<PAGE> 1
SCHEDULE 14A INFORMATION
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
STORAGE TECHNOLOGY CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[STORAGETEK LOGO]
April 5, 1999
Dear StorageTek Stockholder:
I am pleased to invite you to attend the 1999 Annual Meeting of
Stockholders of Storage Technology Corporation to be held at 10:00 a.m., CDT, on
Thursday, May 20, 1999, at the Minneapolis Hilton and Towers, in Minneapolis,
Minnesota.
The Annual Meeting will begin with a formal business session during which
stockholders will vote on the proposals identified and described in the enclosed
Notice of Annual Meeting and Proxy Statement. Following this, I plan to present
a report on our accomplishments during the last year and our plans for the
remainder of 1999. I will also be available to answer questions from the floor.
Your vote is important. Whether or not you plan to attend the Annual
Meeting, I encourage you to promptly follow the easy voting instructions on the
enclosed proxy card to vote over the Internet or by telephone, or sign, date and
return the proxy card in the enclosed postage-paid envelope.
Thank you for your continued interest in StorageTek.
Sincerely,
/S/DAVID E. WEISS
David E. Weiss
Chairman, President and
Chief Executive Officer
<PAGE> 3
STORAGETEK LOGO
STORAGE TECHNOLOGY CORPORATION
One StorageTek Drive
Louisville, Colorado 80028-0001
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 1999
To the Stockholders:
Notice is hereby given that the Annual Meeting of Stockholders of Storage
Technology Corporation ("StorageTek" or the "Company"), a Delaware corporation,
will be held on Thursday, May 20, 1999, at 10:00 a.m., CDT, at the Minneapolis
Hilton and Towers, 1001 Marquette Avenue, Minneapolis, Minnesota 55403, for the
following purposes:
1. To elect 10 Directors;
2. To amend the Company's Restated Certificate of Incorporation to increase
the number of authorized shares of Common Stock from 150,000,000 to
300,000,000 shares;
3. To amend the Company's 1995 Equity Participation Plan, as amended, to
reserve an additional 4,750,000 shares of Common Stock for issuance
thereunder;
4. To approve the terms of a performance-based incentive plan;
5. To ratify the appointment of PricewaterhouseCoopers LLP as the Company's
independent accountants for the current fiscal year;
6. To consider a stockholder proposal; and
7. 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
March 26, 1999, will be entitled to notice of and to vote at the meeting and any
adjournment thereof. The stock transfer books of the Company will remain open.
WE INVITE EACH OF YOU TO ATTEND THE MEETING. IF YOU CANNOT ATTEND, PLEASE
CAST YOUR VOTE OVER THE INTERNET OR BY TELEPHONE, OR 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
Lizbeth J. Stenmark
Secretary
Louisville, Colorado
April 5, 1999
YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, WE URGE YOU TO VOTE. THIS
WILL ENSURE THE PRESENCE OF A QUORUM AT THE MEETING. PLEASE USE THE INTERNET
VOTING INSTRUCTIONS, OR TOLL-FREE TELEPHONE NUMBER, OR MARK, SIGN, DATE AND
RETURN YOUR PROXY CARD SO THAT YOUR SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR
WISHES. A PROMPT RESPONSE IS HELPFUL AND YOUR COOPERATION IS APPRECIATED.
<PAGE> 4
STORAGE TECHNOLOGY CORPORATION
PROXY STATEMENT
April 5, 1999
PROCEDURAL MATTERS
THIS PROXY STATEMENT IS FURNISHED TO THE STOCKHOLDERS OF STORAGE TECHNOLOGY
CORPORATION ("STORAGETEK" OR THE "COMPANY") IN CONNECTION WITH THE SOLICITATION
OF PROXIES BY AND ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD
OF DIRECTORS" OR "BOARD") TO BE VOTED AT THE ANNUAL MEETING OF STOCKHOLDERS TO
BE HELD ON THURSDAY, MAY 20, 1999, AT 10:00 A.M., CDT, OR AT ANY ADJOURNMENT OR
POSTPONEMENT THEREOF. Stockholders of record of Common Stock of the Company at
the close of business on March 26, 1999 (the "Record Date"), will be entitled to
notice of and to vote at the meeting and any adjournment or postponement
thereof. The Annual Meeting will be held at the Minneapolis Hilton and Towers,
1001 Marquette Avenue, Minneapolis, Minnesota 55403.
This Proxy Statement and the enclosed 1998 Summary Annual Report to
Stockholders, Annual Report on Form 10-K for the year-ended December 25, 1998,
and proxy card are first being mailed to the stockholders beginning on or about
April 5, 1999.
VOTING REQUIREMENTS
Proxies received prior to the meeting will be voted in accordance with the
instructions contained in the Internet or telephone instructions or the proxy
card. If no instructions are given with respect to a matter, shares will be
voted in accordance with the recommendation of the Board of Directors set forth
in this Proxy Statement and, at the appointed proxies' discretion, upon such
other matters that may properly come before the meeting.
VOTING PROCEDURES
Stockholders of record can vote their shares by accessing the Internet
address or by calling the toll-free telephone number listed in the voting
instructions attached to the proxy card, or by completing and returning the
enclosed proxy card. The Internet and telephone voting procedures are designed
to authenticate stockholders by use of a control number. The Internet and
telephone voting procedures allow stockholders of record to vote their shares
and to confirm that their instructions have been properly recorded. If your
shares of Common Stock are held in the name of a bank or broker, you may be able
to vote over the Internet or by telephone. Follow the instructions in the proxy
materials you receive from your bank or broker if Internet and telephone voting
are offered.
Proxies may be revoked at any time prior to the exercise of the powers
conferred thereby, by giving written notice of revocation to the Secretary of
the Company, or by submitting another valid proxy bearing a later date to the
Company or its transfer agent, or by voting in person at the Annual Meeting.
Beneficial owners wishing to vote at the Annual Meeting who are not stockholders
of record on the Company's books (e.g., persons holding stock in a 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
The cost of solicitation of proxies will be borne by the Company. In
addition to the solicitation of proxies by mail, further solicitation may be
made by certain directors, officers and other employees of the Company by mail
or other means of communication for which no additional compensation will be
paid. As of this date, the Company plans to retain an outside firm to solicit
proxies. If, after the mailing of this Proxy Statement and prior to the Annual
Meeting, the Company retains an outside firm to solicit proxies, the Company
will pay the cost of soliciting proxies, which the Company estimates will
approximate $10,000, plus certain out-of-pocket
<PAGE> 5
expenses. In addition, the Company will also reimburse intermediaries for their
expenses in forwarding solicitation materials to beneficial owners.
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 term "broker non-vote" refers to shares held by a broker in street name
that are present by proxy, but that are not voted on a matter pursuant to rules
prohibiting brokers from voting on certain matters, without instructions from
the beneficial owners of the shares. 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 have no effect upon the outcome of
voting on the election of directors, the amendment to the 1995 Equity
Participation Plan, the approval of the terms of the performance-based incentive
plan, ratification of the Company's independent accountants, or the stockholder
proposal described herein (the "Stockholder Proposal"). In the case of the
proposed amendment to the Company's Restated Certificate of Incorporation, a
broker non-vote will have the effect of a vote against the matter.
Based upon New York Stock Exchange rules, the Company believes that all of
management's proposals are considered "discretionary" and, accordingly,
brokerage firms may vote shares held for the beneficial owners if no voting
instructions have been furnished by such beneficial owners within 10 days prior
to the Annual Meeting. The Stockholder Proposal is not considered discretionary
and brokerage firms may not vote shares held for beneficial owners without
specific instructions from the beneficial owners.
The vote required for the election of directors is a plurality of the votes
of the shares of Common Stock represented at the Annual Meeting in person or by
proxy and entitled to vote. The affirmative vote of a majority of the
outstanding shares of Common Stock, as of the Record Date, is required for the
adoption of the proposed amendment to the Company's Restated Certificate of
Incorporation to increase the authorized number of shares of Common Stock as
described herein. The vote required for the approval of the other proposals
described herein, including the amendment to the 1995 Equity Participation Plan;
the terms of the performance-based incentive plan; the ratification of the
Company's independent accountants; the Stockholder Proposal; and all other
matters is the affirmative vote of a majority of the shares of the Votes Cast.
STOCK SPLIT
On May 21, 1998, the Board of Directors declared a 2-for-1 stock split
effected in the form of a 100% dividend. The dividend of one share of Common
Stock for each share outstanding on June 26, 1998, was paid to holders of record
of StorageTek Common Stock on June 5, 1998. Unless otherwise indicated, the
information in this Proxy Statement regarding StorageTek Common Stock, and stock
options, Common Stock equivalents and restricted stock, has been adjusted to
reflect the effect of this stock split.
2
<PAGE> 6
ANNUAL REPORT
This Proxy Statement is accompanied by the Company's 1998 Summary Annual
Report to Stockholders (the "Annual Report") and the Company's Annual Report on
Form 10-K for the fiscal year ended December 25, 1998 (the "Form 10-K").
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 solicitation materials. CERTAIN OTHER INFORMATION ABOUT THE
COMPANY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS AVAILABLE WITHOUT
CHARGE UPON WRITTEN REQUEST. PLEASE CONTACT INVESTOR RELATIONS, STORAGE
TECHNOLOGY CORPORATION, ONE STORAGETEK DRIVE, LOUISVILLE, COLORADO 80028-4315,
TELEPHONE 1 (800) 785-2217, E-MAIL [email protected], IF YOU WOULD LIKE
TO REQUEST SUCH ADDITIONAL INFORMATION. THE COMPANY'S PRINCIPAL EXECUTIVE
OFFICES ARE LOCATED AT ONE STORAGETEK DRIVE, LOUISVILLE, COLORADO 80028,
TELEPHONE (303) 673-5151.
3
<PAGE> 7
VOTING SECURITIES OF THE COMPANY
On the Record Date for the Annual Meeting, March 26, 1999, the Company had
issued, outstanding and entitled to vote [ ] 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
management's additional nominee for Director; (iii) by each executive officer
listed in the Summary Compensation Table under the heading "COMPENSATION OF
EXECUTIVE OFFICERS" (the "Named Executive Officers"); and (iv) by all current
Directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENT
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER OF OWNERSHIP(1) CLASS
- ------------------------------------ ----------------- -------
<S> <C> <C>
Capital Research and Management Company..................... 10,570,000(2) [10.60%]
333 South Hope Street
Los Angeles, CA 90071
Legg Mason, Inc............................................. 10,454,104(3) [10.48%]
100 Light Street
Baltimore, MD 21202
The Guardian Life Insurance Company of America.............. 5,180,400(4) [5.18%]
201 Park Avenue South
New York, NY 10003
David E. Weiss.............................................. 732,511(5) *
Victor M. Perez............................................. 40,085(6) *
Donald B. Davis............................................. 31,093(7) *
Jean Reiczyk................................................ 5,344(8) *
Bruce Taafe................................................. 2,386 *
L. Thomas Gooch............................................. 24,812(9) *
David E. Lacey.............................................. 32,075(10) *
James R. Adams.............................................. 2,500(11) *
William L. Armstrong........................................ [29,796](12) *
J. Harold Chandler.......................................... [20,272](13) *
Maurice F. Holmes........................................... [6,271](14) *
William R. Hoover........................................... [36,738](15) *
Stephen J. Keane............................................ 60,735(16) *
William T. Kerr............................................. [11,892](17) *
Robert E. La Blanc.......................................... 86,060(18) *
Robert E. Lee............................................... [39,026](19) *
Harrison Shull.............................................. [91,954](20) *
Richard C. Steadman......................................... 96,302(21) *
All current Directors and executive officers (20 persons) as
a group................................................... [1,314,715](22) [1.31%]
</TABLE>
- ---------------
* Less than 1% of the class.
