<PAGE>
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 (S)240.14a-11(c) or (S)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 ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
____________________________
(2) Aggregate number of securities to which transaction applies:
____________________________
(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 by written 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>
[LOGO OF STORAGE TECHNOLOGY CORPORATION APPEARS HERE]
STORAGE TECHNOLOGY CORPORATION
2270 South 88th Street
Louisville, Colorado 80028-0001
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 22, 1997
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" or "StorageTek"), a Delaware corporation, to be held on
Thursday, May 22, 1997, at 10:00 a.m., EDT, at the Grand Hyatt Hotel, Park
Avenue at Grand Central Station, New York, New York 10017, for the following
purposes:
1. To elect ten Directors;
2. To ratify amendments to the 1995 Equity Participation Plan, including
the reservation of an additional 2,200,000 shares of Common Stock for
issuance thereunder;
3. To ratify the appointment of Price Waterhouse LLP as the Company's
independent accountants for the current fiscal year;
4. To consider a stockholder proposal; and
5. To transact 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 6, 1997, 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 8, 1997
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>
STORAGE TECHNOLOGY CORPORATION
PROXY STATEMENT
April 8, 1997
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 ON
THURSDAY, MAY 22, 1997, AT 10:00 A.M., EDT, OR AT ANY ADJOURNMENT OR
POSTPONEMENT THEREOF. Stockholders of record of Common Stock of the Company at
the close of business on April 6, 1997 (the "Record Date"), will be entitled
to notice of and to vote at the meeting. The Annual Meeting will be held at
the Grand Hyatt Hotel, Park Avenue at Grand Central Station, New York, New
York 10017. 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; in favor
of the amendments to the 1995 Equity Participation Plan; in favor of
ratification of the appointment of independent accountants; and against the
stockholder proposal. 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 in their favor 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,
after the mailing of this Proxy Statement and 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 pay the cost of soliciting proxies,
which the Company estimates would range from $5,000 to $10,000, plus out-of-
pocket expenses not to exceed $15,000. In addition, the Company may also
reimburse intermediaries for their expenses in forwarding solicitation
materials to beneficial owners. This Proxy Statement and the form of proxy are
first being mailed to the stockholders beginning April 8, 1997.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The quorum required 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). All shares that are voted "FOR," "AGAINST" or
"WITHHELD FROM" a matter will count for purposes of establishing a quorum and
will be treated as shares entitled to vote at the Annual Meeting (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, the
Company believes that abstentions should be counted for purposes of
determining both (i) the presence or absence of a quorum for the transaction
of business and (ii) the total number of Votes Cast with respect to a matter
(other than the election of directors). 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 Company intends to count broker non-votes for purposes of
determining the presence or absence of a quorum for the transaction of
business, but not to consider broker non-votes as Votes Cast with respect to a
particular matter as to which the broker has expressly not voted. Accordingly,
broker non-votes will
1
<PAGE>
have no effect upon the outcome of voting on matters presented to the
stockholders at the Annual Meeting. 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 shares held for
customers if no voting instructions have been furnished by such customers
within 10 days prior to the meeting. With respect to the stockholder proposal,
brokerage firms may not vote shares held for customers without specific
instructions from the customer.
ANNUAL REPORT
This Proxy Statement is accompanied by the Company's 1996 Summary Annual
Report (the "Annual Report") and Form 10-K for the fiscal year ended December
27, 1996. Stockholders are referred to the Form 10-K for information
concerning the Company's business and operations, but the Annual Report and
Form 10-K are not part of the proxy soliciting materials. CERTAIN OTHER
INFORMATION IS AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST. PLEASE CONTACT
INVESTOR RELATIONS, STORAGE TECHNOLOGY CORPORATION, 2270 SOUTH 88TH STREET,
LOUISVILLE, COLORADO 80028-4310, TELEPHONE 1-800 785-2217, IF YOU WOULD LIKE
TO REQUEST ADDITIONAL REPORTS. THE COMPANY'S PRINCIPAL EXECUTIVE OFFICES ARE
LOCATED AT 2270 SOUTH 88TH STREET, LOUISVILLE, COLORADO 80028, TELEPHONE (303)
673-5151.
2
<PAGE>
VOTING SECURITIES OF THE COMPANY
On the Record Date for the Annual Meeting, April 6, 1997, the Company had
issued, outstanding and entitled to vote 61,518,782 shares of its common
stock, $.10 par value per share ("Common Stock"). 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
Common 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 on information obtained from Schedule 13D and
13G filings received prior to the Record Date; (ii) by each current Director
and each of management's nominees 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>
AMOUNT AND NATURE PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OF OWNERSHIP(1) OF CLASS
- - ------------------------------------ ----------------- --------
<S> <C> <C>
FMR Corp.......................................... 6,218,194(2) 10.11%
82 Devonshire Street
Boston, MA 02109
The TCW Group, Inc. and Robert Day................ 5,810,750(3) 9.44%
865 South Figueroa Street
Los Angeles, CA 90017
American Century Companies, Inc................... 3,100,000(4) 5.04%
4500 Main Street
Kansas City, MO 64141
David E. Weiss.................................... 164,736(5) (21)
L. Thomas Gooch................................... 33,595(6) (21)
John V. Williams.................................. 37,694(7) (21)
David E. Lacey.................................... 45,554(8) (21)
W. Russell Wayman................................. 19,066(9) (21)
Ryal R. Poppa..................................... 0(10) (21)
Judith E.N. Albino(11)............................ 23,116(11) (21)
William L. Armstrong.............................. 0 (21)
Robert A. Burgin(12).............................. 19,000(12) (21)
J. Harold Chandler................................ 0 (21)
Paul Friedman..................................... 77,867(13) (21)
William R. Hoover................................. 11,666(14) (21)
Stephen J. Keane.................................. 25,350(15) (21)
Robert E. La Blanc................................ 40,405(16) (21)
Robert E. Lee..................................... 30,584(17) (21)
Harrison Shull.................................... 48,691(18) (21)
Richard C. Steadman............................... 44,202(19) (21)
All current Directors and executive officers (15
persons) as a group.............................. 621,527(20) 1.01%
</TABLE>
- - --------
(1) Unless otherwise indicated, the persons named have sole voting and
dispositive power over the shares shown as beneficially owned by them. The
number of shares stated as being beneficially owned 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, 1996.
3
<PAGE>
(2) Represents shares owned by: (i) FMR Corp. through its subsidiary, Fidelity
Management & Research Company, a registered investment advisor; and (ii)
Edward C. Johnson, 3d, and Abigail P. Johnson, each a control person of
FMR Corp.
(3) Represents shares owned by: (i) The TCW Group, Inc., through its
subsidiaries: Trust Company of the West; TCW Asset Management Company, a
registered investment advisor; and TCW Funds Management, Inc., a
registered investment advisor; and (ii) Robert Day, a control person of
The TCW Group, Inc., as well as Oakmont Corporation, and Cypress
International Partners Limited, each a registered investment advisor.
(4) Represents shares owned by: (i) American Century Companies, Inc. ("ACC")
through its subsidiary American Century Investment Management, Inc.
("ACIM"), a registered investment advisor; (ii) American Century Mutual
Funds, Inc., a client of ACIM; and (iii) James E. Stowers, Jr., who
controls ACC. Mr. Stowers, ACC, and ACIM disclaim beneficial ownership of
these securities.
(5) Includes 150,084 shares of Common Stock issuable upon exercise of options
held by Mr. Weiss, which options are exercisable within 60 days of the
Record Date.
(6) Includes 7,109 shares of Common Stock issuable upon exercise of options
held by Mr. Gooch, which options are exercisable within 60 days of the
Record Date.
(7) Includes 22,840 shares of Common Stock issuable upon exercise of options
held by Mr. Williams, which options are exercisable within 60 days of the
Record Date.
(8) Includes 34,761 shares of Common Stock issuable upon exercise of options
held by Mr. Lacey, which options are exercisable within 60 days of the
Record Date.
(9) Includes 5,809 shares of Common Stock issuable upon exercise of options
held by Mr. Wayman, which options are exercisable within 60 days of the
Record Date.
(10) Mr. Poppa retired as a Director and executive officer in May 1996.
(11) Ms. Albino currently serves as a Director, but is not standing for re-
election at the Annual Meeting. Includes 21,666 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) Mr. Burgin currently serves as a Director, but is not standing for re-
election at the Annual Meeting. Includes 18,000 shares of Common Stock
issuable upon exercise of options held by Mr. Burgin, which options are
exercisable within 60 days of the Record Date.
(13) Includes 34,500 shares of Common Stock issuable upon exercise of options
held by Mr. Friedman, which options are exercisable within 60 days of the
Record Date.
(14) Includes 11,666 shares of Common Stock issuable upon exercise of options
held by Mr. Hoover, which options are exercisable within 60 days of the
Record Date.
(15) Includes 19,952 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 37,000 shares of Common Stock issuable upon exercise of options
held by Mr. La Blanc, which options are exercisable within 60 days of the
Record Date.
(17) Includes 29,500 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 37,000 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 37,000 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 406,387 shares of Common Stock issuable upon exercise of options
within 60 days of the Record Date held by 11 current Directors and four
current non-Director executive officers.
(21) Less than 1% of the class.
4
<PAGE>
PROPOSAL 1--ELECTION OF DIRECTORS
The Board of Directors has reduced the number of Directors constituting the
entire Board of Directors of the Company from eleven to ten effective as of
the date of the 1997 Annual Meeting of Stockholders. At the Annual Meeting,
ten Directors are to be elected to serve until the next Annual Meeting or
until their respective successors shall be elected and qualified. Management's
nominees include all of the persons who currently serve as Directors, except
for Judith Albino and Robert Burgin, who are not standing for re-election. In
addition, management has nominated J. Harold Chandler, who does not currently
serve as a Director. The ten 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 ten nominees listed below. The ten
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 will be counted for purposes of
determining the presence or absence of a quorum for the transaction of
business, but will have no other effect on the outcome of the vote on the
election of Directors.
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 ten
nominees will be unavailable or unable to serve. The names of each of the ten
nominees and certain other information is set forth below:
WILLIAM L. ARMSTRONG; AGE 60; CHAIRMAN, AMBASSADOR MEDIA CORPORATION
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 Companies, Inc.; Helmerich & Payne; and
International Family Entertainment, Inc.
J. HAROLD CHANDLER; AGE 47; CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
PROVIDENT COMPANIES, INC.
Mr. Chandler has been nominated to fill the directorship resulting from a
Director not standing for re-election. Since November 1993, Mr. Chandler has
served as Chairman, President and Chief Executive Officer of Provident
Companies, Inc., a holding company of insurance subsidiaries which provides
disability, life and related coverage to both individuals and to the employee
benefits marketplace. From January 1991 to November 1993, Mr. Chandler served
as President of the Mid-Atlantic Banking Group of NationsBank Corporation.
Mr. Chandler also serves as a director of AmSouth Bancorporation; Herman
Miller, Inc.; and Healthsource, Inc.
PAUL FRIEDMAN; AGE 72; ATTORNEY
Mr. Friedman has been a Director since 1987 and has been a practicing tax
attorney at Paul Friedman, P.C. since 1964.
WILLIAM R. HOOVER; AGE 67; EXECUTIVE COMMITTEE CHAIRMAN, COMPUTER SCIENCES
CORPORATION
Mr. Hoover has been a Director since 1995. He currently serves as Chairman
of the Executive Committee of Computer Sciences Corporation, a provider of
information technology services. From 1972 to March 1997, Mr. Hoover served as
Chairman of the Board of Computer Sciences Corporation. From November 1972
through March 1995, Mr. Hoover also served as Chief Executive Officer and
President of Computer Sciences Corporation. Mr. Hoover also serves as a
director of Merrill Lynch & Co., Inc.; Eltron International, Inc.; and Rofin-
Sinar Technologies, Inc.
5
<PAGE>
STEPHEN J. KEANE; AGE 68; MANAGEMENT CONSULTANT
Mr. Keane has been a Director since 1987. Mr. Keane has been a management
consultant since 1985 and currently serves as a director of MaxServ Inc.
ROBERT E. LA BLANC; AGE 63; PRESIDENT, ROBERT E. LA BLANC ASSOCIATES, INC.
Mr. La Blanc has been a Director since 1979. Mr. La Blanc is the founder and
President of Robert E. La Blanc Associates, Inc., an information technologies
consulting and investment banking firm, and has served in that capacity since
October 1981. Mr. La Blanc also is a director of Gilbert Associates, Inc.;
Titan Corp.; Tribune Company; and a family of Prudential Mutual Funds.
ROBERT E. LEE; AGE 61; EXECUTIVE DIRECTOR EMERITUS, THE DENVER FOUNDATION
Mr. Lee has been a Director since 1989. He currently serves as the Executive
Director Emeritus of The Denver Foundation, a community foundation; from March
1989 to July 1996 he served as its Executive Director. 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; Meredith Corporation; and Source
Capital Corporation.
HARRISON SHULL; AGE 73; FORMER PROVOST, NAVAL POSTGRADUATE SCHOOL
Mr. Shull has been a Director since 1983. Mr. Shull was Provost, Naval
Postgraduate School, Monterey, California, from July 1988 until his retirement
in June 1995.
RICHARD C. STEADMAN; AGE 64; PRIVATE INVESTOR
Mr. Steadman has been a Director since 1970. Mr. Steadman has been a private
investor since January 1981.
