<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
------------------------------------
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
------------------------------------
STORAGE TECHNOLOGY CORPORATION
(Name of Registrant as Specified in its Charter)
------------------------------------
REGISTRANT
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
------------------------------------
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1),14a-6(i)(2) or Item
22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction
applies: .
----------------------
(2) Aggregate number of securities to which transaction
applies: .
----------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined): .
----------------------
(4) Proposed maximum aggregate value of transaction: .
----------------------
(5) Total fee paid: .
----------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: .
----------------------
(2) Form, Schedule or Registration Statement No.: .
----------------------
(3) Filing Party: .
----------------------
(4) Date Filed: .
----------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
[STORAGE TECHNOLOGY LOGO]
STORAGE TECHNOLOGY CORPORATION
2270 SOUTH 88TH STREET
LOUISVILLE, COLORADO 80028-0001
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 24, 1995
Dear Stockholder:
On behalf of the Board of Directors and management, I cordially invite you
to attend the Annual Meeting of Stockholders of Storage Technology Corporation
(the "Company"), a Delaware corporation, to be held on Wednesday, May 24, 1995,
at 10:00 a.m. MDT, at the Ramada Hotel, Denver-Boulder Turnpike, 8773 Yates
Drive, Westminster, Colorado 80030, to act upon the following matters:
(a) PROPOSAL 1. The election of thirteen Directors;
(b) PROPOSAL 2. The ratification of the adoption of the 1995 Equity
Participation Plan and the reservation of 2,200,000 shares of Common
Stock for issuance to employees thereunder;
(c) PROPOSAL 3. The ratification of the appointment of Price Waterhouse
LLP as the Company's independent accountants for the current fiscal
year; and
(d) The transaction of such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Only stockholders of Common Stock of record at the close of business on
April 2, 1995, will be entitled to notice of and to vote at the meeting. The
stock transfer books of the Company will remain open.
WE INVITE EACH OF YOU TO ATTEND THE MEETING. IF YOU CANNOT ATTEND, PLEASE
MARK, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENVELOPE
PROVIDED. NO STAMP IS NECESSARY IF MAILED IN THE UNITED STATES.
BY ORDER OF THE BOARD OF DIRECTORS
W. RUSSELL WAYMAN
Corporate Vice President,
General Counsel and Secretary
Louisville, Colorado
April 4, 1995
YOUR VOTE IS IMPORTANT
WHETHER YOU OWN A FEW OR MANY SHARES OF STOCK AND WHETHER OR NOT YOU PLAN
TO ATTEND THE MEETING, YOU ARE URGED TO MARK, DATE, SIGN AND RETURN YOUR PROXY
CARD PROMPTLY SO THAT YOUR SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES
AND IN ORDER THAT THE PRESENCE OF A QUORUM MAY BE ASSURED. THE PROMPT RETURN OF
YOUR SIGNED PROXY WILL AID THE COMPANY IN REDUCING THE EXPENSE OF PROXY
SOLICITATION.
<PAGE> 3
STORAGE TECHNOLOGY CORPORATION
PROXY STATEMENT
April 4, 1995
PROCEDURAL MATTERS
THIS PROXY STATEMENT IS FURNISHED TO THE STOCKHOLDERS OF STORAGE TECHNOLOGY
CORPORATION (THE "COMPANY" OR "STORAGETEK") IN CONNECTION WITH THE SOLICITATION
OF PROXIES BY AND ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY TO BE VOTED
AT THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD AT 10:00 A.M., MDT, ON
WEDNESDAY, MAY 24, 1995, OR AT ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
Stockholders of record of Common Stock of the Company at the close of business
on April 2, 1995 (the "Record Date") will be entitled to notice of and to vote
at the meeting. The Annual Meeting will be held at the Ramada Hotel,
Denver-Boulder Turnpike, 8773 Yates Drive, Westminster, Colorado 80030. Proxies
received prior to the meeting will be voted in accordance with the instructions
contained in the proxy and, if no choice is specified, will be voted in favor of
each of management's nominees for Director and in favor of each of the proposals
set forth in the Notice of Annual Meeting of Stockholders. A stockholder who
signs and returns the enclosed proxy may revoke it at any time before it is
voted by a written revocation delivered to any of the proxy holders named
therein, by submitting another valid proxy bearing a later date or by attending
the meeting and voting in person. Beneficial owners wishing to vote at the
meeting who are not stockholders of record on the Company's books (e.g., persons
holding in street name) must bring to the meeting a Power of Attorney or proxy
signed by the holder of record in order to be able to vote.
SOLICITATION OF PROXIES
Initial solicitation of proxies by the Board of Directors of the Company
will be by mail. Further solicitation by the Board of Directors or employees of
the Company can also be made by mail, telephone, telegraph or personal
interview. No additional compensation will be paid to the Directors or employees
of the Company for solicitation of proxies. As of this date, the Company has no
plans to retain an outside firm to solicit proxies; however, prior to the Annual
Meeting, the Company may determine it is advisable to retain an outside firm to
solicit proxies, in which case the Company will bear the costs of the solicitor,
which costs would likely range from $10,000 to $20,000. This Proxy Statement and
the form of proxy are first being mailed to the stockholders beginning April 4,
1995.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting
is a majority of the shares of Common Stock issued and outstanding on the Record
Date (excluding treasury stock). Shares that are voted "FOR," "AGAINST," or
"WITHHELD FROM" a matter are treated as being present at the meeting for
purposes of establishing a quorum and are also treated as votes eligible to be
cast by the Common Stock present in person or represented by proxy at the Annual
Meeting and "entitled to vote on the subject matter" (the "Votes Cast") with
respect to such matter. While there is no definitive statutory or case law
authority in Delaware as to the proper treatment of abstentions in the election
of Directors, the Company believes that abstentions should be counted for
purposes of determining both the presence of a quorum for the transaction of
business and the total number of Votes Cast with respect to a particular matter.
In the absence of controlling precedent to the contrary, the Company intends to
treat abstentions in this manner. Accordingly, abstentions will have the same
effect as a vote against the matter. The Delaware Supreme Court has held that,
while broker non-votes should be counted for purposes of determining the
presence or absence of a quorum for the transaction of business, broker
non-votes should not be counted for purposes of determining the number of Votes
Cast with respect to the particular proposal on which the broker has expressly
not voted. Broker non-votes with respect to proposals set forth in this Proxy
Statement will therefore not be considered "Votes Cast" and, accordingly, will
not affect the determination as to whether the requisite majority of Votes Cast
has been
1
<PAGE> 4
obtained with respect to a particular matter. Based upon New York Stock Exchange
rules, the Company believes that all of management's proposals are considered
"discretionary" and, accordingly, brokerage firms may vote on behalf of their
clients if no voting instructions have been furnished by such clients within 10
days of the meeting.
ANNUAL REPORT
This Proxy Statement is accompanied by the Company's 1994 Annual Report,
which includes the Company's Form 10-K for the fiscal year ended December 30,
1994 (the "Annual Report"). Stockholders are referred to the Annual Report for
information concerning the Company's business and operations, but the Annual
Report is not part of the proxy soliciting materials. CERTAIN OTHER INFORMATION
IS AVAILABLE UPON WRITTEN REQUEST. PLEASE CONTACT CORPORATE COMMUNICATIONS,
STORAGE TECHNOLOGY CORPORATION, 2270 SOUTH 88TH STREET, LOUISVILLE, COLORADO
80028-4310, (303) 673-5020, IF YOU WOULD LIKE TO REQUEST SUCH ADDITIONAL
REPORTS. THE COMPANY'S PRINCIPAL EXECUTIVE OFFICES ARE LOCATED AT 2270 SOUTH
88TH STREET, LOUISVILLE, COLORADO 80028, (303) 673-5151.
2
<PAGE> 5
VOTING SECURITIES OF THE COMPANY
On the Record Date for the Annual Meeting, April 2, 1995, the Company had
issued, outstanding and entitled to vote 52,541,807 shares of its common stock,
$.10 par value ("Common Stock"). The Company also has 3,450,000 shares of $3.50
Convertible Exchangeable Preferred Stock, $.01 par value ("Preferred Stock")
issued and outstanding. The Preferred Stock is not entitled to vote at the
Annual Meeting. Holders of shares of the Common Stock on the Record Date are
entitled to vote at the Annual Meeting and at all adjournments or postponements
thereof. Each holder of shares of the Common Stock is entitled to one vote for
each share. In the election of Directors, such holder has the right to vote the
number of shares owned for as many persons as there are Directors to be elected.
There is no cumulative voting in the election of Directors.
SECURITY OWNERSHIP
The following table sets forth the beneficial ownership of the Company's
stock as of the Record Date: (i) by all persons known by the Company to be
beneficial owners of more than 5% of the voting power of the Company's
outstanding Common Stock (based upon a review of Schedule 13D and 13G filings
received prior to the Record Date); (ii) by each Director and nominee for
Director; (iii) by each Named Executive Officer listed in the Summary
Compensation Table under the heading "Compensation of Executive Officers;" and
(iv) by all current Directors and Executive Officers as a group.
<TABLE>
<CAPTION>
PERCENT
NAME OF BENEFICIAL OWNER AMOUNT AND NATURE OF OWNERSHIP(1) OF CLASS(2)
- ------------------------------------- --------------------------------------- -----------
<S> <C> <C>
TCW Group, Inc....................... 5,778,077 Common(3) 10.7%
865 South Figueroa Street (Sole voting and dispositive power)
Los Angeles, CA 90017
Twentieth Century Companies, Inc..... 3,700,000 Common(4) 7.0%
4500 Main Street (Sole voting and dispositive power)
P. O. Box 418210
Kansas City, MO 64141-9210
First Interstate Bancorp............. 2,432,737 Common(5) 4.6%(5)
633 West 5th Street (Sole voting and shared dispositive
power)
Los Angeles, CA 90071
Ryal R. Poppa........................ 155,366 Common(6) (22)
5,000 Preferred (22)
Derek A. Thompson.................... 44,059 Common(7) (22)
John V. Williams..................... 14,876 Common(8) (22)
L. Thomas Gooch...................... 35,610 Common(9) (22)
Gregory A. Tymn...................... 28,547 Common(10) (22)
Judith E.N. Albino................... 16,450 Common(11) (22)
William L. Armstrong................. 18,333 Common(12) (22)
Robert A. Burgin..................... 16,000 Common(13) (22)
Paul Friedman........................ 78,867 Common(14) (22)
William R. Hoover.................... -0- (22)
Stephen J. Keane..................... 18,350 Common(15) (22)
Robert E. LaBlanc.................... 28,405 Common(16) (22)
Robert E. Lee........................ 26,084 Common(17) (22)
Harrison Shull....................... 36,692 Common(18) (22)
2,000 Preferred (22)
Richard C. Steadman.................. 32,202 Common(19) (22)
Thomas A. Vanderslice................ -0- (22)
Robert C. Wilson..................... 46,277 Common(20) (22)
10,000 Preferred
All current Directors and Executive
Officers (19 persons) as a group... 649,549 Common(21) 1.2%
17,000 Preferred (22)
</TABLE>
3
<PAGE> 6
- ---------------
(1) The number of shares stated as being beneficially owned include shares of
Common Stock issuable upon conversion of the Preferred Stock and the
Company's 8% Convertible Debentures (the "Debentures"), as well as shares
of Common Stock believed to be indirectly beneficially owned. The inclusion
of these shares, however, does not constitute an admission of ownership of
such shares. Further, the number of shares includes stock options that are
exercisable within 60 days of the Record Date. Share ownership by 5%
holders is based upon the respective Schedule 13G filings, which reflect
ownership as of December 31, 1994.
(2) Calculated based upon shares outstanding on the Record Date. In March 1995,
the Company completed the acquisition of Network Systems Corporation and,
in connection with the acquisition, issued approximately 7.9 million shares
of StorageTek Common Stock. As a result, the percentage holdings reflected
in the Schedule 13G filings decreased.
(3) Includes (i) 497,526 shares of Common Stock issuable upon conversion of the
Preferred Stock; and (ii) 952,631 shares of Common Stock issuable upon
conversion of Debentures that are convertible into Common Stock.
(4) Twentieth Century Companies, Inc. (TCC), as a result of its control over
Investors Research Corporation (IRC), and Mr. James E. Stowers, as a result
of his control over TCC, are also deemed to beneficially own all shares
deemed to be beneficially owned by IRC, which is an investment advisor and
is deemed to be the beneficial owner of 3,700,000 shares of Common Stock.
(5) The Schedule 13G filed by First Interstate Bancorp reflecting its share
ownership as of December 31, 1994, includes (i) 1,358,469 shares with sole
voting power; (ii) 203,200 shares with shared voting power; (iii) 2,164,200
shares with sole dispositive power; and (iv) 268,537 shares with shared
dispositive power; and indicates the percent of class held as of such date
was 5.52%.
(6) Includes (i) 10,638 shares of Common Stock issuable upon conversion of
Preferred Stock held by Mr. Poppa; and (ii) 72,559 shares of Common Stock
issuable upon exercise of options held by Mr. Poppa, which options are
exercisable within 60 days of the Record Date.
(7) Includes 34,449 shares of Common Stock issuable upon exercise of options
held by Mr. Thompson, which options are exercisable within 60 days of the
Record Date.
(8) Includes 7,425 shares of Common Stock issuable upon exercise of options
held by Mr. Williams, which options are exercisable within 60 days of the
Record Date.
(9) Includes 16,460 shares of Common Stock issuable upon exercise of options
held by Mr. Gooch, which options are exercisable within 60 days of the
Record Date.
(10) Includes (i) 14,164 shares of Common Stock issuable upon exercise of
options held by Mr. Tymn, which options are exercisable within 60 days of
the Record Date; and (ii) 567 shares of Common Stock issuable upon
conversion of Debentures held by Mr. Tymn.
(11) Includes 15,000 shares of Common Stock issuable upon exercise of options
held by Ms. Albino, which options are exercisable within 60 days of the
Record Date.
(12) Includes 18,333 shares of Common Stock issuable upon exercise of options
held by Mr. Armstrong, which options are exercisable within 60 days of the
Record Date.
(13) Includes 15,000 shares of Common Stock issuable upon exercise of options
held by Mr. Burgin, which options are exercisable within 60 days of the
Record Date.
(14) Includes (i) 13,333 shares of Common Stock issuable upon conversion of
Debentures held by Mr. Friedman; and (ii) 25,000 shares of Common Stock
issuable upon exercise of options held by Mr. Friedman, which options are
exercisable within 60 days of the Record Date.
(15) Includes 12,952 shares of Common Stock issuable upon exercise of options
held by Mr. Keane, which options are exercisable within 60 days of the
Record Date.
(16) Includes 25,000 shares of Common Stock issuable upon exercise of options
held by Mr. LaBlanc, which options are exercisable within 60 days of the
Record Date.
4
<PAGE> 7
(17) Includes (i) 284 shares of Common Stock issuable upon conversion of
Debentures held by Mr. Lee; and (ii) 25,000 shares of Common Stock issuable
upon exercise of options held by Mr. Lee, which options are exercisable
within 60 days of the Record Date.
(18) Includes (i) 2,837 shares of Common Stock issuable upon conversion of
Debentures held by Mr. Shull; (ii) 4,255 shares of Common Stock issuable
upon conversion of Preferred Stock held by Mr. Shull; and (iii) 25,000
shares of Common Stock issuable upon exercise of options held by Mr. Shull,
which options are exercisable within 60 days of the Record Date.
(19) Includes 25,000 shares of Common Stock issuable upon exercise of options
held by Mr. Steadman, which options are exercisable within 60 days of the
Record Date.
(20) Includes (i) 21,277 shares of Common Stock issuable upon conversion of
Preferred Stock held by Mr. Wilson; and (ii) 25,000 shares of Common Stock
issuable upon exercise of options held by Mr. Wilson, which options are
exercisable within 60 days of the Record Date.
(21) Includes (i) 17,021 shares of Common Stock issuable upon conversion of
Debentures; (ii) 36,170 shares of Common Stock issuable upon conversion of
Preferred Stock; and (iii) 392,808 shares of Common Stock subject to
options exercisable within 60 days of the Record Date held by eleven
Directors and eight current non-Director Executive Officers.
(22) Less than 1% of the class.
5
<PAGE> 8
ELECTION OF DIRECTORS
PROPOSAL 1.
In accordance with the Company's bylaws, the Board of Directors has
increased the number of Directors constituting the entire Board of Directors of
the Company from eleven to thirteen. At this Annual Meeting, thirteen Directors
are to be elected to serve until the next Annual Meeting or until their
respective successors shall be elected and qualified. The Company's nominees
include the eleven persons who currently serve as Directors and two persons
nominated to fill the newly created directorships. The thirteen nominees are set
forth below. If the enclosed Proxy is duly executed and received in time for the
meeting, it is the intention of the persons named therein to vote the shares
represented thereby, unless otherwise directed, in favor of the thirteen
nominees identified below. The thirteen nominees receiving the highest number of
affirmative votes of the shares present or represented and entitled to be voted
for them shall be elected as Directors. Votes withheld from any Director are
counted for purposes of determining the presence or absence of a quorum for the
transaction of business, but have no other legal effect under Delaware law.
