approval of the
amendments to 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
25,870,485 shares were outstanding at the close of business on July 28, 1997.
Only holders of record at the close of business on July 28, 1997 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.
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 and Proposal Three.
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 has engaged Corporate Investor Communi-
2
<PAGE> 5
cations, Inc. 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 DIRECTOR
At the Annual Meeting, one individual will be elected as director for a
three year term and until his successor is elected. The Board of Directors has
nominated David Proctor for election at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE NOMINEE FOR
ELECTION AS A MEMBER 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 nominee. The Board of Directors knows of no reason why the nominee should be
unable or unwilling to serve, but if the nominee 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.
NOMINEES FOR DIRECTOR
The following table sets forth the names, ages and positions of all
directors and the nominee as of July 2, 1997. 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.................... 73 Chairman of the Board of Directors
Steven J. Hamerslag................... 41 Director
*Val Kreidel.......................... 41 Director
*David Proctor........................ 57 Director, Nominee
Earl Pearlman......................... 53 Director, 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, 1999; and Mr. Pearlman, 1999.
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.
3
<PAGE> 6
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
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. Mr. Proctor presently serves on the Board
of Directors of CyberGuard Corporation.
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 AND OPTIONS
The Company's directors did not receive cash compensation for serving on
the Board of Directors for the fiscal year ended April 5, 1997, 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 (the "Directors' 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, Ms. Kreidel and Mr. Proctor, in
the event he 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, Ms. Kreidel and Mr. Proctor each received options to purchase
2,500 shares of common stock with an exercise price of $1.88 per share following
the Company's 1996 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
4
<PAGE> 7
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 1997, 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. 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.
Pursuant to an agreement (the "NRE Funding Agreement"), dated as of June
27, 1996, between the Company and NFT Ventures, Inc. ("NFT"), NFT 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 issued 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, which aggregate number of shares of Common Stock was reduced
pro rata to 508,824 because the maximum funding obligation was 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 issued NFT a
warrant to purchase up to 500,000 shares of Common Stock at $2.00 per share. The
Loan Guaranty was released in connection with the Company's new bank line.
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
During the fiscal year ended April 5, 1997, the Board of Directors met
three 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 5, 1997, all Section
16(a) filing requirements applicable to its executive officers and directors
were complied with pursuant to the SEC rules, except that Ms. Kreidel's and Mr.
Proctor's Form 5s were filed late.
5
<PAGE> 8
VOTING SECURITIES
AND
PRINCIPAL HOLDERS THEREOF
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of June 4, 1997 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
5, 1997, and (iv) all directors and executive officers as a group. As of June 4,
1997, there were 25,817,385 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)................................................ 14,363,285 53.54%
10050 N. Wolfe Road SW2
Cupertino, CA 95014
Kennedy Capital Management........................................... 1,822,800 7.06%
10829 Olive Boulevard
St. Louis, MO 63141
Raymond J. Noorda(3)................................................. 14,377,868 55.66%
Val Kreidel(4)....................................................... 14,583 *
David Proctor(5)..................................................... 12,083 *
Steven J. Hamerslag(6)............................................... 2,450,092 9.49%
Earl M. Pearlman(7).................................................. 93,333 *
Dale R. Boyd(8)...................................................... 36,250 *
Thomas P. Raimondi, Jr.(9)........................................... 177,500 *
Gary M. Scott(10).................................................... 452,500 1.74%
Venki Venkataraman (11).............................................. 8,750 *
All directors and officers as a group (11 persons)(12)............... 17,744,960 64.65%
</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 1,008,824 shares issuable upon exercise of warrants held by NFT
Ventures, Inc., exercisable within 60 days of June 4, 1997.
(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
Ventures, Inc. ("NFT"), including shares subject to certain warrants as
disclosed in note (2) above, and 14,583 shares issuable to Mr. Noorda upon
exercise of options exercisable within 60 days of June 4, 1997. 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 14,583 shares issuable upon exercise of options exercisable within
60 days of June 4, 1997.
(5) Includes 12,083 shares issuable upon exercise of options exercisable within
60 days of June 4, 1997.
(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.
6
<PAGE> 9
(7) Includes 83,333 shares issuable upon exercise of options exercisable within
60 days of June 4, 1997.
(8) Includes 36,250 shares issuable upon exercise of options exercisable within
60 days of June 4, 1997.