DAVID E. WEISS; AGE 53; CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, STORAGETEK
Mr. Weiss has served as Chairman, President and Chief Executive Officer
since May 1996. Prior to that, he served as Chief Operating Officer from March
1995 to May 1996, Executive Vice President of Systems Development from January
1993 to March 1995, Senior Vice President of Marketing and Program Management
Process from June 1992 to January 1993, and Corporate Vice President of Market
Planning from August 1991 to June 1992. Mr. Weiss joined the Company in March
1991 as Staff Vice President.
BOARD MEETINGS AND COMMITTEES
The Company's Board of Directors held eleven meetings during fiscal 1996.
The Board of Directors of the Company has a standing Audit Committee,
Governance and Nominating Committee, and Human Resources and Compensation
Committee.
The Audit Committee currently consists of Directors Shull (Chair), Friedman,
Hoover, La Blanc and Steadman. The Audit Committee held four meetings during
fiscal 1996. 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,
free from any relationship that would interfere with the exercise of
independent judgment.
The Governance and Nominating Committee met two times during fiscal 1996,
and currently consists of Directors Burgin (Chair), Albino, Armstrong, Keane
and Lee. This Committee reviews and makes recommendations to the Board
regarding the organization and structure of the Board and the Company's
6
<PAGE>
corporate governance process, and nominates candidates for the Board. The
Committee will consider nominees recommended by stockholders. Under the
Company's Bylaws, 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 must 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. The Company has received a notice
from a stockholder of his intent to nominate a person from the floor at the
Annual Meeting.
The Human Resources and Compensation Committee (the "Compensation
Committee") currently consists of Directors Keane (Chair), Albino, Armstrong,
Burgin and Lee. The Compensation Committee held six meetings during fiscal
1996. Its principal functions are to evaluate the performance of executive
management, review succession planning, and review compensation policies and
arrangements for executive management and key employees of the Company. The
Compensation Committee approves salary recommendations for executive
management and administers equity compensation, bonus and stock option plans.
The members of the Compensation Committee are not employees and are, in the
opinion of the Board, free from any relationship that would interfere with the
exercise of independent judgment.
During fiscal year 1996, no Director other than Mr. Hoover attended fewer
than 75% of the aggregate number of meetings of the Board and the committees
of the Board on which he or she served. Mr. Hoover attended 73% of the
aggregate number of meetings of the Board and the committees on which he
served.
STANDARD ARRANGEMENTS FOR COMPENSATION OF DIRECTORS
CASH COMPENSATION
The Company pays each Director who is not an employee of the Company a
standard annual retainer of $27,000. As Lead Director, Mr. Burgin was paid an
annual retainer of $50,000. Effective as of the 1997 Annual Meeting of
Stockholders, the Board will no longer designate a Lead Director. Nonemployee
Directors are paid an additional fee of $1,000 for each meeting of the Board
attended in excess of eight per year and $1,000 for each committee meeting
attended. The chair of each committee is paid an annual retainer of $2,000 as
compensation for such chairmanship. Effective March 1997, the fee paid to the
chair of each committee was increased to $5,000 per year. Each Director also
receives a fee of $1,000 per day for time spent on Company business pursuant
to a specific request by the Chairman of the Board. Nonemployee Directors may
elect to defer receipt of all or a portion of their cash compensation.
STOCK FOR FEES
Nonemployee Directors may participate in a stock-for-fees program under the
Company's 1995 Equity Participation Plan, subject to stockholders approving
amendments to the plan at the Annual Meeting. See "Proposal 2--Amendments to
the 1995 Equity Participation Plan". Under the amended plan, a nonemployee
Director will have the opportunity to elect to receive a portion of his annual
compensation in shares of the Company's Common Stock or Common Stock
equivalents, in lieu of receiving cash compensation. Each
7
<PAGE>
nonemployee Director who has not satisfied the minimum ownership threshold of
2,500 shares of Common Stock or Common Stock equivalents set forth in the
equity ownership Guideline adopted by the Board of Directors in February 1997
initially will elect to receive a minimum of 50% of his annual retainer in the
form of Common Stock or Common Stock equivalents.
STOCK OPTIONS
The Company has a Stock Option Plan for Nonemployee Directors (the "Director
Plan"). Under the Director Plan, the Company has granted nonemployee Directors
nonstatutory stock 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, on a
predetermined schedule. All options expire ten years from the date of grant,
unless earlier terminated pursuant to the provisions of the Director Plan.
In October 1987, Directors were granted stock options under the Director
Plan. In October 1989, options to purchase 2,500 shares were granted to those
nonemployee Directors who had served two consecutive years following receipt
of the options granted in 1987. These options are collectively referred to as
the "Initial Options".
In 1991, the stockholders approved the Amended and Restated Stock Option
Plan for nonemployee Directors. Under the Director Plan, as so amended, each
nonemployee Director who was such on November 7, 1990, was granted, and each
person who first becomes a nonemployee Director after that date, will
automatically be granted, a stock option (the "New Option") to purchase a
number of shares of Common Stock equal to 25,000 shares, less any shares
subject to Initial Options granted to such Director on the later to occur of
November 7, 1990, or the Director's first election or appointment. New Options
become exercisable in installments: 5,000 shares become exercisable six months
following the date of grant; and the remaining shares become exercisable in
equal installments on the six anniversary dates following the date of grant,
so long as the optionee remains a Director.
The Director Plan was further amended in 1995. As amended in 1995, each
nonemployee Director who was such on July 26, 1995, and each person who first
becomes a nonemployee Director after that date, will automatically be granted
a stock option to purchase 18,000 shares (the "Additional Option") on the
later to occur of July 26, 1995, or the third anniversary of the Director's
first election or appointment as a nonemployee Director. Each Additional
Option becomes exercisable in three equal installments on the first, second
and third anniversaries of the first date on which all shares that are subject
to New Options held by the Director have become exercisable, so long as the
optionee remains a Director.
The Director Plan currently has 75,000 shares available for future grant and
334,952 shares subject to outstanding options. During 1996, no options were
granted or canceled under the Director Plan.
8
<PAGE>
PROPOSAL 2--AMENDMENTS TO THE
1995 EQUITY PARTICIPATION PLAN
GENERAL
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 the Company's employees. In May 1995, the
stockholders approved the Equity Plan and the reservation of 2,200,000 shares
for issuance under the Equity Plan. As of April 6, 1997, there were 718,040
shares available for issuance, 135,341 shares had been issued and 1,346,619
shares were subject to stock options granted under the Equity Plan.
PROPOSED AMENDMENTS
The Board believes that the Equity Plan is an important factor in
attracting, retaining and motivating dedicated and skilled employees.
Accordingly, to provide for future awards under the Equity Plan to employees
and other key persons, the Board approved certain amendments to the Equity
Plan in September 1996, December 1996 and February 1997 (the Equity Plan, as
so amended, is referred to herein as the "Amended Equity Plan"). The
amendments approved by the Board in September 1996 consisted of minor
modifications to reflect revisions to Section 16 of the Securities Exchange
Act of 1934, as amended May 31, 1996, and did not materially alter the terms
of the plan and do not require stockholder approval. At the Annual Meeting,
the stockholders are being asked to approve the December 1996 and February
1997 amendments to the Equity Plan. These amendments include: (i) increasing
the number of shares issuable thereunder by 2,200,000; (ii) allowing
nonemployee Directors and consultants to participate in the plan;
(iii) amending the stock option exercise periods following termination of
employment; (iv) providing for the issuance of Common Stock equivalents; (v)
establishing a stock-for-fees program for nonemployee Directors; (vi) amending
the stockholder approval requirements; and (vii) certain other minor changes.
If stockholders approve the Amended Equity Plan, all employee awards granted
on or after May 22, 1997, will be granted under the terms of the Amended
Equity Plan.
SUMMARY OF THE AMENDED EQUITY PLAN
A general description of the basic features of the Amended Equity Plan is
outlined below:
Purpose. The purpose of the Amended Equity Plan is to direct the attention
and efforts of participating employees, Directors and consultants to the
achievement of long-term performance objectives of the Company. The Amended
Equity Plan is designed to retain, reward and motivate participating
employees, Directors and consultants by providing an opportunity for equity
investment in the Company.
Types of Awards. Under the Amended Equity Plan, the Board or Committee (as
defined below) may grant, from time to time, to participating employees,
Directors and consultants selected by the Committee: (i) stock options to
purchase Common Stock to employees 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"); (ii) stock
options to purchase Common Stock that do not satisfy such requirements of the
Code relating to incentive stock options ("Non-Qualified Options") (Incentive
Stock Options and Non-Qualified Options are referred to collectively as "Stock
Options"); (iii) awards of Common Stock that are subject to certain vesting
conditions or 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 Stock Option ("Stock
Appreciation Rights"); (v) awards of Common Stock and Common Stock equivalents
under the Management by Objective ("MBO") plan ("MBO Payments"); (vi) Common
Stock that is not subject to restrictions on transferability; (vii) Common
Stock equivalents that are subject to restrictions on transferability that
generally lapse upon termination of service; and (viii) other types of stock-
based incentive compensation awards established from time to time by the Board
in accordance with the provisions of the Amended Equity Plan.
9
<PAGE>
Administration. The Amended Equity Plan may be administered by the Board or
a committee of the Board (the "Committee"). Currently, the Human Resources and
Compensation Committee of the Board administers this plan. Awards made to
officers or Directors of the Company will be administered by the Board or a
committee designated by the Board, as may be permitted under applicable laws,
including without limitation, the Code and Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended. The Amended Equity Plan vests
broad powers in the Committee to administer and interpret the Amended Equity
Plan, including the authority to select the Participants (as defined below)
from employees, Directors and consultants, determine the extent of MBO
Payments, determine the amount of the grants to the Participants, prescribe
terms and conditions not otherwise specified by the Amended Equity Plan for
each grant or award under the Amended Equity Plan, and amend or modify such
terms and conditions, including reducing the exercise price to the then
current fair market value, accelerating vesting and waiving forfeiture
restrictions.
Eligibility. The Committee may grant Stock Options, Restricted Stock Awards,
Stock Appreciation Rights, MBO Payments, and other awards of Common Stock and
Common Stock equivalents to employees, including officers, nonemployee
Directors ("Outside Directors"), and consultants of the Company or any parent
or subsidiary, in each case, 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 Participants"). The Committee will
select from among Eligible Participants the individuals who will receive
grants of Stock Options, Restricted Stock Awards, Stock Appreciation Rights,
MBO Payments or other awards of Common Stock and Common Stock equivalents
under the Amended Equity Plan (the "Participants"). The determination of
Eligible Participants and the selection of Participants are discretionary.
Therefore, it is not possible to determine the number of Eligible
Participants. As of the Record Date, the Company had approximately 8,300
employees and ten nonemployee Directors. As of the date of this Proxy
Statement, there have been no determinations by the Board with respect to
awards to consultants.
Amendment and Termination. The Amended Equity Plan may be amended or
discontinued by the Board at any time, unless stockholder approval is required
or desirable under applicable law or regulation, including federal and state
corporate laws, securities laws, tax laws and rules of the New York Stock
Exchange. However, such action may not adversely affect the rights or
obligations of Participants under outstanding awards without the Participant's
consent.
Term of Plan. The Amended Equity Plan will terminate on March 7, 2005,
unless terminated by the Board before that date. Stock Options, Restricted
Stock Awards, Stock Appreciation Rights and other Common Stock awards
outstanding on the date of the termination will continue to remain outstanding
in accordance with their respective terms.
Stock Subject to the Plan. Under the Amended Equity Plan, shares of Common
Stock may be issued in connection with MBO Payments, Restricted Stock Awards,
Stock Options, Stock Appreciation Rights, or other awards of Common Stock or
Common Stock equivalents. In 1995, a total of 2,200,000 shares of Common Stock
was initially reserved for issuance under the Equity Plan. The Amended Equity
Plan reserves an additional 2,200,000 shares of Common Stock for issuance,
increasing the total number of shares reserved for issuance to 4,400,000
shares.
The maximum number of shares of Common Stock reserved for issuance under the
Amended Equity Plan may be increased by approval of the Board and (if
required) 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 or MBO Payments, or under other Common Stock or Common
Stock equivalents awards, will be applied to reduce the maximum number of
shares available for issuance under the Amended Equity Plan. Shares of Common
Stock subject to Stock Options, Stock Appreciation Rights, Restricted Stock
Awards or other awards of Common Stock or Common Stock equivalents that
terminate unexercised or are forfeited will generally become available for
future grants under the Amended Equity Plan.
10
<PAGE>
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, the number of
shares reserved for issuance under the Amended Equity Plan and the exercise
price of each outstanding Stock Option and Stock Appreciation Right will be
adjusted. In the event of a proposed dissolution or liquidation of the
Company, all outstanding, unexercised Stock Options and Stock Appreciation
Rights will terminate immediately prior to the consummation of such proposed
action and Common Stock equivalents will convert into shares of Common Stock.
The Committee may accelerate the exercisability of Stock Options or Stock
Appreciation Rights in such event and may set a fixed date on which all
outstanding awards under the Amended Equity Plan will terminate.
Reorganization of Company. In the event 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, Stock Appreciation Right and Common Stock equivalent
may be assumed or substituted by the successor corporation. The Committee may,
in lieu of such assumption or substitution of Stock Options and Stock
Appreciation Rights, accelerate the exercise dates and provide for a 30-day
exercise period after which they shall terminate, and make Common Stock
equivalents convertible into shares of Common Stock.