If, at the time of the meeting, one or more of the nominees have become
unavailable to serve, shares represented by proxies will be voted for the
remaining nominees and for any substitute nominee or nominees designated by the
Governance and Nominating Committee of the Board of Directors. The Governance
and Nominating Committee knows of no reason why any of the nominees will be
unavailable or unable to serve. The following are the Company's nominees for the
Board of Directors:
RYAL R. POPPA; AGE 61; CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Mr. Poppa has been a Director since 1985 and has been President of the
Company since January 1988, as well as Chairman of the Board and Chief Executive
Officer of the Company since January 1985. He also serves as a Director for
Maxtor Corporation.
JUDITH E. N. ALBINO; AGE 51; PRESIDENT, UNIVERSITY OF COLORADO
Ms. Albino has been a Director since 1991 and has served as President of
the University of Colorado (a public university) since June 1991. From 1989 to
June 1991 she served as Dean of the Graduate School at the State University of
New York at Buffalo. She also serves on the Colorado National Bank Advisory
Board.
WILLIAM L. ARMSTRONG; AGE 58; FORMER U.S. SENATOR, COLORADO
Mr. Armstrong has been a Director since 1991. He has served as Chairman of
Ambassador Media Corporation, a television broadcasting company, since 1990;
Chairman of Cherry Creek Mortgage Company since 1991; Chairman of El Paso
Mortgage Company since 1993; and Chairman of Centennial State Mortgage Company
and Frontier Real Estate, Inc. since 1994. From 1979 to 1991, Mr. Armstrong
served as a United States Senator, Colorado. Mr. Armstrong also currently serves
as Director of Provident Life and Accident Insurance Company of America,
Helmerich & Payne and International Family Entertainment, Inc.
ROBERT A. BURGIN; AGE 70; FORMER GROUP EXECUTIVE, TRW INC.
Mr. Burgin has been a Director since 1978. He was formerly Group Executive,
TRW Inc. and later Chairman and Chief Executive Officer of Leaseway
Transportation Corporation, a physical distribution transportation company. He
retired in 1982. In August 1994, Mr. Burgin retired as Director of Provident
Life and Accident Insurance Company.
PAUL FRIEDMAN; AGE 70; ATTORNEY, PAUL FRIEDMAN, P.C.
Mr. Friedman has been a Director since 1987 and has been a practicing tax
attorney at Paul Friedman, P.C. since 1964.
6
<PAGE> 9
WILLIAM R. HOOVER; AGE 65; CHAIRMAN, COMPUTER SCIENCES CORPORATION
Mr. Hoover has been nominated to fill one of the newly created
directorships. Mr. Hoover has served as Chairman of Computer Sciences
Corporation, an independent provider of information technology services, since
1972. From November 1972, through March 30, 1995, Mr. Hoover also served as
President and Chief Executive Officer of Computer Sciences Corporation.
STEPHEN J. KEANE; AGE 66; CORPORATE DIRECTOR
Mr. Keane has been a Director since 1987. Mr. Keane has been a management
consultant since 1985 and currently serves as a Director of Summagraphics Inc.
and MaxServ Inc.
ROBERT E. LABLANC; AGE 61; PRESIDENT, ROBERT E. LABLANC ASSOCIATES, INC.
Mr. LaBlanc has been a Director since 1979. Mr. LaBlanc is the founder and
President of Robert E. LaBlanc Associates, Inc., an investment consulting firm
and has served in that capacity since October 1981. Mr. LaBlanc also is a
Director of M/A-Com, Inc., Tribune Company, TIE/Communications, Inc., Prudential
Global Funds, Inc., Prudential Short-Term Global Income Fund, Inc., Prudential
Pacific Growth Fund, Inc. and Contel Cellular, Inc. He also is a Trustee for
Prudential U.S. Government Fund.
ROBERT E. LEE; AGE 59; EXECUTIVE DIRECTOR, THE DENVER FOUNDATION
Mr. Lee has been a Director since 1989. Since March 1989, Mr. Lee has
served as the Executive Director of The Denver Foundation, a community
foundation. He retired as Chairman of First Interstate Bank of Denver in
February 1989. Mr. Lee also serves as a Director of Equitable of Iowa Companies
and Meredith Corporation.
HARRISON SHULL; AGE 71; PROVOST, NAVAL POSTGRADUATE SCHOOL
Mr. Shull has been a Director since 1983. Mr. Shull has been Provost, Naval
Postgraduate School, Monterey, California since July 1988.
RICHARD C. STEADMAN; AGE 62; PRIVATE INVESTOR
Mr. Steadman has been a Director since 1970 and has been a private investor
since January 1981. He is Chairman of the Board of Directors of National
Convenience Stores, Inc.
THOMAS A. VANDERSLICE; AGE 63; CHAIRMAN AND CHIEF EXECUTIVE OFFICER, M/A-COM,
INC.
Mr. Vanderslice has been nominated to fill one of the newly created
directorships. Since November 1989, Mr. Vanderslice has served as Chairman and
Chief Executive Officer of M/A-COM, Inc., a supplier of semiconductors,
integrated circuits and components for the wireless data and telecommunications
industries. Mr. Vanderslice also serves as a director of Texaco Inc.
ROBERT C. WILSON; AGE 75; CHAIRMAN, WILSON & CHAMBERS, INC.
Mr. Wilson has been a Director since 1987. Mr. Wilson has been Chairman of
Wilson & Chambers, Inc., a venture capital firm, since 1983. He also is a
Director of Southwall Technologies, Inc., Giga-Tronics Corporation, Syquest
Technology, Andros Incorporated, ReSound Corporation, and Photonics Corporation.
7
<PAGE> 10
BOARD MEETINGS AND COMMITTEES
The Company has a standing Audit Committee consisting of five members. The
current members are Directors Shull (Chair), Friedman, LaBlanc, Steadman and
Wilson. The Audit Committee held four meetings during the last fiscal year. Its
principal functions are to review the Company's financial statements, the
arrangements for and scope of the independent audit, as well as the results of
the audit engagement; to review the Company's internal auditing procedures and
personnel; to review the scope of non-auditing services performed by the
independent accountants and their independence; and to monitor the adequacy of
and compliance with policies to prohibit unethical, questionable or illegal
activities by employees of the Company. The members of the Audit Committee are
not employees and are, in the opinion of the Board of Directors, free from any
relationship that would interfere with the exercise of independent judgment.
The Company has a standing Human Resources and Compensation Committee (the
"Compensation Committee") consisting of five members. The current members are
Directors Keane (Chair), Albino, Armstrong, Burgin and Lee. The Compensation
Committee met five times in 1994. Its principal functions are to review
compensation arrangements for management and key employees of the Company, to
make salary recommendations, to administer equity compensation plans, and award
bonuses and stock options. The members of the Compensation Committee are not
employees and are, in the opinion of the Board of Directors, free from any
relationship that would interfere with the exercise of independent judgment.
The Company also has a Governance and Nominating Committee, which met twice
in 1994. The current members are Directors Burgin (Chair), Albino, Armstrong,
Keane and Lee. This Committee nominates candidates for the Board, and it will
consider nominees recommended by stockholders. Under the bylaws of the Company,
nominations for the election of Directors may be made by any stockholder
entitled to vote in the election of Directors, but only if written notice of
such stockholder's intent to make such nominations has been received by the
Company at its principal executive office not less than 60 days nor more than 90
days prior to the meeting at which directors are to be elected; provided,
however, that in the event that less than 70 days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the tenth day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth: (a) with respect to each proposed nominee, the name,
age, business and residence address, principal occupation or employment, class
and number of shares of stock of the Company owned and any other information
that is required to be disclosed in solicitations of proxies for election of
directors pursuant to Regulation 14A of the Securities Exchange Act of 1934; and
(b) with respect to the stockholder giving the notice, the name, address and
class and number of shares of the Company that are beneficially owned by such
stockholder. The presiding officer of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedure.
During 1994, the Company's Board of Directors held eight meetings and
Committees of the Board held, in the aggregate, 19 meetings. The average
attendance at the aggregate number of meetings of the Board and Committees of
the Board was 88%. Mr. Wilson attended fewer than 75% of the aggregate number of
meetings of the Board and the Committees on which he served.
STANDARD ARRANGEMENTS FOR COMPENSATION OF DIRECTORS
CASH COMPENSATION
Effective July 1, 1994, each Director who is not an employee of the Company
receives a standard annual retainer of $27,000. Since July 1994, Mr. Burgin has
served as Lead Director, and in such capacity receives a standard annual
retainer of $50,000. Nonemployee Directors receive an additional fee of $1,000
for each meeting of the Board of Directors attended in excess of eight per year.
Further, each nonemployee Director receives $1,000 for each committee meeting
attended. The chairman of each committee is paid an annual fee of $2,000 as
compensation for such chairmanship. In recognition of similar salary and wage
reductions on the part of management and employees of the Company, during 1993
and continuing through June 1994, all of the foregoing fees were reduced by 10%.
8
<PAGE> 11
OPTIONS
The Company has a Nonemployee Director Stock Option Plan (the "Director
Plan"). Under the Director Plan, the Company has granted options to purchase
shares, at an exercise price equal to 100% of the fair market value of the
Common Stock on the date of grant, to its nonemployee Directors on a set
schedule. All options expire 10 years from the date of grant, unless earlier
terminated pursuant to the provisions of the Director Plan. The initial grant of
options for most of the Directors under the Director Plan occurred in October
1987 at an exercise price of $18.75 per share. A second option to purchase 2,500
shares was granted in October 1989 at an exercise price of $13.50 per share to
those nonemployee Directors who had served two consecutive years after receipt
of the initial option. These options are collectively referred to as the
"Initial Options."
In 1991, stockholders approved the amendment and restatement of the
Director Plan. Under the amended Director Plan, each nonemployee Director who
was such on November 7, 1990, received, and each person who first becomes a
nonemployee Director after that date shall receive, an option (the "New
Option"), granted as of the later to occur of November 7, 1990, or their first
election or appointment as a nonemployee Director, to purchase a number of
shares of Common Stock equal to 25,000 less any shares subject to Initial
Options granted to such Director. Presently, the Director Plan has 100,000
shares available for future grant and 227,952 shares subject to outstanding
options. No options were granted under the Director Plan in 1994. If nominees
William Hoover and Thomas Vanderslice are elected as Directors at the Annual
Meeting, each will be automatically granted an option under the Director Plan to
purchase 25,000 shares of Common Stock at an exercise price per share equal to
the fair market value on the date of the Annual Meeting.
9
<PAGE> 12
RATIFICATION OF THE ADOPTION OF
THE 1995 EQUITY PARTICIPATION PLAN
PROPOSAL 2.
The Company's long-term success depends a great deal upon its ability to
attract, retain and encourage dedicated, competent and resourceful management
and employees. To further these goals, in March 1995, the Board adopted the 1995
Equity Participation Plan (the "Equity Plan"), an expanded equity grant plan, to
offer various types of stock-based incentive programs to its employees and
reserved 2,200,000 shares for issuance thereunder. The Equity Plan is subject to
stockholder approval and is intended to supplement and replace the 1987 Equity
Participation Plan which expires on December 1, 1995.
At the Annual Meeting, the stockholders are being requested to ratify the
adoption of the 1995 Equity Participation Plan and the reservation of 2,200,000
shares of Common Stock for issuance to employees thereunder. The Equity Plan
will expire on March 7, 2005.
SUMMARY OF THE PLAN
A general description of the basic features of the Equity Plan is outlined
below.
Purpose. The purpose of the Equity Plan is to direct the attention and
efforts of participating employees to the long-term performance of the Company
and its subsidiaries in the interests of the Company's stockholders by relating
incentive compensation to the achievement of long-term corporate economic
objectives. The Equity Plan is also designed to retain, reward and motivate
participating employees by providing an opportunity for equity investment in the
Company.
Type of Awards. Under the Equity Plan, the Committee (as defined below)
may grant, from time to time, to participating eligible employees selected by
the Committee: (i) stock options that satisfy the requirements of Section 422 of
the Internal Revenue Code of 1986, as it may be amended (the "Code"), relating
to incentive stock options ("Incentive Stock Options") to purchase Common Stock;
(ii) stock options that do not satisfy such requirements of the Code relating to
incentive stock options ("Non-Qualified Options") to purchase Common Stock
(Incentive Stock Options and Non-Qualified Options are referred to collectively
as "Stock Options"); (iii) awards of Common Stock that are subject to certain
restrictions on transferability that lapse after specified employment periods or
the attainment of performance objectives established by the Committee
("Restricted Stock Awards"); (iv) stock appreciation rights in connection with
shares of Common Stock subject to any Incentive Stock Option or Non-Qualified
Option ("Stock Appreciation Rights"); (v) awards of Common Stock under the
Company's Management by Objective ("MBO") Equity Plan ("MBO Payments"); and (vi)
other types of stock-based incentive compensation awards established from time
to time by the Board in accordance with the provisions of the Equity Plan.
Administration. The Equity Plan is administered by a committee of the
Board ("Committee"). The Equity Plan vests broad powers in the Committee to
administer and interpret the Equity Plan, including the authority to select the
Participants (as defined below) to be granted Stock Options, Restricted Stock
Awards and Stock Appreciation Rights, to determine the extent of MBO Payments,
to determine the amount of the grants to the Participants, to prescribe all
terms and conditions (not otherwise specified by the Equity Plan) of each grant
under the Equity Plan and to amend or modify such terms and conditions,
including reduction in the exercise price to the then current fair market value,
acceleration of vesting and waiver of forfeiture restrictions.
Eligibility. The Committee may grant Stock Options, Restricted Stock
Awards, Stock Appreciation Rights, MBO Payments and other awards of Common Stock
to employees (including officers) of the Company or any parent or subsidiary
who, in the judgment of the Committee, are performing, or are expected to
perform during the term of their incentive arrangement, vital services in the
management, operation and development of the Company or any parent or
subsidiary, and who are contributing, or are expected to contribute,
significantly to the achievement of long-term corporate economic objectives
("Eligible Employees"). Although Directors who are also employees are eligible
to receive grants, no Director who is not otherwise engaged as an employee is
eligible to receive a grant under the Equity Plan. The Committee will
10
<PAGE> 13
select from among Eligible Employees the individuals who will receive grants of
Stock Options, Restricted Stock Awards, Stock Appreciation Rights, MBO Payments
or other Common Stock awards under the Equity Plan ("Participants"). The
determination of Eligible Employees, the selection of Participants and the
amount of the grants are discretionary and, therefore, it is not possible to
determine the number of employees eligible to participate in the Equity Plan. As
of the Record Date, approximately 11,800 persons were employees of the Company
and its subsidiaries.
Amendment and Termination. The Board may amend or discontinue the Equity
Plan at any time but such action may not, without the consent of the
Participants, adversely affect their rights or obligations under outstanding
Stock Options, Restricted Stock Awards, Stock Appreciation Rights or other
Common Stock awards. No amendment, without the approval of the Company's
stockholders, may alter the Equity Plan so as to materially increase the total
number of shares of Common Stock that may be awarded under the Equity Plan,
materially increase the benefits accruing under the Equity Plan, materially
change the basis for eligibility in the Equity Plan, or extend the duration of
the Equity Plan.
Term of Plan. The Equity Plan has a term of ten years and will terminate
on March 7, 2005, unless terminated before that date by action of the Board.
Stock Options, Restricted Stock Awards, Stock Appreciation Rights and other
Common Stock awards outstanding at the termination of the Equity Plan will
continue to remain outstanding in accordance with their respective terms.
Stock Subject to the Plan. Under the Equity Plan, shares of Common Stock
may be issued in connection with MBO Payments, Restricted Stock Awards, or upon
the exercise of Incentive Stock Options, Non-Qualified Options or Stock
Appreciation Rights, or other awards of Common Stock. A total of 2,200,000
shares of Common Stock have initially been reserved for issuance under the
Equity Plan.
The maximum number of shares of Common Stock available for issuance under
the Equity Plan may be increased from time to time by approval of the Board and
the stockholders of the Company. Shares of Common Stock that are issued upon the
exercise of Stock Options or Stock Appreciation Rights, as Restricted Stock
Awards, as MBO Payments, or under other awards, will be applied to reduce the
maximum number of shares of Common Stock remaining available for issuance under
the Equity Plan. Shares of Common Stock subject to Stock Appreciation Rights,
Stock Options, Restricted Stock Awards or other awards of Common Stock that
expire unexercised or are forfeited will generally become available under the
Equity Plan for future grants.
Adjustments upon Changes in Capitalization. In the event any change, such
as a stock split or dividend, is made in the Company's capitalization, which
change results in an increase or decrease in the number of outstanding shares of
Common Stock without receipt of consideration by the Company, an appropriate
adjustment shall be made in the number of shares that have been reserved for
issuance under the Equity Plan and the price per share covered by each
outstanding Stock Option and Stock Appreciation Right. In the event of the
proposed dissolution or liquidation of the Company, all outstanding Stock
Options and Stock Appreciation Rights will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Committee. The Committee may, in its discretion, make provision for accelerating
the exercisability of shares subject to Stock Options or Stock Appreciation
Rights under the Equity Plan in such event and may set a fixed date on which all
outstanding awards will terminate.