(9) Includes 142,500 shares issuable upon exercise of options exercisable
within 60 days of June 4, 1997.
(10) Includes 202,500 shares issuable upon exercise of options exercisable
within 60 days of June 4, 1997.
(11) Includes 8,750 shares issuable upon exercise of options exercisable within
60 days of June 4, 1997.
(12) Includes shares held by entities affiliated with directors and executive
officers of the Company as described above, including 1,643,406 shares
issuable upon exercise of stock options and warrants exercisable within 60
days of June 4, 1997.
7
<PAGE> 10
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 Earl M. Pearlman, the Company's
President and Chief Executive Officer, and the four most highly compensated
executive officers other than Mr. Pearlman whose total annual salary and bonus
for the last fiscal year exceeded $100,000 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION NUMBER OF
------------------------------------------------ SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1) OPTIONS(#) COMPENSATION($)(2)
- ------------------------- ----- --------- -------- ------------------ ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Earl M. Pearlman(3)...... 1997 213,846 0 * 250,000 0
President and Chief 1996 186,362 0 * 375,000 14,068
Executive Officer
Gary M. Scott(4)......... 1997 210,098 0 24,650 0 1,130
Senior Vice President, 1996 216,116 0 31,938 315,000 1,169
European Operations 1995 199,111 32,773 25,195 100,000 1,130
Dale R. Boyd(5).......... 1997 175,048 11,250 * 120,000 1,300
Vice President, Chief 1996 122,500 0 * 50,000 39
Financial Officer 1995 16,490 0 * 25,000 0
Thomas P. Raimondi,
Jr.(6)................. 1997 200,000 10,000 * 100,000 1,875
Senior Vice President 1996 175,000 0 * 232,500 1,189
and General Manager 1995 158,828 25,000 * 80,000 1,050
Venki Venkataraman (7)... 1997 110,000 27,000 * 85,000 26,648
Vice President,
Operations
</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) 1997 amount for Mr. Scott includes $6,898 for tax services and $17,752 for
an automobile allowance. 1996 amount for Mr. Scott includes $615 for medical
insurance, $11,861 for tax services and $19,462 for an automobile allowance.
1995 amount for Mr. Scott includes $2,155 for medical insurance, $10,515 for
tax services and $12,525 for an automobile allowance.
(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, with the exception of the 1997 amount for
Mr. Venkataraman, which also includes $24,523 for reimbursement of
relocation expenses.
(3) Mr. Pearlman was elected President and Chief Executive Officer of the
Company effective April 8, 1996. From April 1995 to March 1996, Mr. Pearlman
was Vice President, U.S. Sales for the Company. Mr. Pearlman joined the
Company in April 1995. Includes options to purchase an aggregate of 125,000
shares that were repriced in May 1995.
(4) Includes options to purchase an aggregate of 190,000 shares granted in
previous fiscal years that were repriced in May 1995.
(5) Mr. Boyd joined the Company on February 8, 1995, during fiscal 1995.
Includes options to purchase an aggregate of 25,000 shares granted in
previous fiscal years that were repriced in May 1995.
(6) Includes options to purchase an aggregate of 132,500 shares granted in
previous fiscal years that were repriced in May 1995.
(7) Mr. Venkataraman joined the Company on April 29, 1996.
8
<PAGE> 11
SUMMARY OF OPTION GRANTS
The following table sets forth the individual grants of stock options made
by the Company during the fiscal year ended April 5, 1997 to each of the Named
Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK
UNDERLYING GRANTED TO PRICE APPRECIATION
OPTIONS EMPLOYEES EXERCISE FOR OPTION TERM(2)
GRANTED IN FISCAL PRICE EXPIRATION -------------------
NAME (#) YEAR(1) ($/SH)(1) DATE 5%($) 10%($)
- ------------------------- ------------ ----------- ---------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Earl M. Pearlman......... 250,000 15% $ 2.25 06/27/06 353,751 896,479
Gary Scott............... -- -- -- -- -- --
Dale R. Boyd............. 70,000 4% $ 2.25 06/27/06 99,050 251,014
50,000 3% $ 3.69 01/16/07 116,030 294,045
Thomas P. Raimondi,
Jr..................... 100,000 6% $ 2.25 10/23/06 141,500 358,591
Venki Venkataraman....... 35,000 2% $ 2.25 06/27/06 49,525 125,507
50,000 3% $ 3.69 01/16/07 116,030 294,045
</TABLE>
- ---------------
(1) Based on an aggregate of 1,650,125 options granted to directors and
employees of the Company in fiscal year 1997, including the Named Executive
Officers.