(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 reported as beneficially owned by Directors
4
<PAGE> 8
and executive officers include stock options that are exercisable within 60
days of the Record Date and Common Stock equivalents that will be settled
in shares of Common Stock, as disclosed in the footnotes. Share ownership
by greater than 5% holders is based upon the respective Schedule 13G
filings, which reflect ownership as of December 31, 1998.
(2) This information has been derived from a Schedule 13G filed with the
Securities and Exchange Commission. Represents shares that are beneficially
held by Capital Research and Management Company, a registered investment
advisor, for its clients. Capital Research and Management Company has sole
dispositive power with respect to these shares.
(3) This information has been derived from a Schedule 13G filed with the
Securities and Exchange Commission. Represents shares that are beneficially
owned by Legg Mason, Inc., a parent holding company, and held by the
following persons: (i) 6,225,000 shares (6.9%) are held by Legg Mason Value
Trust, Inc., with Legg Mason Fund Adviser, Inc. (LMFA) having sole
dispositive power for the shares; (ii) Legg Mason American Leading
Companies Trust; (iii) Legg Mason Special Investment Trust; (iv) LM
Institutional Portfolio, with LMFA having sole dispositive power; and (v)
by various clients of Legg Mason Wood Walker, Inc., Legg Mason Capital
Management, Inc., and Legg Mason Trust Company, each having sole
dispositive power. Legg Mason, Inc. has sole voting and dispositive power
for 8,419,649 shares, and shared voting and dispositive power for 2,034,455
shares.
(4) This information has been derived from a Schedule 13G filed with the
Securities and Exchange Commission. Represents shares owned by The Guardian
Life Insurance Company of America, an insurance company, and includes
shares held by the following persons: (i) Guardian Investor Services
Corporation (GISC), a registered investment advisor; (ii) the Guardian Park
Ave. Fund; (iii) the Guardian Stock Fund, Inc.; and (iv) the Guardian Asset
Allocation Fund, none of which individually owns more than 5% of the
outstanding Common Stock. The Guardian Life Insurance Company of America
has sole voting and dispositive power over 1,280,000 shares, and shared
voting and dispositive power over 402,400 shares; and GISC has shared
voting and dispositive power over 3,498,000 shares.
(5) Includes 703,207 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 25,941 shares of Common Stock issuable upon exercise of options
held by Mr. Perez, which options are exercisable within 60 days of the
Record Date.
(7) Includes 22,553 shares of Common Stock issuable upon exercise of options
held by Mr. Davis, which options are exercisable within 60 days of the
Record Date. Mr. Davis resigned as an executive officer of the Company
effective as of December 31, 1998, and remains an employee of the Company.
(8) Includes 2,844 shares of Common Stock issuable upon exercise of options
held by Mr. Reiczyk, which options are exercisable within 60 days of the
Record Date.
(9) Mr. Gooch resigned as an executive officer of the Company effective as of
February 28, 1998.
(10) Mr. Lacey resigned as an executive officer of the Company on December 18,
1998.
(11) Mr. Adams has been nominated to stand for election as a Director for the
first time at the Annual Meeting.
(12) Includes (i) 24,000 shares of Common Stock issuable upon exercise of
options held by Mr. Armstrong, which options are exercisable within 60 days
of the Record Date, and (ii) [1,796] Common Stock equivalents, which will
be settled in shares of Common Stock upon Mr. Armstrong's resignation or
other termination from the Board.
(13) Includes (i) 16,666 shares of Common Stock issuable upon exercise of
options held by Mr. Chandler, which options are exercisable within 60 days
of the Record Date, and (ii) [1,606] Common Stock equivalents, which will
be settled in shares of Common Stock upon Mr. Chandler's resignation or
other termination from the Board.
5
<PAGE> 9
(14) Mr. Holmes was elected to the Board of Directors on September 24, 1998, and
has been nominated to stand for re-election at the Annual Meeting. Includes
5,000 shares of Common Stock issuable upon exercise of options held by Mr.
Holmes, which options are exercisable within 60 days of the Record Date.
(15) Includes (i) 30,000 shares of Common Stock issuable upon exercise of
options held by Mr. Hoover, which options are exercisable within 60 days of
the Record Date, and (ii) [1,738] Common Stock equivalents, which will be
settled in shares of Common Stock upon Mr. Hoover's resignation or other
termination from the Board.
(16) Mr. Keane currently serves as a Director, but is not standing for
re-election at the Annual Meeting. Includes 43,904 shares of Common Stock
issuable upon exercise of options held by Mr. Keane, which options are
exercisable within 60 days of the Record Date.
(17) Includes 10,000 shares of Common Stock issuable upon exercise of options
held by Mr. Kerr, which options are exercisable within 60 days of the
Record Date, and (ii) [692] Common Stock equivalents, which will be settled
in shares of Common Stock upon Mr. Kerr's resignation or other termination
from the Board.
(18) Includes 76,000 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.
(19) Includes (i) 36,000 shares of Common Stock issuable upon exercise of
options held by Mr. Lee, which options are exercisable within 60 days of
the Record Date, and (ii) [858] Common Stock equivalents, which will be
settled in shares of Common Stock upon Mr. Lee's resignation or other
termination from the Board.
(20) Mr. Shull currently serves as a Director, but is not standing for
re-election at the Annual Meeting. Includes (i) 56,000 shares of Common
Stock issuable upon exercise of options held by Mr. Shull, which options
are exercisable within 60 days of the Record Date, and (ii) [1,772] Common
Stock equivalents, which will be settled in shares of Common Stock one year
after Mr. Shull's resignation or other termination from the Board.
(21) Includes (i) 81,000 shares of Common Stock issuable upon exercise of
options held by Mr. Steadman, which options are exercisable within 60 days
of the Record Date, and (ii) 898 Common Stock equivalents, which will be
settled in shares of Common Stock one year after Mr. Steadman's resignation
or other termination from the Board.
(22) Includes (i) [1,144,358] shares of Common Stock issuable upon exercise of
options within 60 days of the Record Date held by 11 current Directors and
6 of the 9 current non-Director executive officers, and (ii) [9,360] shares
of Common Stock to be issued upon the settlement of Common Stock
equivalents held by [7] current Directors.
6
<PAGE> 10
PROPOSAL 1.
ELECTION OF DIRECTORS
At the Annual Meeting, 10 Directors are to be elected to serve until the
next Annual Meeting or until their respective successors will be elected and
qualified. Management's nominees include all of the persons who currently serve
as Directors, including Maurice F. Holmes, whom the Board appointed to serve as
a Director in September 1998, but do not include current Directors Keane and
Shull, who have each reached the recommended retirement age and are not standing
for re-election. In addition, management has nominated James R. Adams to stand
for election as a Director for the first time at this year's Annual Meeting. The
10 nominees are set forth below. It is intended that the accompanying proxy if
furnished, unless contrary instructions are given, will be voted in favor of
each of the 10 nominees listed below. The 10 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, any shares represented by a proxy in the accompanying form
will be voted for the remaining nominees and for any substitute nominee or
nominees designated by the Board of Directors. The Board of Directors knows of
no reason why any of the 10 nominees will be unavailable or unable to serve. The
names of each of the 10 nominees and certain other information is set forth
below:
JAMES R. ADAMS; AGE 59; FORMER CHAIRMAN, TEXAS INSTRUMENTS INCORPORATED
Mr. Adams has been nominated to fill a directorship resulting from a
Director not standing for re-election. Mr. Adams is retired. From July 1996 to
April 1998, he served as Chairman of Texas Instruments Incorporated, a
high-technology company. From August 1995 to June 1996, he was a private
investor. Prior to that time, from 1992 to August 1995, he served as Group
President, SBC Communications Inc., a communications company, and from 1988 to
1992, he served as President and Chief Executive Officer of Southwestern Bell
Telephone Company. Mr. Adams serves as a director of Texas Instruments.
WILLIAM L. ARMSTRONG; AGE 62; CHAIRMAN, CHERRY CREEK MORTGAGE COMPANY
Mr. Armstrong has been a Director since 1991. He has served as Chairman of
Cherry Creek Mortgage Company, a mortgage company, since 1991; Chairman of El
Paso Mortgage Company since 1993; Chairman of Centennial State Mortgage Company
and Frontier Real Estate, Inc. since 1994; and Chairman of Transland Financial
Services, Inc. since 1996. Mr. Armstrong served as a United States Senator for
the State of Colorado from 1979 to 1991. Mr. Armstrong serves as a director of
Provident Companies, Inc. and Helmerich & Payne, Inc.
J. HAROLD CHANDLER; AGE 49; CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
PROVIDENT COMPANIES, INC.
Mr. Chandler has been a Director since 1997. Mr. Chandler became Chairman
in 1996, and President and Chief Executive Officer in 1993 of Provident
Companies, Inc., a holding company of insurance subsidiaries that provides
disability, life and related coverage to both individuals and to the employee
benefits marketplace. From 1991 to 1993, Mr. Chandler served as President of the
Mid-Atlantic Banking Group of NationsBank Corporation. Mr. Chandler serves as a
director of Provident Companies, Inc.; AmSouth Bancorporation; and Herman
Miller, Inc.
MAURICE F. HOLMES; AGE 55; PROFESSOR, PRACTICE OF ENGINEERING SYSTEMS AND
MANAGEMENT, MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Mr. Holmes was appointed by the Board to serve as a director in September
1998. Since January 1, 1999, Mr. Holmes has served as The Professor of the
Practice of Engineering Systems and Management at the Massachusetts Institute of
Technology, a private university. From 1996 to 1998, Mr. Holmes served as a
Corporate Vice President and the Chief Engineer of Xerox Corporation. From 1992
to 1995, Mr. Holmes
7
<PAGE> 11
served as Corporate Vice President and President of the Office Document Systems
Division of Xerox Corporation. Mr. Holmes joined Xerox Corporation in 1972 and
served in various capacities between 1972 and 1992. Mr. Holmes serves as a
director of Frontier Telephone Company of Rochester, New York.
WILLIAM R. HOOVER; AGE 69; CHAIRMAN OF EXECUTIVE COMMITTEE, COMPUTER SCIENCES
CORPORATION
Mr. Hoover has been a Director since 1995. He has served as Chairman of the
Executive Committee of the Board of Directors of Computer Sciences Corporation,
a provider of information technology services, since 1997. From 1972 to 1997,
Mr. Hoover served as Chairman of the Board of Computer Sciences Corporation.
From 1972 to 1995, Mr. Hoover also served as Chief Executive Officer and
President of Computer Sciences Corporation. Mr. Hoover serves as a director of
Computer Sciences Corporation; Merrill Lynch & Co., Inc. and Rofin-Sinar
Technologies, Inc.
WILLIAM T. KERR; AGE 57; CHAIRMAN AND CHIEF EXECUTIVE OFFICER, MEREDITH
CORPORATION
Mr. Kerr has been a Director since 1998. He has served as Chairman and
Chief Executive Officer of Meredith Corporation, a media and marketing company,
since January 1998. From January 1997 to December 1997, Mr. Kerr served as
President and Chief Executive Officer of Meredith Corporation, and from May 1994
to December 1996, he served as President and Chief Operating Officer. Prior to
that time, from September 1991 to April 1994, he served as President of the
Magazine Group and Executive Vice President of Meredith Corporation. Mr. Kerr
serves as a director of Meredith Corporation, Principal Mutual Life Insurance
Company and Maytag Corporation.
ROBERT E. LA BLANC; AGE 65; PRESIDENT, ROBERT E. LA BLANC ASSOCIATES, INC.
Mr. La Blanc has been a Director since 1979. He 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
1981. Mr. La Blanc formerly served as Vice Chairman of Continental Telecom Corp.
and was a general partner at Salomon Brothers. Mr. La Blanc serves as a director
of Salient 3 Communications, Inc.; Titan Corp.; Tribune Company; and a family of
Prudential Mutual Funds.
ROBERT E. LEE; AGE 63; 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 1989 to 1996, he served as its Executive Director. Until his retirement in
1989, Mr. Lee served as the Chairman of First Interstate Bank of Denver. Mr. Lee
serves as a director of ING Group North American Insurance Holdings, Inc.;
Meredith Corporation; Source Capital Corporation; and Financial Investors Trust.