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, then: (i) 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; (ii) all restrictions with respect to outstanding
Restricted Stock Awards will immediately lapse; and (iii) all Common Stock
equivalents will convert into shares of Common Stock as of the date determined
by the Committee.
Fair Market Value. The fair market value of a share of Common Stock is
determined by the Committee and is equal to the price of a share of Common
Stock as 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 on the New York Stock Exchange for April
4, 1997, the last full day of trading prior to the Record Date, was $42.75 per
share.
Stock Options. The Committee may grant either Incentive Stock Options or
Non-Qualified Options to Participants, except that only employees may be
granted Incentive Stock Options. The Committee may grant both an Incentive
Stock Option and a Non-Qualified Option to a Participant, in tandem or on
different dates. 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 of Stock Options set forth in the
Amended Equity Plan are described generally below.
(1) Exercise Price. The exercise price for an Incentive Stock Option will
not be less than 100% of the fair market value of the Common Stock on the date
of grant. Incentive Stock Options granted to a Participant who owns stock
having 10% or more of the combined voting power of all classes of stock of the
Company or of any parent or subsidiary must have an exercise price equal to at
least 110% of the fair market value of the Common Stock on the date of grant.
The exercise price for a Non-Qualified Option may be determined by the
Committee, but in no event will the exercise price be less than 85% of the
fair market value of the Common Stock on the date of grant.
(2) Term and Exercisability. The term of Stock Options will be fixed by
the Committee, but will not exceed ten years from the date of grant. A Stock
Option may be exercisable immediately, or may become exercisable in
installments during its term, as may be 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 following the
date of grant.
11
<PAGE>
(3) Manner of Exercise and Purchase. A Stock Option may be exercised by
delivering a notice of exercise to the Secretary of the Company, at the
Company's principal office in Louisville, Colorado, and paying the full amount
of the exercise price. The exercise price may be paid: (i) in cash or by
check; (ii) in shares of Common Stock having an aggregate fair market value on
the date of exercise equal to the payment required; (iii) by delivering
irrevocable instructions to a broker to deliver to the Company the appropriate
amount of proceeds of the sale or loan of shares exercisable (a "cashless
exercise"); (iv) by delivering 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 Participant in an amount equal to the payment
required; (v) by reducing an amount of any Company liability owed to the
Participant; (vi) any combination of the foregoing methods of payment; or
(vii) in such other form of consideration and method of payment to the extent
permitted by applicable laws, rules and regulations and the Stock Option
agreement.
(4) Tax Withholding. Upon exercising a Stock Option, a Participant must
also pay the Company any amount the Company is required 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 shares 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.
(5) Incentive Stock Option Value Limitation. The aggregate fair market
value (determined on the date of grant) 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 Amended Equity Plan or other plans
of the Company, its parent or 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 exercise of an Incentive Stock Option (see "--Federal Income Tax
Consequences" below), the Participant must send written notice to the Company
indicating 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 may reasonably request, and must
make appropriate arrangements with the Company for any required tax or other
withholding.
(7) Stockholder Rights. A Participant does 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 Stock Option, paid the full
amount of the exercise price, and become the recordholder of the shares.
(8) Effect of Termination on Stock Options. The Committee may specify the
effect of the termination of service on Stock Options in the option agreement
between the Company and the Participant. Generally, Stock Options granted
under the Amended Equity Plan will terminate according to the following
guidelines: (i) Incentive Stock Options remain exercisable for 90 days
following the Participant's termination date, but the Incentive Stock Option
agreement may provide that the option will convert into a Non-Qualified Option
on the 91st day following termination date; (ii) if termination is due to
death or if the Participant dies within three months following his or her
termination, and the Participant was a long-term employee, Stock Options may
be exercised, to the extent vested, through the expiration date; (iii) if a
Participant becomes disabled while employed by the Company, and the
Participant was a long-term employee, Stock Options may be exercised, to the
extent vested, through the expiration date; (iv) if termination is due to a
reduction in force, the Stock Option may be exercised, to the extent vested,
for six months following the termination date; (v) if a Participant retires,
the Stock Option may be exercised, to the extent vested, through the
expiration date; (vi) if a Participant is terminated for "cause" or if the
Participant is in material breach of any legal obligations to the Company, the
Stock Options will terminate on the date of termination of employment; (vii)
if a Participant's service terminates for any reason other than listed in
items (ii) through (vi), the Stock Option may be exercised, to the extent
vested, for a period of 90 days after such termination. For purposes of the
Amended Equity Plan, "cause" is defined as performance or conduct problems
resulting in discharge of service from the Company. In no event will the
post-termination exercise period extend beyond the original expiration date of
the Stock Option.
12
<PAGE>
(9) Transferability. Except as may otherwise be specified by the
Committee, no right or interest of any Participant in a Stock Option granted
under the Amended 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 and
legatees. If permitted by applicable laws, the Committee may permit the
transfer of Stock Options either generally or under specified circumstances.
Restricted Stock. The Committee may grant Restricted Stock Awards in shares
of Common Stock to Participants and require the Participant to pay an amount
equal to the par value of the shares of Common Stock that are the subject of
the Restricted Stock Award. The terms and conditions of the Restricted Stock
Award agreement are described below. In addition, such agreement may contain
other terms and conditions, not inconsistent with the Amended Equity Plan, as
the Committee deems advisable.
(1) Restrictions. Restricted Stock Awards are subject to forfeiture
restrictions, as follows: (i) for the 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. The Committee may
require that a legend be placed on the stock certificates representing the
shares of restricted stock and may require that the stock certificates be held
in escrow.
(2) Termination of Service. If, prior to the expiration or satisfaction
of any period of service requirements and/or performance requirements, the
Participant ceases to provide services to the Company for any reason, other
than death or disability, the Company will have the right to repurchase the
shares subject to the Restricted Stock Award for the price paid by the
Participant for the shares. In the event the Participant dies or becomes
disabled (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 a Restricted Stock Award will have
all the rights of a holder of shares of Common Stock with respect to the
shares subject to the award upon becoming the holder of record. These rights
are subject to restrictions on transferability and the right of the Company to
hold the shares in escrow. All rights as a holder of shares of Common Stock
will cease upon a forfeiture of the shares.
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 Stock Option. 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 a Stock
Option. A Stock Appreciation Right with respect to an Incentive Stock Option
must be granted at the time of the Stock Option grant. A Stock Appreciation
Right with respect to a Non-Qualified Option may be granted either at the time
the option is granted or at a later time during the term of the option. A
Stock Appreciation Right will have a term equal to the initial term or
remaining term, as the case may be, of the related Stock Option. A Stock
Appreciation Right will be subject to the terms and conditions set forth
below.
(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
following its date of grant. A Stock Appreciation Right may be exercised by
giving notice and paying any applicable tax withholding amounts in the same
manner permitted by the related Stock Option.
Upon exercising a Stock Appreciation Right, a Participant will receive from
the Company the amount equal to the excess of the fair market value of the
shares of Common Stock as to which the Stock Appreciation Right is exercised
over the exercise price for the related Stock Option, and the related Stock
Option will terminate with respect to such shares. Conversely, upon exercising
a Stock Option, the related Stock Appreciation Right will terminate with
respect to the shares purchased.
13
<PAGE>
(2) Form of Payment. The Committee may determine the form in which the
Company will pay the value of an exercised Stock Appreciation Right (i.e.,
cash, Common Stock, or any combination thereof) or 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. A Stock Appreciation Right
will terminate at the same time and under the same circumstances that the
related Stock Option terminates.
(4) Transferability. Stock Appreciation Rights are subject to the same
transferability restrictions relating to the Stock Option.
MBO Plan. Under the MBO plan, Participants selected by the Committee may
receive incentive compensation payments upon the attainment of pre-established
performance goals. The Committee may elect to pay all or a portion of the MBO
Payment in cash, shares of Common Stock or Common Stock equivalents.
Director Stock and Common Stock Equivalents. Under the Amended Equity Plan,
nonemployee Directors may elect to receive all or a portion of their annual
retainer and meeting fees in shares of Common Stock or Common Stock
equivalents. The number of shares of Common Stock or Common Stock equivalents
will be determined by dividing (i) the dollar amount of the portion of the
retainer and meeting fees for the fiscal period that is to be paid in shares
of Common Stock or Common Stock equivalents by (ii) the fair market value of
one share of Common Stock as of the last day of such fiscal period, rounded up
to the next full number of shares. The annual retainer period begins on the
date of the Annual Meeting of Stockholders of the Company and will end on the
day immediately preceding the next Annual Meeting.
If the Company pays a cash dividend with respect to the Company's Common
Stock at any time while Common Stock equivalents are outstanding, the Director
will be credited additional Common Stock equivalents in an amount equal to (i)
the cash dividend the Director would have received had he or she actually
owned the Common Stock credited to his or her account divided by (ii) the fair
market value of one share of the Company's Common Stock on the dividend
payment date. Fractional shares will be paid in cash.
Upon the termination of the nonemployee Director's service or, if authorized
by the Committee, at such other time as specified by the Director at the time
of his or her election, the Company will deliver to the Director a number of
shares of Common Stock equal to the whole number of Common Stock equivalents
held by the Director. Until certificates representing actual shares of Common
Stock are delivered, a Director who holds Common Stock equivalents will not be
entitled to any voting or other stockholder rights with respect to the Common
Stock equivalents.
Other Common Stock Awards. The Board, in its sole discretion, may establish
other incentive compensation arrangements under the Amended Equity Plan
pursuant to which Participants may acquire shares of Common Stock or Common
Stock Equivalents.
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. The Participant and the Company do not incur
any federal income tax as a result of the grant of an Incentive Stock Option
under the Amended Equity Plan. The exercise of an Incentive Stock Option will
not result in any federal income tax consequences to the Company or the
Participant, except that an amount generally measured as the excess of the
fair market value of the shares 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 an adjustment item for alternative minimum tax
purposes.
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
14
<PAGE>
dispose of the shares for a period of two years following the date of grant,
or for a period of one year following the date of exercise, then the
Participant will only recognize a long-term capital gain or loss. The amount
of the long-term capital gain or loss will be 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 each of the foregoing holding-period
requirements, the Participant will be required to report as ordinary income,
in the year of disposition, an amount generally measured as the excess of (i)
the fair market value of the shares at the time of exercise of the Incentive
Stock Option or, if lesser, the amount realized on the disposition of such
shares, over (ii) the exercise price for the shares. Under these
circumstances, the Company will be entitled to a compensation expense
deduction in an amount equal to the amount of income that is reported by the
Participant. 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 generally measured as the difference between (i) the fair market value
of the shares at the time of exercise of the Non-Qualified Option and (ii) the
exercise price for the shares. A different date for measuring ordinary income
upon exercise of a Non-Qualified Option may apply in the case of Participants
who are officers, directors or greater-than-10% stockholders of the Company.
In the case of Participants who are employees of the Company, any ordinary
income so recognized will be considered wages subject to applicable tax
withholding.
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 a Participant as ordinary income.
(3) 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 at that time and in the amount of the sum of cash
and the fair market value of any shares of Common Stock received by the
Participant. In general, the Company will be entitled to a compensation
expense deduction for any amounts included by a Participant as ordinary income
in connection with a Stock Appreciation Right. Upon the sale of any shares of
Common Stock acquired upon exercise of a Stock Appreciation Right, a
Participant will realize a capital gain or loss based upon the difference
between the amount realized by the Participant upon such sale and the amount
previously included in the Participant's ordinary income upon exercise of the
Stock Appreciation Right, which gain will be short-term or long-term depending
on the holding period, and the Company will receive no further deduction.
(4) 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, any income recognized by a Participant who is also an
employee of the Company will be considered wages subject to applicable tax
withholding. In addition, 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 generally measured as the difference between
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
and the consideration, if any, paid for the shares. At the time of a
subsequent sale or disposition of any shares of Common Stock issued in
connection with a Restricted Stock
15
<PAGE>
Award as to which of 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 a Participant as ordinary income as the result of
a receipt of a Restricted Stock Award.
(5) MBO Payments. A Participant who receives an MBO Payment under the
Amended Equity Plan in the form of shares of Common Stock will generally
recognize ordinary income at that time in an amount equal to the then fair
market value of the shares. Any income recognized by a Participant who is also
an employee of the Company will be considered wages subject to applicable tax
withholding. In general, 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
Amended Equity Plan, a Participant will realize a gain or loss based upon the
difference between the amounts realized by the Participant upon such sale, and
the amount previously included in the Participant's ordinary income in
connection with the shares, which gain will be short-term or long-term
depending on the holding period, and the Company will receive no further
deduction.
(6) Common Stock Equivalents. A Participant who elects to receive Common
Stock equivalents will recognize compensation income at the time shares of
Common Stock credited to the Participant's account are distributed to the
Participant, in an amount equal to the then fair market value of the
distributed shares. In the case of a Participant who is also an employee of
the Company, such income will be treated as wages for tax withholding
purposes. At the time of a subsequent sale of the shares, the Participant will
recognize a long-term or short-term capital gain or loss, depending upon the
length of time between the date the shares were taxed to the Participant and
the date of sale. In general, the Company will be entitled to a compensation
expense deduction for any amounts included by a Participant as ordinary income
as the result of a receipt of shares at the time the Participant is taxed.