(2) The potential realizable value is calculated based on the term of the option
at its time of grant (ten 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.
Mr. Pearlman's option grant to purchase 250,000 shares at $2.25, which
expires June 27, 2006, vests 100% on April 1, 1998. Mr. Boyd's option grant to
purchase 70,000 shares at $2.25, which expires June 27, 2006, and Mr.
Venkataraman's option grant to purchase 35,000 shares at $2.25, which expires
June 27, 2006, vest ratably 25% per year over four years commencing on the date
of the individual respective grant. Mr. Boyd's grant to purchase 50,000 shares
at $3.69, which expires January 16, 2007; and Mr. Raimondi's option grant to
purchase 100,000 shares at $2.25, which expires October 23, 2006; and Mr.
Venkataraman's option grant to purchase 50,000 shares at $3.69, which expires
January 16, 2007, vest 25% one year after the commencement date of the
individual grants, and one-twelfth of the shares subject to the option grants
vest each quarter thereafter.
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<PAGE> 12
SUMMARY OF OPTIONS EXERCISED
The following table sets forth information concerning exercises of stock
options during the year ended April 5, 1997 by each of the Named Executive
Officers and the value of unexercised options at April 5, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
FISCAL 1997
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR FISCAL YEAR
SHARES END (#) END ($)
ACQUIRED ON VALUE ---------------- ----------------
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($)(1) UNEXERCISABLE UNEXERCISABLE(2)
- --------------------------------------- ----------- -------- ---------------- ----------------
<S> <C> <C> <C> <C>
Earl M. Pearlman....................... 0 0 83,333/416,667 177,083/679,917
Gary Scott............................. 0 0 163,750/151,250 347,969/321,406
Dale R. Boyd........................... 0 0 18,750/151,250 32,032/166,069
Thomas P. Raimondi, Jr................. 0 0 114,375/218,125 243,047/413,516
Venki Venkataraman..................... 0 0 0/85,000 0/66,275
</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 5,
1997 ($3.875) minus the exercise price.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During the fiscal year ended April 5, 1997, 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 1997, the Committee reviewed the
recommendations of the Chief Executive Officer as to proposed base salaries for
all executives other than the Chief Executive Officer. 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.
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<PAGE> 13
The Committee performed an annual review 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 evaluated 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. No specific quantitative weight was given to
any particular performance measurement.
Cash Bonuses. The Company did not have a formal executive bonus plan for
fiscal 1997. Cash bonuses were targeted for executive officers based upon
individual performance and achievement of financial goals. For fiscal 1997,
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 fair market value of
the Company's common stock at the date of grant. The Company's current plan is
described under "Proposal Three" below. 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 incentive to enhance 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. The base salary of the Chief
Executive Officer was recommended by the Committee and approved by the Board.
The Committee reviewed the salaries of comparable executive officers at
companies of similar size and in the same geographic area as the Company and in
the computer industry. Mr. Pearlman 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. Pearlman did not receive any bonus for
fiscal 1997. Mr. Pearlman was awarded options to purchase 250,000 shares of the
Company's Common Stock during fiscal 1997.
Policy Regarding Deductibility of Compensation. Section 162(m) of the
Internal Revenue Code ("Section 162(m)") 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 Section 162(m)
because, for the fiscal year ended April 5, 1997, 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 1998 fiscal
year. Nonetheless, the Board has approved certain amendments to, and restatement
of, the Company's 1996 Stock Incentive Plan to ensure that options granted under
the Plan will be considered performance-based compensation under the Plan. As
performance-based compensation, compensation attributable to options granted
under the Plan and awarded to covered employees will not be subject to the
compensation deduction limitations of Section 162(m). The amendments, and
restatement, are being proposed for approval by the Company's stockholders. See
"Proposal Three."
COMPENSATION COMMITTEE
Raymond J. Noorda
David Proctor
Val Kreidel
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<PAGE> 14
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 5, 1997 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.