Reorganization of Company. If the Company is merged or consolidated with
another corporation or if all or substantially all of the assets are acquired by
any other corporation or business entity, each outstanding Stock Option and
Stock Appreciation Right may be assumed or substituted by the successor
corporation. The Committee may, in lieu of such assumption or substitution,
accelerate the exercise dates of outstanding Stock Options and outstanding Stock
Appreciation Rights and provide for a 30-day period within which such options
and rights may be exercised, after which they shall terminate.
Tender Offers and Acquisitions. If any person or entity (other than the
Company or an entity affiliated with the Company) makes a tender offer or
exchange offer for all or any part of the Common Stock or other capital shares
of the Company and purchases part of the Common Stock or other capital shares
tendered to it, and the Board opposes or does not affirmatively recommend
acceptance of the tender offer or exchange offer,
11
<PAGE> 14
then (a) all Stock Options with respect to which no Stock Appreciation Rights
have been granted, and all Stock Options with respect to which Stock
Appreciation Rights have been granted that have been outstanding for at least
six months, shall become immediately exercisable, provided that exercise of such
Stock Appreciation Rights may only take place between the third and twelfth
business days following public release of the Company's quarterly or annual
financial results; and (b) all restrictions with respect to outstanding
Restricted Stock Awards will immediately lapse.
Fair Market Value. Under the Equity Plan, the fair market value of a share
of Common Stock is determined by the Committee on the date of grant and is equal
to the price of a share of Common Stock published in The Wall Street Journal as
the closing price for the last trading day prior to the date of grant. The price
published in The Wall Street Journal as the closing price for March 31, 1995,
the last full day of trading prior to the Record Date, was $19.625 per share.
Stock Options. Under the Equity Plan, the Committee may grant Stock
Options to Participants. Each Stock Option granted pursuant to the Equity Plan
will be evidenced by an agreement incorporating the terms and conditions
described below and such other terms and conditions, not inconsistent with the
Equity Plan, as the Committee deems advisable. Stock Options granted under the
Equity Plan may be either Incentive Stock Options or Non-Qualified Options, in
the sole discretion of the Committee. The Committee may grant both an Incentive
Stock Option and Non-Qualified Option to the same Participant, at the same time
or at different times. Incentive Stock Options are subject to limitations under
the Code restricting the aggregate dollar value exercisable during a calendar
year by a Participant. The terms and conditions imposed under the Equity Plan on
Stock Options are described generally below.
(1) Exercise Price. The exercise price for an Incentive Stock Option
granted under the Equity Plan will not be less than 100% of the fair market
value of the Common Stock to which such option relates on the date the
option is granted. Incentive Stock Options granted under the Equity Plan to
a Participant who at the time owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or of
any parent or any subsidiary must have an exercise price equal to at least
110% of the fair market value of the underlying Common Stock on the date of
grant. The exercise price for a Non-Qualified Option granted under the
Equity Plan will be as determined by the Committee, but in no event will be
less than 85% of the fair market value of the Common Stock on the date the
Non-Qualified Option is granted.
(2) Term and Exercisability. Stock Options will have a maximum term
fixed by the Committee not to exceed 10 years from the date of grant. A
Stock Option may be exercisable immediately, or may become exercisable in
installments during its term, as determined by the Committee, except that
no Stock Option with respect to which Stock Appreciation Rights have been
granted may be exercised during the six-month period immediately after the
date on which the option was granted.
(3) Manner of Exercise and Purchase. A Participant may exercise a
Stock Option by delivering notice of exercise to the Corporate Secretary of
the Company, at the Company's principal office in Louisville, Colorado. The
payment of the exercise price may be made (i) in cash, (ii) by check, (iii)
in shares of Common Stock having an aggregate fair market value on the date
of exercise equal to the payment required, (iv) by delivery of irrevocable
instructions to a broker to deliver to the Company the appropriate amount
of proceeds of the sale or loan of the shares exercisable (often referred
to as a "cashless exercise"), or (v) by reduction in the amount of any
Company liability to the optionee. The Committee, in its discretion, may
establish limitations with respect to the shares of Common Stock that may
be used as payment of the Stock Option exercise price.
(4) Tax Withholding. At the time a Participant exercises a Stock
Option, the Participant must also pay to the Company any amount the Company
is required by law or regulation to collect for tax withholding or other
purposes. The Committee may, in its sole discretion, grant the Participant
the right to elect to pay all or a portion of any required tax withholding
by transferring to the Company, or by having the Company withhold from
shares of Common Stock issuable upon exercise of the Stock Option, shares
of Common Stock having a fair market value on the date the amount of
withholding is determined equal to the amount of required withholding.
Participants who are subject to the provisions of Section 16
12
<PAGE> 15
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
may only elect to use shares of Common Stock for withholding purposes in
accordance with additional restrictions.
(5) Incentive Stock Option Value Limitation. The aggregate fair
market value (determined as of the time the option is granted) of shares of
Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by a Participant in any calendar year (under the Equity
Plan or other plans of the Company, its parent and subsidiaries) may not
exceed $100,000.
(6) Notice of Sale of Incentive Stock Option Stock. In the event
that any Participant makes a disqualifying disposition of any Common Stock
acquired upon the exercise of an Incentive Stock Option (see "-- Federal
Income Tax Consequences" below), the Participant must send written notice
to the Company of the date of such disposition, the number of shares
disposed of, the amount of proceeds received from the disposition, and any
other information relating to the disposition that the Company reasonably
requests, and must also make appropriate arrangements with the Company for
any required tax or other withholding.
(7) Stockholder Rights. A Participant will not have any rights of a
stockholder with respect to any shares of Common Stock covered by a Stock
Option until the Participant has exercised the option, paid the option
exercise price and become the holder of record of the purchased shares.
(8) Termination of Options. Stock Options granted under the Equity
Plan to a Participant generally terminate 90 days after the date on which
the Participant's employment with the Company and all parents and
subsidiaries is terminated for any reason, except that Stock Options may be
exercised within one year after a Participant's death or within one year
after a Participant becomes disabled (within the meaning of Section
22(e)(3) of the Code), provided that death occurs within 90 days after
termination of employment. The Committee has the discretion to permit the
exercise of options for up to one year after termination.
(9) Transferability. Except as otherwise specified by the Committee,
no right or interest of any Participant in a Stock Option granted under the
Equity Plan is assignable or transferable during the lifetime of the
Participant, either voluntarily or involuntarily. In the event of a
Participant's death, his or her rights and interests in any Stock Option
will be transferable by testamentary will or the laws of descent and
distribution, and exercise of any such Stock Option may be made, until such
Stock Option terminates, by the Participant's legal representatives, heirs
or legatees. If permitted by applicable law (including Rule 16b-3
promulgated under the Exchange Act), the Committee may permit the transfer
of Stock Options either generally or under specified circumstances.
Restricted Stock. Under the Equity Plan, the Committee may grant
Restricted Stock Awards in shares of Common Stock to Participants. The Committee
may require payment to the Company of an amount equal to the par value of the
shares of Common Stock that are the subject of the Restricted Stock Award. Each
Restricted Stock Award granted pursuant to the Equity Plan will be evidenced by
an agreement incorporating the terms and conditions described below and such
other terms and conditions, not inconsistent with the Equity Plan, as the
Committee deems advisable.
(1) Restrictions. A Restricted Stock Award is the grant to a
Participant of shares of Common Stock that are subject to forfeiture
restrictions: (i) for a period of time set by the Committee, and/or (ii)
until performance goals established by the Committee at the time of grant
are satisfied. During this period, the Participant may not assign or
transfer the shares, either voluntarily or involuntarily.
While the shares of Common Stock granted as a Restricted Stock Award
are subject to the employment period or performance restrictions, the
Committee may require that a legend be placed on the stock certificates
representing the restricted shares, and may require that the certificates
be held in escrow.
(2) Termination of Employment. If, before the expiration of any
employment period restriction or the satisfaction of any performance goal
requirement, the Participant ceases to be an employee of the Company or any
parent or subsidiary for any reason, other than death, disability or
retirement, the shares
13
<PAGE> 16
of Common Stock received pursuant to the Restricted Stock Award will be
forfeited back to the Company. In the event of the Participant's death,
retirement in accordance with the Company's established retirement policy
or disability (as defined in Section 22(e)(3) of the Code), the Restricted
Stock Award will become fully vested and nonforfeitable.
(3) Stockholder Rights. A recipient of shares of Common Stock
pursuant to a Restricted Stock Award will have all of the rights of a
holder of shares of Common Stock with respect to the shares so received,
upon becoming the holder of record of such shares. These rights are subject
to contractual restrictions on transferability and the right of the Company
to have the shares held in escrow, as described above. All rights as a
holder of shares of Common Stock will cease upon a forfeiture of the shares
pursuant to the Equity Plan's provisions.
Stock Appreciation Rights. A Stock Appreciation Right is the right to
receive a payment from the Company equal to the difference between the fair
market value of one or more shares of Common Stock subject to a Stock Option and
the exercise price of such shares under the terms of the option. Under the
Equity Plan, the Committee may grant a Stock Appreciation Right to a Participant
in connection with all or any portion of the shares of Common Stock subject to
any Stock Option that has been granted to the Participant. A Stock Appreciation
Right with respect to an Incentive Stock Option must be granted at the time of
the grant of the related option. A Stock Appreciation Right with respect to a
Non-Qualified Option may be granted either at the time of the grant of the
Non-Qualified Option or at any later time during the term of the option. Once
granted, the term of a Stock Appreciation Right will be equal to the term of its
related Stock Option.
(1) Manner of Exercise. A Stock Appreciation Right is exercisable,
in whole or in part, at any time that the related Stock Option is
exercisable, except that a Stock Appreciation Right is not exercisable for
six months after the date of its grant and may be exercised only between
the third and twelfth business days following public release of any of the
Company's quarterly or annual financial results. A Stock Appreciation Right
is exercised by giving notice (and paying any applicable amounts for tax
withholding purposes) in the same manner as its related Stock Option, as
described above.
Upon the exercise of a Stock Appreciation Right, the Participant
receives from the Company the amount by which the fair market value of the
shares of Common Stock as to which the Stock Appreciation Right is
exercised exceeds the option exercise price for such shares. Upon exercise
of a Stock Appreciation Right for a share of Common Stock, the related
Stock Option is terminated with respect to that share. Conversely, upon
exercise of a Stock Option, the related Stock Appreciation Right is
terminated with respect to the shares purchased.
(2) Form of Payment. The Committee has sole discretion to decide the
form in which the Company will pay the value of an exercised Stock
Appreciation Right to the Participant (i.e., cash, Common Stock, or any
combination thereof) or to consent to or disapprove the election of a
Participant to receive cash in full or partial payment of the value of a
Stock Appreciation Right.
(3) Termination of Stock Appreciation Rights. Any Stock Appreciation
Right granted under the Equity Plan to a Participant will terminate at the
same time and under the same circumstances that the related Stock Option
granted to the Participant will terminate.
(4) Transferability. Except as otherwise specified by the Committee,
no right or interest of any Participant in a Stock Appreciation Right
granted under the Equity Plan is assignable or transferable during the
lifetime of the Participant, either voluntarily or involuntarily. In the
event of the Participant's death, his or her rights and interests in any
Stock Appreciation Rights will be transferable by testamentary will or the
laws of descent and distribution, and payments due under the Equity Plan
shall be made to, and exercise of Stock Appreciation Rights may be made by
the Participant's legal representatives, heirs or legatees, under the same
circumstances that the related Stock Option granted to the Participant may
be exercised. If permitted by applicable law (including Rule 16b-3
promulgated under the Exchange Act), the Committee may permit the transfer
of Stock Appreciation Rights either generally or under specified
circumstances.
14
<PAGE> 17
MBO Equity Plan. Under the Company's MBO Equity Plan, selected
Participants become eligible for incentive compensation payments upon the
attainment of pre-established performance goals. When a Participant becomes
entitled to an MBO Payment under the MBO Equity Plan, the Committee may elect:
(i) to pay all or a part of the MBO Payment in cash; (ii) to pay the MBO Payment
in Common Stock; or (iii) to allow a Participant to elect to receive all or part
of payment in such form (cash or Common Stock) as a Participant may elect.
Other Common Stock Awards. The Board, in its sole discretion, may
establish other incentive compensation arrangements under the Equity Plan
pursuant to which Participants may acquire shares of Common Stock.
Federal Income Tax Consequences. The following description of federal
income tax consequences is based upon current statutes, regulations and
interpretations. The description does not include foreign, state or local income
tax consequences.
(1) Incentive Stock Options. Neither the Participant nor the Company
incurs any federal income tax consequences as a result of the grant of an
Incentive Stock Option under the Equity Plan, nor will there be any
constructive receipt of income at the time the Incentive Stock Option
becomes exercisable. The exercise of an Incentive Stock Option also will
not result in any federal income tax consequences to the Company or the
Participant, except that an amount equal to the excess of the fair market
value of the stock acquired upon exercise of the Incentive Stock Option,
determined at the time of exercise, over the amount paid for the stock by
the Participant will be a tax preference item for purposes of the
alternative minimum tax on tax preference items.
In the event of a disposition of stock acquired upon the exercise of
an Incentive Stock Option, the federal income tax consequences depend upon
how long the Participant has held the shares. If the Participant does not
dispose of the shares within two years after the Incentive Stock Option was
granted, nor within one year after the Incentive Stock Option was exercised
and the shares were purchased, then the Participant recognizes only a
long-term capital gain or loss. The amount of the long-term capital gain or
loss is equal to the difference between (i) the amount realized on the
disposition of the shares and (ii) the exercise price at which shares were
acquired. The Company is not entitled to any compensation expense deduction
under these circumstances.
If the Participant does not satisfy both of the foregoing
holding-period requirements, then the Participant will be required to
report as ordinary income, in the year of disposition, the amount by which
the lesser of (i) the fair market value of the shares at the time of
exercise of the Incentive Stock Option or (ii) the amount realized on the
disposition of such shares (if the disposition is the result of a sale or
exchange to one other than a related taxpayer) exceeds the exercise price
for the shares, and the Company will be entitled to a compensation expense
deduction in an equal amount. The remainder of the gain recognized on the
disposition, if any, will be treated as capital gain to the Participant and
will be eligible for long-term capital gain treatment if the disposition
occurs more than one year after the shares were acquired.
(2) Non-Qualified Options. A Participant who receives a
Non-Qualified Option will not recognize any taxable income at the time of
grant. Upon exercise of the Non-Qualified Option, a Participant will
recognize ordinary income on the "Includability Date" in an amount equal to
the difference between (i) the fair market value of the shares purchased,
determined on the Includability Date, and (ii) the consideration paid for
the shares. The Includability Date generally will be the date of exercise
of the option. However, the Includability Date for Participants who are
officers, directors or greater-than-10% stockholders of the Company will be
the earlier of (1) the date the Participant is no longer subject to
liability under Section 16(b) of the Securities Exchange Act of 1934, or
(2) a date that is up to six months after the date of exercise, unless any
such person files an election under Section 83(b) of the Code within 30
days of the date of exercise to include as ordinary income the amount
realized on that date.
15
<PAGE> 18
In general, the Company will be entitled to a compensation expense
deduction in connection with the exercise of a Non-Qualified Option for any
amounts included by the Participant as ordinary income at the time the
Participant is taxed at ordinary income rates.
(3) Restricted Stock Awards. Upon receipt of a Restricted Stock
Award, a Participant may file an election under Section 83(b) of the Code
within 30 days after receipt to include as ordinary income in the year of
receipt an amount equal to the fair market value of the shares received on
the date of receipt (determined as if the shares were not subject to any
risk of forfeiture), less any consideration paid for the shares. If the
Section 83(b) election is made, the Participant will not recognize any
additional income when the restrictions on shares issued in connection with
the Restricted Stock Award lapse. At the time any such shares are sold or
disposed of, a Participant will realize a long-term or short-term capital
gain or loss, depending upon the time lapsed between receipt of the
Restricted Stock Award and sale or disposition.
A Participant who does not make the Section 83(b) election at the time
a Restricted Stock Award is received will recognize ordinary income on the
"Includability Date" in an amount equal to the then fair market value of
the shares freed of restrictions. The Includability Date generally will be
the date of the lapse of the restrictions referred to above. However, the
Includability Date for Participants who are officers, directors or
greater-than-10% stockholders of the Company will be the later of the date
of the lapse of the restrictions referred to above, or the "16(b) Date."
The 16(b) Date will be the earlier of (1) the date the Participant is no
longer subject to liability under Section 16(b) of the Securities Exchange
Act of 1934, or (2) a date that is up to six months after the date of
receipt of a Restricted Stock Award. At the time of a subsequent sale or
disposition of any shares of Common Stock issued in connection with a
Restricted Stock Award as to which the restrictions have lapsed, a
Participant will realize a long-term or short-term capital gain or loss,
depending upon the length of time between the date the restriction lapsed
and the date of sale or disposition.
In general, the Company will be entitled to a compensation expense
deduction for any amounts included by the Participant as ordinary income as
the result of a receipt of a Restricted Stock Award at the time the
Participant is taxed at ordinary income rates.