(7) Section 162(m) Limits. In order for compensation in excess of $1
million realized by any of the Named Executive Officers to be deductible by
the Company, IRS regulations require any option plan to state the maximum
number of shares subject to options and stock appreciation rights that can be
granted during a fiscal year to any one individual. The Amended Equity Plan
has a limit of 500,000 shares subject to Stock Options and Stock Appreciation
Rights that can be granted to any one individual per fiscal year of the
Company.
PARTICIPATION IN THE AMENDED EQUITY PLAN
Future grants of Stock Options, Restricted Stock Awards, Stock Appreciation
Rights, MBO Payments, and other Common Stock awards and Common Stock
equivalents under the Amended Equity Plan to employees, Directors and
consultants are subject to the discretion of the Committee, except for the
election by certain nonemployee Directors to receive Common Stock or Common
Stock equivalents in lieu of all or a portion of their annual cash retainer.
Set forth below is information with respect to the grant of awards under the
1995 Equity Participation Plan, consisting solely of Stock Options, to the
Named Executive Officers, to all current Executive Officers as a group and to
all other employees as a group during fiscal 1996. As of the Record Date, no
awards had been granted to nonemployee Directors under the 1995 Equity
Participation Plan.
16
<PAGE>
AMENDED PLAN BENEFITS
1995 EQUITY PARTICIPATION PLAN
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF INDIVIDUAL SUBJECT TO
OR IDENTITY OF GROUP AND OPTIONS AGGREGATE EXERCISE
POSITION GRANTED(#) PRICE($)
------------------------ ---------------- ------------------
<S> <C> <C>
David E. Weiss............................. 304,484 $11,236,224
Chairman of the Board, President and CEO
L. Thomas Gooch............................ 13,808 669,688
Executive Vice President and General Man-
ager of Network Systems
John V. Williams........................... 15,817 767,124
Executive Vice President of Worldwide Field
Operations
David E. Lacey............................. 49,060 1,885,035
Executive Vice President and Chief Finan-
cial Officer
W. Russell Wayman.......................... 6,627 321,410
Corporate Vice President, General Counsel
and Secretary
Ryal R. Poppa.............................. -0- -0-
Former Chairman of the Board, President and
CEO
All current executive officers as a group 389,796 14,879,481
(5 persons)................................
All other employees as a group............. 228,929 10,872,257
</TABLE>
- - --------
VOTE REQUIRED
Approval of the amendments to 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. Proxies received by the
Company will be voted "FOR" this proposal unless a contrary vote is specified.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENTS TO
THE 1995 EQUITY PARTICIPATION PLAN.
17
<PAGE>
PROPOSAL 3--RATIFICATION OF INDEPENDENT ACCOUNTANTS
The firm of Price Waterhouse LLP ("Price Waterhouse") served as the
Company's auditors for the year ended December 27, 1996, and has been engaged
by the Audit Committee to serve as auditors for the fiscal year ending
December 26, 1997.
As described in the Company's Current Report on Form 8-K dated as of April
3, 1995, and amended by Forms 8-K/A dated April 7, 1995, and April 12, 1995,
at a meeting of the Company's Audit Committee held on March 16, 1995, the
Audit Committee determined to engage Price Waterhouse as independent
accountants for all subsidiaries of the Company for 1995, subject to approval
of the stockholders. The stockholders ratified the appointment on May 24,
1995, and on May 30, 1996, at the respective Annual Meetings of Stockholders.
As a result, the Company's former subsidiary, Network Systems Corporation,
disengaged the accounting firm of Ernst & Young LLP ("Ernst & Young") and
retained the accounting firm of Price Waterhouse, which had been auditing the
Company and all subsidiaries except Network Systems Corporation. Price
Waterhouse had expressed reliance upon Ernst & Young's report in its report on
the consolidated financial statements of the Company for the years ended
December 30, 1994, and December 31, 1993. Ernst & Young's report on the
financial statements for 1994 and 1993 contained no adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty or
audit scope. Additionally, there were no report modifications for accounting
principles in the years ended December 30, 1994, and December 31, 1993.
The Board of Directors requests that stockholders ratify the engagement of
Price Waterhouse for fiscal year 1997. A representative of Price Waterhouse is
expected to be present at the Annual Meeting and available to respond to
appropriate questions and, although Price Waterhouse 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 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 1997 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 OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION OF
THE APPOINTMENT OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS.
18
<PAGE>
PROPOSAL 4--STOCKHOLDER PROPOSAL
StorageTek receives many suggestions from stockholders, some as formal
stockholder proposals. All are given careful attention by the Company, and
management has adopted a number of suggestions made.
Management of the Company disagrees strongly with the adoption of the
resolution proposed below and asks stockholders to read through Management's
response, which follows the stockholder's proposal.
The author and proponent of the following stockholder resolution, Seymour
Licht, P.E., P.O. Box 4383, Scottsdale, Arizona 85261, has required the
Company to present the following proposal at the Annual Meeting of
Stockholders. The proponent owns 413 shares of the Company's Common Stock as
of the Record Date. Dr. Licht's proposal is quoted verbatim below:
STOCKHOLDER RESOLUTION
"The stockholders request/recommend that the Board of Directors take the
necessary steps, such as to modify the Corporation By-laws and or its
Certificate of Incorporation so as to implement the following action to
become effective at the 1998 annual stockholder meeting of Storagetek and
each subsequent annual meeting.
As a condition to be elected to or appointed to the Board of the Directors
of Storagetek (the "Board") each candidate is required to be the owner,
including joint ownership with spouse or any family member, of a minimum of
2,000 shares of Storagetek's common stock (the "Stock"). [1] Ownership of
securities of different classes of Stock issued by Storagetek may be
aggregated; [2] ownership of securities underlying derivative instruments
would also be used to determine whether the minimum ownership of 2,000
shares is met; [3] ownership of the securities can be actual and or
beneficial ownership. If at the time of election/appointment to the Board
said individual does not own the required number of shares then said
individual will acquire by purchasing in the open market (or may purchase
from Storagetek at fair market value on the date of purchase) sufficient
number of additional shares so as to own a minimum of 2,000 shares of
Stock. Such purchase is expected to be made within 45 days from the date of
election or appointment to the Board. Said individual is to maintain
ownership of a minimum of 2,000 shares of Storagetek's Stock for as long as
they maintain their position as a director of Storagetek.
This requirement that a Board member must own a minimum of 2,000 shares of
stock of Storagetek within 45 days of his or her date of
election/appointment only applies to nominees/appointments for Directors at
meetings subsequent to the 1997 annual meeting and will not affect the
unexpired terms of existing Directors."
PROPONENT'S STATEMENT IN SUPPORT OF RESOLUTION
"It is the proponent's opinion that a person with a significant investment
in a corporation has a strong, undivided and lasting interest in the well
being of said corporation. This process is motivated in two (2) ways:
(i) If the price of the stock rises the Directors and Stockholders both
do well.
(ii) The director dose [sic] not want to see his or her investment
shrink.
Simply, Directors without at least ownership of 2,000 shares of the
corporation for which they serve as a director lack the motivation to be a
director. The demanding, competitive environment that we have today
requires that Directors have a strong, undivided and lasting interest in
the corporation that they serve as opposed to it being just a job. A
Director of Storagetek should be a stockholder of the corporation that they
represent. Consequently they should be required to own a minimum of 2,000
shares of Common Stock of the said corporation for as long as he or she
serves as a Director. It is only natural for the decision makers to reap
what they have sown--good or bad--and further to pay the price if it is bad
just like all of the other stockholder [sic] are required to do."
19
<PAGE>
MANAGEMENT'S RESPONSE
Management of StorageTek believes that this stockholder proposal is
unnecessary and moot as a result of the recent action taken by the Board of
Directors.
After receiving the proponent's proposal, the Board of Directors undertook
to implement a guideline that, in Management's opinion, incorporates the basic
substance of the proposal, namely that Directors should generally acquire and
hold shares of the Company's stock. On February 20, 1997, the Board of
Directors adopted a guideline (the "Guideline") that requires Directors of the
Company to purchase and maintain a predefined number of shares of the
Company's stock. The language of the Guideline is as follows:
"The Board believes that each outside director should beneficially own at
least 2,500 shares of the Company's Common Stock, or stock equivalents, as
soon as practicable, but in any event within five years of their initial
election to the Board, and should own at least 1,000 shares within two
years from the date of their initial election. Individuals currently
serving on the Board should achieve this target within two years from the
date these guidelines are approved, but should own at least 1,000 shares
within one year from the date these guidelines are approved."
Management believes that the recent action of the Board of Directors
obviates any need for the stockholder's proposal. First, the Guideline sets a
higher minimum share purchase requirement for Directors than does the
stockholder's proposal. Second, concurrent with adopting the Guideline, the
Board also approved an amendment to the Director compensation policy to ensure
that the Guideline is fully implemented. The amended compensation policy
provides that Directors will receive at least 50% of their annual retainer in
the form of equity until the Director has satisfied the minimum ownership
threshold set forth in the Guideline, after which the Director may elect to
continue to receive all or a portion of their retainer in the form of stock in
lieu of cash compensation. The amended Director compensation policy is
proposed to be implemented through an amendment to the Company's 1995 Equity
Participation Plan, which is subject to stockholder approval at the Annual
Meeting (see "Proposal 2", above).
Management believes that the policy suggested by the proponent has already
been considered and largely implemented by the Board of Directors and that any
further action by the stockholders is unnecessary. Indeed, when the Board
considered this matter it focused on whether the Guideline should be a
mandatory qualification for election or appointment to the Board, and what the
appropriate period of time should be within which the targeted ownership level
should be achieved. The Board did not adopt a mandatory qualification because
it believes that there may be excellent candidates for Board membership in the
future who may not have the financial ability to invest immediately the amount
required by the Guideline in shares of the Company's stock. For example, using
the closing price of the Company's stock on the New York Stock Exchange for
April 4, 1997, the last full day of trading prior to the Record Date, the
investment required to acquire 2,500 shares would be approximately $106,875.
The Board believes that it is not in the best interests of the stockholders to
exclude from consideration a potential, desirable candidate solely because of
the candidate's personal financial position. The Board also believes that the
substantial stock option position which each Director acquires as a result of
serving on the Board will assure that there is significant alignment with the
interests of the stockholders even in those instances where an immediate,
direct investment in the Company's stock would create a financial hardship.
The other difference between the proposal and the Guideline is the time period
within which the stock is to be acquired. The Board concluded that requiring a
Director to attain a level of stock ownership in the Company's stock within a
short period might cause a financial hardship and could tend to eliminate
otherwise highly qualified candidates. The universe of individuals who are
available to serve on the Board, who are willing to put in the requisite time
and attention, and who have the experience and history of accomplishment which
make them superior candidates is limited. The Board is dedicated to finding
highly qualified, committed individuals to serve on the Board. The Board
believes that the Guideline furthers this objective and that the proponent's
proposal would frustrate this objective.
20
<PAGE>
MANAGEMENT'S RECOMMENDATION AND VOTE REQUIRED
The affirmative vote of the majority of the Votes Cast will be required
under Delaware law to approve the above stockholder proposal.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS A VOTE
"AGAINST" THE ABOVE PROPOSAL.
21
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation earned during the last three
fiscal years by the Chief Executive Officer ("CEO") and each of the other four
most highly compensated executive officers of the Company (based on 1996
salary plus bonus), who were serving as such at December 27, 1996, the
Company's fiscal year-end, and the former CEO, who retired as a Director and
executive officer on May 23, 1996 (collectively, the "Named Executive
Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------------- -----------------------
NAME
AND OTHER RESTRICTED SECURITIES ALL
PRINCIPAL ANNUAL STOCK UNDERLYING OTHER
POSITION YEAR SALARY($)(1) BONUS($)(1) COMPENSATION($)(2) AWARDS($)(3) OPTIONS(#) COMPENSATION($)(4)(5)
--------- ---- ------------ ----------- ------------------ ------------ ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DAVID E. WEISS 1996 $497,116 $834,900(6) $81,265 -0- 304,484 $39,722
Chairman of the Board, 1995 333,943 -0- -- $296,348 71,269 9,758
President and CEO 1994 220,230 35,000 -- -0- 13,416 5,520
L. THOMAS GOOCH 1996 262,000 262,000 73,792 -0- 13,808 25,229
Executive Vice President 1995 255,539 -0- -- 182,673 26,048 15,043
and General Manager of 1994 237,500 50,000 -- -0- 14,582 8,894
Network Systems
DAVID E. LACEY 1996 238,077 293,250(6) -- -0- 49,060 19,267
Executive Vice President 1995 169,342 -0- -- 149,909 21,376 5,329
and Chief Financial Of-
ficer 1994 152,173 15,000 -- -0- 6,666 2,863
W. RUSSELL WAYMAN 1996 209,615 189,000 -- -0- 6,627 17,747
Corporate Vice Presi-
dent, 1995 199,424 -0- -- 139,446 11,930 7,689
General Counsel and 1994 175,923 10,000 -- -0- 7,707 4,338
Secretary
JOHN V. WILLIAMS 1996 299,039 300,000 107,935(7) -0- 15,817 24,692
Executive Vice President 1995 275,001 -0- 71,257(7) 191,738 27,341 4,957
of Worldwide Field 1994 218,673 35,000 68,371(7) -0- 19,040 4,929
Operations
RYAL R. POPPA 1996 650,001 200,000 -- -0- -0- 109,947
Former Chairman 1995 650,001 -0- -- -0- -0- 73,045
of the Board, 1994 617,500 75,000 -- -0- 62,291 60,248
President and CEO
</TABLE>
- - --------
(1) Salary and bonus are reported in the year 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. All bonuses were awarded under the
Company's Management by Objective Program, except for discretionary cash
bonuses awarded to Mr. Weiss and Mr. Lacey.