COMPARISON OF 36 MONTH CUMULATIVE TOTAL RETURN AMONG MTI
TECHNOLOGY CORPORATION, THE NASDAQ STOCK MARKET -- U.S.
INDEX AND THE NASDAQ COMPUTER MANUFACTURER INDEX
<TABLE>
<CAPTION>
NASDAQ COMPUTER
MEASUREMENT PERIOD MTI TECHNOLOGY NASDAQ STOCK MANUFACTURER
(FISCAL YEAR COVERED) CORPORATION MARKET - U.S. INDEX
--------------------- -------------- ------------- ---------------
<S> <C> <C> <C>
4/94 100 100 100
3/95 36 109 116
3/96 21 149 179
3/97 42 165 197
</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.
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. 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 for an aggregate
of 5,992,665 shares.
NRE Funding Agreement. Pursuant to the NRE Funding Agreement, dated as of
June 27, 1996, between the Company and NFT, NFT 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
12
<PAGE> 15
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
issued 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, which
number of shares of Common Stock subject to the warrant was reduced pro rata to
508,824, because the maximum funding obligation was 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. Ray Noorda, the Company's Chairman and a major stockholder, is the
Chairman of NFT. The Loan Guaranty was released in connection with the Company's
new bank line.
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). In
October 1996, the Compensation Committee of the Board of Directors approved a
stock option grant to Thomas P. Raimondi for 100,000 shares. In January 1997,
the Compensation Committee of the Board of Directors approved stock option
grants to the following executive officers: Dale Boyd (50,000); and Venki
Venkataraman (50,000).
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 4, 1998, 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 4, 1998.
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.
PROPOSAL THREE
APPROVAL OF CERTAIN AMENDMENTS TO THE STOCK INCENTIVE PLAN
At the Annual Meeting, the Company's stockholders will be asked to vote on
a proposal to amend the 1996 Stock Incentive Plan (the "Stock Incentive Plan")
to comply with the exemptions for performance-based compensation available under
Section 162(m).
Section 162(m) Requirements. Section 162(m) potentially disallows a public
company's deduction for annual compensation in excess of $1.0 million paid to
certain of its top executives. Compensation includes
13
<PAGE> 16
salary, bonus, and other non-cash compensation such as the "spread" on options
when realized by an executive. Section 162(m) exempts certain
"performance-based" compensation arrangements from the $1.0 million compensation
deduction limit. If all of the applicable criteria are satisfied, the income
attributable to the option will qualify as performance-based compensation so
long as the option is not materially modified prior to its exercise.
Compensation attributable to a stock option depends solely on the portion
of the option exercised by an optionee in any year and the fair market value of
the stock relative to the option exercise price at the time of exercise.
Therefore, it is not possible to predict whether the compensation realized by
executives from options granted under the unamended Stock Incentive Plan will be
subject to the Code Section 162(m) deduction limitation. Because options granted
under a plan that does not meet the above requirements cannot retroactively
qualify as performance-based compensation, the Board believes it is in the
Company's best interest to amend the Stock Incentive Plan to qualify future
option grants for the available performance-based compensation exception.
To qualify options under the Stock Incentive Plan as performance-based
compensation, the Plan must be amended to state the maximum number of shares
with respect to which options and stock appreciation rights may be granted
during the Company's fiscal year to any employee. This yearly maximum number
must be approved by the stockholders of the Company. The Board has set this
maximum at 500,000 shares in the proposed amendments to the Stock Incentive
Plan. In the event that the stockholders do not approve this Proposal Three,
there will be no additional grants under the Plan to the Company's top five
executives. The exercise of any award granted under the Stock Incentive Plan
must be no less than one hundred percent of the fair market value of such shares
subject to the award on the date of grant if the award is intended to qualify as
performance-based compensation. The Company must also inform the stockholders
that all employees of the Company are eligible to receive awards under the Stock
Incentive Plan.
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,
for directors and officers under the Plan to be exempt from Section 16(b) of the
Exchange Act and which, in the case of "covered employees" is intended to
constitute performance-based compensation is made up solely of two or more
"outside directors" as such term is defined under Section 162(m). 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, and may condition such authority by requiring that all grants are
ratified by the Board within 6 months of the grant date. 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 to whom stock awards will be granted
and the number of shares with respect to which awards shall be granted.
Types of Awards. The Administrator may issue any type of arrangement to a
director, 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.