RICHARD C. STEADMAN; AGE 66; PRIVATE INVESTOR
Mr. Steadman has been a Director since 1970. Mr. Steadman previously served
as Chairman of the Board of National Convenience Stores, Inc., a retail chain,
until his retirement in 1995. Mr. Steadman has been a private investor since
1981.
DAVID E. WEISS; AGE 55; CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, STORAGETEK
Mr. Weiss has served as Chairman, President and Chief Executive Officer of
StorageTek since May 1996. Prior to that, he served in the following positions
at StorageTek: 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 February 1991 as Staff Vice
President.
8
<PAGE> 12
MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors held seven meetings during fiscal 1998. All of the
incumbent Directors, while serving during the last fiscal year, attended at
least 75% of all meetings of the full Board and the respective committees on
which they served. The Board of Directors has a standing Audit Committee,
Governance and Nominating Committee, and Human Resources and Compensation
Committee.
Audit Committee. The Audit Committee currently consists of Directors Shull
(Chair), Hoover, Kerr, La Blanc and Steadman. None of the members of the Audit
Committee is, or has ever been, an employee of the Company. The Audit Committee
held five meetings during fiscal 1998. The principal functions of the Audit
Committee are to review the arrangements for the independent audit, as well as
the results of the audit engagement; to review audit plans and audit findings of
the Company's internal auditors; to review internal control matters; to review
the appropriateness of significant accounting policies utilized by the Company;
to review and monitor the progress on the Company's year 2000 project; and to
appraise the Company's financial reporting activities.
Governance and Nominating Committee. The Governance and Nominating
Committee currently consists of Directors Armstrong (Chair), Hoover and Keane.
None of the members of the Governance and Nominating Committee is, or ever has
been, an employee of the Company. The Governance and Nominating Committee met
four times during fiscal 1998. The principal function of the Governance and
Nominating Committee is to identify and propose potential candidates for
election to the Board. The Governance and Nominating Committee develops its own
nominations and receives suggestions for nominees submitted by stockholders. The
Committee also considers issues relating to corporate governance, including
assessing the Board's performance, studying the size, composition, organization,
and structure of the Board, and the membership of the Committees of the Board.
The Governance and Nominating Committee will consider nominees recommended
by stockholders. Such recommendations should be directed to the Chair of the
Governance and Nominating Committee at the Company's principal executive offices
in Louisville, Colorado. In addition, under the Company's Bylaws, nominations
for 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 (the "Exchange Act"); 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.
Human Resources and Compensation Committee. The Human Resources and
Compensation Committee (the "Compensation Committee") currently consists of
Directors Keane (Chair), Armstrong, Chandler, Holmes and Lee. None of the
members of the Compensation Committee is, or ever has been, an employee of the
Company. The Compensation Committee held seven meetings during fiscal 1998. The
principal functions of the Compensation Committee are to evaluate the
performance of executive management; to review compensation policies for the
officers and other employees; to review succession planning; and to administer
and determine awards under the Company's stock and stock option, bonus and other
incentive programs.
9
<PAGE> 13
DIRECTOR COMPENSATION
CASH COMPENSATION
The Company pays each Director who is not an employee of the Company a
standard annual retainer of $27,000. The chair of each committee is paid an
additional annual retainer of $5,000. All nonemployee Directors are paid an
additional fee of $1,000 for each meeting of the Board and each committee
meeting attended. Directors are also reimbursed for their travel expenses
incurred on the Company's business and receive a fee of $1,000 per day for time
spent on StorageTek 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. Nonemployee Directors also receive medical and
dental coverage.
STOCK FOR FEES
To further align the nonemployee Directors' interests with the long-term
interests of the stockholders, the Company's 1995 Equity Participation Plan
allows Directors to elect to receive a portion of their annual retainer either
in shares of the Company's Common Stock or in Common Stock equivalents, in lieu
of receiving cash compensation. The Board has adopted stock ownership guidelines
for Directors, including a minimum ownership threshold of 2,500 shares of Common
Stock or Common Stock equivalents. Nonemployee Directors who have not achieved
the ownership threshold will elect to receive a minimum of 50% of their annual
retainer in the form of Common Stock or Common Stock equivalents until such time
as they have achieved the minimum stock ownership goal.
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 non-qualified stock options to purchase shares of Common Stock, 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.
Each nonemployee Director is granted a stock option to purchase 25,000
shares of Common Stock (the "Initial Option") on the date of his or her initial
election or appointment to the Board. These stock options become exercisable
over a period of six years, 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,
provided that the optionee remains a Director of the Company.
All nonemployee Directors elected prior to May 21, 1997, have also been
granted an option to purchase an additional 36,000 shares (post June 1998 stock
split) of the Company's Common Stock (the "Additional Option") on the third
anniversary of their first election or appointment to the Board. The 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
the Initial Option have become exercisable, provided that the optionee remains a
Director of the Company.
Each Director elected after May 22, 1998, will receive an annual stock
option to purchase 4,000 shares of the Company's Common Stock (the "Annual
Option") on his or her first election or appointment to the Board and each year
thereafter. The Annual Option becomes exercisable in three equal installments on
the first, second and third anniversaries of the date of grant, provided that
the optionee remains a Director of the Company. The size of the Annual Option
increases to 5,000 shares commencing on the Director's eleventh anniversary and
each year thereafter. Directors who have received both the Initial Option and
Additional Option are not eligible to receive the Annual Option until their
eleventh anniversary.
All nonemployee Directors, except for Messrs. Chandler, Holmes and Kerr,
have been granted at varying times an Initial Option and an Additional Option.
The vesting schedules for these options conform to the vesting schedules
described above. All Directors who have served on the Board for nine or more
consecutive years hold fully vested options. Messrs. Chandler and Kerr have each
been granted an Initial Option and will
10
<PAGE> 14
be eligible to receive Annual Options instead of an Additional Option upon their
re-election to the Board at the Annual Meeting. Mr. Holmes was granted an
Initial Option and an Annual Option in September 1998, and he will be eligible
to receive an Annual Option upon his re-election to the Board at the Annual
Meeting. In addition, at the Annual Meeting, upon their re-election to the
Board, Messrs. La Blanc and Steadman will be eligible to receive an Annual
Option to purchase 5,000 shares.
VOTE REQUIRED
Directors are elected by a plurality of the Votes Cast. See "PROCEDURAL
MATTERS -- Quorum; Abstentions; Broker Non-Votes" above. Proxies received by the
Company will be voted "FOR" all of the above listed nominees.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NAMED
NOMINEES AS DIRECTORS OF THE COMPANY.
PROPOSAL 2.
AMENDMENT TO THE
COMPANY'S RESTATED CERTIFICATE OF INCORPORATION
The Board of Directors has approved, and is recommending to the
stockholders for approval at the Annual Meeting, an amendment to Article V of
the Company's Restated Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), to increase the number of shares of Common
Stock that the Company is authorized to issue to 300,000,000. The Company's
Certificate of Incorporation currently authorizes the issuance of an aggregate
of 190,000,000 shares of capital stock, composed of 150,000,000 shares of Common
Stock, par value $.10 per share, and 40,000,000 shares of Preferred Stock, par
value $.01 per share. The proposed amendment would increase the number of shares
of Common Stock the Company is authorized to issue from 150,000,000 shares to
300,000,000 shares, but would not affect the authorization to issue shares of
Preferred Stock.
REASONS FOR THE AMENDMENT
The Board believes that it is in the best interests of the Company that the
Certificate of Incorporation be amended to increase the number of shares of
Common Stock the Company is authorized to issue to 300,000,000 shares. Of the
shares of capital stock currently authorized, as of March 26, 1999, there were
approximately [ ] shares of Common Stock issued and outstanding, and
[ ] shares of Common Stock reserved for issuance upon exercise of
outstanding rights to acquire shares of Common Stock. No shares of preferred
stock were issued and outstanding on such date. The additional authorized shares
of Common Stock, if and when issued, would have the same voting and other rights
and privileges as the shares of Common Stock presently authorized, issued and
outstanding.
The Board believes that the increase in the Company's authorized shares of
Common Stock will provide the Company with flexibility in future planning. If
the Certificate of Incorporation is amended, the additional shares will be
available for issuance to obtain funds for working capital, for capital
expenditures for use in connection with investments in or acquisitions of other
businesses or properties, for use in connection with stock dividends or stock
splits, for issuance under employee or director plans, and for any other proper
corporate purpose. In June 1998, the Company completed a 2-for-1 stock split,
which was effected in the form of a 100% stock dividend, and issued 54,116,284
shares of Common Stock, which reduced the number of shares available for
issuance. The Company has no present commitments, agreements or intent to issue
additional shares of Common Stock, other than with respect to currently reserved
shares under the Company's existing director and employee stock and option, and
stock purchase plans, including the stock option plan described in Proposal 3,
below.
11
<PAGE> 15
EFFECT OF THE AMENDMENT
The proposed amendment to Article V would permit the issuance of additional
shares up to the new maximum authorization in future transactions without
further action or authorization by the stockholders, unless required by law, or
the rules of any stock exchange on which the Common Stock may be listed, or
unless the Company deems it advisable to do so. The Board believes that it is
prudent for the Company to have this flexibility. Common Stock would be issued
only if the Board makes a determination that such issuance would be in the best
interests of the Company and its stockholders.
Under the Company's Certificate of Incorporation, the holders of Common
Stock are not entitled to preemptive rights or cumulative voting. Accordingly,
any issuance of additional shares of Common Stock might dilute the equity of the
outstanding shares of Common Stock under certain circumstances. The proposed
increase in the number of shares of Common Stock that the Company is authorized
to issue is not intended to inhibit a change of control of the Company. However,
the availability for issuance of additional shares of Common Stock could
discourage, or make more difficult, efforts to obtain control of the Company.
For example, the issuance of shares of Common Stock in a public or private sale
or merger, or under the terms of the Company's 1990 Shareholder Rights Plan,
would increase the number of outstanding shares, thereby diluting the interest
of a party attempting to gain control of the Company. The Company is not aware
of any pending or threatened efforts to acquire control of the Company.
TEXT OF THE AMENDMENT
If approved by the stockholders, the first paragraph of Article V of the
Company's Certificate of Incorporation would be amended and restated as follows:
ARTICLE V
The total number of shares of capital stock that the Company
shall have authority to issue is Three Hundred Forty Million
(340,000,000) shares, divided into Three Hundred Million
(300,000,000) shares of Common Stock with a par value of ten
cents $(.10) per share (hereinafter called "Common Stock"),
and Forty Million (40,000,000) shares of Preferred Stock, with
a par value of one cent $(.01) per share.
If approved by the stockholders, the foregoing amendment to the Certificate
of Incorporation will be filed with the Secretary of State of Delaware. The
amendment would become effective upon the date of such filing. The Company
expects to make such filing with the Secretary of State of Delaware immediately
following stockholder approval, or shortly thereafter.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock as of the Record Date is required for the adoption of the
amendment to the Company's Certificate of Incorporation. 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 OF THE COMPANY UNANIMOUSLY RECOMMENDS A VOTE "FOR"
THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION.
12
<PAGE> 16
PROPOSAL 3.
AMENDMENTS TO THE
1995 EQUITY PARTICIPATION PLAN
GENERAL
The Board of Directors has approved, and is recommending to the
stockholders for approval at the Annual Meeting, an amendment to the 1995 Equity
Participation Plan (the "Equity Plan"), to increase the number of shares
available for issuance under the Equity Plan by 4,750,000 shares. The Equity
Plan permits the Company 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 4,400,000 shares for issuance under the
Equity Plan. Subsequently, in May 1997, the stockholders approved an additional
4,400,000 shares for issuance under the Equity Plan. As of March 26, 1999,
[ ] shares had been issued, [ ] shares were subject to
outstanding stock options, [ ] shares were reserved for holders of
Common Stock equivalents, and there were [ ] shares remaining available
for future use under the Equity Plan. All of these amounts have been adjusted to
reflect the 2-for-1 stock split effected in the form of a 100% dividend, which
was paid on June 26, 1998, to holders of record on June 5, 1998.