(2) Perquisite amounts are not required to be reported if total perquisites
for the Named Executive Officer were not more than the lesser of $50,000
or 10% of the Named Executive Officer's annual salary and bonus. Other
Annual Compensation includes: perquisites (if they exceed the reporting
threshold) as follows: Mr. Gooch--$32,366 for housing payments, car rental
allowance, and personal income tax liabilities associated with relocation
expense reimbursements; cash bonuses for fiscal 1996 to cover the personal
income tax liabilities associated with the vesting of restricted stock, as
follows: Mr. Weiss--$51,000, Mr. Gooch--$31,440 and Mr. Williams--$33,000
(See Note (3) below); and payments made in lieu of relocation expense
reimbursements to Mr. Williams (See Note (7) below).
(3) As of December 27, 1996, the aggregate number of restricted shares held by
Named Executive Officers and their fair market value (net of purchase
price) were as follows: Mr. Weiss--9,618 shares valued at $452,286; Mr.
Gooch--18,030 shares valued at $847,861; Mr. Lacey--8,247 shares valued at
$387,815; Mr. Wayman--9,887 shares valued at $464,936; Mr. Williams--
14,854 shares valued at $698,509; and Mr. Poppa--0 shares. The restricted
stock awarded in fiscal 1995 (11,442 shares to Mr. Weiss; 7,053 shares to
Mr. Gooch; 5,788 to Mr. Lacey; 5,384 shares to Mr. Wayman; and 7,403
shares to Mr. Williams) vests incrementally: 44% of the shares vested on
December 14, 1996, another 28% will vest on June 14, 1997, and the
remaining 28% will vest on December 14,
22
<PAGE>
1997, if the executive officer is continuously employed by the Company. Mr.
Wayman and Mr. Williams elected to defer the foregoing vesting dates, as
follows: the first vesting date occurred on February 24, 1997; the second
and third vesting dates will occur on July 30, 1997, and February 24, 1998,
respectively. Restricted stock awarded prior to fiscal 1995 vests five years
from the date of the award, provided that the executive officer has been
continuously employed by the Company during such period; or upon retirement
in accordance with the terms of the agreement. The executive officer has all
the rights of a stockholder with respect to any shares of restricted stock,
including the right to receive dividends, if any, except that the stock and
any stock dividends are subject to a right of repurchase by the Company at
the original purchase price paid by the executive officer and the shares may
not be disposed of until the repurchase right lapses.
(4) Amounts shown for 1996 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. Weiss--$14,437; Mr. Gooch--$6,689; Mr.
Lacey--$5,299; Mr. Wayman--$5,803; Mr. Williams--$8,671; and Mr. Poppa--
$43,494; (ii) above-market interest earned on deferred compensation, as
follows: Mr. Weiss--$1,639; Mr. Gooch--$7,065; Mr. Lacey--$1,181; Mr.
Wayman--$106; Mr. Williams--$195; and, Mr. Poppa--$32,954;
(iii) contributions by the Company to the 401(k) plan, as follows: Mr.
Weiss--$7,290; Mr. Gooch--$7,290; Mr. Lacey--$7,290; Mr. Wayman--$7,290;
Mr. Williams--$7,290; and Mr. Poppa--$7,290; and (iv) contributions by the
Company to the deferred compensation plan, as follows: Mr. Weiss--$16,356;
Mr. Gooch--$4,185; Mr. Lacey--$5,497; Mr. Wayman--$4,548; Mr. Williams--
$8,536; and Mr. Poppa--$26,209.
(5) Amounts shown for 1995 reflect adjustments to include contributions by the
Company to the deferred compensation plan.
(6) Amounts reflect MBO bonus payments made pursuant to the Company's MBO
Plan, as approved by the stockholders, based upon preestablished
performance criteria, and special cash bonuses awarded under a separate
discretionary plan, as follows: Mr. Weiss--$108,900; and Mr. Lacey--
$38,250.
(7) Amounts reflect payments of $48,196 in 1996, $55,249 in 1995, and $58,299
in 1994 made in lieu of relocation expense reimbursements provided for in
Mr. Williams' offer of employment.
STOCK OPTION GRANTS TABLE
The following table sets forth information regarding stock options granted
to the Named Executive Officers during fiscal 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
------------------------------------------- REALIZABLE VALUE
% OF TOTAL AT ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM(1)
OPTIONS IN FISCAL PRICE EXPIRATION ----------------------
NAME GRANTED(#) 1996 ($/SH) DATE 5%($) 10%($)
---- ---------- ---------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
David E. Weiss.......... 250,000(2) 40.4 $34.375 05/22/06 $5,404,563 $13,696,224
35,415(3) 5.7 48.500 12/10/06 1,080,207 2,737,456
19,069(4) 3.1 48.500 12/10/06 581,631 1,473,967
L. Thomas Gooch......... 8,975(3) 1.5 48.500 12/10/06 273,750 693,736
4,833(4) 0.8 48.500 12/10/06 147,413 373,574
David E. Lacey.......... 35,000(2) 5.7 34.375 05/22/06 756,639 1,917,471
9,139(3) 1.5 48.500 12/10/06 278,752 706,413
4,921(4) 0.8 48.500 12/10/06 150,097 380,376
W. Russell Wayman....... 4,308(3) 0.7 48.500 12/10/06 131,400 332,993
2,319(4) 0.4 48.500 12/10/06 70,733 179,251
John V. Williams........ 10,281(3) 1.7 48.500 12/10/06 313,585 794,685
5,536(4) 0.9 48.500 12/10/06 168,856 427,913
Ryal R. Poppa........... -0- -- -- -- -- --
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
- - --------
(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%
23
<PAGE>
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
Named Executive Officer holding the option through its vesting period and
the subsequent exercise of the option by the Named Executive Officer.
(2) Mr. Weiss and Mr. Lacey each were awarded performance-based stock options
in conjunction with their respective appointments to the positions of
President and CEO, and Executive Vice President and Chief Financial
Officer. Both grants were priced at 100% of the fair market value on the
date of grant and expire 10 years from the date of grant. These options
are subject to the terms as described in Note (4) below, except that the
options become exercisable as follows: 60% of the shares subject to the
options will become exercisable in three equal installments on February 1
in each of 1997, 1998 and 1999, respectively, if financial performance
goals are achieved; if the goals are not achieved, the shares will not
vest until May 22, 2004; the remaining 40% will become exercisable in
equal installments on the first three anniversary dates from the date of
the grant. The Compensation Committee determined that the performance
goals were achieved in fiscal 1996 and the vesting date for 20% of the
shares was accelerated to February 1, 1997.
(3) Standard stock options are granted under the 1995 Equity Participation
Plan at an exercise price equal to 100% of fair market value on the date
of grant. Options become exercisable in three equal installments on the
first three anniversary dates from the date of grant, and expire 10 years
from the date of grant. Options generally 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), or sale of all or
substantially all of the assets of the Company, the number and kind 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
will accelerate. Options are not transferable, except upon disability, or
upon death by testamentary will or pursuant to the laws of descent and
distribution.
(4) Performance-based stock options are granted under the 1995 Equity
Participation Plan at an exercise price equal to 100% of fair market value
on the date of grant. Performance-based options generally become
exercisable on the sixth anniversary of the date of grant, unless
accelerated to the first three anniversary dates based on achieving net-
after-tax performance goals, and expire 10 years from the date of grant.
Performance-based options generally 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), or the sale of all or
substantially all of the assets of the Company, the number and kind 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
will accelerate. Options are not transferable, except upon disability, or
upon death by testamentary will or pursuant to the laws of descent and
distribution.
STOCK OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth information regarding stock options exercised
by Named Executive Officers during fiscal 1996 and options held by them at
fiscal year-end 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT 12/27/96(#) 12/27/96($)(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David E. Weiss.......... -0- -- 52,659 372,338 $941,350 $4,409,285
L. Thomas Gooch......... 3,000 $ 88,500 35,471 49,011 647,013 611,731
David E. Lacey.......... -0- -- 18,870 72,208 366,794 846,626
W. Russell Wayman....... -0- -- 18,413 23,407 323,524 291,947
John V. Williams........ 15,621 258,840 15,536 53,429 244,474 655,488
Ryal R. Poppa(2)........ 96,254 1,247,608 40,006 64,458 575,399 1,142,369
</TABLE>
- - --------
(1) Value is calculated by (i) subtracting the exercise price per share from
the fiscal year-end market value of $47.125 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.
(2) Mr. Poppa retired from the Company on January 20, 1997. On that date, the
64,458 options reported as outstanding but unexercisable on December 27,
1996, terminated unexercised.
24
<PAGE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
On June 24, 1996, the Company and Mr. Weiss entered into an employment
agreement, which supersedes his December 1995 agreement and expires in May
1999. The agreement provides for annual base compensation of $550,000, subject
to adjustment, and participation in the MBO bonus program at a bonus
percentage of 70%. For 1997, Mr. Weiss' base compensation has been set at
$620,000 and his bonus percentage is 80%. In the event of an involuntary
termination without cause, or in the event of death, the agreement provides
for a severance payment equal to the greater of (i) his annual base
compensation through the end of the employment term, or (ii) 100% of his
annual base compensation plus 100% of his then-current bonus percentage for
the year of termination (whether or not such bonus would have been otherwise
payable). In the event of a change in control followed by voluntary
termination within 24 months, Mr. Weiss would receive an amount equal to the
greater of two times his annual base salary plus two times 100% of the then-
current bonus amount or the amount described above, 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. The
agreement also provides for medical and life insurance, financial services and
an automobile allowance.
On June 24, 1996, the Company and Mr. Lacey entered into an employment
agreement that provides for annual base compensation of $255,000, subject to
adjustment, and participation in the MBO bonus program at a bonus percentage
of 50%. For 1997, Mr. Lacey's base compensation has been set at $280,000. In
the event of an involuntary termination without cause, or in the event of his
death, the agreement provides for a severance payment equal to his then-
current annual base compensation plus 100% of his then-current bonus
percentage (whether or not such bonus would have been otherwise payable). In
the event of a change in control followed by voluntary termination within 24
months, Mr. Lacey would receive an amount equal to two times 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. The agreement also provides for medical and life insurance,
financial services and an automobile allowance.
In February 1995, the Company entered into employment agreements with Mr.
Gooch, Mr. Wayman and Mr. Williams, which provide for annual base compensation
of $250,000, $200,000, and $275,000, respectively, subject to annual
adjustment, and participation in the MBO bonus program at a bonus percentage
to be determined by the Compensation Committee. For 1996, base compensation
for Mr. Gooch, Mr. Wayman and Mr. Williams was set at $262,000, $210,000, and
$300,000, respectively. For 1997, base compensation for Mr. Mr. Gooch, Mr.
Wayman and Mr. Williams has been set at $275,000, $220,000 and $315,000,
respectively. 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 salaries plus two times 100% of the then-current bonus
percentage, and all outstanding stock options and restricted stock would
become fully vested. No compensation would be paid under the agreements in the
event of a termination for cause. Each agreement also provides for medical and
life insurance and an automobile allowance.
In December 1995, the Company and Mr. Gooch amended the February 1995
employment agreement (the "February Agreement") in connection with a two-year
assignment to the Company's Network Systems Group. If agreed-upon performance
goals are met by Mr. Gooch, on December 1, 1997, he will receive a bonus equal
to the sum of one year's salary plus the MBO bonus. During this two-year
assignment, Mr. Gooch will receive a housing allowance, a car rental
allowance, and a business travel allowance of $20,000 per year. If Mr. Gooch's
employment is terminated prior to January 1, 1998, and termination payments
are payable under the February Agreement, he will receive one year's salary in
addition to any amounts payable under the February Agreement. At the end of
this two-year assignment, if no mutually acceptable position is available and,
as a result, Mr. Gooch's employment is terminated, he will receive severance
benefits in accordance with the February Agreement.
25
<PAGE>
For purposes of each of the agreements described above, between the Company
and Mr. Weiss, Mr. Lacey, Mr. Gooch, Mr. Wayman and Mr. Williams,
respectively, 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. In addition,
each of these agreements 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 provided for in
the agreement will either be delivered in full or will 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 the former employee.
The Company and Mr. Poppa entered into an agreement on May 23, 1996,
concerning the terms of his retirement from the positions as Chairman,
President and Chief Executive Officer. Under the terms of the agreement, Mr.
Poppa served in an advisory position through January 20, 1997, and was paid
annual base compensation of $650,000. Mr. Poppa also was paid an MBO bonus of
$200,000, as the Company achieved its fiscal 1996 performance goals. Upon his
retirement, Mr. Poppa's outstanding restricted stock vested and he received
his vested stock options. Upon his retirement from the Company, Mr. Poppa
became entitled to receive deferred compensation and medical and life
insurance coverage pursuant to the terms of the Company's existing retirement
plans.
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.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 1996 by its Directors, Officers
(as defined in the rules under Section 16 of the Exchange Act) 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 1996.