14
<PAGE> 17
In the case of stock options, each option will be either an incentive stock
option or a non-qualified stock option. 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.
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, or 100% in the case of options intended
to qualify performance-based compensation.
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 other consideration.
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.
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 Corporate
Transaction, all outstanding awards under the Plan terminate unless assumed by
the successor company or its parent. 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
15
<PAGE> 18
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 the first business day of 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. The maximum
number of shares with respect to which options and stock appreciation rights may
be granted to any employee during a fiscal year is 500,000, subject to
stockholder approval of this Proposal Three.
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 incentive stock 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, but no
more than the excess of the fair market value on the date of exercise over the
exercise price. 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 the period of time the stock was held. 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.
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<PAGE> 19
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 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 the period of time the
stock was held. 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 fair 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 the period of time the stock was
held.
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 and Congress has recently enacted changes to the federal income
tax laws that may soon become law. 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. 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.
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.
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<PAGE> 20
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE ADOPTION OF THE
AMENDMENTS TO, AND RESTATEMENT 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 adoption of the amendments to, and the restatement of, the 1996
Stock Incentive Plan to (1) state that the maximum number of shares as to
which stock options and stock appreciation rights may be granted during any
fiscal year to any employee is 500,000 shares and (2) require that the
exercise price of awards intended to qualify under Section 162(m) as
performance-based compensation be no less than 100% of the fair market
value of the underlying shares on the date of grant of the award.
The persons designated in the enclosed proxy will vote your shares FOR
approval unless instructions to the contrary are indicated in the enclosed
proxy.
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
5, 1997 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.
18
<PAGE> 21
STOCKHOLDER PROPOSALS FOR THE
1998 ANNUAL MEETING
Stockholders who may wish to present proposals for inclusion in the
Company's proxy materials and for consideration at the 1998 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 April 10, 1997.
By Order of the Board of Directors
[SIG]
Earl M. Pearlman
President and Chief Executive Officer
Anaheim, California
July 30, 1997
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APPENDIX
MTI TECHNOLOGY CORPORATION
1996 STOCK INCENTIVE PLAN
(AMENDED AND RESTATED AS OF JULY 10, 1997)
1. 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.
2. 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:
(i) 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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APPENDIX
(ii) 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:
(i) 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,
(ii) 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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APPENDIX
(iii) 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:
(i) 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
(ii) 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. Determinations of Fair Market
Value pursuant to this subsection (ii) shall be made in accordance with Section
260.140.50 of Title 10 of the California Code of Regulations.
(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.
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APPENDIX
(x) "Non-Qualified Stock Option" means an Option not intended
to qualify as an Incentive Stock Option.
(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, as amended
and restated.
(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.
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<PAGE> 26
APPENDIX
3. Stock Subject to the Plan.
(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.
4. Administration of the Plan.
(a) Plan Administrator.
(i) 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.
(ii) 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.
(iii) Administration With Respect to Covered Employees.
Notwithstanding the foregoing, grants of Awards to any Covered Employee intended
to qualify
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<PAGE> 27
APPENDIX
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:
(i) to select the Employees, Directors and Consultants to
whom Awards may from time to time be granted hereunder;
(ii) to determine whether and to what extent Awards are
granted hereunder;
(iii) to determine the number of Shares to be covered by
each Award granted hereunder;
(iv) to approve forms of Award Agreement for use under the
Plan;
(v) to determine the terms and conditions of any Award
granted hereunder;
(vi) 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;
(vii) to construe and interpret the terms of the Plan and
Awards granted pursuant to the Plan; and
(viii) 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.
5. 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
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<PAGE> 28
APPENDIX
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.
6. 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.
(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
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<PAGE> 29
APPENDIX
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.
Non-Qualified Stock Options may not be transferred other than by will or the
laws of descent or distribution, or as otherwise permitted by Rules
260.140.41(d) and 260.140.42(c) of Title 10 of the California Code of
Regulations. 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.
(h) Vesting Period. Incentive Stock Options and Non-Qualified
Stock Options shall vest and be exercisable at the rate of at least twenty
percent (20%) per year over five (5) years from the date the option is granted,
or as otherwise permitted under Rule 260.140.41(f) of Title 10 of the California
Code of Regulations.