(4) Stock Appreciation Rights. A Participant who receives a Stock
Appreciation Right will not recognize any taxable income at the time of the
grant. Upon the exercise of a Stock Appreciation Right, the Participant
will realize compensation income in the amount of the sum of cash and the
fair market value of any shares of Common Stock received by the
Participant. Any cash received by the Participant will be treated as
ordinary income on the date of receipt. A Participant receiving shares of
Common Stock upon exercise of a Stock Appreciation Right will recognize
ordinary income on the "Includability Date" in an amount equal to the fair
market value of the shares received. The Includability Date generally will
be the date the shares were received. However, the Includability Date for
Participants who are officers, directors or greater-than-10% stockholders
of the Company will be the earlier of (1) the date the Participant is no
longer subject to liability under Section 16(b) of the Securities Exchange
Act of 1934, or (2) a date that is up to six months after the date the
shares were received, unless any such person files an election under
Section 83(b) of the Code within 30 days after receipt to include as
ordinary income on the date of receipt an amount equal to the fair market
value of the shares received. The Company will be entitled to a
compensation expense deduction for any amounts included by the Participant
as ordinary income at the time the Participant is taxed at ordinary income
rates. Upon the sale of any shares of Common Stock acquired upon exercise
of a Stock Appreciation Right, a Participant will realize a long-term or
short-term capital gain or loss, depending on the holding period, and the
Company will receive no further deduction.
(5) MBO Payments. A Participant who receives an MBO Payment under the
Equity Plan in the form of shares of Common Stock will recognize ordinary
income equal to the fair market value of the shares on the "Includability
Date." The Includability Date generally will be the date the shares were
received. However, the Includability Date for Participants who are
executive officers, directors or greater-than-10% stockholders of the
Company will be the earlier of (1) the date the Participant is no longer
16
<PAGE> 19
subject to liability under Section 16(b) of the Securities Exchange Act of
1934, or (2) a date that is up to six months after the date the shares were
received, unless any such person files an election under Section 83(b) of
the Code within 30 days after receipt to include as ordinary income on the
date of receipt an amount equal to the fair market value of the shares
received. The Company will be entitled to a compensation expense deduction
for any amounts included by the Participant as ordinary income at the time
the Participant is taxed at ordinary income rates. Upon the sale of any
shares of Common Stock acquired as an MBO Payment under the Equity Plan, a
Participant will realize a long-term or short-term capital gain or loss,
depending on the holding period, and the Company will receive no further
deduction.
(6) Section 162(m) Limits. In order for compensation in excess of $1
million realized by any of the Named Executive Officers to be deductible by
the Company, IRS regulations require any option plan to state the maximum
number of shares subject to options and stock appreciation rights that can
be granted during a fiscal year to any one individual. The Equity Plan has
a limit of 500,000 shares subject to options and stock appreciation rights
per fiscal year. While the Company does not expect to grant this number of
options and stock appreciation rights on a regular basis, the Company does
expect that this would be the maximum number of options and stock
appreciation rights that would be necessary to recruit any outstanding top
executive.
PARTICIPATION IN THE EQUITY PLAN
The grant of Stock Options, Restricted Stock Awards, Stock Appreciation
Rights, MBO Payments and other Common Stock awards under the Equity Plan to
employees, including Named Executive Officers, is subject to the discretion of
the Committee. As of the date of this Proxy Statement, no awards had been
granted under the Equity Plan. There has been no determination made by the
Committee with respect to future awards under the Equity Plan. Accordingly,
future awards are not determinable. Nonemployee Directors are not eligible to
participate in the Equity Plan. The following table sets forth information with
respect to the grant of awards under the 1987 Equity Participation Plan,
consisting solely of Stock Options, to the Named Executive Officers, to all
current Executive Officers as a group and to all other employees as a group
during the last fiscal year ended December 30, 1994.
1987 EQUITY PARTICIPATION PLAN
BENEFITS
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF INDIVIDUAL OR SUBJECT TO AGGREGATE EXERCISE
IDENTITY OF GROUP AND POSITION OPTIONS GRANTED(#) PRICE ($)
- ---------------------------------------------------------- ------------------ ------------------
<S> <C> <C>
RYAL R. POPPA............................................. 62,291 $1,814,225
Chairman of the Board,
President and Chief Executive Officer
DEREK A. THOMPSON......................................... 17,324 504,562
Former Executive Vice President of Worldwide Field
Operations
JOHN V. WILLIAMS.......................................... 19,040 551,915
Executive Vice President of Worldwide Field Operations
L. THOMAS GOOCH........................................... 14,582 424,701
Executive Vice President of Operations
GREGORY A. TYMN........................................... 14,000 407,750
Former Senior Vice President and Chief Financial Officer
All current Executive Officers (9 persons) as a group..... 161,733 4,706,536
All other employees as a group............................ 305,641 9,143,162
</TABLE>
17
<PAGE> 20
VOTE REQUIRED
Approval of the 1995 Equity Participation Plan requires the affirmative
vote of a majority of the Votes Cast. See "PROCEDURAL MATTERS -- Quorum;
Abstentions; Broker Non-Votes" above.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE ADOPTION OF
THE 1995 EQUITY PARTICIPATION PLAN DESCRIBED ABOVE. PROXIES RECEIVED BY THE
COMPANY WILL BE SO VOTED UNLESS A CONTRARY VOTE IS SPECIFIED.
RATIFICATION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
PROPOSAL 3.
The firm of Price Waterhouse LLP served as the Company's auditors for the
year ended December 30, 1994, and has been engaged by the Audit Committee to
serve as auditors for the fiscal year ending December 29, 1995.
In March 1995, the Audit Committee of the Board of Directors of the Company
determined to retain Price Waterhouse LLP and dismiss Ernst & Young LLP as
independent accountants with respect to the annual audit of the financial
statements of Network Systems Corporation, a wholly owned subsidiary. The
Company, through a wholly owned subsidiary, completed a merger with Network
Systems Corporation on March 7, 1995. In connection with its audits for the two
most recent fiscal years, the reports of Ernst & Young LLP on the financial
statements for 1993 and 1994, respectively, contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles. During the two most recent fiscal years
and through March 30, 1995, the Company has not consulted with Price Waterhouse
LLP on items which (i) were or should have been subject to SAS 50 or (ii)
concerned the subject matter of a disagreement or reportable event with the
former auditor of Network Systems Corporation (as described in Regulation S-K,
Item 304(a)).
The Board of Directors requests that stockholders ratify the engagement of
Price Waterhouse LLP for fiscal year 1995. A representative of Price Waterhouse
LLP is expected to be present at the Annual Meeting and available to respond to
appropriate questions and, although Price Waterhouse LLP has indicated that no
statement will be made, an opportunity for a statement will be provided. In the
event the proposal to ratify the selection of Price Waterhouse LLP is defeated,
the adverse vote will be considered as a recommendation to the Board of
Directors to select other independent auditors for the next year. However,
because of the expense and difficulty in changing independent auditors after the
beginning of the year, the Board of Directors intends to allow the appointment
for 1995 to stand unless the Board of Directors finds other reasons for making a
change. Even if the selection is ratified, the Board of Directors, in its
discretion, may select a new independent accounting firm at any time during the
year if the Board of Directors believes that such a change would be in the best
interests of the Company and its stockholders.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT
OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS.
18
<PAGE> 21
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning compensation earned
by the Chief Executive Officer ("CEO") and by each of the other four most highly
compensated Executive Officers of the Company, who were serving as such at
December 30, 1994, the Company's fiscal year-end (collectively, the "Named
Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------
AWARDS
ANNUAL COMPENSATION -------------------------
------------------------------------------------------ RESTRICTED SECURITIES
NAME AND OTHER ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($)(1) COMPENSATION($)(2) AWARDS($)(3) OPTIONS(#) COMPENSATION($)(4)
- ------------------------- ---- ------------ ----------- ------------------ ------------ ---------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
RYAL R. POPPA............ 1994 $617,500 $75,000 -- -0- 62,291 $ 60,248
Chairman of the Board, 1993 587,500 -0- $ 68,371(5) -0- 75,833 42,455
President & CEO 1992 648,500 -0- -- $325,682 22,100 32,109
DEREK A. THOMPSON(6)..... 1994 297,000 35,000 224,284(7) -0- 17,324 45,822
Former Executive Vice
President 1993 297,000 -0- 227,073(7) -0- 19,810 27,320
of Worldwide Field
Operations 1992 297,000 -0- 273,431(7) 88,002 6,624 27,707
JOHN V. WILLIAMS(8)...... 1994 218,673 35,000(9) 68,371(10) -0- 19,040 4,929
Executive Vice President
of 1993 198,172 66,629(9) 67,517(10) -0- 18,500 5,124
Worldwide Field
Operations 1992 209,615(11) 69,254(9) 88,313(10) 71,745 4,034 4,559
L. THOMAS GOOCH.......... 1994 237,500 50,000 -- -0- 14,582 8,894
Executive Vice President 1993 225,961 -0- -- -0- 19,167 6,301
of Operations 1992 249,423 -0- -- 79,712 6,000 4,670
GREGORY A. TYMN(12)...... 1994 228,173 30,000 -- -0- 14,000 3,783
Former Senior Vice
President 1993 203,365 -0- -- -0- 16,500 3,924
and Chief Financial
Officer 1992 223,961 -0- -- 71,741 5,400 3,590
</TABLE>
- ---------------
(1) Salary and bonus is reported in the year it was earned even if not actually
paid until the following year. Any compensation that was deferred at the
Named Executive Officer's election is included in the salary or bonus
column for the year in which it was earned.
(2) Other Annual Compensation includes perquisites and expenses due to overseas
assignments. Perquisite amounts are not required to be reported if amounts
paid were not more than the lesser of $50,000 or 10% of the Named Executive
Officer's annual salary and bonus.
(3) Restricted stock vests upon the employee's retirement from the Company at
age 65 if continuously employed by the Company for at least five years
since the date of grant. Vesting may be accelerated in years three, four
and five if, in the Compensation Committee's view, the Company achieves
certain predetermined financial goals. A participant has all the rights of
a stockholder with respect to these shares, including the right to receive
dividends, if any, except that the stock and any stock dividends are
subject to a repurchase right by the Company and may not be disposed of
until the repurchase right lapses. Aggregate number of restricted shares
and their fair market value at 1994 fiscal year-end (net of purchase price)
were as follows: Mr. Poppa -- 61,520 shares valued at $1,777,928; Mr.
Thompson -- 9,610 shares valued at $277,729; Mr. Williams -- 7,451 shares
valued at $215,334; Mr. Gooch -- 14,080 shares valued at $406,912; and Mr.
Tymn -- 8,522 shares valued at $246,286.
(4) The items reported for 1994 include: (i) the value of premiums paid by the
Company for Executive Group Term Life Insurance on behalf of the Named
Executive Officers as follows: Mr. Poppa -- $36,882; Mr.
Williams -- $4,929; Mr. Thompson -- $22,008; Mr. Gooch -- $5,593; and Mr.
Tymn -- $3,281; (ii) above-market interest earned on deferred compensation
as follows: Mr. Poppa -- $23,366; Mr. Gooch -- $3,301; and Mr.
Tymn -- $502; and (iii) Company contributions to Mr. Thompson's pension
plan of $23,814. No Company contributions were made for 1994 to the Profit
Sharing and Thrift Plan.
(5) Includes payments of $57,210 for financial services for Mr. Poppa.
(6) Effective January 1, 1995, Mr. Thompson retired as Executive Vice President
of Worldwide Field Operations. He currently serves as Executive Vice
President Emeritus.
19
<PAGE> 22
(7) Includes payments of (i) $110,521 in 1994, $220,722 in 1993 and $181,293 in
1992 in connection with expenses of the overseas assignment of Mr.
Thompson; and (ii) forgiveness of a loan in 1994 to Mr. Thompson in the
amount of $101,683.
(8) Effective January 1, 1995, Mr. Williams was promoted to the position of
Executive Vice President of Worldwide Field Operations; prior to that time
he served as Senior Vice President, Americas.
(9) Bonuses for Mr. Williams represent an MBO bonus payment in 1994, marketing
commissions and an incentive payout, as head of sales and customer services
functions for the Americas group, in 1993, and marketing commissions in
1992.
(10) Includes payments of $58,299 in 1994, $58,301 in 1993 and $62,745 in 1992
made in lieu of relocation expense reimbursement that was a part of Mr.
Williams' offer of employment.
(11) Mr. Williams became an Executive Officer of the Company in February 1992.
Compensation is reported for the full fiscal year of 1992, including
compensation attributable to the portion of the year in which he was an
employee but did not serve as an Executive Officer.
(12) Effective April 15, 1995, Mr. Tymn will be resigning from the Company.
OPTION GRANTS TABLE
The following table sets forth information regarding options granted to the
Named Executive Officers during the fiscal year ended December 30, 1994.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------ POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL
SECURITIES OPTIONS RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION
OPTIONS EMPLOYEES IN OR BASE FOR OPTION TERM(1)
GRANTED FISCAL PRICE EXPIRATION ---------------------------
NAME (#) 1994(2) ($/SH) DATE 5% ($) 10% ($)
- -------------------------- --------- ------------ -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ryal R. Poppa............. 32,500(3) 6.95% $ 29.125 12/12/04 $ 595,288 $ 1,508,577
29,791(4) 6.37 29.125 12/12/04 545,669 1,382,831
Derek A. Thompson......... 9,281(3) 1.99 29.125 12/12/04 169,996 430,803
8,043(4) 1.72 29.125 12/12/04 147,320 373,338
John V. Williams.......... 3,000(3) 0.64 28.250 11/16/04 53,299 135,070
8,593(3) 1.84 29.125 12/12/04 157,394 398,868
7,447(4) 1.59 29.125 12/12/04 136,403 345,673
L. Thomas Gooch........... 7,812(3) 1.67 29.125 12/12/04 143,089 362,615
6,770(4) 1.45 29.125 12/12/04 124,003 314,248
Gregory A. Tymn........... 7,500(3) 1.60 29.125 12/12/04 137,374 348,133
6,500(4) 1.39 29.125 12/12/04 119,058 301,715
Increase in market value of the Common Stock for
ALL STOCKHOLDERS (44,525,109 shares as of year-end)
at assumed annual rates of appreciation.................................. $815,566,422 $2,066,766,510
</TABLE>
- ---------------
(1) Potential realizable value is calculated based on an assumption that the
price of the Company's Common Stock appreciates at the annual rate shown
(5% and 10%), compounded annually, from the date of grant of the option
until the end of the option term (10 years). The value is net of the
exercise price but is not adjusted for the taxes that would be due upon
exercise. THE 5% AND 10% ASSUMED RATES OF APPRECIATION ARE MANDATED BY THE
RULES OF THE SECURITIES AND EXCHANGE COMMISSION AND DO NOT IN ANY WAY
REPRESENT THE COMPANY'S ESTIMATE OR PROJECTION OF FUTURE STOCK PRICES.
ACTUAL GAINS, IF ANY, UPON FUTURE EXERCISE OF ANY OF THESE OPTIONS WILL
DEPEND ON THE ACTUAL PERFORMANCE OF THE COMPANY'S COMMON STOCK, THE
CONTINUED EMPLOYMENT OF THE EXECUTIVE OFFICER HOLDING THE OPTION THROUGH
ITS VESTING PERIOD AND THE SUBSEQUENT EXERCISE OF THE OPTION BY THE
EXECUTIVE OFFICER. At 5% annual appreciation from $29.125 over
20
<PAGE> 23
a 10-year term, the stock price would be $47.442. At 10% annual
appreciation from $29.125 over a 10-year term, the stock price would be
$75.543.
(2) Based on options to purchase an aggregate of 467,374 shares granted during
fiscal 1994 to all employees under all of the Company's option plans.
(3) Standard options were granted under the 1987 Equity Participation Plan. The
exercise price is 100% of fair market value on the date of grant. Options
vest in thirds each year beginning one year from the date of grant and
expire 10 years from the date of grant. Options are exercisable for 90 days
after a voluntary termination to the extent vested at that time but will
terminate immediately upon a termination for cause. In the event of a
recapitalization, merger, consolidation or reorganization (excluding any
reorganization under the U.S. Bankruptcy Code), the number of shares and
exercise price will be adjusted, as appropriate. In the event of a hostile
tender offer, the vesting period of all options outstanding for at least
six months will accelerate and all restrictions on restricted stock awards
will immediately lapse. Options are not transferable.
(4) Performance-based options were granted under the 1987 Equity Participation
Plan. The exercise price is 100% of fair market value on the date of grant.
Performance-based options vest after six years unless accelerated to the
first, second and third years based on net-after-tax performance goals.
Performance-based options expire 10 years from the date of grant.
Performance-based options are exercisable for 90 days after a voluntary
termination to the extent vested at that time but will terminate
immediately upon a termination for cause. In the event of recapitalization,
merger, consolidation or reorganization (excluding any reorganization under
the U.S. Bankruptcy Code), the number of shares and exercise price will be
adjusted, as appropriate. In the event of a hostile tender offer, the
vesting period of all options outstanding for at least six months will
accelerate and all restrictions on restricted stock awards shall
immediately lapse. Options are not transferable.