26
<PAGE>
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 Compensation Committee
consists of 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, consultants and Directors.
The compensation philosophy and practices at StorageTek have continued to
provide the intended impact during 1996. The Company uses a leveraged package
to emphasize "pay for performance", which, together with a package of base
pay, benefits and perquisites, is designed to attract and retain key
executives.
Compensation Philosophy
The Company's compensation package for executives 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 executives, 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 they 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 those of the Company's stockholders and customers.
To determine industry compensation levels, the Compensation Committee reviews
up to three compensation surveys of primarily high-technology computer
companies, each with data from 20 or more companies. The Compensation
Committee believes the surveyed companies are a close reflection of the
companies that comprise the S & P Computer Systems Index.
Total Compensation
Based upon the surveys of the competitive market and advice developed by an
outside compensation consultant, the Compensation Committee reviewed the total
compensation of the Chief Executive Officer ("CEO") and the other executive
officers in December 1996. The Compensation Committee determined that the
CEO's 1996 targeted total annual compensation, as well as that of the other
executive officers, would be low for 1997, particularly in the components of
base pay and short-term incentive (bonus), given the size, complexity and
expected performance of the Company. As a result, the Compensation Committee
increased all executive officers' total compensation opportunity in 1996, for
implementation in 1997.
With these changes, the overall plan is designed so that if the Company's
performance is lesser or greater than the targets for the at-risk component
(bonus), the CEO's total compensation can vary from 29% to 122% of the
targeted competitive total compensation. The 29% value occurs when the bonus
is not earned and the stock price has not grown. The 122% occurs if the bonus
is maximized and the equity actually adds value at the intended (Black-Scholes
calculated) potential. Equity may add value greater than that projected by the
model. Therefore, the total compensation could be higher than 122% of the
competitive target compensation. For that to occur, the stockholders will have
benefited from stock price growth exceeding 41%, when measured from the
exercise price of the CEO's options. 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
27
<PAGE>
approximately 40% to 120% of the targeted total compensation, while the value
for other executive officers can range from about 50% to 120%.
Salary and Bonus
The annual salaries of the Company's executive officer group for 1996 were
measured and projected to be below the competitive market median for 1997. The
Company appointed a new CEO in May 1996, at a conservative base salary for the
level of responsibility. In December 1996, the CEO's salary was increased,
although his salary is still below the competitive market salary. Increases
were also made to the salaries of all other executive officers in order to
reduce the disparity between the competitive market and StorageTek.
For 1996, performance objectives used to determine bonus compensation for
executive officers primarily focused on earnings per share ("EPS"). If the EPS
target was achieved, new business revenue growth, financial ratios and
productivity measures also were considered. The Company's performance in 1996
exceeded the bonus target with EPS performance at an all-time high for the
Company. The Company paid bonuses for 1996 to the executive officer group at
the level of two times the target bonus, which is the maximum payout under the
MBO bonus formula. As a result, the total cash compensation of all executives
exceeded competitive total cash compensation levels for 1996. This result is
consistent with the Company's pay-for-performance strategy. In addition, in
recognition of what the Compensation Committee believed was an exceptional
effort by five key officers, including the CEO and Chief Financial Officer, a
special, discretionary cash bonus equal to 15% of the officers' MBO bonus was
paid to these officers. See "Compensation of Executive Officers--Employment
Contracts and Termination of Employment and Change-in-Control Arrangements"
above, for additional information regarding agreements between the Company and
the CEO and other Named Executive Officers.
For 1997, the Company will continue to use variable bonus opportunities tied
to objective quantifiable individual and group performance goals, placing the
CEO and the other executive officers in a highly leveraged compensation
position. This means that if the Company meets all the target measurements in
1997, the compensation for the executive officers (including the CEO) should
be competitive with like positions in the set of competitive companies.
Other Benefits
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), and the life insurance benefit is an
individually owned universal policy, in an amount equal to approximately three
times the officers' salaries (versus two times salary for non-officers). A
deferred compensation plan is available. The Company estimates the value of
such benefits to represent approximately 5% of total target compensation to
the CEO, 10% to the other Named Executive Officers and 12% to other officers.
Equity Grants
The Compensation Committee believes that, through the use of stock options
and other equity grants, executive interests are tied directly to enhancing
stockholder value. The Company uses a modified Black-Scholes model, calculated
by a third-party consultant, to project a value for the Company's stock
options and to compare its stock options to stock options granted by companies
within the competitive market. Although the Company may issue other types of
equity-based compensation, the Compensation Committee believes that, for 1997,
a combination of performance-based and standard options will be an appropriate
mix of equity incentives. However, the Compensation Committee may review using
shares of stock in lieu of cash compensation and/or cash bonus payments.
28
<PAGE>
In connection with his appointment in May 1996, the new CEO was granted
options to purchase 250,000 shares of Common Stock at an exercise price of
$34.375 per share. The majority of these options (150,000 shares) are
performance-based options, that is, the vesting dates may be accelerated if
the Company achieves its operating plan income targets. If the plan targets
are achieved, the vesting dates accelerate in the first, second and third
years after the date of grant. If the Company does not meet the plan targets,
these options will vest eight years from date of grant. The remaining 100,000
shares are not performance options and become exercisable in equal
installments on the first three anniversary dates from the date of grant.
As was the case in 1994 and 1995, two types of stock options were granted to
executive officers in December 1996 (i) performance-based options; and (ii)
standard options. All of these options have an exercise price of $48.50 per
share. The performance-based options accounted for approximately 35% of all
options granted to the executive officers in 1996, and have a longer-than-
normal vesting period of six years. However, if the Company's net-after-tax
income goals are met in each of the first three years following the date of
grant, the vesting period for performance-based options will accelerate to the
first, second and third anniversary dates from the date of grant.
The Company achieved its 1996 performance goals and in February 1997, the
Compensation Committee accelerated the vesting dates with respect to
performance options granted in each of 1993, 1994 and 1995, accelerating one-
third of each such grant. The net income performance goals for 1994 and 1995
were not achieved, therefore, two-thirds of the performance stock options
granted in 1993 and one-third of the stock options granted in 1994 did not
accelerate.
The remaining stock options granted in 1996 to executive officers were
standard options that vest solely based upon continued employment and vest
over three years. These options were granted by the Compensation Committee as
a tool to motivate and retain key contributors. These options provide the
executive officers with more leverage (along with the attendant risk and
reward) in order to encourage a level of performance that should be reflected
in the price of the Company's stock.
In connection with restricted stock awards made in December 1995, a cash
bonus plan was established to cover a portion of the tax obligations of the
executive officers upon the vesting of the restricted stock. Payment of this
cash bonus, equal to 12% of the executive officer's December 1995 base salary,
was dependent on the Company achieving cost savings goals established at the
time the Company's 1995 restructuring plan was adopted. Two additional bonuses
may be paid under this plan if the cost savings goals relating to the
restructuring are achieved at measurement dates set at 18 months and 24 months
from the date of award.
Legislative and Regulatory Issues
The Compensation Committee continues to monitor legislative and regulatory
changes that may affect the cost to the Company of the various components of
executive compensation. Additional redesigning of the compensation components
will be studied and implemented as appropriate. The Compensation Committee has
considered the potential impact of Section 162(m) of the Code, and the
regulations thereunder ("Section 162(m)"). Section 162(m) disallows a tax
deduction for any publicly-held corporation for individual compensation
exceeding $1 million in any taxable year for any of the Named Executive
Officers, unless such compensation is performance-based. The Company's policy
is to qualify, to the extent reasonable, its executive officers' compensation
for deductibility under applicable tax laws. However, the Compensation
Committee believes that its primary responsibility is to provide a
compensation program that will attract, retain and reward the executive talent
necessary to further the Company's success. Consequently, the Compensation
Committee recognizes that the loss of a tax deduction could be necessary in
some circumstances. The Company's cash bonus plan for executive officers and
its stock option plan are designed to qualify as performance-based plans
within the meaning of the Section so as to preserve deductibility by the
Company of compensation paid under such plans.
29
<PAGE>
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 helps ensure that there is a balance
between emphasis on the Company's short-term goals (with bonus opportunity as
the reward factor) and the Company's long-term strategies (with equity growth
over a vesting period as the reward factor). The Compensation Committee also
believes it is critical that a significant portion of total compensation is
tied to the interests of the Company's stockholders.
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
30
<PAGE>
The information provided below 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, 1996, 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, 1991, 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.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Storage Technology Corporation.................... 100 52 80 73 60 119
S&P 500 Index..................................... 100 108 118 120 165 203
S&P Computer Systems Index........................ 100 73 76 98 131 175
</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 or the Securities Exchange Act of 1934, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts and is not to be deemed to be
soliciting material.
31
<PAGE>
OTHER MATTERS
The Company knows of no other matters to be presented for consideration at
the meeting other than those matters stated in the Notice of Annual Meeting of
Stockholders. It is the intention of the appointees named in the enclosed
proxy card to vote in accordance with their judgment on any matters that may
properly come before the meeting. Under the Company's Bylaws, in order to be
deemed properly presented, notice must be delivered to or mailed and received
by the Company, not less than 60 days nor more than 90 days prior to the
Annual Meeting; provided, however, if less than 70 days' notice or prior
public disclosure of the date of the Annual Meeting has been given, notice by
the stockholder to be timely must be received by the Company not later than
the close of business on the tenth day following the day on which such notice
of the Annual Meeting was mailed or publicly disclosed. The stockholder's
notice must set forth, as to each proposed matter: (a) a brief description of
the business and reason for conducting such business at the meeting; (b) the
name and address as they appear on the Company's books of the stockholder
proposing such business, or the name of the beneficial holder or other party
on whose behalf the proposal is made; (c) the class and number of shares of
the Company owned by the stockholder or beneficial holder or other party on
whose behalf the proposal is made; and (d) any material interest of the
stockholder or beneficial holder or other party on whose behalf the proposal
is made in such business. The presiding officer of the meeting may refuse to
acknowledge any matter not made in compliance with the foregoing procedure.
STOCKHOLDER PROPOSALS
Any proposal that a stockholder may desire to present to the Company's 1998
Annual Meeting of Stockholders must be received in writing by the Secretary of
the Company on or before December 9, 1997, 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 8, 1997
32
<PAGE>
[RECYCLED PAPER LOGO APPEARS HERE]
<PAGE>
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS
STORAGE TECHNOLOGY CORPORATION
1997 Annual Meeting of Stockholders
The undersigned hereby appoints David E. Weiss and W. Russell Wayman, and each
of them, as the lawful agents and proxies of the undersigned (with full power of
substitution), to represent the undersigned and to vote, as specified herein,
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 22, 1997,
and any adjournment or postponement thereof, and, in their discretion, upon
other matters that properly may come before the meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH
INSTRUCTIONS GIVEN ON THE REVERSE OF THIS CARD, OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR ALL OF THE MANAGEMENT'S NOMINEES FOR DIRECTOR, FOR
PROPOSALS 2 AND 3, AND AGAINST PROPOSAL 4.
(To Be Signed on Reverse Side)
................................................................................
<PAGE>
================================================================================
The Board of Directors unanimously recommends a vote "FOR" Proposals 1, 2 and 3.
================================================================================
<TABLE>
<CAPTION>
For All Nominees Withhold from Nominees:
(except as all Nominees David E. Weiss
indicated below) William L. Armstrong
J. Harold Chandler
1. Election of Directors. ---------------- -------------- Paul Friedman
William R. Hoover
WITHHOLD AUTHORITY to vote for the nominees listed below: Stephen J. Keane
Robert E. La Blanc
Robert E.Lee
- - ------------------------------------------------------------------------ Harrison Shull
Richard C. Steadman
<S> <C> <C> <C>
FOR AGAINST ABSTAIN
2. Ratification of amendments to the 1995 Equity
Participation Plan, including the reservation of
an additional 2,200,000 shares of Common Stock for
issuance thereunder. ---- ---- ----
FOR AGAINST ABSTAIN
3. Ratification of the appointment of Price Waterhouse
LLP as the Company's independent accountants. ---- ---- ----
==============================================================================================================================
The Board of Directors unanimously recommends a vote "AGAINST" stockholder Proposal 4.
==============================================================================================================================
FOR AGAINST ABSTAIN
4. Stockholder proposal requesting the Board of Directors
to adopt stock ownership requirements
for Directors. ---- ---- ----
</TABLE>
In their discretion, the proxies are authorized to vote on any other matters
that may properly come before the meeting.
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED PRE-
PAID ENVELOPE.
SIGNATURE(S)____________________________________DATE__________________
Please mark, date and sign this Proxy exactly as your name appears 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.
<PAGE>
STORAGE TECHNOLOGY CORPORATION
1995 EQUITY PARTICIPATION PLAN
(As amended by the Board of Directors on February 20, 1997*)
SECTION 1
INTRODUCTION
------------
1.1 ESTABLISHMENT. Effective as provided in Section 22, the Company
-------------
hereby establishes a plan of long-term stock-based compensation incentives for
selected employees, directors and consultants 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,
-------
directors and consultants 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, directors and consultants 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, directors and consultants and to retain and motivate participating
employees, directors and consultants 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.
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.
-----
- - --------
*Subject to stockholder approval at or prior to the next annual meeting.
<PAGE>
(c) "Cause" means performance or conduct problems resulting in
-----
discharge, as determined by the Company or Affiliated Company, which
determination will be conclusive.