The Board believes that the remaining number of shares available for
issuance is insufficient to allow the Company to continue to make substantial
use of stock-based awards that it believes are necessary to attract, retain and
motivate skilled employees. If this amendment to the Equity Plan is not approved
by the stockholders, no grants of options or other equity-based incentives will
be made under the Equity Plan once the presently reserved and available number
of shares are depleted.
PROPOSED AMENDMENTS
The Board believes that the Equity Plan is an important factor in
attracting, retaining and motivating dedicated and skilled employees. To allow
StorageTek the ability to more broadly grant equity awards to its employees,
stockholders are being asked to approve an increase in the number of shares
available for issuance under the Equity Plan by 4,750,000 shares.
SUMMARY OF THE EQUITY PLAN
A general description of the basic features of the Equity Plan is outlined
below. This description is qualified in its entirety by reference to the full
text of the Equity Plan.
Purpose. The purpose of the Equity Plan is to direct the attention and
efforts of participating employees, Directors and consultants to the achievement
of the performance objectives of the Company. The Equity Plan is designed to
retain, reward and motivate the participants by providing an opportunity for
equity investment in the Company.
Types of Awards. Under the Equity Plan, the following types of equity
awards can be made: (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 Equity Plan.
13
<PAGE> 17
Administration. The 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. The Board has
designated the Chairman to administer the Equity Plan when the Board and
Committee are not in session, with respect to participants who are not officers
or Directors, subject to pre-established limitations. 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 Exchange Act.
The Equity Plan vests broad powers in the Committee to administer and interpret
the Equity Plan, including the authority to select the participants 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 Equity Plan for each grant or award
under the 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; and consultants of the Company and any of its subsidiaries
("Participants"). The Committee will determine awards based upon a Participant's
contributions, or expected contributions, to the operation and development of
the Company. The determination to grant awards and the selection of actual
Participants in the Equity Plan are discretionary. Therefore, it is not possible
to determine the number of individuals who will actually receive awards and
become participants in the Plan. As of the Record Date, the Company had
approximately 8,700 employees and 10 nonemployee Directors. As of the date of
this Proxy Statement, the Board had made no determination to grant awards to
consultants.
Amendment and Termination. The 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 Equity Plan will expire by its terms 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 expiration or termination of the Equity Plan will continue to
remain outstanding in accordance with their respective terms.
Stock Subject to the Plan. Under the Equity Plan, shares of Common Stock
may be issued in connection with Stock Options, Restricted Stock Awards, Stock
Appreciation Rights, MBO Payments or other awards of Common Stock or Common
Stock equivalents. As of the Record Date, there were 8,800,000 shares authorized
for issuance under the Equity Plan. If Proposal 3 is approved by the
stockholders, there will be a total of 13,550,000 shares authorized for issuance
under the Equity Plan.
The maximum number of shares of Common Stock reserved for issuance under
the 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 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 Equity Plan.
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
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 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
14
<PAGE> 18
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 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 the Record Date
was [$ ] 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 Internal Revenue
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
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.
(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
15
<PAGE> 19
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, a number of shares of Common
Stock having a value 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 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 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 the 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 an employee for six years or more, 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 an employee for six years or more, 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 and was
employed for six years or more, 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 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.
In addition, with respect to all Stock Option and Stock Appreciation Rights
granted on or after March 4, 1998, if, within six months of termination of
service to the Company, a Participant engages in an activity in competition with
the Company, or harmful or contrary to the interest of the Company, including,
without limitation, accepting employment with a competitor: (i) Stock Options or
Stock Appreciation Rights still held by the Participant will immediately cease
to be exercisable and will be canceled, and (ii) the Participant must sell back
to the Company at the exercise price paid for any shares of Common Stock still
held that were acquired after termination of service and return any cash
received upon exercise of a Stock Appreciation Right. Also, if within six months
of exercising any Stock Options or Stock Appreciation Rights, the Participant
terminates from the Company for any reason except death, disability or
retirement, then the
16
<PAGE> 20
Participant must return to the Company any gains realized upon the sale of
shares of Common Stock acquired through the exercise of Stock Options or the
exercise of any Stock Appreciation Rights during such period. The Company may
hold shares of Common Stock issued upon exercise of Stock Options after
termination of employment in escrow for a period of up to six months after the
date of termination.
(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
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, consistent with the 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; 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
17
<PAGE> 21
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.
(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 Company's 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. The terms of the Company's 1999 MBO Bonus plan, as approved by the
Committee, provide that a portion of any MBO bonus paid to certain officer
participants will be paid in the form of shares of Common Stock or Common Stock
equivalents, which will be issued under the Equity Plan.
Director Stock and Common Stock Equivalents. Under the 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. As of the Record Date, seven Directors had
elected to receive all or a portion of their compensation in the form of shares
of Common Stock or Common Stock equivalents.
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 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 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
18
<PAGE> 22
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 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 both 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. 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. However, any Non-Qualified
Options that are granted with an exercise price below the fair market value on
the date of grant will not qualify for the performance-based exception from the
deductibility limitations of Section 162(m) of the Code. Accordingly, with
respect to the exercise of such options by a Named Executive Officer, the
Company will not be allowed a compensation expense deduction if aggregate
compensation exceeds $1 million.
(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 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 in connection with the
19
<PAGE> 23
Restricted Stock Award, which gain will be short-term or long-term 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 date of
the lapse of the restrictions in an amount equal to the fair market value of the
shares on that date, less any consideration 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 Award as to which of the restrictions have
lapsed, a Participant will realize a long-term or short-term 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 in connection with the Restricted Stock Award, which gain will be
short-term or long-term depending upon the length of time between the date the
restriction lapsed and the date of sale or disposition.
Subject to the deduction limitation under Section 162(m) with respect to
compensation paid to certain Named Executive Officers, 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
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 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 receives 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 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 upon the length of time between the
date the shares were taxed to the Participant and the date of sale. Subject to
the deduction limitation under Section 162(m) with respect to compensation paid
to certain Named Executive Officers, 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, among other things, that an option plan state
the maximum number of shares subject to options and stock appreciation rights
that can be granted during a fiscal year to any one individual. The Equity Plan
has a limit of 500,000 shares subject to Stock Options and Stock Appreciation
Rights that can be granted to any one individual per fiscal year of the Company.
PARTICIPATION IN THE 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 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 Equity Plan to the Named Executive
Officers, to nonemployee Directors, to all current Executive Officers as a group
and to all other employees as a group during fiscal 1998.
20
<PAGE> 24
AMENDED PLAN BENEFITS
1995 EQUITY PARTICIPATION PLAN
<TABLE>
<CAPTION>
NUMBER OF
NAME AND POSITION DOLLAR VALUE(1) SHARES(2)
- ----------------- --------------- ---------
<S> <C> <C>
David E. Weiss.............................................. $3,481,694 114,860
Chairman of the Board, President and CEO
Victor M. Perez............................................. 1,432,448 47,256
Executive Vice President and Chief Operating Officer
Donald B. Davis(3).......................................... 468,874 15,468
Former Corporate Vice President, Americas Field Operations
Jean Reiczyk................................................ 369,449 12,188
Corporate Vice President and General Manager, Solutions
Business Group
Bruce Taafe................................................. 362,356 11,954
Vice President, International Field Operations
L. Thomas Gooch(4).......................................... -0- -0-
Former Executive Vice President and General Manager
Network Systems
David Lacey(5).............................................. 1,125,443 37,128
Former Executive Vice President and Chief Financial
Officer
All current executive officers as a group (10 persons)...... 9,517,762 300,365
All current non-employee Directors as a group (10
persons).................................................. 314,135 10,273
All other employees as a group (847 persons)................ 41,297,494 1,407,105
</TABLE>
- ---------------
(1) Represents aggregate exercise price of Stock Options, the fair market value
of restricted stock on the date of grant, and the fair market value of the
Common Stock and Common Stock equivalents on the date of distribution.
(2) Represents the number of stock options and shares of restricted stock,
Common Stock and Common Stock equivalents.
(3) Mr. Davis resigned as an executive officer of the Company effective as of
December 31, 1998.
(4) Mr. Gooch resigned as an executive officer of the Company effective as of
February 28, 1998.
(5) Mr. Lacey resigned as an executive officer of the Company effective as of
December 18, 1998. All unvested Stock Options and shares of Restricted Stock
held by Mr. Lacey on December 24, 1998, the date of his termination as a
full-time employee, were forfeited, including 37,128 Stock Options that were
granted to Mr. Lacey in 1998.
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 AMENDMENT TO
THE 1995 EQUITY PARTICIPATION PLAN.
21
<PAGE> 25
PROPOSAL 4.
APPROVAL OF TERMS OF
PERFORMANCE-BASED INCENTIVE PLAN
The Board of Directors has approved, and is recommending to the
stockholders for approval at the Annual Meeting, the executive officer
Management By Objective Bonus Plan (the "Bonus Plan"), a performance-based
incentive plan established for the Company's executive officers. The Bonus Plan
is designed to satisfy the requirements of the performance-based exception to
Section 162(m) (Section 162(m)) of the Code so as to allow the Company full
deductions for purposes of Section 162(m). The Bonus Plan provides the Company's
executive officers with the opportunity to earn incentive awards based on the
achievement of goals relating to the performance of the Company and its business
units and segments, and the performance of the individual. Bonuses under the
Bonus Plan are based on objective performance criteria. As a result of the
criteria included in the Bonus Plan, executive officer compensation could be
highly variable with the performance of the Company.
PURPOSE
The Bonus Plan is intended to motivate and reward executive officers to
perform to the best of their abilities and achieve the Company's objectives. The
Company's compensation philosophy is that the compensation of the executive
officers should vary with the Company's performance. As a result, a large
portion of the executive officers' total cash compensation is tied to the
performance of the Company using the performance-based Bonus Plan. In addition,
the Bonus Plan is designed to allow the Company to maximize the deductibility of
the bonuses paid to the executive officers under Section 162(m).
ADMINISTRATION OF THE BONUS PLAN
The Bonus Plan is administered by the Human Resources and Compensation
Committee (the "Committee") of the Board. The Committee has discretion to
administer the Bonus Plan in accordance with the terms of the Bonus Plan
established for any fiscal year and the requirements of Section 162(m).
ELIGIBLE PARTICIPANTS
The individuals eligible for the Plan are the Company's executive and other
officers. The Committee has discretion to select the officers that may
participate in the Bonus Plan. The Committee selects officers of the Company who
are likely to have a significant impact on the performance of the Company.
PERFORMANCE MEASURES AND MAXIMUM BONUS
Each participant's bonus potential will be expressed as a percentage of his
or her annual base salary. The actual amount of any bonus payment under the
Bonus Plan will then be determined based on a formula, using the performance
measures as variables and the performance levels established by the Committee.
Any bonuses awarded under the Bonus Plan may be paid in cash, or in shares of
the Company's Common Stock (including restricted stock) or Common Stock
equivalents.
The Committee may apply a number of performance measures when setting the
performance goals for any fiscal year. These performance measures may include
one or any combination of the following: (1) net after-tax income; (2) total
annual revenue; (3) earnings per share; (4) stockholder value add; (5) customer
satisfaction objectives; (6) product and solution development and introduction
time; (7) return on equity; (8) return on assets; (9) market penetration; (10)
product and services quality and reliability measurements; (11) employee
development and training objectives; (12) operating expenses; (13) product sales
margins; (14) operating profit; (15) employee satisfaction; and (16) individual
performance objectives. The performance measures will be established annually by
the Committee, and it may select performance goals that differ among
participants in the Bonus Plan and select performance goals that apply on a
corporate-wide basis or on a business unit or segment basis. The Company
believes that information regarding details of these goals includes
confidential, commercial or business information, the disclosure of which would
have an adverse effect on the Company.