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth information regarding options exercised by
Named Executive Officers during fiscal 1994 and options held by them at 1994
fiscal year-end.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED ON VALUE UNEXERCISED OPTIONS IN-THE-MONEY
EXERCISE REALIZED AT 12/30/94(#) OPTIONS AT 12/30/94($)
NAME (#) ($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(2)
- ------------------------ ----------- --------- --------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Ryal R. Poppa........... 390,995 $6,764,826 72,559 128,159 $466,336 $45,123
Derek A. Thompson....... 1,097 29,619 34,449 34,732 46,473 13,524
John V. Williams........ 10,218 163,355 7,083 34,345 7,059 10,234
L. Thomas Gooch......... 1,234 28,228 16,460 31,166 85,702 12,250
Gregory A. Tymn......... 334 5,970 14,164 28,425 49,849 11,025
</TABLE>
- ---------------
(1) "Value Realized" is calculated by subtracting the total exercise price from
the fair market value of the securities underlying the options on the date
of exercise.
(2) Only the value of unexercised, in-the-money options is reported. Value is
calculated by (i) subtracting the exercise price per share from the
year-end market value of $29.00 per share; and (ii) multiplying by the
number of shares subject to the option. Options that have an exercise price
equal to or greater than the fiscal year-end market value are not included
in the value calculation.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company and Mr. Poppa entered into an agreement in December 1989
concerning the terms of his employment that extends through January 20, 1996. In
October 1991 and March 1995, the Company and Mr. Poppa amended the agreement.
For 1994, Mr. Poppa's base compensation as determined by the
21
<PAGE> 24
Compensation Committee was $650,000, which was reduced by 10% through June 30,
1994, in connection with the Company's austerity program. Currently, the
agreement provides for a Management by Objective ("MBO") bonus percentage of
60%, subject to change by the Compensation Committee. In the event of an
involuntary termination without cause, the agreement currently provides for a
severance payment equal to the greater of (i) the sum of his annual base
compensation and 100% of the then current bonus percentage for the year of
termination; or (ii) the sum of his annual base compensation and 100% of the
then current bonus percentage for each year remaining in the employment term. In
the event of a voluntary termination within 24 months after a change in control
(as defined below), Mr. Poppa would receive an amount equal to twice his annual
base salary plus two times 100% of the then current bonus amount, and his
outstanding stock options and restricted stock would become fully vested. Upon
termination for cause, compensation would be paid only through the date of
termination. Mr. Poppa's employment agreement also entitles him to annual
payments upon termination for disability equal to 80% of his base salary in
effect on the date of disability for the remainder of his life, reduced by any
amounts received under any Company-funded disability benefit plan. In addition,
the agreement provides that, in the event that the payments due under the
agreement would constitute "parachute payments" within the meaning of Section
280G of the Code and would otherwise be subject to the excise tax imposed by
Section 4999 of the Code, the severance benefits shall either be delivered in
full or shall be delivered to such lesser extent as will not result in any such
excise tax, whichever results in the greatest amount of after-tax severance
benefits to Mr. Poppa.
In February 1991, the Company and Mr. Thompson entered into an employment
agreement and an expatriate agreement. In 1994, Mr. Thompson's base compensation
as determined by the Compensation Committee was $297,000, which was subject to a
10% reduction through June 30, 1994. This amount was deducted from Mr.
Thompson's other compensation. In January 1995, Mr. Thompson retired as
Executive Vice President of Worldwide Field Operations and he currently serves
as Executive Vice President Emeritus. In March 1995, the Company and Mr.
Thompson entered into a new agreement that replaces his 1991 employment and
expatriate agreements, and expires on April 30, 1996. Under this agreement, Mr.
Thompson will be employed by the Company part-time, in an advisory capacity, and
will receive compensation computed at a daily rate of $1,500 to the extent the
Company requires his services. Mr. Thompson also will receive a payment in the
amount of $215,325, constituting amounts otherwise due under the expatriate
agreement, reimbursements and allowances in the amount of $185,880, and
health-care coverage through the term of the agreement, after which time Mr.
Thompson will be covered by the Company's retiree medical plan. The agreement
also includes a noncompete agreement.
In March 1995, Mr. Tymn entered into an agreement with the Company that
extends through August 1, 1995, and replaces his 1987 employment agreement.
Under this agreement, Mr. Tymn receives an annual base salary of $250,000, and
an on-plan target bonus percentage of 45%, as well as health benefits. In the
event of his termination, this agreement provides for a single payment equal to
the sum of his base salary plus 100% of the then current bonus percentage, and a
payment not to exceed $10,000 for outplacement services, and includes a
noncompete agreement. Effective April 15, 1995, Mr. Tymn will be resigning from
the Company.
In February 1995, the Company entered into employment agreements with
Messrs. Gooch and Williams, which provide for annual base compensation of
$250,000 and $275,000, respectively, and participation in the MBO bonus program
at a bonus percentage to be determined by the Compensation Committee. In the
event of involuntary termination without cause or in the event of death, each
agreement provides for a payment of 100% of the annual base compensation plus
100% of the then current bonus percentage. In the event of a change in control
followed by voluntary termination within 24 months, the agreements each provide
for payment of an amount equal to twice their respective base salary plus two
times 100% of the on-plan target bonus, and all outstanding stock options and
restricted stock would become fully vested. The agreements provide that, in the
event that the payments due under the agreements would constitute "parachute
payments" within the meaning of Section 280G of the Code and would otherwise be
subject to the excise tax imposed by Section 4999 of the Code, the severance
benefits shall either be delivered in full or shall be delivered to such lesser
extent as will not result in any such excise tax, whichever results in the
greatest amount of after-tax severance benefits. Each agreement also provides
for medical and life insurance and an automobile allowance. No compensation
would be paid under the agreements in the event of a termination for cause.
22
<PAGE> 25
For purposes of the foregoing agreements, a "change in control" is deemed
to have occurred in the case of (i) a merger where the Company is not the
surviving corporation or where the Company's stockholders as of immediately
prior to the merger own 50% or less of the Company after the merger, (ii) sale
of all or substantially all of the assets of the Company, or (iii) acquisition
of more than 25% of the Company's outstanding voting stock by another person or
group.
For a discussion of the determination by the Compensation Committee of the
salary and bonus amounts for the Named Executive Officers, see "REPORT OF THE
HUMAN RESOURCES AND COMPENSATION COMMITTEE OF THE BOARD ON EXECUTIVE
COMPENSATION," below.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires certain persons, including the
Company's Directors and Officers, to file reports of ownership and changes in
ownership of the Company's securities with the Securities and Exchange
Commission. The Company is required to disclose in this Proxy Statement any late
or missed filings of those reports during 1994 by its Directors, Officers (as
defined in the rules under Section 16) and 10% stockholders. Based upon the
Company's review of the reporting forms received by it and written
representations from certain persons that no Form 5 reports were required to be
filed by those persons, the Company believes that all filing requirements
applicable to its Directors, Officers and 10% stockholders were complied with
for fiscal year 1994, except that (i) Carl Vertuca, a former Officer of the
Company, was late in filing a Form 5 reporting the expiration in 1993 of a stock
option award to purchase 375 shares of Common Stock, and (ii) each of Directors
Friedman and LaBlanc was late in filing his respective Form 4 reporting shares
of Common Stock acquired in exchange for bona fide debt (resulting from the
final distribution to creditors from the Company's Chapter 11 proceeding).
23
<PAGE> 26
The information provided below is expressly excluded from incorporation by
reference into any filings under the jurisdiction of the Securities and Exchange
Commission.
REPORT OF THE HUMAN RESOURCES AND COMPENSATION COMMITTEE
OF THE BOARD ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the Human
Resources and Compensation Committee (the "Compensation Committee") which is
composed entirely of nonemployee Directors. The current members of the
Compensation Committee are Directors Keane (Chair), Albino, Armstrong, Burgin
and Lee. As part of its duties, the Compensation Committee reviews compensation
levels of management, evaluates the performance of management and considers
management succession and related matters. The Compensation Committee also
administers various incentive plans, including retention and long-term incentive
plans for all employees.
Compensation Philosophy
The Company's compensation package for Executive Officers is formulated
based on three principles. First, compensation should support identified short-
and long-term business goals and strategies. Second, compensation levels should
be competitive with those of other companies in comparable markets. Finally, the
package must provide a tangible link between the expectations of stockholders
and the Executive Officers and serve as a means to retain key personnel. The
components of total compensation are salary, bonus, equity grants and other
benefits. Each of these components is valued and together comprise total
compensation value. The mix of the components determines how much emphasis is
placed on risk compensation (i.e., bonus and equity) or fixed compensation
(i.e., base salary and other benefits) and the Compensation Committee
periodically assesses this mix to ensure that the interests of the Executive
Officers are in line with that of the Company's stockholders and customers.
Each year, the Compensation Committee reviews executive compensation based
upon (1) a valuation of the components of compensation; (2) the Company's
performance during the past year; and (3) compensation data within the industry.
The Company's executive compensation program is designed so that annual pay for
the Executive Officers remains in the mid-range of salaries of senior executives
in similarly sized high-technology companies. The Compensation Committee reviews
the competitiveness of the prior year's compensation based on surveys conducted
by outside consulting firms. During 1994, the Committee reviewed three
compensation surveys of primarily high-technology companies, each with data from
approximately 20 companies. The Committee believes the surveyed companies are a
close reflection of the companies that comprise the S&P Computer Systems Index.
Based upon such surveys, the Compensation Committee believes compensation for
the Company's Executive Officers is competitive, but because a significant
portion of compensation is based upon factors relating to the Company's
performance, actual compensation in 1994 was below the median of compensation
for executive officers in similarly sized high technology companies.
As in prior years, the Compensation Committee used advice developed by an
outside compensation consultant to review the compensation of the Chief
Executive Officer ("CEO") and the other Executive Officers. Based on both the
survey results and the input from the consultant, the Compensation Committee
believes that the CEO's 1994 targeted total annual compensation, as well as that
of the Company's other Executive Officers, was reasonable and appropriate, given
the size, complexity and expected performance of the Company.
The Company's incentive plan allows for performance-based bonuses to the
CEO and other Executive Officers based upon criteria identified in the Executive
Officers' employment agreements and the Compensation Committee's review of the
Executive Officers' individual performances and Company achievements. At the
Annual Meeting of Stockholders held in 1994, the stockholders approved the
Company's Corporate Officer Management by Objective ("MBO") Bonus Plan, to be
effective beginning in 1995. Under this plan, cash bonuses may be paid to
Executive Officers of the Company upon the achievement of objective,
quantifiable and measurable performance targets. These targets may include one
or more of the following
24
<PAGE> 27
criteria that are determined by the Compensation Committee: reliability
measurements of products and component parts, measurements of adherence to
product development and delivery schedules, measurements of the product creation
and delivery processes, market penetration, net after-tax income, economic value
added, return on assets, return on equity, debt ratings, product revenue,
revenue growth and timely updates and approval of strategic plans. The Committee
believes the Corporate Officer MBO Bonus Plan satisfies the requirements of the
performance-based exception to Section 162(m) of the Code with respect to the
deductibility by the Company of compensation.
The Compensation Committee believes that equity awards are one of the best
compensation tools available to align the interests of stockholders and
employees. During 1994, the Compensation Committee granted equity awards to its
Executive Officers and other employees under the 1987 Equity Participation Plan.
This plan expires at the end of 1995 and at this year's Annual Meeting, the
Board is asking stockholders to ratify the adoption of the 1995 Equity
Participation Plan to allow the Compensation Committee to continue to grant
equity awards to Executive Officers and other key employees. The Company
believes that the proposed 1995 Equity Participation Plan will qualify as a
"performance-based" plan under the provisions of Section 162(m) of the Code. The
Company further believes that the 1987 Equity Participation Plan complies with
Rule 16b-3 and therefore is a "performance-based" plan under the Code's
transition rules.
Salary and Bonus
The 10% reduction in the base salary of the CEO and the other Executive
Officers that was instituted in 1993 was continued for the first six months of
1994 as part of the Company's austerity program. Also, as part of the Company's
austerity program, the base salaries of the majority of all other employees were
reduced by 5% and nonemployee Director fees were reduced by 10% during such
period. The austerity program was designed to reduce expenses, yet protect the
employee base that was and will be needed to deliver and service existing and
new products. The austerity program was discontinued in July 1994 because of
improved operating results and the Executive Officers' salaries were returned to
their standard rates, as was the case for other employees' salaries and
nonemployee Director fees.
The annual salaries of the Executive Officer group for 1994 (before the 10%
reduction) were measured and projected to be approximately 5-10% below the
competitive market median. Except for the removal of the austerity program, the
CEO's salary was not increased in 1994. Because the CEO's salary was reduced by
10% for the first six months of 1994, his salary was less than the projected
median value for the job.
The Company has developed variable bonus payouts, tied to individual and
group performance objectives, that place the CEO and the other Executive
Officers in a highly leveraged compensation position. This means that if the
Company meets all the target criteria controlling the distribution of bonus and
equity, the compensation plan for the Executive Officers (including the CEO)
should be competitive with like positions in similarly sized high-technology
companies. This approach is aimed at tying total compensation directly to the
Company's performance.
If the Company's performance is lesser or greater than the targets, the
CEO's total compensation can vary from 50% to 125% of the targeted competitive
total compensation. The mix of components for the other Named Executive Officers
provides a slightly less leveraged total compensation plan. The value for Named
Executive Officers can range from 55% to 120% of the targeted total
compensation, while the value for other Executive Officers can range from 70% to
117%.
For 1994, performance objectives used to determine bonus compensation
included quality improvement, net after-tax income, asset management and the
achievement of strategic plan goals. The Company's performance in 1994 did not
meet expectations and, consequently, the Company paid reduced bonuses for 1994
to the Executive Officer group, ranging from 15% of their target bonus to 44% of
their target bonus, with 19% for the CEO. Actual percentage of salary ranged
from 5% to 25%, with 11.4% for the CEO. The reduced bonuses were paid after two
years without bonus payments to the Named Executive Officers and 18 months of
10% salary reduction. The reduced bonuses kept all Executive Officers' total
cash and compensation below the competitive market. This position is consistent
with the Company's pay-for-performance strategy. See "Compensation of Executive
Officers -- Employment Contracts and Termination of Employment and
25
<PAGE> 28
Change-in-Control Arrangements" for additional disclosure regarding certain
agreements between the Company and its Named Executive Officers.
The benefit package offered to Executive Officers is substantially the same
as that for all employees for medical, dental, life and disability insurance,
except certain out-of-pocket expenses are reimbursed by the Company (subject to
a maximum of $5,000 per year). In addition, the life insurance benefit is an
individually owned universal policy, in an amount equal to approximately three
times the officers' salary (versus two times salary for non-officers), and a
deferred compensation plan is available. The Company estimates the value of such
benefits to represent approximately 10% of total compensation.
Equity Grants
The Committee believes that, through the use of stock options and other
equity grants, executive interests are tied directly to enhancing stockholder
value. During 1994, the Compensation Committee again reviewed the design of the
stock-based incentive programs, and decided only to use stock options and the
Company's 1987 Employee Stock Purchase Plan for equity incentives in 1994.
Stock options are granted with an exercise price equal to fair market value
as of the date of grant, and have a term of 10 years. The number of options
granted to any employee is determined based on a schedule that is designed to
compare the same competitive market used to analyze the other components of
total compensation.
In 1994, the number of shares of each stock option granted to the Executive
Officers was based upon the Compensation Committee's philosophy that a
percentage of each individual's total compensation package should be tied to the
Company's performance. See "Compensation Philosophy" of this report. After
setting the percentage of total compensation to be tied to equity, the
Compensation Committee then used a modified Black-Scholes model, calculated by a
third-party consultant, to project a value for the Company's stock options and
determine the number of stock option shares each Executive Officer should
receive. While the Company does not believe that there is any model that can
accurately value employee stock options, the model used does permit the Company
to compare its options to options granted by companies within the competitive
market.
For 1994, two types of stock options were granted to corporate officers and
key employees: performance-based options and standard options. The
performance-based options, which account for approximately 45% of all such
options, have a longer-than-normal vesting period of six years, unless the
Company's operating plan net income goals are met in each of the first three
years following the date of grant. If the net income goals are met, the vesting
period accelerates to the first, second and third years.
The 1994 performance goal for net income was not met, so the vesting of the
first one-third of the 1993 granted performance stock options did not
accelerate, rather they now will vest six years from grant date.
The remaining 55% of the 1994 stock options were standard options and vest
based solely upon continued employment and have a vesting schedule of three
years. The grant of such options was approved by the Compensation Committee as a
tool to be used for incentive and retention of the key contributors. While
salary and bonus components of the Named Executive Officers' compensation
packages are below competitive rates, the options provided the Executive
Officers with more leverage (along with the attendant risk and reward) in order
to encourage a level of performance that would serve to increase the price of
the Company's stock.
In 1994, the Compensation Committee determined that approximately 33% of
the CEO's compensation should be based upon equity and, using this as a guide,
granted to the CEO stock options to purchase 62,291 shares of Common Stock of
the Company. Of these options, 32,500 option shares are standard and 29,791
option shares are performance-based.