(i) Individual Option and SAR Limit. The maximum number of
Shares with respect to which Options and SARs may be granted to any Employee in
any fiscal year of the Company shall be 500,000. The foregoing limitation shall
be adjusted proportionately in connection with any change in the Company's
capitalization pursuant to Section 10, below. To the extent required by Section
162(m) of the Code or the regulations thereunder, in applying the foregoing
limitation with respect to an Employee, if any Option or SAR is canceled, the
canceled Option or SAR shall continue to count against the maximum number of
Shares with respect to which Options and SARs may be granted to the Employee.
For this purpose, the repricing of an Option (or in the case of a SAR, the base
amount on which the stock appreciation is calculated is
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<PAGE> 30
APPENDIX
reduced to reflect a reduction in the Fair Market Value of the Common Stock)
shall be treated as the cancellation of the existing Option or SAR and the grant
of a new Option or SAR.
7. Award Exercise or Purchase Price, Consideration, Taxes and
Reload Options.
(a) Exercise or Purchase Price. The exercise or purchase
price, if any, for an Award shall be as follows:
(i) 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.
(ii) 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.
(iii) In the case of Awards intended to qualify as
Performance-Based Compensation, the exercise or purchase price, if any, shall be
not less than one hundred percent (100%) of the Fair Market Value per Share on
the date of grant.
(iv) 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:
(i) cash;
(ii) check;
(iii) 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
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<PAGE> 31
APPENDIX
compensation charge with respect to the Shares used to pay the exercise price
unless otherwise determined by the Administrator);
(iv) 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
(v) any combination of the foregoing methods of payment.
(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.
8. Exercise of Award.
(a) Procedure for Exercise; Rights as a Stockholder.
(i) 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.
(ii) 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.
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APPENDIX
(i) 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.
(ii) 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.
(iii) 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.
9. 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.
10. 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
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APPENDIX
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.
11. 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
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
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APPENDIX
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.
12. 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.
13. 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.
14. 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.
15. 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
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APPENDIX
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.
16. Stockholder Approval. The Plan became effective when adopted
by the Board on June 27, 1996, and was approved by the Company's shareholders on
October 3, 1996. On July 10, 1997, the Board adopted and approved an amendment
and restatement of the Plan to adopt a limit on the number of Shares with
respect to which Options and SARs may be granted to any Employee in any fiscal
year of the Company to enable Options and SARs to qualify as Performance-Based
Compensation (the "Amendment"), subject to shareholder approval of the
Amendment.
17. Information. Pursuant to Rules 260.140.41(j) and 260.140.46
of the California Code of Regulations, Grantees shall receive financial
statements of the Company at least annually.
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APPENDIX "A"
MTI TECHNOLOGY CORPORATION
4905 EAST LA PALMA AVENUE, ANAHEIM, CALIFORNIA 92807
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS OF
MTI TECHNOLOGY CORPORATION TO BE HELD ON SEPTEMBER 25, 1997
The undersigned hereby appoints Earl M. Pearlman and Dale R. Boyd, each with
full power of substitution, as proxies 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 September 25, 1997, 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.)
B-1
<PAGE> 37
Please mark your
[ ] votes as in this
example
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS SPECIFIED.
WHERE NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED FOR THE NOMINEE LISTED
AND FOR APPROVAL OF PROPOSALS 2 AND 3. THIS PROXY CONFERS AUTHORITY FOR THE
PERSONS NAMED ON THE REVERSE SIDE, OR ANY ONE OF THEM, TO VOTE IN HIS DISCRETION
WITH RESPECT TO ANY OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:
1. ELECTION OF DIRECTORS:
Nominee: David Proctor
FOR WITHHELD
[ ] [ ]
FOR AGAINST ABSTAIN
. 2. Ratification of Selection of [ ] [ ] [ ]
KPMG Peat Marwick LLP as the
Company's independent auditors
for the fiscal year 1998.
FOR AGAINST ABSTAIN
. 3. Approval of certain amendments to [ ] [ ] [ ]
the 1996 Stock Incentive Plan.
THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING AND
PROXY STATEMENT FOR THE 1997 ANNUAL MEETING.
PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
ENVELOPE.
NOTE: Please sign exactly as name(s) appear(s). 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.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
Signature: ______________________________________ Date: __________________
Signature: ______________________________________ Date: __________________
2