22
<PAGE> 26
For fiscal 1999, the Committee has established several performance levels
and established performance goals that are based on the following performance
measures: (1) earnings per share; (2) net income; (3) revenue; (4) employee
development and training objectives; and (5) a stockholder value add
measurement. The participants in the 1999 Bonus Plan include Mr. Weiss and each
of the other Named Executive Officers.
The amount of the bonuses paid under the Bonus Plan will vary as a result
of applying the formula and the participant's individual bonus potential.
However, no bonus in excess of $3 million will be paid to any participant for
any fiscal year under the Bonus Plan. The Committee may reduce or entirely
eliminate all payments under the Bonus Plan for any year, or any participant's
bonus payment in its sole discretion. The payment of a bonus under the Bonus
Plan generally requires that the officer be employed by the Company as of the
date that the Committee makes its determination as to all participants in the
Bonus Plan whether the performance goals for any fiscal year were achieved.
Future awards under the Bonus Plan are not determinable. As of the Record
Date, [ ] officers were participating in the 1999 Bonus Plan. The Company
had a similar bonus plan in operation from 1994 through 1998, which was approved
by the stockholders. For the Company's fiscal year-ended December 25, 1998, no
payments were made to the Chief Executive Officer or any executive officer under
the Bonus Plan, as the pre-established performance goals were not achieved.
AMENDMENTS
The Company may amend the Bonus Plan at any time without stockholder
approval, except as may be required to qualify as a performance-based plan under
Section 162(m).
VOTE REQUIRED
Approval of the material terms of the performance-based incentive 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 APPROVAL OF
THE MATERIAL TERMS OF THE PERFORMANCE-BASED INCENTIVE PLAN.
23
<PAGE> 27
PROPOSAL 5.
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The firm of PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") served as
the Company's independent accountants for the fiscal year ended December 25,
1998, and has been engaged by the Audit Committee to serve as independent
accountants for the fiscal year ending December 31, 1999.
The Board of Directors requests that stockholders ratify the engagement of
PricewaterhouseCoopers for fiscal year 1999. A representative of
PricewaterhouseCoopers is expected to be present at the Annual Meeting and
available to respond to appropriate questions, and although
PricewaterhouseCoopers 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 PricewaterhouseCoopers 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 1999 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.
Approval of the ratification of the appointment of PricewaterhouseCoopers
LLP as the Company's independent accountants requires the affirmative vote of a
majority of the Votes Cast.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS.
24
<PAGE> 28
PROPOSAL 6.
STOCKHOLDER PROPOSAL
Occasionally, StorageTek receives suggestions from its stockholders. Some
are received as formal stockholder proposals. All are given careful attention by
the Company and, in the past, management has adopted a number of suggestions
made.
The Company has received a stockholder proposal. The author and proponent
of the following stockholder resolution, Seymour Licht, P.E., P.O. Box 4383,
Scottsdale, Arizona 85261, has requested the Company to present the following
proposal at the Annual Meeting of Stockholders. The proponent owns [ ]
of the Company's Common Stock. The stockholder's proposal is quoted verbatim in
italics, below.
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.
STOCKHOLDER RESOLUTION
This stockholder proposal requests/recommends that the Board of Directors
take the necessary steps, such as to modify the Corporate by-laws and or its
"Certificate of Incorporation" so as to implement the following action to become
effective at the 2000 annual stockholder meeting and there after.
It is the desire of the Stockholders of StorageTek that management be
restricted from participating in any action that involves an expenditure of
$500,000.00 or more that is clearly not required in the normal course of the
business of StorageTek. In the event that management believes that an
expenditure in excess of $500,000.00 in any one year period is in the best
interest of StorageTek's stockholders and it is not in the normal course of
StorageTek's business, management should solicit its stockholders for approval.
This is exactly the procedure used when two corporations are to merge, each
corporation requires stockholder approval to implement the merger.
PROPONENT'S STATEMENT IN SUPPORT OF RESOLUTION
In 1998, StorageTek initiated a stock purchase program in which as of
September 30, 1998, management purchased 23.5 million shares of its own stock
for a total cost of $739 million.
This action by StorageTek's management required the expenditure of a
significant amount of cash and the incurring of a significant amount of new
debt. It is Licht's position that a better use of the cash would have been for
StorageTek to purchase a profit making company that would complement
StorageTek's product line.
The purchase of an income producing company would have immediately
increased StorageTek's revenue/profit as opposed to the present situation where
the purchase of StorageTek's stock required management to exhaust their excess
cash and to incur a significant amount of debt that requires annual interest
payments. Further StorageTek now no longer earns interest on its cash because it
does not have it. Both of these actions reduced the net profit of StorageTek.
Investors purchased StorageTek's stock because they believed that
StorageTek was and is today a leader in the mass data storage system and not
because of its management's expertise in stock investments. If a StorageTek
investor was interested in investing in a company that produces its income from
investing in the stock market, they could invest in any one of the brokerage
houses such as Merrill Lynch, Dean Witter etc. or a mutual stock fund. Since
they are presently all StorageTek stockholders they have made the decision to
invest in high tech and not an investment firm. Management and the board of
directors should concentrate their efforts to enhance StorageTek's position in
the data storage and related fields and not trying to second guess the market.
If management believes that StorageTek stock is such a good investment let
then purchase StorageTek's stock with their own money and further not sell their
StorageTek stock that we stockholder pay to them in the form of stock option
when said options are expiring and is in the money. The StorageTek stockholders
never gave management the permission to invest their money in the stock market.
It is to be noted that since
25
<PAGE> 29
StorageTek is obviously not in the business to purchase their own stock that the
shares purchased by management are not carried on StorageTek's balance sheet as
an asset. Consequently, any appreciation in StorageTek stock is not reflected as
an increase in stockholder equity as opposed to the situation if StorageTek
would have purchased either U.S. Treasury securities or another profit making
company. If StorageTek purchased treasury securities StorageTek would have
earned interest and its investment would also have appreciated in value in the
event that interest rates would have decline.
Likewise, if StorageTek purchased another company, it would have
immediately increased its earnings by the profit of the company purchased and
the merging of the two companies would enhance StorageTek's product line.
MANAGEMENT'S RESPONSE
Management of StorageTek believes that this stockholder proposal is
contrary to the best interests of all stockholders and therefore opposes this
proposal for the following reasons.
Management believes that the proponent's proposal is fundamentally flawed
both in subject matter and means of enforcement. If implemented, the proposal
could operate to severely restrict the discretion of management in managing the
business and affairs of the Company.
As support for his proposal to require stockholder approval for an
ill-defined group of activities, the proponent cites as an example the Company's
stock re-purchase program that was announced in October 1997. During 1997 and
1998, the Company re-purchased and retired approximately 19% of its outstanding
shares of Common Stock under this stock re-purchase program, using a mixture of
cash and debt financing. Management believed that the stock re-purchase program
represented an attractive method of returning a substantial amount of capital to
the stockholders and was a good investment. Management continues to believe that
the re-purchase program was a sound decision and enhanced stockholder value.
Management believes that it would be impossible to determine exactly when
stockholder approval would be required under the proponent's proposal. The
proposal is devoid of any meaningful definitional and enforcement mechanisms.
Thus, rather than promoting the Company's best interests, Management would be
forced to evaluate its decisions against indefinite, subjective standards. The
Company operates in markets that are characterized by rapid change and fierce
competition and the proposal would strip management of its ability to quickly
respond to changing conditions.
Further, the vagueness of the proposal would make the task of crafting the
proposed charter amendments an inexact, subjective exercise. Ultimately, the
proponent's proposal could expose the Company to challenges by third parties,
who might question the Company's ability to act on many types of matters without
the approval of the stockholders, or result in the untenable situation where the
Company would have to elect either to violate the provisions in its charter or
to violate a federal or state law.
Management believes that the proposal would undermine its ability to
perform its legal duties and responsibilities to efficiently manage the affairs
of the Company. Management further believes that existing federal and state
laws, and the rules and regulations of the New York Stock Exchange, where the
Company's shares are currently traded, as well as the Company's existing
charter, contain approval mechanisms that adequately protect all stockholders,
but do not unduly encumber management. For all of these reasons, Management
regards the proponent's proposal as being contrary to the best interests of
StorageTek stockholders.
MANAGEMENT'S RECOMMENDATION AND VOTE REQUIRED
Approval of the Stockholder Proposal set forth above requires the
affirmative vote of the majority of the Votes Cast. Proxies received by the
Company will be voted "AGAINST" the Stockholder Proposal unless a contrary vote
is specified.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "AGAINST" THE ABOVE
PROPOSAL.
26
<PAGE> 30
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"); each of the other
four most highly compensated executive officers of the Company (based on 1998
salary plus bonus) who were serving as such at December 25, 1998, the Company's
fiscal year-end; and two individuals whose service as executive officers
terminated during fiscal 1998 and who would have been listed as two of the four
most highly compensated executive officers had they been serving as executive
officers at the end of the fiscal year.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------
ANNUAL COMPENSATION AWARDS
------------------------------------------------------ -------------------------
RESTRICTED SECURITIES
NAME AND OTHER ANNUAL STOCK UNDERLYING
PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($)(1) COMPENSATION($)(2) AWARDS($)(3) OPTIONS(#)
------------------ ---- ------------ ----------- ------------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
DAVID E. WEISS 1998 $722,923 $ -0- $ -- $ -0- 114,860
Chairman of the Board, 1997 616,769 992,000 119,000 -0- -0-
President and CEO 1996 497,116 834,900 51,000 -0- 608,968
VICTOR M. PEREZ 1998 388,556 -0- 20,069(6) -0- 47,256
Executive Vice President and 1997 274,462 378,000 51,877(6) -0- 40,000
Chief Operating Officer 1996 205,365 242,880 21,833(6) -0- 30,888
DONALD B. DAVIS(5) 1998 284,827 -0- 93,817(7) -0- 15,468
Former Corporate Vice 1997 259,077 283,617 161,777(7) -0- 20,000
President, Americas Field 1996 239,038 163,924 191,121(7) -0- 15,664
Operations
JEAN REICZYK 1998 282,219 -0- -- -0- 12,188
Corporate Vice President 1997 74,667 69,333 38,039(8) 3,038 72,000
and General Manager, 1996 N/A N/A N/A N/A N/A
Solutions Business Group
BRUCE S. TAAFE(9) 1998 267,092 146,323 106,616(10) -0- 11,954
Vice President,
International 1997 255,510 228,100 8,400(10) -0- 27,000
Field Operations 1996 270,491 186,999 12,004(10) -0- 4,680
L. THOMAS GOOCH(11) 1998 285,578 -0- -- -0- -0-
Former Executive Vice 1997 274,545 275,000 73,360 -0- -0-
President and General 1996 262,000 262,000 31,440 -0- 27,616
Manager, Network Systems
DAVID E. LACEY(12) 1998 341,192 -0- -- -0- 37,128
Former Executive Vice 1997 288,462 335,000 61,200 -0- -0-
President and Chief
Financial 1996 238,077 293,250 25,800 -0- 98,120
Officer
<CAPTION>
NAME AND ALL OTHER
PRINCIPAL POSITION COMPENSATION($)(4)
------------------ ------------------
<S> <C>
DAVID E. WEISS $ 50,772
Chairman of the Board, 71,186
President and CEO 39,722
VICTOR M. PEREZ 38,954
Executive Vice President and 34,036
Chief Operating Officer 16,474
DONALD B. DAVIS(5) 21,568
Former Corporate Vice 30,056
President, Americas Field 24,185
Operations
JEAN REICZYK 10,332
Corporate Vice President 409
and General Manager, N/A
Solutions Business Group
BRUCE S. TAAFE(9) 2,452
Vice President,
International 68,520
Field Operations -0-
L. THOMAS GOOCH(11) 724,499
Former Executive Vice 39,238
President and General 25,229
Manager, Network Systems
DAVID E. LACEY(12) 18,322
Former Executive Vice 28,276
President and Chief
Financial 19,267
Officer
</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 Bonus Program, except for: (i) marketing
cash bonuses of $146,323 and $58,287 awarded to Mr. Taafe in 1998 and 1997,
respectively; (ii) marketing cash bonuses of $23,617 and $43,924 awarded to
Mr. Davis in 1997 and 1996, respectively; and (iii) discretionary cash
bonuses of $108,900 and $38,250 awarded to Mr. Weiss and Mr. Lacey,
respectively, in 1996.