The Compensation Committee continues to monitor legislative and regulatory
(including SEC and IRS) changes that may affect the cost of the various
components of executive compensation. Additional redesigning of the compensation
components will be studied and implemented as appropriate.
26
<PAGE> 29
Summary
The Compensation Committee believes that the total compensation approach
used by the Company is evidence that performance is an integral part of the
Company's philosophy and practice. It ensures that there is a balanced view to
the Company's short-term goals (with bonus opportunity as the reward factor) and
the Company's long-term strategies (with equity growth over vesting periods as
the reward factor). The Compensation Committee also believes that having a
significant amount of total compensation tied to the interests of the
stockholders is critical.
This report has been provided by the Compensation Committee.
Stephen J. Keane, Chair
Judith E.N. Albino
William L. Armstrong
Robert A. Burgin
Robert E. Lee
27
<PAGE> 30
The information provided is expressly excluded from incorporation by reference
into any filings under the
jurisdiction of the Securities and Exchange Commission.
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Company's Common Stock during the five years ended December 31, 1994, with the
cumulative total return on the S&P 500 Index and the S&P Computer Systems Index.
The comparison assumes $100 was invested on December 31, 1989, in the Company's
Common Stock and in each of such indices and assumes reinvestment of dividends,
if any. Note that historic stock price is not necessarily indicative of future
stock price performance.
<TABLE>
<CAPTION>
Storage
Measurement Period Technology S&P Computer
(Fiscal Year Covered) Corporation S&P 500 Systems
<S> <C> <C> <C>
1989 100 100 100
1990 183 97 112
1991 339 126 100
1992 177 136 73
1993 271 150 76
1994 247 152 98
</TABLE>
The report of the Compensation Committee and the Performance Graph shall
not be deemed incorporated by reference by any general statement incorporating
by reference this Proxy Statement into any filing under the Securities Act of
1933 ("1933 Act") or the Securities Exchange Act of 1934 ("1934 Act"), except to
the extent that the Company specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts and is not to
be deemed to be soliciting material.
28
<PAGE> 31
OTHER MATTERS
The Board of Directors does not know of any other matters to be brought
before the meeting. However, if any other matters properly come before the
Annual Meeting, it is the intention of the appointees named in the enclosed
proxy card to vote in accordance with their best judgment on such matters.
STOCKHOLDER PROPOSALS
Any proposal that a stockholder may desire to present to the Company's 1996
annual meeting of stockholders must be received in writing by the Secretary of
the Company on or before December 6, 1995, in order to be considered for
possible inclusion in the Company's proxy materials relating to such meeting.
BY ORDER OF THE BOARD OF DIRECTORS
W. RUSSELL WAYMAN
Corporate Vice President,
General Counsel and Secretary
April 4, 1995
29
<PAGE> 32
APPENDIX A
STORAGE TECHNOLOGY CORPORATION
1995 EQUITY PARTICIPATION PLAN
Section 1
Introduction.
1.1 Establishment. Effective as provided in Section 21, the
Company hereby establishes a plan of long-term stock-based compensation
incentives for selected employees of the Company and its affiliated
corporations. The plan shall be known as the Storage Technology Corporation
1995 Equity Participation Plan (the "1995 Plan").
1.2 Purpose. The purpose of the 1995 Plan is to provide employees
selected for participation in the 1995 Plan with added incentives to continue
in the service of the Company and its affiliates and to create in such
employees a more direct interest in the future success of the operations of the
Company and its affiliated corporations by relating incentive compensation to
the achievement of long-term corporate economic objectives. The 1995 Plan is
also designed to attract key employees and to retain and motivate participating
employees by providing an opportunity for equity investment in the Company.
1.3 No Effect on 1987 Plan Options. Options granted pursuant to
the Storage Technology Corporation 1987 Equity Participation Plan (the "1987
Plan") shall be governed by the terms and provisions of the option agreements
covering such grants and by the provisions of the 1987 Plan.
<PAGE> 33
Section 2
Definitions.
2.1 Definitions. The following terms shall have the meanings set
forth below:
(a) "Affiliated Corporation" means any corporation that
is either a parent corporation with respect to the Company or a subsidiary
corporation with respect to the Company (within the meaning of Sections 424(e)
and (f), respectively, of the Internal Revenue Code).
(b) "Board" means the Board of Directors of the Company.
(c) "Committee" means a committee designated by the Board
to administer the Plan or, if no committee is so designated, the Board.
(d) "Common Stock" means the Company's $.10 par value
voting common stock.
(e) "Effective Date" means the effective date of the 1995
Plan, as set forth in Section 21 hereof.
(f) "Eligible Employees" means those employees
(including, without limitation, officers and directors who are also employees)
of the Company, or any Affiliated Corporation, or any division thereof, upon
whose judgment, initiative and efforts the Company or the Affiliated
Corporations are, or are expected to become, largely dependent for the
successful conduct of their business.
(g) "Fair Market Value" means with respect to Common
Stock, as of any date, the closing price of a share of Common Stock on the New
York Stock Exchange as reported by The Wall Street Journal for the last trading
day prior to that date. If no
-2-
<PAGE> 34
such prices are reported, then Fair Market Value shall mean the average of the
high and low sale prices for the Common Stock (or if no sale prices are
reported, the average of the high and low bid prices) as reported by the
principal regional stock exchange, or if not so reported, as reported by Nasdaq
or a quotation system of general circulation to brokers and dealers.
(h) "Incentive Stock Option" means the right to purchase
Common Stock granted to a participant pursuant to Sections 6 and 7, which
constitutes an incentive stock option within the meaning of Section 422 of the
Internal Revenue Code, and which may or may not be issued with related Stock
Appreciation Rights.
(i) "Internal Revenue Code" means the Internal Revenue
Code of 1986, as it may be amended from time to time.
(j) "MBO Payment" means a payment to a Participant
pursuant to the Company's MBO Equity Plan, which payment may be made either in
shares of Common Stock or in cash, or partly in Common Stock and partly in
cash, as determined in accordance with the provisions of Section 12.
(k) "MBO Equity Plan" means the Company's Management By
Objective Plan, as established by the Board or the Committee from time to time,
pursuant to which MBO Payments are made from time to time in the manner and
under the conditions established by the Board or the Committee.
(l) "Non-Qualified Option" means a right to purchase
Common Stock granted to a participant pursuant to Sections 6 and 8, which does
not qualify as an
-3-
<PAGE> 35
Incentive Stock Option or which is designated as a Non-Qualified Option, and
which may or may not be issued with related Stock Appreciation Rights.
(m) "Participant" means an Eligible Employee designated
by the Committee from time to time during the term of the 1995 Plan to receive
one or more of the stock-based compensation incentives provided under the 1995
Plan.
(n) "Restricted Stock Award" means an award of Common
Stock granted to a Participant pursuant to Section 10 that is subject to
certain restrictions imposed in accordance with the provisions of such Section.
(o) "Stock Appreciation Right" means a right granted to a
Participant pursuant to Section 9 to receive a payment from the Company equal
to the difference between the Fair Market Value of one or more shares of Common
Stock subject to a Non-Qualified Option or an Incentive Stock Option and the
exercise price of such shares under the terms of such Stock Option.
(p) "Stock Option" means an Incentive Stock Option or a
Non-Qualified Option.
2.2 Gender and Number. Except when otherwise indicated by the
context, the masculine gender shall also include the feminine gender, and the
definition of any term herein in the singular shall also include the plural.
-4-
<PAGE> 36
Section 3
Plan Administration.
3.1 Administration Generally. The 1995 Plan shall be administered
by the Board or Committee. In accordance with the provisions of the 1995 Plan,
the Committee, in its sole discretion: (i) shall select the Participants from
Eligible Employees; (ii) shall determine the number of shares of Common Stock
to be subject to Incentive Stock Options, Non-Qualified Options, Stock
Appreciation Rights, Restricted Stock Awards and other Common Stock awards
granted pursuant to the 1995 Plan; (iii) shall determine the number of shares
of Common Stock to be issued as MBO Payments; (iv) shall determine the time at
which such options, rights, awards and payments are to be granted; (v) shall
fix the exercise price, period and the manner in which a Stock Option becomes
exercisable; (vi) shall establish the duration and nature of Restricted Stock
Award restrictions; (vii) shall determine the Fair Market Value of the Common
Stock, in accordance with Section 2.1(g) of the 1995 Plan; (viii) shall
determine whether and under what circumstances, if any, a Stock Option or Stock
Appreciation Right may be settled in cash instead of Common Stock; (ix) may
reduce the exercise price of any Stock Option or Stock Appreciation Right to
the then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such option or right shall have declined since the date the Stock
Option was granted; (x) may modify or amend the terms and conditions of any
Stock Option, Stock Appreciation Right, Restricted Stock Award or other Common
Stock award, subject to Section 18 of the Plan (including, but not limited to,
accelerating vesting or waiving forfeiture restrictions); (xi) may institute an
option exchange program;
-5-
<PAGE> 37
(xii) may authorize any person to execute on behalf of the Company any
instrument required to effect the grant of a Stock Option, Stock Appreciation
Right, Restricted Stock Award or other Common Stock award previously granted by
the Committee; and (xiii) shall establish such other terms and requirements of
the various compensation incentives under the 1995 Plan as the Committee may
deem necessary or desirable and consistent with the terms of the 1995 Plan.
The Committee shall determine the form or forms of the agreements with
Participants, which shall evidence the particular provisions, terms,
conditions, rights and duties of the Company and the Participants with respect
to Incentive Stock Options, Non-Qualified Options, Stock Appreciation Rights
and Restricted Stock Awards granted pursuant to the 1995 Plan, which provisions
need not be identical except as may be provided herein. The Committee may from
time to time adopt such rules and regulations for carrying out the purposes of
the 1995 Plan as it may deem proper and in the best interests of the Company.
The Committee may correct any defect or supply any omission or reconcile any
inconsistency in the 1995 Plan or in any agreement entered into hereunder in
the manner and to the extent it shall deem expedient to carry the 1995 Plan
into effect, and it shall be the sole and final judge of such expediency. No
member of the Committee shall be liable for any action or determination made in
good faith. The determinations, interpretations and other actions of the
Committee pursuant to the provisions of the 1995 Plan shall be binding and
conclusive for all purposes and on all persons, subject only to the review and
control of the Board on all Plan matters except selection of Participants.
-6-
<PAGE> 38
3.2 Multiple Administrative Bodies. If permitted by Rule 16b-3,
the 1995 Plan may be administered by different bodies with respect to directors
of the Company who are Eligible Employees, officers (within the meaning of Rule
16a-1(f)) who are not directors, and employees who are neither directors nor
officers.
3.3 Administration With Respect to Directors and Officers. With
respect to grants of Stock Options, Stock Appreciation Rights, Restricted Stock
Awards or other Common Stock awards under the 1995 Plan to employees who are
also officers or directors, the 1995 Plan shall be administered by (a) the
Board, if the Board may administer the Plan in compliance with the rules
governing a plan intended to qualify as a discretionary grant or award plan
under Rule 16b-3, or (b) a Committee designated by the Board to administer the
1995 Plan, which Committee shall be constituted (i) in such a manner as to
permit the Plan to comply with the rules governing a plan intended to qualify
as a discretionary grant or award plan under Rule 16b-3 and (ii) in such a
manner as to satisfy applicable laws.
3.4 Administration With Respect to Other Persons. With respect to
grants of Stock Options, Stock Appreciation Rights, Restricted Stock Awards or
other Common Stock awards to employees who are neither directors nor officers,
the 1995 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 applicable laws.
3.5 Committee Composition. Once a Committee has been appointed
pursuant to Section 3.3 or 3.4, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time
the Board may increase the
-7-
<PAGE> 39
size of any Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies (however caused) or remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by
applicable laws and, in the case of a Committee appointed under Section 3.3, to
the extent permitted by Rule 16b-3 as it applies to a plan intended to qualify
thereunder as a discretionary grant or award plan.
Section 4
Stock Subject to The Plan.
4.1 Number of Shares. Two million two hundred thousand
(2,200,000) shares of Common Stock are authorized for issuance under the 1995
Plan in accordance with the provisions of the 1995 Plan and subject to such
restrictions or other provisions as the Committee may from time to time deem
necessary. This authorization may be increased from time to time by approval
of the Board and the stockholders of the Company. Shares of Common Stock that
are issued upon exercise of Incentive Stock Options, Non-Qualified Options, or
Stock Appreciation Rights or pursuant to MBO Payments, shares of Common Stock
that are issued as Restricted Stock Awards, and shares of Common Stock that are
issued pursuant to a plan adopted pursuant to Section 14, shall be applied to
reduce the number of shares of Common Stock remaining available for future
issuance under the 1995 Plan.
4.2 Unused and Forfeited Stock. Any shares of Common Stock that
are subject to an Incentive Stock Option or a Non-Qualified Option that
expires or for any reason
-8-
<PAGE> 40
is terminated unexercised, and with respect to which no related Stock
Appreciation Right has been exercised, any shares of Common Stock that are
subject to a Restricted Stock Award and that are forfeited (the "Forfeited
Restricted Stock"), and any shares of Common Stock that for any other reason
are not issued to an Eligible Employee (not including shares withheld pursuant
to Section 19.2) or are forfeited (if forfeited, the "Other Forfeited Stock"),
shall automatically become available for use under the 1995 Plan; provided,
however, that (i) no shares of Forfeited Restricted Stock or Other Forfeited
Stock may be subject to Incentive Stock Options and (ii) such shares shall not
be returned to the 1995 Plan if prohibited by Rule 16b-3.
4.3 Capital Adjustments.
(a) Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the number of shares of Common Stock
covered by each outstanding Stock Option and Stock Appreciation Right (the
"Outstanding Rights"), and the number of shares of Common Stock that have been
authorized for issuance under the Plan but as to which no Stock Options or
Stock Appreciation Rights have yet been granted or that have been returned to
the Plan upon cancellation or expiration of a Stock Option or Stock
Appreciation Right (the "Shares Available for Future Grant"), as well as the
price per share of Common Stock covered by each Outstanding Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
and outstanding shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of issued and
outstanding shares of Common Stock
-9-
<PAGE> 41
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration." Such
proportionate adjustment shall be made by the Committee, whose determination in
that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into or exercisable for shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect
to, the number of Shares Available for Future Grant or the number or price of
shares of Common Stock subject to Outstanding Rights.
(b) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, to the extent that a Stock
Option or Stock Appreciation Right has not been previously exercised, it will
terminate immediately prior to the consummation of such proposed action. The
Committee may, in the exercise of its sole discretion in such instances,
declare that any Stock Option or Stock Appreciation Right shall terminate as of
a date fixed by the Committee and give each Participant the right to exercise
his or her Stock Option or Stock Appreciation Right in whole or in part,
including with respect to shares as to which the Stock Option or Stock
Appreciation Right would not otherwise be exercisable.
(c) Merger or Asset Sale. In the event of a merger or
consolidation of the Company with or into another corporation, or the sale of
all or substantially all of the assets of the Company, each outstanding Stock
Option and Stock Appreciation Right may be assumed or an equivalent Stock
Option or Stock Appreciation Right may be substituted
-10-
<PAGE> 42
by the successor corporation or a parent or subsidiary of the successor
corporation. The Committee may, in lieu of such assumption or substitution,
provide for the Optionee to have the right to exercise his or her Stock Option
or Stock Appreciation Right in whole or in part, including with respect to
shares as to which it would not otherwise be exercisable. If the Committee
makes a Stock Option or Stock Purchase Right exercisable in lieu of assumption
or substitution in the event of a merger, consolidation or sale of assets, the
Committee shall notify the Optionee that the Stock Option or Stock Appreciation
Right shall be fully exercisable for a period of thirty (30) days from the date
of such notice, and the Stock Option or Stock Appreciation Right will terminate
upon the expiration of such period. For the purposes of this paragraph, the
Stock Option or Stock Appreciation Right shall be considered assumed if,
following the merger, consolidation or sale of assets, the Stock Option or
Stock Appreciation Right confers the right to purchase or receive, for each
share of Common Stock subject to the Stock Option or Stock Appreciation Right
immediately prior to the merger, consolidation or sale of assets, the
consideration (whether stock, cash or other securities or property) received in
the merger, consolidation or sale of assets by holders of Common Stock for each
share held on the effective date of the transaction (and, if holders were
offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares); provided, however, that if
such consideration received in the merger, consolidation or sale of assets was
not solely common stock of the successor corporation or its parent, the
Committee may, with the consent of the successor corporation, provide for the
consideration to be received upon the exercise of the Stock Option or Stock
-11-
<PAGE> 43
Appreciation Right, for each share of Common Stock subject to the Stock Option
or Stock Appreciation Right, to be solely common stock of the successor
corporation or its parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger, consolidation
or sale of assets.
Section 5
Participation.