(d) "Committee" means a committee designated by the Board to
---------
administer the Plan or, if no committee is so designated, the Board.
(e) "Common Stock" means the Company's $.10 par value voting common
------------
stock.
(f) "Common Stock Equivalent" means a right to receive Common Stock
-----------------------
in the future that may be granted to a Participant pursuant to Sections 12, 13
or 15 in lieu of a current issuance of Common Stock, subject to certain
conditions and limitations imposed in accordance with such Sections.
(g) "Consultant" means a natural person who performs services for the
----------
Company, or any Affiliated Corporation, or any division thereof in exchange for
consideration, but who is not an Employee.
(h) "Director" means a member of the Board.
--------
(i) "Effective Date" means the effective date of the 1995 Plan, as
--------------
set forth in Section 22 hereof.
(j) "Eligible Employees" means those Employees 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.
(k) "Employee" means a natural person who is deemed an employee
--------
(including, without limitation, an officer or director who is also an employee)
of the Company, or any Affiliated Corporation, in accordance with the rules
contained in Section 3401(c) of the Internal Revenue Code and the regulations
thereunder.
(l) "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 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.
(m) "Incentive Stock Option" means the right to purchase Common Stock
----------------------
granted to an Employee 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.
-2-
<PAGE>
(n) "Internal Revenue Code" means the Internal Revenue Code of 1986,
---------------------
as it may be amended from time to time.
(o) "Long-Term Employee" means a person who, as of the date he or she
------------------
ceases to be an Employee of the Company or any Affiliated Corporation, has been
an Employee of the Company or any Affiliated Corporation for six years or more,
with no break in such employment of longer than one year.
(p) "MBO Payment" means a payment to a Participant pursuant to the
-----------
Company's MBO Plan, which payment may be made either in shares of Common Stock,
Common Stock Equivalents or in cash, or partly in Common Stock, partly in Common
Stock Equivalents and partly in cash, as determined in accordance with the
provisions of Section 13.
(q) "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.
(r) "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 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.
(s) "Outside Director" means a Director who is not an Employee.
----------------
(t) "Participant" means an Eligible Employee, Director or Consultant
-----------
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.
(u) "Reduction in Force" means any termination of employment that, in
------------------
the sole judgment of the Company, is (i) made at the request of the Company or
an Affiliated Corporation and is due to the elimination of the Employee's
position, or (ii) a reduction in the number of persons employed by the Company,
either overall or in the Employee's function, department, division or other
relevant workplace unit.
(v) "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.
(w) "Retire" means any termination of employment that is deemed to be
------
a "Retirement" by a resolution of the Board of Directors, or any termination of
employment made at the request of the Employee if, as of the date of such
termination, such Employee (a) is age 62 or older and
-3-
<PAGE>
(b) has, at the time of such termination, been employed by the Company or any
Affiliated Corporation for six years or more, with no break in such employment
of longer than one year.
(x) "Retired" means the status of any former Employee after he or she
-------
Retires.
(y) "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.
(z) "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.
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,
Directors and Consultants;
(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 or Common Stock
Equivalent awards granted pursuant to the 1995 Plan;
(iii) shall determine the number of shares of Common Stock or
Common Stock Equivalents 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;
-4-
<PAGE>
(vii) shall determine the Fair Market Value of the Common Stock,
in accordance with Section 2.1(l) 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 or Common
Stock Equivalents 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 19 of the Plan (including, but not limited to,
accelerating vesting or waiving forfeiture restrictions);
(xi) may institute an option exchange program;
(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 or Common Stock
Equivalent 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, Common Stock
Equivalent 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.
3.2 MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule 16b-3, the 1995
------------------------------
Plan may be administered by different bodies with respect to Directors who are
Employees, Outside Directors,
-5-
<PAGE>
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 or Common Stock Equivalent 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 1995 Plan and still
have transactions under the 1995 Plan qualify for exemption 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 awards
granted under the 1995 Plan to qualify for exemption 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 or Common Stock Equivalent 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 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 transactions intended to
qualify thereunder as exempt transactions.
SECTION 4
STOCK SUBJECT TO THE PLAN
-------------------------
4.1 NUMBER OF SHARES. Four million four hundred thousand (4,400,000)
----------------
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
-6-
<PAGE>
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, shares of Common Stock that are issued in
connection with Common Stock Equivalents, and shares of Common Stock that are
issued pursuant to a plan adopted pursuant to Section 15, 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 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 Common Stock Equivalents or 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 a Participant (not including shares
withheld pursuant to Section 20.2) 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, Stock Appreciation Right and Common Stock
Equivalent ("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, Stock
Appreciation Rights or Common Stock Equivalents have yet been granted or that
have been returned to the Plan upon cancellation or expiration of a Stock
Option, Stock Appreciation Right or Common Stock Equivalents (the "Shares
Available for Future Grant"), as well as the price per share of Common Stock
covered by each outstanding Stock Option or Stock Appreciation 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 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 Stock Options or Stock
Appreciation 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
-7-
<PAGE>
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. Unless determined otherwise by the Committee,
Common Stock Equivalents shall convert into shares of Common Stock immediately
prior to the consummation of any such dissolution or liquidation.
(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,
Stock Appreciation Right and Common Stock Equivalent may be assumed or an
equivalent Stock Option, Stock Appreciation Right or Common Stock Equivalent may
be substituted by the successor corporation or a parent or subsidiary of the
successor corporation. The Committee may, in lieu of such assumption or
substitution of Stock Options and Stock Appreciation Rights, provide for
Optionees 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 Common
Stock Equivalent convertible into shares of Common Stock or makes a Stock Option
or Stock Appreciation Right exercisable in lieu of assumption or substitution in
the event of a merger, consolidation or sale of assets, the Committee shall
notify the Participants and, in the case of a Stock Option or Stock Appreciation
Right, 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 shall terminate
upon the expiration of such period. For the purposes of this paragraph, the
Stock Option, Stock Appreciation Right or Common Stock Equivalent shall be
considered assumed if, following the merger, consolidation or sale of assets,
the Stock Option, Stock Appreciation Right or Common Stock Equivalent confers
the right to purchase or receive, for each share of Common Stock subject to the
Stock Option, Stock Appreciation Right or Common Stock Equivalent 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 conversion of a Common Stock Equivalent or upon the exercise of
the Stock Option or Stock Appreciation Right, for each share of Common Stock
subject to the Stock Option, Stock Appreciation Right or Common Stock Equivalent
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.
-8-
<PAGE>
SECTION 5
PARTICIPATION
-------------
5.1 ELIGIBILITY. Participants in the 1995 Plan shall be those Eligible
-----------
Employees, Directors and Consultants who, in the judgment of the Committee, are
performing, or during the term of their service to the Company 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 who are Employees may be granted from time to
time one or more Incentive Stock Options (with or without Stock Appreciation
Rights), and Participants (whether or not they are Employees) may be granted one
or more Non-Qualified Options (with or without Stock Appreciation Rights), one
or more Restricted Stock Awards, one or more MBO Payments in Common Stock
Equivalents or in shares of Common Stock, Common Stock equivalents pursuant to
Section 12, and one or more other Common Stock or Common Stock Equivalent awards
pursuant to Section 15; 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 or Common Stock
Equivalent award is to be granted to a Participant, 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 or Common
Stock Equivalent 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
-9-
<PAGE>
Appreciation Right is reduced, the 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.
(d) Incentive Stock Options may not be granted to Outside Directors
or to Consultants.
5.3 RULE 16B-3. Stock Options, Stock Appreciation Rights, Restricted
----------
Stock Awards, MBO Payments and other Common Stock or Common Stock Equivalent
awards granted to Participants who are subject to Section 16 of the Securities
Exchange Act of 1934, as amended (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 granted to an Employee 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 Employee 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. All Stock Options granted to Participants who are not Employees
shall be Non-Qualified Options.
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 20, the Participant shall be recorded on the
stock transfer books of the Company as the owner of the shares
-10-
<PAGE>
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 in the manner specified in the option
agreement relating to such Stock Option, which may include any or all of the
following methods of payment:
(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 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.
In the event that the option agreement does not specify the acceptable methods
of payment of the exercise price, payment may be made by any of the methods
specified in clauses (i) through (iii), inclusive, of this Section 6.3, or any
combination of such methods of payment.
-11-
<PAGE>
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 (or
deemed to have been granted under applicable tax rules), 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 (or deemed to have been granted under
applicable tax rules), 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 (or deemed to have been granted under
applicable tax rules), 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").
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. To the
-------------------------------------------------------
extent 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, exceeds $100,000, such excess shall be treated as a
Non-Qualified Option.
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
-12-
<PAGE>
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.
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 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 or amended, but in no
event shall such exercise price per share 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 or amended.
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
-13-
<PAGE>
terminate and may no longer be exercised if the Participant ceases to be
an Employee, Director or Consultant.
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, (i) at the
time of the grant of such Stock Option in the case of an Incentive Stock Option
or (ii) 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. A
Stock Appreciation Right shall be exercised by 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, in the agreement relating to the Stock
Appreciation Right, either (i) specify the form in which payment of the economic
value of exercised Stock Appreciation Rights will be made to the Participant
upon exercise thereof (i.e., cash, Common Stock, or a specified combination
thereof) or (ii) grant the Participant the right to elect to receive cash in
full or partial payment of such economic value, at the Participant's discretion.
If the agreement relating to the Stock Appreciation Right does not so specify,
then the Participant shall have the right to elect cash or Common
-14-
<PAGE>
Stock, Common Stock Equivalents or any combination thereof. If the Participant
is not an "officer" or "director" of the Company, as those terms are defined in
the rules under Section 16 of the Exchange Act, at the time of grant or exercise
of the Stock Appreciation Right, then the Committee may retain the right to
either consent to or disapprove of Participant's elected method of payment.
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.
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 status
as an Employee, Director or Consultant 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, director
service or consulting service 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 14, if a
Participant's continuous status as an Employee, Director or Consultant
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 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 16.2 hereof.
-15-
<PAGE>
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.
SECTION 11
EFFECT OF TERMINATION OF SERVICE ON STOCK OPTIONS,
---------------------------------------------------
STOCK APPRECIATION RIGHTS AND RESTRICTED STOCK AWARDS
-----------------------------------------------------
11.1 EFFECT OF TERMINATION OF SERVICE 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 an Employee,
Director or Consultant, except as follows:
(a) The Stock Option or Stock Appreciation Right may be exercised
within such period of time after termination of service as is specified in the
Stock Option or Stock Appreciation Right agreement or instrument, but (i) in no
event may such post-termination period extend beyond the original expiration
date of the Stock Option or Stock Appreciation Right and (ii) only to the extent
that the Participant was entitled to exercise it at the date of termination of
service. 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 the applicable period and to the
extent specified in Section 11.5 below following the Participant's termination
of service as an Employee, Director or Consultant. In the case of an Incentive
Stock Option, such period of time shall not exceed 90 days from the date of
termination of status as an Employee; provided, however, that the agreement may
-------- -------
specify a longer period, in which case Stock Option shall convert to a Non-
Qualified Option on the 91st day following termination of employment.
(b) If the Participant dies while serving as an Employee, Director or
Consultant, or within three months after the Participant ceases such service,
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 distribution within
such period of time after death as is specified in the Stock Option or Stock
Appreciation Right agreement or instrument, but in no event may such post-death
period extend beyond the original expiration date of the Stock Option or Stock
Appreciation Right. 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 the applicable period and to the
extent specified in Section 11.5 below.
-16-
<PAGE>
(c) If the Participant becomes disabled (within the meaning of
Section 22(e)(3) of the Internal Revenue Code) while serving as an Employee,
Director or Consultant, the Stock Option or Stock Appreciation Right may be
exercised within such period of time after termination of service as is
specified in the Stock Option or Stock Appreciation Right agreement or
instrument, but in no event may such post-termination period extend beyond the
original expiration date of the Stock Option or Stock Appreciation Right. 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 the applicable period and to the extent specified in
Section 11.5 below.
11.2 EFFECT OF TERMINATION OF SERVICE ON RESTRICTED STOCK AWARDS. In the
-----------------------------------------------------------
event of the death or disability (as defined in Section 11.1(c)) of a
Participant, all period of service 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 service for any other reason, any Restricted Stock
Awards as to which the employment period or other restrictions have not been
satisfied shall be forfeited.
11.3 MEANING OF EMPLOYMENT. 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 3401(c) of the Internal
Revenue Code and the regulations thereunder.
11.4 MEANING OF CONTINUOUS STATUS. Unless otherwise specified in the Stock
----------------------------
Option or Stock Appreciation Right agreement or instrument, so long as a
Participant is either an Employee or a Director or a Consultant, he or she shall
be considered to be in continuous status as an Employee, Director or Consultant,
even if the person is serving in one capacity when the award is granted and
subsequently changes to service in a different capacity, such as terminating
employment but continuing to serve as a Consultant.