(2) Other Annual Compensation (except as noted in Footnotes 6, 7, 8 and 10
below) consists entirely of special cash bonuses to cover the personal
income tax liabilities associated with the vesting of restricted stock.
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. The numbers shown
for 1996 reflect certain adjustments to the perquisite calculations.
(3) As of December 25, 1998, the aggregate number of restricted shares held by
Named Executive Officers and their fair market values were as follows: Mr.
Weiss: 6,420 shares valued at $207,527; Mr. Perez:
27
<PAGE> 31
7,464 shares valued at $241,274; Mr. Davis: 7,530 shares valued at
$243,407; Mr. Taafe: 2,386 shares valued at $77,127; Mr. Gooch: 28,160
shares valued at $910,272 (all of the 28,160 restricted shares held by Mr.
Gooch were repurchased on December 31, 1998, Mr. Gooch's termination date
as an employee of the Company). All amounts have been adjusted to reflect
the 2-for-1 stock split in the form of a 100% stock dividend on June 26,
1998. The fair market value was calculated by multiplying the number of
restricted shares held by the officer by the closing price of the Company's
Common Stock of $32.375 per share as reported in The Wall Street Journal at
fiscal year-end and subtracting the purchase price. 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 1998 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: $21,743; Mr. Perez: $7,322; Mr.
Davis: $8,707; Mr. Reiczyk: $3,491; Mr. Taafe: $2,023; Mr. Gooch: $8,727;
Mr. Lacey: $8,937; (ii) the amount representing preferential interest (that
portion of interest that is above-market rates under rules of the
Securities and Exchange Commission) earned on deferred compensation, as
follows: Mr. Weiss: $17,836; Mr. Perez: $25,056; Mr. Davis: $11,044; Mr.
Reiczyk: $955; Mr. Taafe: $429; Mr. Gooch: $21,330; Mr. Lacey: $3,846;
(iii) contributions made by the Company during fiscal 1998 to the 401(k)
plan, as follows: Mr. Weiss: $3,116; Mr. Perez: $2,077; Mr. Davis: $1,817;
Mr. Reiczyk: $2,600; Mr. Gooch: $4,800; Mr. Lacey: $1,731; (iv)
contributions by the Company to the deferred compensation plan, as follows:
Mr. Weiss: $8,077; Mr. Perez: $4,499; Mr. Reiczyk: $3,286; Mr. Gooch:
$2,140; Mr. Lacey: $3,808; and (v) a severance payment of $687,502 paid to
Mr. Gooch in 1998.
(5) Mr. Davis resigned as an executive officer of the Company effective as of
December 31, 1998.
(6) All of the amounts shown for 1998 and 1996 represent tax equalization
payments. The amount shown for 1997 includes $4,277, representing tax
equalization payments, and a special cash bonus in the amount of $47,600,
that was paid to Mr. Perez to cover the personal income tax liabilities
associated with the vesting of shares of restricted stock.
(7) The amounts shown include the forgiveness of outstanding loan balances, as
follows: $75,000 in 1998, $84,687 in 1997, and $94,374 in 1996.
(8) The amount shown for 1997 includes relocation payments of $34,902.
(9) 1997 and 1996 amounts for Mr. Taafe were converted to U.S. dollars from
Australian currency using fiscal year-end exchange rates.
(10) The 1998 amount includes a housing allowance of $47,906 and relocation
payments of $42,842. The 1997 and 1996 amounts represent payments for
fringe benefit taxes.
(11) Mr. Gooch resigned as an executive officer of the Company effective as of
February 28, 1998.
(12) Mr. Lacey resigned as an executive officer of the Company effective as of
December 18, 1998.
28
<PAGE> 32
STOCK OPTION GRANTS TABLE
The following table sets forth information regarding stock options granted
to the Named Executive Officers during the fiscal year ended December 25, 1998.
All amounts have been adjusted to reflect the 2-for-1 stock split effected in
the form of a 100% stock dividend on June 26, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(1)
OPTIONS IN FISCAL PRICE EXPIRATION -----------------------------
NAME GRANTED(#) 1998 ($/SH) DATE 5%($) 10%($)
---- ---------- ---------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
David E. Weiss........... 80,402(2) 4.75% $30.313 02/05/08 $1,532,733 $3,884,246
34,458(3) 2.03% 30.313 02/05/08 656,886 1,664,677
Victor M. Perez.......... 33,080(2) 1.95% 30.313 02/05/08 630,616 1,598,105
14,176(3) 0.84% 30.313 02/05/08 270,242 684,847
Donald B. Davis*......... 10,828(2) 0.64% 30.313 02/05/08 206,418 523,104
4,640(3) 0.27% 30.313 02/05/08 88,454 224,160
Jean Reiczyk............. 8,532(2) 0.50% 30.313 02/05/08 162,649 412,184
3,656(3) 0.22% 30.313 02/05/08 69,696 176,623
Bruce Taafe.............. 8,368(2) 0.49% 30.313 02/05/08 159,522 404,261
3,586(3) 0.21% 30.313 02/05/08 68,361 173,241
L. Thomas Gooch*......... -0- 0% -- -- -- --
David E. Lacey*.......... 25,990(2)(4) 1.53% 30.313 02/05/08 495,457 1,255,585
11,138(3)(4) 0.66% 30.313 02/05/08 212,328 538,080
</TABLE>
- ---------------
* Former executive officer
(1) Potential realizable value is calculated based on an assumption that the
price of the Company's Common Stock appreciates at the annual rate shown (5%
and 10%), compounded annually, from the date of grant of the option until
the end of the option term (10 years). The value is net of the exercise
price but is not adjusted for the taxes that would be due upon exercise. THE
5% AND 10% ASSUMED RATES OF APPRECIATION ARE MANDATED BY THE RULES OF THE
SECURITIES AND EXCHANGE COMMISSION AND DO NOT IN ANY WAY REPRESENT THE
COMPANY'S ESTIMATE OR PROJECTION OF FUTURE STOCK PRICES. Actual gains, if
any, upon future exercise of any of these options will depend on the actual
performance of the Company's Common Stock, the continued employment of the
Named Executive Officer holding the option through its vesting period, and
the subsequent exercise of the option by the Named Executive Officer.
(2) These non-qualified stock options were granted under the 1995 Equity
Participation Plan at an exercise price equal to 100% of fair market value
on the date of grant. These options become exercisable in three installments
on the first three anniversary dates from the date of grant, and expire 10
years from the date of grant. These 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, stock dividend, 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. These options are not transferable, except upon disability,
or upon death by testamentary will or pursuant to the laws of descent and
distribution or, if permitted by applicable laws, the Committee may permit
transfers to a limited class of persons.
(3) These performance-based non-qualified stock options were granted under the
1995 Equity Participation Plan at an exercise price equal to 100% of fair
market value on the date of grant. These performance-based options generally
become exercisable on the sixth anniversary of the date of grant, unless
29
<PAGE> 33
accelerated to the first three anniversary dates based on achieving
performance goals, and expire 10 years from the date of grant. These
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, stock dividend, 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. These options are not transferable, except upon
disability, or upon death by testamentary will or pursuant to the laws of
descent and distribution or, if permitted by applicable law, the Committee
may permit transfers to a limited class of persons.
(4) Mr. Lacey terminated his full-time employment with the Company effective as
of December 24, 1998. On February 5, 1998, Mr. Lacey was granted two
options, including a non-qualified stock option to purchase 25,990 shares of
Common Stock and a performance-based non-qualified option to purchase 11,138
of Common Stock. Both of these options terminated unexercised on December
24, 1998.
STOCK OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth information regarding stock options
exercised by Named Executive Officers during the fiscal year ended December 25,
1998, and options held by them at fiscal year-end 1998. All amounts have been
adjusted to reflect the 2-for-1 stock split effected in the form of a 100% stock
dividend on June 26, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT 12/25/98(#) AT 12/25/98($)(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David E. Weiss........ -0- -0- 609,740 355,114 $9,405,599 $3,595,341
Victor M. Perez....... 60,096 $ 925,897 8,915 85,823 113,033 566,838
Donald B. Davis*...... 21,742 328,703 18,944 39,494 242,758 330,399
Jean Reiczyk.......... -0- -0- 20,000 28,188 153,750 148,138
Bruce Taafe........... 25,016 296,068 3,248 25,778 49,768 161,028
L. Thomas Gooch(2)*... 67,766 1,232,037 -0- 30,256 -0- 413,164
David E. Lacey(3)*.... 64,576 1,429,078 71,691 -0- 1,000,633 -0-
</TABLE>
- ---------------
* Former executive officer
(1) Value is calculated by (i) subtracting the exercise price per share from the
fiscal year-end market value of $32.375 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. Gooch's employment with the Company terminated on December 31, 1998. On
that date, options to purchase 30,256 shares, reported as outstanding but
unexercisable on December 25, 1998, terminated unexercised.
(3) Mr. Lacey resigned as an executive officer of the Company effective as of
December 18, 1998.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company has an agreement with David Weiss that was entered into in June
1996 and expires in May 1999. Under the terms of the agreement, Mr. Weiss
receives an annual base salary and participates in the Company's MBO bonus plan.
For 1999, Mr. Weiss' base salary has been fixed at $750,000, and his target MBO
bonus potential is 95% of his base salary. The agreement provides for severance
benefits in the event of
30
<PAGE> 34
involuntary termination without cause, or in the event of his death and, under
certain circumstances, upon a change in control of the Company (as defined
below). Following an involuntary termination, Mr. Weiss is entitled to receive a
lump sum severance payment equal to the greater of (i) his annual base
compensation through the end of the term of his agreement, or (ii) 100% of his
annual base salary plus 100% of his target bonus potential (whether or not such
bonus would have been otherwise payable). Upon a termination for cause, Mr.
Weiss will receive compensation only through the date of termination. Mr. Weiss
also participates in the Company's equity participation plan, profit sharing and
thrift plan, deferred compensation plan and the executive officer life and
medical insurance programs, and receives financial services and an automobile
allowance.
The Company also has agreements with the present executive officers,
including Messrs. Perez, Reiczyk and Taafe, and an agreement with Mr. Davis,
which provide for annual base compensation and participation in the MBO bonus
plan, and severance payments in the event of involuntary termination without
cause, or their death. Following such termination, the officers are entitled to
receive a lump sum severance benefit equal to their annual base salary plus 100%
of their target bonus potential (whether or not such bonus would have been
otherwise payable). Upon a termination for cause, the officer will receive
compensation only through the date of termination. The agreements also provide
for participation in the Company's equity participation plan, profit sharing and
thrift plan, deferred compensation plan and the executive life and medical
insurance programs, and financial planning and automobile allowances. Mr. Taafe
also receives travel, relocation, club, education and tax planning allowances
and is entitled to receive a lump sum payment equal to his annual base salary
plus 100% of his target bonus potential and an amount not to exceed $56,000 upon
the expiration of his agreement with the Company. Mr. Davis resigned as an
executive officer of the Company effective as of December 31, 1998. The Company
entered into an agreement with Mr. Davis, which provides that he is entitled to
receive a lump sum severance payment upon the expiration of his agreement equal
to the involuntary termination amount and a relocation allowance.
The Company's agreements with Messrs. Davis, Perez, Taafe and Weiss provide
for a lump sum payment under certain conditions following a change in control.