5.1 Eligibility. Participants in the 1995 Plan shall be those
Eligible Employees who, in the judgment of the Committee, are performing, or
during the term of their incentive arrangement are expected to perform, vital
services in the management, operation and development of the Company or an
Affiliated Corporation, and significantly contribute or are expected to
significantly contribute to the achievement of long-term corporate economic
objectives. Participants may be granted from time to time one or more
Incentive Stock Options (with or without Stock Appreciation Rights), one or
more Non-Qualified Options (with or without Stock Appreciation Rights), one or
more Restricted Stock Awards, one or more MBO Payments in shares of Common
Stock, and one or more other Common Stock awards pursuant to Section 14;
provided, however, that the grant of each such option, right, award or payment
shall be separately approved by the Committee, and receipt of one such option,
right, award or payment shall not result in automatic receipt of any other
option, right, award or payment. Upon determination by the Committee that a
Stock Option, Stock Appreciation Right, Restricted Stock Award, MBO Payment or
other Common Stock award is to be granted to a Participant,
-12-
<PAGE> 44
written notice shall be given to such person, specifying the terms, conditions,
rights and duties related thereto. Each Participant shall, if required by the
Committee, enter into an agreement with the Company, in such form as the
Committee shall determine and as is consistent with the provisions of the 1995
Plan, specifying such terms, conditions, rights and duties. Stock Options,
Stock Appreciation Rights, Restricted Stock Awards, MBO Payments and other
Common Stock awards shall be deemed to be granted as of the date specified in
the grant resolution of the Committee, which date shall be the date of any
related agreement with the Participant. In the event of any inconsistency
between the provisions of the 1995 Plan and any such agreement entered into
hereunder, the provisions of the 1995 Plan shall govern.
5.2 Limitations. The following limitations shall apply to grants
of Stock Options and Stock Appreciation Rights to Participants:
(a) No Participant shall be granted, in any fiscal year
of the Company, Stock Options and Stock Appreciation Rights to purchase more
than 500,000 shares.
(b) The foregoing limitation shall be adjusted
proportionately in connection with any change in the Company's capitalization
as described in Section 4.3.
(c) If a Stock Option or Stock Appreciation Right is
canceled in the same fiscal year of the Company in which it was granted (other
than in connection with a transaction described in Section 4.3), the canceled
Stock Option or Stock Appreciation Right shall be counted against the limit set
forth in Section 5.2(a). For this purpose, if the exercise price of a Stock
Option or Stock Appreciation Right is reduced, the
-13-
<PAGE> 45
transaction will be treated as a cancellation of the Stock Option or Stock
Appreciation Right and the grant of a new Stock Option or Stock Appreciation
Right.
5.3 Rule 16b-3. Stock Options, Stock Appreciation Rights,
Restricted Stock Awards, MBO Payments and other Common Stock awards granted to
Participants who are subject to Section 16 of the Exchange Act must comply with
the applicable provisions of Rule 16b-3 and shall contain such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to 1995 Plan
transactions.
Section 6
Stock Options.
6.1 Grant of Stock Options. Coincident with or following
designation for participation in the 1995 Plan, a Participant may be granted
one or more Stock Options. The Committee in its sole discretion may designate
whether a Stock Option is to be considered an Incentive Stock Option or a
Non-Qualified Option. The Committee may grant both an Incentive Stock Option
and a Non-Qualified Option to the same Participant at the same time or at
different times. Incentive Stock Options and Non-Qualified Options, whether
granted at the same or different times, shall be deemed to have been awarded in
separate grants, shall be clearly identified, and in no event will the exercise
of one Stock Option affect the right to exercise any other Stock Option or
affect the number of shares of Common Stock for which any other Stock Option
may be exercised.
-14-
<PAGE> 46
6.2 Manner of Stock Option Exercise. A Stock Option may be
exercised by a Participant in whole or in part from time to time, subject to
the conditions contained herein, (i) by delivery of written notice of exercise
to the Company at its principal office in Louisville, Colorado (Attention:
Corporate Secretary), in person or through mail, facsimile or electronic mail,
or by delivery of notice of exercise in such other method as has been approved
by the Committee, and (ii) by paying in full, with the written notice of
exercise or at such other time as the Committee may establish, the total
exercise price under the Stock Option for the shares being purchased. Such
notice shall be in a form satisfactory to the Committee and shall specify the
particular Stock Option (or portion thereof) that is being exercised and the
number of shares with respect to which the Stock Option is being exercised.
The exercise of the Stock Option shall be deemed effective upon receipt of such
notice by the Corporate Secretary and payment to the Company. As soon as
practicable after the effective exercise of the Stock Option, and upon
satisfaction of all applicable withholding requirements pursuant to Section 19,
the Participant shall be recorded on the stock transfer books of the Company as
the owner of the shares purchased and the Company shall deliver to the
Participant one or more duly issued and executed stock certificates evidencing
such ownership.
6.3 Payment of Stock Option Exercise Price. At the time of the
exercise of a Stock Option, payment of the total Stock Option exercise price
for the shares to be purchased shall be made: (i) in cash or by check; (ii) by
transfer from the Participant to the Company of shares of Common Stock (other
than shares of Common Stock that the Committee determines by rule may not be
used to exercise Stock Options) with a then
-15-
<PAGE> 47
current aggregate Fair Market Value equal to the total Stock Option exercise
price; (iii) delivery to the Company of (A) a properly executed exercise
notice, (B) irrevocable instructions to a broker to sell a sufficient number of
the shares being exercised to cover the exercise price and to promptly deliver
to the Company the amount of sale proceeds required to pay the exercise price
and any required tax withholding relating to the exercise, and (C) such other
documentation as the Committee and the broker shall require to effect a
same-day exercise and sale; (iv) delivery to the Company of (A) a properly
executed exercise notice, (B) irrevocable instructions to a broker or other
third party acceptable to the Company to hold the shares being exercised as
collateral for a loan to the Optionee of an amount sufficient to cover the
exercise price and to promptly deliver to the Company the amount of loan
proceeds required to pay the exercise price and any required tax withholding
relating to the exercise and (C) such other documentation as the Committee and
the broker or other third party shall require to effect the transaction; (v) a
reduction in the amount of any Company liability to the Optionee, including any
liability attributable to the Optionee's participation in any Company-sponsored
deferred compensation program or arrangement; (vi) any combination of the
foregoing methods of payment; or (vii) such other consideration and method of
payment for the issuance of Shares to the extent permitted by applicable laws,
rules and regulations and by the agreement relating to the Stock Option being
exercised. The Committee shall have the discretion to reject a Participant's
election to pay all or a part of the total Stock Option exercise price in
consideration other than cash and may require such Stock Option exercise price
to be paid entirely in cash.
-16-
<PAGE> 48
6.4 Stockholder Privileges. No Participant shall have any rights
as a stockholder with respect to any shares of Common Stock covered by a Stock
Option until the Participant becomes the holder of record of such Common Stock,
and no adjustments shall be made for dividends or other distributions or other
rights as to which there is a record date preceding the date such Participant
becomes the holder of record of such Common Stock.
Section 7
Incentive Stock Options.
7.1 Incentive Stock Option Exercise Price. The per share price to
be paid by a Participant at the time an Incentive Stock Option is exercised
shall be determined by the Committee at the time an Incentive Stock Option is
granted, but in no event shall such exercise price be less than: (a) one
hundred percent of the Fair Market Value, on the date the Incentive Stock
Option is granted, of one share of the stock to which such Stock Option
relates; or (b) one hundred and ten percent of the Fair Market Value, on the
date the Incentive Stock Option is granted, of one share of the stock to which
such Stock Option relates if, at the time the Incentive Stock Option is
granted, the Participant owns, directly or indirectly (as determined pursuant
to Section 424(d) of the Internal Revenue Code), ten percent or more of the
total combined voting power of all classes of stock of the Company or of any
Affiliated Corporation (such a Participant is referred to as a "10% Holder").
-17-
<PAGE> 49
7.2 Number of Option Shares. The number of shares of Common Stock
subject to an Incentive Stock Option shall be designated by the Committee at
the time the Committee decides to grant an Incentive Stock Option.
7.3 Aggregate Limitation of Stock Exercisable Under Options.
Notwithstanding any other provision of the 1995 Plan, the aggregate Fair Market
Value, determined as of the time an Incentive Stock Option is granted, of the
shares of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by an Option Holder in any calendar year under
the 1995 Plan or otherwise, granted by the Company and Affiliated Corporations,
shall not exceed $100,000.
7.4 Duration of Incentive Stock Options. The period during which
an Incentive Stock Option may be exercised shall be fixed by the Committee, but
in no event shall such period be more than ten years from the date the Stock
Option is granted, or, in the case of Participants who are 10% Holders as
described in Section 7.1(b), five years from the date the Stock Option is
granted. No Incentive Stock Option with respect to which Stock Appreciation
Rights have been granted may be exercised during the six-month period following
the date on which such Stock Option was granted. Upon the expiration of such
exercise period, the Incentive Stock Option, to the extent not then exercised,
shall terminate. Except as otherwise provided in Section 11, all Incentive
Stock Options granted to a Participant hereunder shall terminate and may no
longer be exercised if the Participant ceases to be an employee of the Company
and all Affiliated Corporations.
7.5 Restrictions on Exercise of Incentive Stock Options.
Incentive Stock Options may be granted subject to such restrictions as to the
timing of exercise of all or various
-18-
<PAGE> 50
portions thereof as the Committee may determine at the time it grants Incentive
Stock Options to Participants.
7.6 Disposition of Stock Acquired Pursuant to the Exercise of
Incentive Stock Options -- Withholding. In the event that a Participant makes
a disposition (as defined in Section 424(c) of the Internal Revenue Code) of
any Common Stock acquired pursuant to the exercise of an Incentive Stock Option
prior to the expiration of two years from the date on which the Incentive Stock
Option was granted or prior to the expiration of one year from the date on
which the Stock Option was exercised, the Participant shall send written notice
to the Company at its principal office in Louisville, Colorado (Attention:
Corporate Secretary) of the date of such disposition, the number of shares
disposed of, the amount of proceeds received from such disposition and any
other information relating to such disposition as the Company may reasonably
request. The Participant shall, in the event of such a disposition, make
appropriate arrangements with the Company to provide for the amount of
additional withholding required by federal, state and local income and other
tax laws.
Section 8
Non-Qualified Options.
8.1 Option Exercise Price. The per share price to be paid by the
Participant at the time a Non-Qualified Option is exercised shall be determined
by the Committee at the time the Stock Option is granted, but in no event shall
such exercise price per share
-19-
<PAGE> 51
be less than eighty-five percent of the Fair Market Value of one share of
Common Stock on the date the Stock Option is granted.
8.2 Number of Option Shares. The number of shares of Common Stock
subject to a Non-Qualified Option shall be designated by the Committee at the
time the Committee decides to grant a Non-Qualified Option.
8.3 Duration of Non-Qualified Options; Restrictions on Exercise.
The period during which a Non-Qualified Option may be exercised, and the
installment restrictions on option exercise during such period, if any, shall
be fixed by the Committee, but in no event shall such period be more than ten
years from the date the Stock Option is granted, and no Non-Qualified Option
with respect to which Stock Appreciation Rights have been granted may be
exercised during the six-month period immediately following the date on which
such Stock Option was granted. Upon the expiration of such exercise period,
the Non-Qualified Option, to the extent not then exercised, shall terminate.
Except as otherwise provided in Section 11, all Non-Qualified Options granted
to a Participant hereunder shall terminate and may no longer be exercised if
the Participant ceases to be an employee of the Company and all Affiliated
Corporations.
Section 9
Stock Appreciation Rights.
9.1 Grant of Rights. A Stock Appreciation Right may be granted to
a Participant in conjunction with any Incentive Stock Option or Non-Qualified
Option granted to such Participant, as determined by the Committee, either at
the time of the
-20-
<PAGE> 52
grant of such Stock Option in the case of an Incentive Stock Option or at the
time of grant, or at any subsequent time during the term of the Stock Option,
in the case of a Non-Qualified Option. Once granted, the term of a Stock
Appreciation Right shall be equal to the term of its related Stock Option.
Upon exercise of a Stock Appreciation Right by a Participant for a share of
Common Stock, the related Stock Option shall be terminated with respect to such
share. Incentive Stock Options and Non-Qualified Options shall not be
exercisable with respect to shares of Common Stock for which Stock Appreciation
Rights have been exercised. Upon such Stock Appreciation Right exercise, the
Participant shall be entitled to receive the economic value of such Stock
Appreciation Right determined in the manner prescribed in Section 9.2.
9.2 Exercise of Stock Appreciation Rights. Stock Appreciation
Rights shall be subject to such terms and conditions consistent with other
provisions of the 1995 Plan as may be determined from time to time by the
Committee and shall include the following:
(a) A Stock Appreciation Right shall be exercisable, in
whole or in part, at such time or times and only to the extent that the Stock
Option to which it relates shall be exercisable; provided, however, that,
except as otherwise provided in Section 11, no Stock Appreciation Right shall
be exercisable during the six-month period following the date of its grant, and
Stock Appreciation Rights shall be exercisable only between the third and
twelfth business days following public release of any of the Company's
quarterly or annual financial results. A Stock Appreciation Right shall be
exercised by
-21-
<PAGE> 53
the giving of notice in the same manner as the Stock Option to which it relates
may be exercised.
(b) Upon the exercise of a Stock Appreciation Right, a
Participant shall be entitled to receive the economic value thereof, which
shall be equal to (i) the excess of the then Fair Market Value of one share of
Common Stock over the exercise price per share specified in the related Stock
Option, multiplied by (ii) the number of shares in respect of which the Stock
Appreciation Right is being exercised.
(c) The Committee shall have the sole discretion either
to determine the form in which payment of the economic value of exercised Stock
Appreciation Rights will be made to the Participant (i.e., cash, Common Stock,
or any combination thereof) or to consent to or disapprove the election of the
Participant to receive cash in full or partial payment of such economic value.
9.3 Stockholder Privileges. No Participant shall have any rights
as a stockholder with respect to any shares of Common Stock covered by a Stock
Appreciation Right until the Participant becomes the holder of record of such
Common Stock, and no adjustments shall be made for dividends or other
distributions or other rights as to which there is a record date preceding the
date such Participant becomes the holder of record of such Common Stock.
-22-
<PAGE> 54
Section 10
Restricted Stock Awards.
10.1 Awards Granted by Committee. Coincident with or following
designation for participation in the 1995 Plan, a Participant may be granted
one or more Restricted Stock Awards consisting of shares of Common Stock. The
number of shares granted as a Restricted Stock Award shall be determined by the
Committee. The Committee may, in its discretion, require the payment by the
Participant of cash in an amount equal to the par value of the Common Stock
subject to the Restricted Stock Award as a condition precedent to the issuance
of Common Stock to the Participant.
10.2 Restrictions. A Participant's right to retain a Restricted
Stock Award granted to him or her under Section 10.1 shall be subject to such
restrictions, including but not limited to the Participant's continuous
employment by the Company or an Affiliated Corporation for a restriction period
specified by the Committee, or the attainment of specified performance goals
and objectives, as may be established by the Committee with respect to such
award. The Committee may in its sole discretion require different periods of
employment or different performance goals and objectives with respect to
different Participants, to different Restricted Stock Awards or to separate,
designated portions of the Common Stock shares constituting a Restricted Stock
Award. Subject to the provisions of Sections 11 and 13, if a Participant's
employment terminates prior to the end of such restriction period or the
attainment of such goals and objectives as may be specified by the Committee,
the Restricted Stock Award shall be forfeited and
-23-
<PAGE> 55
all shares of Common Stock related thereto shall be immediately returned to the
Company.
10.3 Privileges of a Stockholder; Transferability. A Participant
shall have all voting, dividend, liquidation and other rights with respect to
Common Stock in accordance with its terms received by him or her as a
Restricted Stock Award under this Section 10 upon becoming the holder of record
of such Common Stock; provided, however, that the Participant's right to sell,
encumber, or otherwise transfer such Common Stock (and any other securities
issued in respect of such shares of Common Stock as a stock dividend, stock
split or the like) shall be subject to the limitations of Section 15.2 hereof.
10.4 Enforcement of Restrictions. The Committee may in its sole
discretion require one or more of the following methods of enforcing the
restrictions referred to in Section 10.2 and 10.3:
(a) Placing a legend on the stock certificates referring
to the restrictions;
(b) Requiring the Participant to keep the stock
certificates, duly endorsed, in the custody of the Company while the
restrictions remain in effect; or
(c) Requiring that the stock certificates, duly endorsed,
be held in the custody of a third party while the restrictions remain in
effect.
-24-
<PAGE> 56
Section 11
Effect of Termination of Employment on Stock Options,
Stock Appreciation Rights and Restricted Stock Awards
11.1 Effect of Termination of Employment on Stock Options and Stock
Appreciation Rights. No Stock Option or Stock Appreciation Right may be
exercised unless, at the time of such exercise, the Participant is, and has
been continuously since the date of grant of such Stock Option or Stock
Appreciation Right, employed by the Company or an Affiliated Corporation,
except that if and to the extent the Stock Option or Stock Appreciation Right
agreement or instrument so provides:
(a) The Stock Option or Stock Appreciation Right may be
exercised within such period of time of up to one year as is specified
in the Stock Option or Stock Appreciation Right agreement or
instrument, but only to the extent that the Participant was entitled
to exercise it at the date of termination. In the absence of a
specified time in the Stock Option or Stock Appreciation Right
agreement or instrument, the Stock Option or Stock Appreciation Right
shall remain exercisable for 90 days following the Participant's
ceasing to be an employee of the Company or an Affiliated Corporation.