11.5 DEFAULT PROVISIONS FOR TERMINATION OF SERVICE. In the event that the
---------------------------------------------
Stock Option or Stock Appreciation Right agreement or instrument do not specify
the post-termination period of exercisability, the following provisions shall
apply:
(a) Subject to 11.5(f), if such termination is due to the death of
the Participant, or the Participant dies within three months after such
termination, or if such termination occurs after the Participant becomes
disabled (within the meaning of Section 22(e)(3) of the Internal Revenue Code),
the Stock Option or Stock Appreciation Right may be exercised by the Participant
(or, in the case of death, by the person to whom it is transferred by will of
the laws of descent and distribution): (i) for all Incentive Stock Option
grants, or for Non-Qualified Stock Option grants or Stock Appreciation Right
grants made before May 22, 1997, or for Non-Qualified Stock Option grants or
Stock Appreciation Right grants made on or after May 22, 1997, if, at the time
of the Participant's termination, such Participant was not a Long-Term Employee,
then within a period of one year after the date of death (but in no event longer
than the term of the Stock Option or Stock Appreciation Right); and (ii) for
grants made on or after May 22, 1997, if the Participant was a Long-Term
Employee at the time of the Participant's termination, the Non-Qualified Stock
Option or Stock Appreciation Right may be exercised,
-17-
<PAGE>
to the extent it is vested as of the date of the Participant's termination, for
the entire remaining term of such Stock Option or Stock Appreciation Right.
(b) Subject to 11.5(f), if such termination occurs after the
Participant becomes disabled (within the meaning of Section 22(e)(3) of the
Internal Revenue Code), the Stock Option or Stock Appreciation Right may be
exercised: (i) for all Incentive Stock Option grants, or for Non-Qualified
Stock Option or Stock Appreciation Right grants made before May 22, 1997,
or for Non-Qualified Stock Option grants or Stock Appreciation Right grants made
on or after May 22, 1997, if, at the time of the Participant's termination,
such Participant was not a Long-Term Employee, then within a period of one year
after the date of such termination (but in no event longer than the term of the
Stock Option or Stock Appreciation Right); and (ii) for grants made on or after
May 22, 1997, if the Participant is a Long-Term Employee, a Non-Qualified
Stock Option or Stock Appreciation Right may be exercised to the extent it is
vested as of the date of the Participant's termination for the entire remaining
term of such Stock Option or Stock Appreciation Right.
(c) Subjection to 11.5(f), if such termination is due to a Reduction
in Force, then, for grants on or after May 22, 1997, the Stock Option or
Stock Appreciation Right shall be exercisable, to the extent vested at the time
of such termination, for a period of six months from the date of such
termination.
(d) Subject to 11.5(f), if the Participant Retires, then, for grants
on or after May 22, 1997, the Stock Option or Stock Appreciation Right
shall be exercisable, to the extent vested at the time the Participant Retires,
for the entire remaining term of such Stock Option or Stock Appreciation Right.
(e) Subject to 11.5(f), if the Participant's employment is terminated
for any reason other than those reasons covered by subsections (a) through (d)
of this Section 11.5, then the Stock Option or Stock Appreciation Right shall be
exercisable, to the extent vested at the time of such termination, for a period
of ninety (90) days after the date of such termination.
(f) Notwithstanding the provisions of Section 11.5(a) through (e)
above, with respect to all grants of Stock Options or Stock Appreciation Rights
occurring on or after May 22, 1997, no such grants shall be exercisable
after the date of termination of employment if either the termination was for
Cause, or if the former Employee, Consultant or Director is then, in the sole
judgment of the Company, in material breach of any contractual, statutory,
fiduciary or other legal obligation to the Company.
-18-
<PAGE>
SECTION 12
DIRECTOR STOCK AND STOCK EQUIVALENTS
------------------------------------
12.1 DIRECTOR STOCK AND STOCK EQUIVALENTS. Effective with the beginning of
------------------------------------
the Company's fiscal year beginning December 28, 1996, each Outside Director may
receive all or a portion of his or her annual retainer and any meeting fees
(which shall include any additional annual retainer or fees paid to a committee
chair) in shares of Common Stock or, if elected by the Director, in Common Stock
Equivalents. An election pursuant to this Section 12 must be made in writing on
or before the first day of the beginning of the Outside Director's annual
retainer period and shall entitle the Outside Director to a number of shares of
Common Stock or Common Stock Equivalents determined by dividing (i) the dollar
amount of the portion of the retainer for the fiscal period that is to be paid
in shares of Common Stock or Common Stock Equivalents by (ii) the Fair Market
Value of one share of Common Stock as of the last day of each such fiscal
period, rounded up to the next full number of shares. In the event any person
becomes an Outside Director other than at the beginning of an annual retainer
period, such person may elect, within thirty (30) days of the date on which such
person becomes an Outside Director, to receive his or her retainer and any
meeting fees in shares of Common Stock or Common Stock Equivalents as described
above for the balance of such annual retainer period in accordance with the
formula set forth in the preceding sentence.
For purposes of this Section 12, an annual retainer period shall begin on
the date of an Annual Meeting of the Stockholders of the Company and shall end
on the day immediately preceding the next following Annual Meeting.
12.2 STOCK EQUIVALENTS. The number of Common Stock Equivalents determined
-----------------
under Section 12.1 for each Outside Director shall be credited to a bookkeeping
account established in the name of that Director subject to the following terms
and conditions:
(i) If the Company pays a cash dividend with respect to the Common
Stock at any time while Common Stock Equivalents are credited to an Outside
Director's account, there shall be credited to the Outside Director's account
additional Common Stock Equivalents equal to (a) the dollar amount of the cash
dividend the Director would have received had he or she been the actual owner of
the Common Stock to which the Common Stock Equivalents then credited to the
Director's account relate, divided by (b) the Fair Market Value of one share of
the Company's Common Stock on the dividend payment date. The Company will pay
the Director a cash payment in lieu of fractional stock equivalents on the date
of such dividend payment.
(ii) Upon the death or other termination of the Outside Director's
service on the Board, or, if authorized by the Committee, such other time or
times as specified by the Outside Director at the time of his or her annual
election(s), the Company shall deliver to the Outside Director (or his or her
designated beneficiary or estate) a number of shares of Common Stock equal to
the whole number
-19-
<PAGE>
of Common Stock Equivalents then credited to the Director's account, together
with a cash payment equal to the Fair Market Value of any fractional Common
Stock Equivalent.
(iii) The Company's obligation with respect to Common Stock
Equivalents shall not be funded or secured in any manner, nor shall an Outside
Director's right to receive Common Stock equivalents be assigned or
transferable, voluntarily or involuntarily, except as expressly provided herein.
(iv) An Outside Director shall not be entitled to any voting or other
stockholder rights as a result of the credit of Common Stock Equivalents to the
Director's account until certificates representing shares of Common Stock are
delivered to the Director (or his or her designated beneficiary or estate)
hereunder.
12.3 ELECTIONS. The Committee shall determine the form of Outside
---------
Director's elections pursuant to this Section 12, which form shall evidence the
particular provisions, terms, conditions, rights and duties of the Company and
the Outside Directors with respect to Common Stock and Common Stock Equivalents
paid with respect to the Director's annual retainer and any meeting fees.
SECTION 13
MBO PAYMENTS
------------
13.1 PARTICIPANT ELECTION AS TO MBO PAYMENT. At such time as the Committee
--------------------------------------
determines that a Participant has or may become eligible for an MBO Payment
pursuant to the MBO Plan, the Committee may notify the Participant as to whether
or not the Participant will be required by the Committee to, or will be given
the right to elect to, accept all or a part of such MBO Payment in the form of
shares of Common Stock or Common Stock Equivalents. If the Committee grants the
Participant the right to elect whether to accept the MBO Payment in Common Stock
or Common Stock Equivalents, 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 or Common Stock Equivalents. 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.
13.2 DETERMINATION OF NUMBER OF SHARES. The number of shares of Common
---------------------------------
Stock or Common Stock Equivalents that shall be issued or credited 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 or Common Stock
Equivalents (whether as elected above or as adjusted by the Committee pursuant
to Section 13.3) by the Fair Market Value of the Common Stock on the date the
shares are issued or credited with respect to such Payment. No fractional
shares of Common Stock or Common Stock Equivalent shall be issued or credited as
a part of an MBO Payment and the value of any such
-20-
<PAGE>
fractional share that would otherwise be issued pursuant to the Participant's
election shall be paid in cash.
13.3 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 Common Stock
Equivalents or to determine that a lesser portion, or none, of the MBO Payment
will be made in shares of Common Stock or Common Stock Equivalents, and the
Committee's determination in this regard shall be final and binding on the
Participant.
SECTION 14
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, Directors or Consultants of the Company; 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;
(b) all restrictions with respect to outstanding Restricted Stock
Awards shall immediately lapses; and
(c) all Common Stock Equivalents shall convert into shares of Common
Stock as of the date determined by the Committee.
-21-
<PAGE>
SECTION 15
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, Directors or Consultants pursuant to which such Eligible
Employees, Directors or Consultants may acquire shares of Common Stock or Common
Stock Equivalents, 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 or Common Stock Equivalents issued or credited pursuant
to such arrangements shall be issued under the 1995 Plan if so designated by the
Committee.
SECTION 16
RIGHTS OF PARTICIPANTS
----------------------
16.1 EMPLOYMENT, DIRECTORSHIP OR CONSULTING RELATIONSHIP. Nothing
---------------------------------------------------
contained in the 1995 Plan or in any Stock Option, Stock Appreciation Right,
Restricted Stock Award or other Common Stock or Common Stock Equivalent award
granted under the 1995 Plan shall confer upon any Participant any right with
respect to the continuation of his or her employment, service as a director or
consulting relationship with the Company or any Affiliated Corporation, or
interfere in any way with the right of the Company or any Affiliated
Corporation, subject to the terms of any separate agreement to the contrary, at
any time to terminate such service 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 or Common Stock Equivalent award. Whether an authorized leave of absence,
or absence in military or government service, shall constitute termination of
service shall be determined by the Committee at the time.
16.2 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 or Common Stock Equivalent 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 or
Common Stock Equivalent 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 or Common Stock Equivalent 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
-22-
<PAGE>
Stock Options or Stock 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 17
GENERAL RESTRICTIONS
--------------------
17.1 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 or Common Stock Equivalent 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
or Common Stock Equivalent 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 or Common Stock
Equivalent 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.
17.2 COMPLIANCE WITH SECURITIES LAWS. Each Stock Option, Stock
-------------------------------
Appreciation Right and Common Stock Equivalent 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, Stock Appreciation Right or Common Stock Equivalent 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, Stock Appreciation Right or Common Stock Equivalent 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.
17.3 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
or Common Stock Equivalent 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 restriction has not been satisfied and any
other Common Stock awards or Common Stock Equivalent.
-23-
<PAGE>
SECTION 18
OTHER BENEFITS
--------------
The amount of any compensation deemed to be received by an Employee,
Director or Consultant 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
or Common Stock Equivalent award will not constitute "earnings" with respect to
which any other benefits provided by the Company or an Affiliated Corporation to
such person are determined, including without limitation benefits under any
pension, profit sharing, life insurance or salary continuation plan.
SECTION 19
PLAN AMENDMENT, MODIFICATION AND TERMINATION
--------------------------------------------
19.1 AMENDMENT OR 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.
The Company shall obtain stockholder approval of any amendment to the extent
necessary and desirable to comply with Applicable Laws. "Applicable Laws" means
the requirements relating to the administration of stock option plans under U.
S. state corporate laws, U.S. federal and state securities laws, the Code, any
stock exchange or quotation system on which the Common Stock is listed or quoted
and the applicable laws of any foreign country or jurisdiction where Stock
Options, Stock Appreciation Rights, Restricted Stock Awards or other Common
Stock or Common Stock Equivalent awards are, or will be, granted under the 1995
Plan.
19.2 EFFECT OF AMENDMENT. Any Stock Option, Stock Appreciation Right,
-------------------
Restricted Stock Award or other Common Stock or Common Stock Equivalent 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 14 or Section 17.3. 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 or Common Stock Equivalent 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.
19.3 PRESERVATION OF INCENTIVE STOCK OPTIONS. 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
-24-
<PAGE>
favorable treatment as may be afforded Incentive Stock Options under Section 422
of the Internal Revenue Code.
SECTION 20
WITHHOLDING
-----------
20.1 WITHHOLDING REQUIREMENT. The Company's obligations to deliver shares
-----------------------
of Common Stock upon the exercise of any Stock Option or Stock Appreciation
Right granted under the 1995 Plan or upon any MBO Payment under the 1995 Plan or
pursuant to any other Common Stock or Common Stock Equivalent award, shall be
subject to the Participant's satisfaction of all applicable federal, state and
local income and other tax withholding requirements.
20.2 WITHHOLDING WITH COMMON STOCK. At the time the Committee grants a
-----------------------------
Stock Option, Stock Appreciation Right, MBO Payment or any other Common Stock or
Common Stock Equivalent 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 conditions:
(a) All elections must be made prior to the Tax Date;
(b) All elections shall be irrevocable; and
(c) If the Participant is an officer or director of the Company
within the meaning of Section 16 of the Exchange Act, then the approval by the
Committee of the grant of the award shall be deemed to include approval by the
Committee of the election by such Participant to utilize this withholding
provision, unless otherwise specified in the agreement relating to the award.
SECTION 21
REQUIREMENTS OF LAW
-------------------
21.1 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.
-25-
<PAGE>
21.2 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 22
EFFECTIVE DATE OF THE 1995 PLAN
-------------------------------
22.1 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.
22.2 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 or Common
Stock Equivalent award shall be granted after such termination. Stock Options,
Stock Appreciation Rights, Restricted Stock Awards and other Common Stock Common
Stock Equivalent 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.
-26-