The amount of the payment is equal to a multiple of their annual base salary and
target bonus potential. The multiple is two for Mr. Weiss and Mr. Perez and is
one for Mr. Davis and Mr. Taafe. Also, in the event of a change in control, the
agreements with Messrs. Weiss and Perez provide that all outstanding stock
options and restricted stock would become fully vested. For purposes of these
officers' agreements, a "change in control" is deemed to have occurred in the
case of (i) a merger where the Company is not the surviving corporation or where
the Company's stockholders 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, the agreements
with Mr. Weiss and Mr. Perez provide 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.
For purposes of each of the agreements described above, "cause" means (i)
willful breach of any provisions of the employment agreement between the Company
and employee; (ii) gross negligence or dishonesty in performing duties for the
Company; (iii) engaging in conduct that materially conflicts with the interests
of the Company; (iv) engaging in conduct that is materially detrimental to the
business of the Company; or (v) any intentional violation of the Company's
policies.
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.
31
<PAGE> 35
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires certain persons, including the
Company's Directors and Section 16 Officers, to file reports of ownership and
changes in ownership of the Company's securities with the Securities and
Exchange Commission ("Commission"). The Company is required to disclose in this
Proxy Statement any late or missed filings of those reports during 1998 by its
Directors, Officers (as defined in the rules under Section 16 of the Exchange
Act) and greater than 10% stockholders. Based upon the Company's review of the
reporting forms received by it, and written representations that it received
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 timely complied with for 1998.
32
<PAGE> 36
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 of the Board of Directors (the
"Compensation Committee"), which consists entirely of nonemployee Directors. The
current members of the Compensation Committee are Directors Keane (Chair),
Armstrong, Chandler, Holmes and Lee.
Executive Compensation Overview. The philosophy of the Company's
compensation programs is based on achievement of Company objectives from the
combined efforts of individuals. The Company uses a leveraged compensation
package for officers that includes a number of components. The Compensation
Committee determines the mix of components included in the total compensation
package. The package is designed to align the individual's compensation with the
short-term and long-term success of the Company, and is formulated based on
three principles:
- Pay for achievement of results. The Company's executive officers are
rewarded based upon achieving short-term and long-term business and
strategic objectives. Performance is measured based upon both the
financial and operating performance of the Company and individual
management and development goals.
- Pay competitively. The Company's compensation levels are set at levels
that will allow it to attract and retain key employees. The Company
regularly reviews compensation surveys primarily of high-tech computer
companies, and sets its compensation levels based upon the results of
these reviews. The Compensation Committee believes that the surveyed
companies are a close reflection of the companies that comprise the S&P
Computer Hardware Index.
- Align compensation with the expectations of customers and
stockholders. Equity-based vehicles constitute a significant portion of
the compensation package for executive officers. The use of equity is
intended to encourage stock ownership in the Company and further align
the interests of the individual with the interests of the customers and
stockholders.
Total Compensation. The combined compensation and benefit package for
officers includes four elements: (1) base salary, (2) performance-based bonus,
(3) stock options and other equity-based vehicles, and (4) various other
benefits. The particular mix of these elements determines the level of emphasis
placed on risk-based incentives (including the performance-based bonus and
equity-based vehicles) and fixed compensation (including base salary and other
benefits). The Compensation Committee regularly assesses the mix to ensure that
the principles of the compensation program are being maximized. For 1998, the
mixture of the various elements could have resulted in total compensation ranges
for the Chief Executive Officer of approximately 30% to 140% of the targeted
competitive compensation level, and for the other executive officers, a range of
35% to 140% of the targeted level. The broad range of outcomes reflects the
dependency of the officer's total compensation on share appreciation and
attainment of performance goals. The Company did not achieve the pre-established
financial performance goals for fiscal 1998 and, as a result, no performance-
based bonuses were paid and no performance-based options were accelerated. The
absence of the performance-based component resulted in the total compensation
level for the Chief Executive Officer and each of the other Named Executive
Officers for fiscal 1998 to fall below the adjusted market average for
competitive companies.
Base Salary. The Compensation Committee reviews the salaries of the
Company's executive officers annually and in connection with promotions. For
1998, the Compensation Committee determined that the base salary levels for the
executive officers were below the competitive market median for positions of
similar responsibility and in light of individual experience. As a result, the
Compensation Committee adjusted the base compensation opportunity for fiscal
1998, which included increasing the base salary levels for the
33
<PAGE> 37
executive officers. These adjustments, however, did not entirely erase the
disparity and the 1998 base salary levels for the Company's executive officers
remained below the competitive market level. 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 Chief Executive Officer and other Named
Executive Officers.
Annual Performance Bonus. The Company maintains a management by objectives
(MBO) bonus program that provides an opportunity for officers to earn a bonus
based upon the performance of both the Company and the individual. The officers'
bonus potential is stated as a percentage of their base salaries and varies by
position. In 1998, the MBO bonus program for the executive officers included
four levels of performance (minimum, target, stretch and ultra-stretch) and
applied four performance measures, including: earnings per share; revenue
growth; development and training objectives; and a stockholder value add
measurement. The Company's financial performance for fiscal 1998 did not achieve
the earnings per share goal, which served as the threshold criteria with respect
to the payment of any bonuses under the MBO plan. As a result, no MBO bonuses
were paid to the executive officers. The Compensation Committee determines the
performance levels and measures to be included in the formula used to determine
payout levels prior to the start of the next service period. For 1998, the
financial and operating performance criteria were established based upon the
operating plan presented to the Board of Directors at the end of 1997.
Stock Options and Other Equity-Based Tools. The Compensation Committee
believes that stock options serve to directly link the amounts earned by the
executive officers with the amount of appreciation realized by the Company's
stockholders and serve as a critical retention incentive. The Company's option
programs are structured to encourage key employees to continue in the employ of
the Company and motivate superior performance that will meet the long-term
expectations of stockholders. In determining the size of any option award, the
Compensation Committee considers the individual's past performance and
potential, the value of the option, using a modified Black-Scholes model,
calculated by a third-party consultant, the position held by the individual and
the individual's annual base salary compensation.
The Compensation Committee considers option grants for officers annually,
as well as in connection with promotions. In the first quarter of 1998, the
Compensation Committee reviewed the option grants for executive officers in
connection with their annual performance assessments. All of the Named Executive
Officers were granted options with varying vesting schedules. Approximately 70%
of these options will vest in three equal increments on the first three
anniversaries of the date of grant; the remainder will vest on the sixth
anniversary, unless accelerated during the first three years based on the
attainment of pre-established performance goals. Based on the Company's
financial performance in fiscal 1998, the Compensation Committee did not
accelerate the vesting of a portion of performance-based options that were
previously granted to the CEO and the other Named Executive Officers in 1995,
1996 and 1997.
The Compensation Committee also periodically awards restricted stock to the
executive officers and other key employees. The Compensation Committee has
discretion to structure a vesting period tied to the Company's performance or,
in the alternative, the lapse of certain time periods. In 1998, the Compensation
Committee did not award any shares of restricted stock to any of the Named
Executive Officers of the Company.
Other Benefits. The executive officers participate in the employee stock
purchase plan on terms consistent with the other participants, and various
medical, dental, life, disability and benefit programs that are generally made
available to all salaried employees. The officers also receive additional
benefits, as the Company reimburses officers for certain out-of-pocket expenses
associated with such programs, up to a maximum of $5,000 per year, and provides
the officers with an individually owned universal life insurance policy in an
amount equal to three times the officer's base salary (as compared to two times
base salary as is the case for other employees). The officers of the Company
also have the opportunity to participate in a deferred compensation plan.
CEO Compensation. David E. Weiss has served as Chairman, President and CEO
of the Company since May 1996. The Compensation Committee adheres to the same
general compensation principles described above to determine Mr. Weiss'
compensation. The Compensation Committee then recommends the annual
34
<PAGE> 38
compensation for Mr. Weiss to the full Board for approval. Mr. Weiss' base
salary was set at $700,000 for 1998 and, for 1999, his base salary has been
increased by approximately 7%, to $750,000. The salary adjustment reflects the
Board's assessment of Mr. Weiss' performance and the results of competitive
compensation surveys for persons with comparable experience and positions at
similarly sized high-technology companies, which indicated that his compensation
was below the targeted level. For purposes of this review, the Compensation
Committee considers the same surveys that are used for all executive officers of
the Company, as described above.
For 1998, Mr. Weiss' MBO target bonus percentage was 80% of his base
salary. The Compensation Committee did not award Mr. Weiss an MBO bonus for
fiscal 1998, as the Company's financial performance did not achieve the
pre-established performance goals. Mr. Weiss' bonus potential for 1999 has been
set at 95% of his base salary. Mr. Weiss was granted stock options to purchase
114,860 shares in February 1998. These options have varying vesting schedules:
70% vest over three years and 30% vest on the sixth anniversary of the date of
grant, unless they are accelerated based on the Company's achievement of
performance targets. The Compensation Committee considers the same factors as
described above for all officers when determining the size of any option award
for Mr. Weiss.
Stock Ownership Guidelines. The Compensation Committee has established
stock ownership guidelines for the CEO and the other executive officers of the
Company. The guidelines are expressed in terms of a set number of shares of
stock, including Common Stock equivalents and vested restricted stock, but
excluding any unexercised stock options. Officers are expected to achieve the
stock ownership guidelines with a three-year period beginning on the date of
their first election or appointment as an officer. The Compensation Committee
believes that these guidelines will further align the interests of the officers
with interests of the stockholders.
Tax Deductibility of Executive Compensation. The Compensation Committee has
considered the potential impact of Section 162(m) of the Internal Revenue 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 performance-based bonus plan for executive officers (subject to
stockholder approval) 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.
This report has been provided by the Compensation Committee.
Stephen J. Keane, Chair
William L. Armstrong
J. Harold Chandler
Maurice F. Holmes (since September 1998)
Robert E. Lee
35
<PAGE> 39
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, 1998, with the
cumulative total return on the S&P 500 Index and the S&P Computer Hardware
Index. The comparison assumes $100 was invested on December 31, 1993, 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.
LOGO
DATA POINTS
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
--------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Storage Technology Corporation 100 91 75 149 194 224
S&P 500 Index 100 101 139 171 229 294
S&P Computer Hardware Index 100 129 172 230 337 590
</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.
36
<PAGE> 40
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. However, a stockholder presented a proposal for inclusion in the
Proxy Statement, which the Company excluded pursuant to Rule 14a-8 under the
Exchange Act. As described below, the Company's Bylaws require prior
notification of a stockholder's intent to submit any business to the meeting.
The deadline for such notification has passed and no other notification has been
received. It is the intention of the proxy holders named in the enclosed proxy
card to vote in accordance with their judgment on any other matters that may
properly come before the meeting.
Under the Company's Bylaws, in order for a matter to be deemed properly
presented by a stockholder, 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 first
anniversary of the date on which notice of the prior year's annual meeting was
mailed to stockholders (the "Advance Notice Period"). 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.
37
<PAGE> 41
STOCKHOLDER PROPOSALS
Any proposal that a stockholder may desire to present at the Company's
Annual Meeting of Stockholders in 2000 and that such stockholder wishes to have
included in the Company's Proxy Statement relating to such meeting must be
received in writing by the Secretary of the Company on or before December 6,
1999 in order to be considered for possible inclusion in the Company's proxy
materials. If a stockholder wishes to present a proposal at the Company's Annual
Meeting in the year 2000 and the proposal is not intended to be included in the
Company's proxy statement relating to that meeting, the stockholder must give
advance notice to the Company on or after January 5, 2000, but on or prior to
February 4, 2000, which is the Advance Notice Period for such meeting, as
described above. If a stockholder gives notice of such a proposal outside of the
Advance Notice Period, the stockholder will not be permitted to present the
proposal to the stockholders for a vote at the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Lizbeth J. Stenmark
Secretary
April 5, 1999
38
<PAGE> 42
(LOGO)
Printed on recycled paper
<PAGE> 43
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS
STORAGE TECHNOLOGY CORPORATION
1999 ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints David E. Weiss, Jeffrey M. Dumas and Robert
S. Kocol, 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 20, 1999, and any adjournment or postponement thereof, and, in
their discretion, upon such other matters that may properly come before the
meeting.