In the case of an Incentive Stock Option, such period of time shall
not exceed 90 days from the date of termination;
(b) If the Participant dies while in the employ of the
Company or an Affiliated Corporation, or within three months after the
Participant ceases to be such an employee, the Stock Option or Stock
Appreciation Right may be exercised by the person to whom it is
transferred by will or the laws of descent and
-25-
<PAGE> 57
distribution within the period of one year after the date of death (or
within such lesser period as may be specified in the agreement or
instrument); and
(c) If the Participant becomes disabled (within the
meaning of Section 22(e)(3) of the Internal Revenue Code) while in the
employ of the Company or an Affiliated Corporation, the Stock Option
or Stock Appreciation Right may be exercised within the period of one
year after the date the Participant ceases to be an employee of any of
the foregoing entities because of such disability (or within such
lesser period as may be specified in the agreement or instrument);
provided, however, that in no event may any Stock Option or Stock Appreciation
Right be exercised after the expiration date thereof. For all purposes of the
1995 Plan and any Stock Option or Stock Appreciation Right granted hereunder,
"employment" shall be defined in accordance with the provisions of Section
1.421-7(h) of the Income Tax Regulations (or any successor regulations).
11.2 Effect of Termination of Employment on Restricted Stock
Awards. In the event of the death or disability (as defined in Section
11.1(c)) of a Participant, or the retirement of a Participant in accordance
with the Company's established retirement policy, all employment period and
other restrictions applicable to Restricted Stock Awards then held by such
Participant shall lapse, and such awards shall become fully vested and
nonforfeitable. In the event of a Participant's termination of employment for
any other reason, any Restricted Stock Awards as to which the employment period
or other restrictions have not been satisfied shall be forfeited.
-26-
<PAGE> 58
Section 12
MBO Payments.
12.1 Participant Election As to MBO Payment. At such time as the
Committee determines that a Participant has become eligible for an MBO Payment
pursuant to the MBO Equity Plan, the Committee shall notify the Participant as
to the total dollar amount of such MBO Payment and as to whether or not the
Participant may elect to, or will be required by the Committee to, accept all
or a part of such MBO Payment in the form of shares of Common Stock. If the
Participant is given the right to elect whether to accept the MBO Payment in
cash or stock, then the Participant shall have ten (10) business days after the
receipt of such notice from the Committee to make such election. The
Participant shall notify the Committee with respect to his or her election on
such form as may be provided for this purpose by the Committee, setting forth
thereon the dollar value of the portion of the MBO Payment which he or she
desires to receive in shares of Common Stock. If a Participant fails to make
an election pursuant to this Section with respect to the mode of payment of an
MBO Payment, the entire MBO Payment shall be made in cash.
12.2 Determination of Number of Shares. The number of shares of
Common Stock that shall be issued as an MBO Payment shall be determined by
dividing the dollar value of the portion of the MBO Payment that is to be paid
in shares of Common Stock (whether as elected above or as adjusted by the
Committee pursuant to Section 12.3) by the Fair Market Value of the Common
Stock on the date the Participant delivers his or her election with respect to
such Payment to the Committee. No
-27-
<PAGE> 59
fractional shares of Common Stock shall be issued as a part of an MBO Payment
and the value of any such fractional share that would otherwise be issued
pursuant to the Participant's election shall be paid in cash.
12.3 Decision of Committee. The Committee shall have the sole
discretion to either accept the Participant's election with respect to the
payment of an MBO Payment, in whole or in part, in shares of Common Stock or to
determine that a lesser portion, or none, of the MBO Payment will be made in
shares of Common Stock, and the Committee's determination in this regard shall
be final and binding on the Participant.
Section 13
Tender Offers and Acquisitions.
If any person or entity (other than the Company or any person or
entity that is controlled by the Company) shall make a tender offer or exchange
offer for all or any part of the Common Stock or other capital shares of the
Company and shall purchase any part of the Common Stock or other capital shares
tendered to it, and the Board opposes or does not affirmatively recommend
acceptance of such tender offer or exchange offer, then (a) all Stock Options
with respect to which no Stock Appreciation Rights have been granted, and all
Stock Options with respect to which Stock Appreciation Rights have been issued
(and all such related Stock Appreciation Rights) that have been outstanding for
at least six months, shall become immediately exercisable in full during the
remaining term thereof, whether or not the Participants to whom such options
and rights have been granted remain employees of the Company or an Affiliated
Corporation;
-28-
<PAGE> 60
provided, however, that Stock Appreciation Rights shall remain subject to the
requirements of Section 9.2(a) with respect to the exercise thereof only within
prescribed periods after public release of Company financial information; and
(b) all restrictions with respect to outstanding Restricted Stock Awards shall
immediately lapse.
Section 14
Other Common Stock Programs
From time to time during the duration of the 1995 Plan, the
Board may, in its sole discretion, adopt one or more incentive compensation
arrangements for Eligible Employees pursuant to which such Eligible Employees
may acquire shares of Common Stock, whether by purchase, outright grant or
otherwise. Any such arrangements shall be subject to the general provisions of
the 1995 Plan and all shares of Common Stock issued pursuant to such
arrangements shall be issued under the 1995 Plan if so designated by the
Committee.
Section 15
Rights of Employees; Participants
15.1 Employment. Nothing contained in the 1995 Plan or in any
Stock Option, Stock Appreciation Right, Restricted Stock Award or other Common
Stock award granted under the 1995 Plan shall confer upon any Participant any
right with respect to the continuation of his or her employment by the Company
or any Affiliated Corporation, or interfere in any way with the right of the
Company or any Affiliated Corporation, subject
-29-
<PAGE> 61
to the terms of any separate employment agreement to the contrary, at any time
to terminate such employment or to increase or decrease the compensation of the
Participant from the rate in existence at the time of the grant of a Stock
Option, Stock Appreciation Right, Restricted Stock Award or other Common Stock
award. Whether an authorized leave of absence, or absence in military or
government service, shall constitute termination of employment shall be
determined by the Committee at the time.
15.2 Nontransferability. Except as otherwise approved by the
Committee and set forth in the agreement between the Company and the
Participant, no right or interest of any Participant in a Stock Option, a Stock
Appreciation Right, a Restricted Stock Award prior to the completion of the
restriction period applicable thereto, or other Common Stock award granted
pursuant to the 1995 Plan shall be assignable or transferable during the
lifetime of the Participant, either voluntarily or involuntarily, or subjected
to any lien, directly or indirectly, by operation of law, or otherwise,
including execution, levy, garnishment, attachment, pledge or bankruptcy. If
permitted by applicable law (including Rule 16b-3, as amended from time to
time), the Committee may (but need not) permit the transfer of Stock Options,
Stock Appreciation Rights, Restricted Stock Awards and/or other Common Stock
awards either generally, to a limited class of persons or on a case-by-case
basis. In the event of a Participant's death, a Participant's rights and
interest in Stock Options, Stock Appreciation Rights, Restricted Stock Awards
and other Common Stock awards shall be transferable by testamentary will or the
laws of descent and distribution, and payment of any amounts due under the 1995
Plan shall be made to, and exercise of any Stock Options or Stock
-30-
<PAGE> 62
Appreciation Rights may be made by, the Participant's legal representatives,
heirs or legatees. If in the opinion of the Committee a person entitled to
payments or to exercise rights with respect to the 1995 Plan is disabled from
caring for his or her affairs because of mental condition, physical condition,
or age, payment due such person may be made to, and such rights shall be
exercised by, such person's guardian, conservator or other legal personal
representative upon furnishing the Committee with evidence satisfactory to the
Committee of such status.
Section 16
General Restrictions.
16.1 Investment Representations. The Company may require any
person to whom a Stock Option, Stock Appreciation Right, Restricted Stock
Award, MBO Payment or other Common Stock award is granted, as a condition of
exercising such Stock Option or Stock Appreciation Right, or receiving such
Restricted Stock Award, MBO Payment or other Common Stock award, to give
written assurances in substance and form satisfactory to the Company and its
counsel to the effect that such person is acquiring the Common Stock subject to
the Stock Option, Stock Appreciation Right, Restricted Stock Award, MBO Payment
or Common Stock award for his or her own account for investment and not with
any present intention of selling or otherwise distributing the same, and to
such other effects as the Company deems necessary or appropriate in order to
comply with federal and applicable state securities laws.
-31-
<PAGE> 63
16.2 Compliance with Securities Laws. Each Stock Option and Stock
Appreciation Right shall be subject to the requirement that, if at any time
counsel to the Company shall determine that the listing, registration or
qualification of the shares subject to such Stock Option or Stock Appreciation
Right upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, is necessary as a
condition of, or in connection with, the issuance or purchase of shares
thereunder, such Stock Option or Stock Appreciation Right may not be accepted
or exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained on
conditions acceptable to the Committee. Nothing herein shall be deemed to
require the Company to apply for or to obtain such listing, registration or
qualification.
16.3 Changes in Accounting Rules. Notwithstanding any other
provision of the 1995 Plan to the contrary, if, during the term of the 1995
Plan, any changes in the financial or tax accounting rules applicable to Stock
Options, Stock Appreciation Rights, Restricted Stock Awards, MBO Payments or
other Common Stock awards shall occur that, in the sole judgment of the
Committee, may have a material adverse effect on the reported earnings, assets
or liabilities of the Company, the Committee shall have the right and power to
modify as necessary, or cancel, any then outstanding and unexercised Stock
Options or Stock Appreciation Rights, any then outstanding Restricted Stock
Awards as to which the applicable employment restriction has not been satisfied
and any other Common Stock awards.
-32-
<PAGE> 64
Section 17
Other Employee Benefits.
The amount of any compensation deemed to be received by an employee as
a result of the exercise of a Stock Option, a Stock Appreciation Right or the
sale of shares received upon such exercise or the vesting of any Restricted
Stock Awards or the receipt of any other Common Stock award will not constitute
"earnings" with respect to which any other employee benefits of such employee
are determined, including without limitation benefits under any pension, profit
sharing, life insurance or salary continuation plan.
Section 18
Plan Amendment, Modification and Termination.
The Board, upon recommendation of the Committee or at its own
initiative, at any time may terminate and at any time and from time to time and
in any respect, may amend or modify the 1995 Plan; provided, however, that no
such action of the Board, without approval of the stockholders of the Company,
may:
(a) Materially increase the total amount of Common Stock
that may be awarded under the 1995 Plan, except as provided in Section
4.3 of the 1995 Plan;
(b) Materially change the classes of Eligible Employees
from which plan Participants may be selected or materially modify the
requirements as to eligibility for participation in the 1995 Plan;
(c) Materially increase the benefits accruing to
Participants; or
-33-
<PAGE> 65
(d) Extend the duration of the 1995 Plan.
Any Stock Option, Stock Appreciation Right, Restricted Stock Award or
other Common Stock award granted to a Participant prior to the date
the 1995 Plan is amended, modified or terminated will remain in effect
according to its terms unless otherwise agreed upon by the
Participant; provided, however, that this sentence shall not impair
the right of the Committee to take whatever action it deems
appropriate under Section 4.3, Section 13 or Section 16.3. The
termination or any modification or amendment of the 1995 Plan shall
not, without the consent of a Participant, affect his or her rights
under a Stock Option, Stock Appreciation Right, Restricted Stock Award
or other Common Stock award previously granted to him or her. With
the consent of the Participant affected, the Committee may amend
outstanding option agreements in a manner not inconsistent with the
1995 Plan. The Board shall have the right to amend or modify the
terms and provisions of the 1995 Plan and of any outstanding Incentive
Stock Options granted under the 1995 Plan to the extent necessary to
qualify any or all such Stock Options for such favorable treatment as
may be afforded Incentive Stock Options under Section 422 of the
Internal Revenue Code.
Section 19
Withholding.
19.1 Withholding Requirement. The Company's obligations to deliver
shares of Common Stock upon the exercise of any Stock Option or Stock
Appreciation Right
-34-
<PAGE> 66
granted under the 1995 Plan or upon any MBO Payment under the 1995 Plan or
pursuant to any other Common Stock award, shall be subject to the Participant's
satisfaction of all applicable federal, state and local income and other tax
withholding requirements.
19.2 Withholding With Common Stock. At the time the Committee
grants a Stock Option, Stock Appreciation Right, MBO Payment or any other
Common Stock award, it may, in its sole discretion, grant the Participant an
election to pay all such amounts of tax withholding, or any part thereof, by
electing to transfer to the Company, or to have the Company withhold from
shares otherwise issuable to the Participant, shares of Common Stock having a
value equal to the amount required to be withheld or such lesser amount as may
be elected by the Participant. All elections shall be subject to the approval
or disapproval of the Committee. The value of shares of Common Stock to be
withheld shall be based on the Fair Market Value of the Common Stock on the
date that the amount of tax to be withheld is to be determined (the "Tax
Date"). Any such elections by Participants to have shares of Common Stock
withheld for this purpose will be subject to the following restrictions:
(a) All elections must be made prior to the Tax Date.
(b) All elections shall be irrevocable.
(c) If the Participant is an officer of the Company
within the meaning of Section 16 of the Securities Exchange Act of 1934
("Section 16"), the Participant may not elect to use Common Stock for tax
withholding upon the exercise of a Stock Option
-35-
<PAGE> 67
or Stock Appreciation Right within six months of the grant of the Stock Option
or Stock Appreciation Right.
(d) If a Participant is an officer of the Company within
the meaning of Section 16, any such election must be made either at least six
months prior to the Tax Date or in the ten-day "window period" beginning on the
third day following the release of the Company's quarterly or annual summary
statements of sales and earnings.
Section 20
Requirements of Law.
20.1 Requirements of Law. The issuance of stock and the payment of
cash pursuant to the 1995 Plan shall be subject to all applicable laws, rules
and regulations.
20.2 Governing Law. The 1995 Plan and all agreements hereunder
shall be construed in accordance with and governed by the laws of the State of
Colorado.
Section 21
Effective Date of the 1995 Plan.
21.1 Effective Date. The 1995 Plan is effective as of March 8,
1995, the date it was adopted by the Board of Directors of the Company, subject
to the approval of the stockholders of the Company prior to the one-year
anniversary of such date. Stock Options, Stock Appreciation Rights, Restricted
Stock Awards and other Common Stock awards may be granted prior to stockholder
approval if made subject to stockholder approval.
-36-
<PAGE> 68
21.2 Duration of the 1995 Plan. The 1995 Plan shall terminate at
midnight on March 7, 2005, which is the day before the tenth anniversary of the
Effective Date, and may be terminated prior thereto by Board action; and no
Stock Option, Stock Appreciation Right, Restricted Stock Award or other Common
Stock award shall be granted after such termination. Stock Options, Stock
Appreciation Rights, Restricted Stock Awards and other Common Stock awards
outstanding at the time of the 1995 Plan termination may continue to be
exercised, or become free of restrictions, in accordance with their terms.
-37-
<PAGE> 69
(LOGO)
Printed on recycled paper
<PAGE> 70
STORAGE TECHNOLOGY CORPORATION
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS
The undersigned hereby appoints Ryal R. Poppa and W. Russell Wayman, or
either of them, as the lawful agents and proxies of the undersigned (with full
power of substitution), to represent the undersigned and to vote all shares of
the Common Stock of Storage Technology Corporation (the "Company") standing in
the undersigned's name as of the record date at the Annual Meeting of
Stockholders of Storage Technology Corporation to be held on May 24, 1995, and
any adjournment or postponement thereof, as follows:
(To be Signed on Reverse Side)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
For Withheld Nominees:
All from all Ryal R. Poppa
1. Election of Directors. Nominees Nominees Judith E.N. Albino
/ / / / William L. Armstrong
Robert A. Burgin
/ / WITHHOLD AUTHORITY to vote for all nominees Paul Friedman
listed below: William R. Hoover
Stephen J. Keane
------------------------------------------------ Robert E. LaBlanc
Robert E. Lee
Harrison Shull
Richard C. Steadman
Thomas A. Vanderslice
Robert C. Wilson
2. Ratification of the adoption of the 1995 Equity FOR AGAINST ABSTAIN
Participation Plan and the reservation of 2,200,000
shares of Common Stock for issuance to employees / / / / / /
thereunder.
3. Ratification of the appointment of Price Waterhouse
LLP as the Company's independent accountants for / / / / / /
the current fiscal year.
</TABLE>
In their discretion, the proxies are authorized to vote on any other
matters that may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS INDICATED, THE PROXY WILL BE VOTED
FOR THE ELECTION OF EACH OF THE DIRECTORS INDICATED AND FOR APPROVAL OF EACH OF
THE PROPOSALS PRESENTED.
SIGNATURE(S) ______________________________________ DATE ______________________
Please mark, date and sign this Proxy exactly as your name or names appear
hereon. (Note: In case of joint ownership, each joint owner should sign.) If you
are acting as a trustee, executor, attorney-in-fact or in some other
representative capacity, please indicate beneath your signature your title and
for whom you are signing this proxy.