TO VOTE BY INTERNET OR BY TELEPHONE, PLEASE SEE THE REVERSE SIDE OF THIS
CARD. TO VOTE BY MAIL, PLEASE COMPLETE, SIGN AND DATE THIS CARD ON THE REVERSE
SIDE AND MAIL IN THE ENCLOSED ENVELOPE. THE SHARES REPRESENTED BY THIS PROXY
WILL BE VOTED IN ACCORDANCE WITH INSTRUCTIONS GIVEN, OR, IF NO CONTRARY
DIRECTION IS INDICATED, WILL BE VOTED FOR ALL OF THE MANAGEMENT'S NOMINEES FOR
DIRECTOR, FOR MANAGEMENT'S PROPOSALS 2, 3, 4 AND 5, AND AGAINST THE STOCKHOLDER
PROPOSAL.
(To Be Signed on Reverse Side)
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" ALL NOMINEES LISTED
IN PROPOSAL 1 AND "FOR" PROPOSALS 2, 3, 4 AND 5, AND "AGAINST" PROPOSAL 6.
<TABLE>
<S> <C> <C>
1. Election of Directors. FOR All Nominees (except as indicated below) [ ] WITHHOLD from all Nominees [ ]
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Nominees: James R. Adams William L. Armstrong J. Harold Chandler Maurice F. Holmes William R. Hoover
William T. Kerr Robert E. La Blanc Robert E. Lee Richard C. Steadman David E. Weiss
</TABLE>
WITHHOLD AUTHORITY to vote for the nominees listed below:
- --------------------------------------------------------------------------------
2. Approval of an amendment to the Restated Certificate of Incorporation to
increase the authorized shares of the Common Stock to 300,000,000 shares.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Approval of an amendment to the 1995 Equity Participation Plan to reserve an
additional 4,750,000 shares of Common Stock for issuance thereunder.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Approval of the terms of a performance-based incentive plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. Ratification of the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" STOCKHOLDER PROPOSAL 6.
6. Approval of a stockholder proposal regarding stockholder approval of certain
transactions by the Company.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
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. 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> 44
ANNUAL MEETING OF STOCKHOLDERS
OF
STORAGE TECHNOLOGY CORPORATION
MAY 20, 1999
PROXY VOTING INSTRUCTIONS
TO VOTE BY INTERNET
- -------------------
Please access the web page at "www.voteproxy.com" and follow the on-screen
instructions. Have your Control Number available when you access the web page.
TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY)
- --------------------------------------------
Please call toll-free 1-800-PROXIES and follow the instructions. Have your
Control Number and the proxy card available when you call.
TO VOTE BY MAIL
- ---------------
Please date, sign and mail your proxy card in the envelope provided as soon as
possible.
<TABLE>
<S> <C>
---------------------------------------
YOUR CONTROL NUMBER IS
---------------------------------------
</TABLE>
StorageTek LOGO
<PAGE> 45
EXHIBIT 10.1
STORAGE TECHNOLOGY CORPORATION
1995 EQUITY PARTICIPATION PLAN
(As amended through March 26, 1999)
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).
<PAGE> 46
(b) "Board" means the Board of Directors of the Company.
(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
-2-
<PAGE> 47
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.
(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
-3-
<PAGE> 48
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 (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.
-4-
<PAGE> 49
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;
(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;
-5-
<PAGE> 50
(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, 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
-6-
<PAGE> 51
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. Thirteen Million Five Hundred Fifty Thousand
(13,550,000) 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; provided, that Four
-7-
<PAGE> 52
Million Seven Hundred Fifty Thousand (4,750,000) shares are subject to the
approval of the stockholders of the Company at the 1999 Annual Meeting of
Stockholders. This authorization may be increased from time to time by approval
of the Board and the stockholders of the Company. Shares of Common Stock that
are issued upon exercise of Incentive Stock Options, Non-Qualified Options, or
Stock Appreciation Rights or pursuant to MBO Payments, shares of Common Stock
that are issued as Restricted Stock Awards, 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
-8-
<PAGE> 53
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 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,
-9-
<PAGE> 54
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.
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
-10-
<PAGE> 55
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 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.
-11-
<PAGE> 56
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 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;
-12-
<PAGE> 57
(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.
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.
-13-
<PAGE> 58
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 such exercise period, the
Incentive Stock Option, to the extent not then exercised, shall terminate.
-14-
<PAGE> 59
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
-15-
<PAGE> 60
option exercise during such period, if any, shall be fixed by the Committee, but
in no event shall such period be more than ten years from the date the Stock
Option is granted, and no Non-Qualified Option with respect to which Stock
Appreciation Rights have been granted may be exercised during the six-month
period immediately following the date on which such Stock Option was granted.
Upon the expiration of such exercise period, the Non-Qualified Option, to the
extent not then exercised, shall terminate. Except as otherwise provided in
Section 11, all Non-Qualified Options granted to a Participant hereunder shall
terminate and may no longer be exercised if the Participant ceases to be an
Employee, 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.
-16-
<PAGE> 61
(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
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
-17-
<PAGE> 62
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.
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.
-18-
<PAGE> 63
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.
(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
-19-
<PAGE> 64
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
-20-
<PAGE> 65
Employee at the time of the Participant's termination, the 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.
(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) Subject 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:
(i) 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
-21-
<PAGE> 66
Employee, Consultant or Director is then, in the sole judgement of the Company,
in material breach of any contractual, statutory, fiduciary or other legal
obligation to the Company.
(ii) In addition to the provisions of paragraph (i) above,
unless otherwise provided in the Option or Stock Appreciation Right agreement,
with respect to all grants of Stock Options or Stock Appreciation Rights
occurring on or after March 4, 1998 (or earlier date if agreed to by the Company
and the participant): (x) if at any time within six months after termination of
the optionee's employment or service, the former Employee, Consultant or
Director is, in the sole judgement of the Company, engaging or has engaged in
any activity in competition with any activity of the Company, or harmful or
contrary to the interests of the Company, including, but not limited to:
accepting employment with or serving as a consultant or advisor to any employer
that is in competition with the Company or acting against the interests of the
Company, including employing or recruiting any Employee of the Company; or
disclosing or misusing any confidential, proprietary or material information
concerning the Company (such information includes, without limitation,
information regarding the Company's operations, its products, product designs,
business plans, strategic plans, marketing and distribution plans and
arrangements, customers, and financial statements, budgets and forecasts); or
participating in any hostile takeover attempt of the Company, then (I) any
Options or Stock Appreciation Rights still held by the optionee shall
immediately cease to be exercisable and shall be canceled, and (II) any shares
issued upon exercise of Options or Stock Appreciation Rights after the date of
termination of employment or service shall be sold back to the Company at the
exercise price paid for such shares, and any cash received upon exercise of a
Stock Appreciation Right after termination of employment or service shall be
returned to the Company; (y) if the Employee, Consultant or Director leaves the
employment of the Company within six months of exercising Stock Options or Stock
Appreciation Rights for any reason except death, disability or retirement, then
any gain represented by the fair market value on the date of exercise over the
exercise price multiplied by the number of shares such individual purchased
("option gain"), without regard to any subsequent market price decrease or
increase, shall be paid by such individual to the Company; and (z) shares issued
upon exercise of Options or Stock Appreciation Rights after termination of
employment or service shall be non-transferable until six months after such
termination and shall be held in escrow by the Company until such time. The
Compensation Committee, in its sole discretion, may, with respect to a
particular Option or Stock Appreciation Right, omit the provisions of this
paragraph (ii) or release the optionee from the operation of such provisions if
the Compensation Committee determines that such action is in the best interests
of the Company.
-22-
<PAGE> 67
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.
-23-
<PAGE> 68
(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 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
-24-
<PAGE> 69
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 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)
-25-
<PAGE> 70
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 lapse; and
(c) all Common Stock Equivalents shall convert into shares of
Common Stock as of the date determined by the Committee.
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.
-26-
<PAGE> 71
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 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
-27-
<PAGE> 72
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.
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.
-28-
<PAGE> 73
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 favorable treatment
as may be afforded Incentive Stock Options under Section 422 of the Internal
Revenue Code.
-29-
<PAGE> 74
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. The Committee may, in its sole
discretion, allow Participants to pay all or any portion of any tax withholding
obligation that results from Stock Options, Stock Appreciation Rights, MBO
Payments, or any other Common Stock or Common Stock Equivalent award, 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. Any such withholding election shall be subject to
such terms and conditions as the Committee may, from time to time, establish;
provided, that, in the case of a Participant who 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.
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.
-30-
<PAGE> 75
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 and 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.
-31-
<PAGE> 76
EXHIBIT 10.2
STORAGE TECHNOLOGY CORPORATION
PERFORMANCE-BASED INCENTIVE BONUS PLAN
(Effective as of January 1, 1999)
1. PURPOSE
The purpose of the Plan is to motivate and retain eligible employees
for achievement of goals relating to the performance of the Company and, or its
business units or segments. The Plan is designed to ensure that the annual bonus
paid hereunder to officers of the Company is deductible under Section 162(m) of
the Internal Revenue Code (the "Code"), and the regulations thereunder ("Section
162(m)").
2. COVERED INDIVIDUALS
Participation in the Plan is determined annually in the discretion of
the Committee. In selecting participants for the Plan, the Committee will select
officers of the Company and its subsidiaries who are likely to have a
significant impact on the performance of the Company.
3. ADMINISTRATION OF THE PLAN
The Plan will be administered by the Human Resources and Compensation
Committee (the "Committee") of the Board of Directors of the Company. The
Committee shall have the sole discretion and authority to administer and
interpret the Plan in accordance with Section 162(m) of the Code.
4. MAXIMUM BONUS AND PERFORMANCE GOALS
The annual bonus will be paid in cash, or in shares of the Company's
Common Stock (including restricted stock) or Common Stock equivalents, in lieu
of cash, as the Committee, in its sole discretion, may determine from time to
time. For each fiscal year, the Committee will establish: (a) the award levels
for the participants, (b) the performance goals which must be achieved in order
for a participant to be paid an award at specified level, and (c) the formula
for determining actual awards, using the performance measures as variables.
Each participant's potential bonus award will be stated as a percentage
of his or her annual base salary. Base salary will be the participant's annual
salary rate on the last day of the fiscal year.
1
<PAGE> 77
The Committee may use one or more of the following performance measures
in establishing performance goals for any participant for any fiscal year: (i)
net after-tax income; (ii) total annual revenue; (iii) earnings per share; (iv)
stockholder value add objectives; (v) customer satisfaction objectives; (vi)
product and solution development and introduction time; (vii) return on equity;
(viii) return on assets; (ix) market penetration; (x) product and services
quality and reliability measurements; (xi) employee development and training
objectives; (xii) operating expenses; (xiii) product sales margins; (xiv)
operating profit; (xv) employee satisfaction objectives; and (xvi) individual
performance objectives. The Committee may select performance goals that differ
from participant to participant and may select performance goals that apply on a
corporate basis, or business unit or segment basis.
No bonus in excess of $3 million will be paid to any one officer
pursuant to the Plan. The Committee may reduce or entirely eliminate all bonus
payments under the Plan for any year, or any participant's bonus for any year in
its sole discretion.
5. PAYMENT OF BONUS
No bonus will be paid unless and until the Committee has certified in
writing that the performance goals have been satisfied. The payment of a bonus
for any given fiscal year requires that the participant be on the Company's
payroll as of the date that the Committee determines that the performance goals
were achieved as to all participants in the Plan. However, the Committee may
make exceptions to this requirement in the case of death, retirement, or
disability, or such other circumstances as the Committee may determine.
6. AMENDMENT AND TERMINATION
The Committee reserves the right to amend or terminate the Plan at any
time without stockholder approval, except to the extent stockholder approval may
be required to ensure the Plan's qualification under Section 162(m) of the Code,
as in effect from time to time.
2
