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 Section 240.14a-11(c) or Section
240.14a-12
INPUT/OUTPUT, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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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):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/ / 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:
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PRELIMINARY MATERIALS
[LOGO]
INPUT/OUTPUT, INC.
11104 WEST AIRPORT BLVD.
STAFFORD, TEXAS 77477
(713) 933-3339
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 10, 1996
To the Stockholders of Input/Output, Inc.:
NOTICE IS HEREBY GIVEN that the 1996 Annual Meeting of Stockholders of
Input/Output, Inc. (the "Company") will be held at the Stafford Civic Center,
1415 Constitution Avenue, Stafford, Texas 77477, on Thursday, October 10, 1996
at 10:00 a.m., Stafford, Texas time, for the following purposes, as described in
the accompanying Proxy Statement:
1. To elect four directors, each for a three-year term expiring in
1999 or until their successors are duly elected and qualified or
until their earlier death, resignation or removal.
2. To consider and vote upon the approval of a proposed amendment to
Article Fourth of the Certificate of Incorporation of the Company
to increase the number of authorized shares of Common Stock, par
value $0.01 per share, of the Company from 50,000,000 to
100,000,000 shares.
3. To consider and vote upon the adoption of the Input/Output, Inc.
1996 Management Incentive Program.
4. To consider and vote upon the adoption of the Input/Output, Inc.
1996 Non-Employee Director Stock Option Plan.
5. To consider and vote upon the amendment of the Input/Output, Inc.
Amended and Restated 1990 Stock Option Plan.
6. To consider and ratify the appointment of KPMG Peat Marwick LLP
as the Company's independent certified public accountants for the
fiscal year ending May 31, 1997.
7. To transact any other business which properly may be brought
before the Annual Meeting or any adjournment thereof.
Only holders of record of the Company's Common Stock at the close of
business on August 23, 1996 are entitled to notice of and to vote at the Annual
Meeting or any adjournment thereof. A complete list of such stockholders will
be open for the examination of any stockholder of record at the Company's
principal executive offices at 11104 West Airport Blvd., Stafford, Texas 77477
for a period of ten (10) days prior to the Annual Meeting. The list shall also
be available for the examination of any stockholder of record present at the
Annual Meeting. The Annual Meeting may be adjourned from time to time without
notice other than by announcement at such meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT IN THE ENVELOPE PROVIDED.
By Order of the Board of Directors,
Stafford, Texas ROBERT P. BRINDLEY
September 5, 1996 Secretary
INPUT/OUTPUT, INC.
11104 WEST AIRPORT BLVD.
STAFFORD, TEXAS 77477
(713) 933-3339
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 10, 1996
SOLICITATION AND REVOCABILITY OF PROXIES
The Board of Directors of Input/Output, Inc., a Delaware corporation (the
"Company"), is soliciting proxies to be voted at the Annual Meeting of
Stockholders of the Company to be held at the Stafford Civic Center, 1415
Constitution Avenue, Stafford, Texas 77477, on Thursday, October 10, 1996 at
10:00 a.m., Stafford, Texas time, and at any adjournment thereof. This Proxy
Statement and the enclosed proxy are first being mailed to stockholders on or
about September 5, 1996 in connection with this solicitation.
This proxy solicitation is intended to afford stockholders the opportunity
to vote on the matters set forth in the accompanying Notice of Annual Meeting of
Stockholders dated September 5, 1996. The proxy permits stockholders to
withhold voting for any or all nominees for election to the Company's Board of
Directors (the "Board") and to abstain from voting for any proposal if the
stockholder so chooses.
All holders of record of shares of the Company's Common Stock at the close
of business on August 23, 1996 (the "Record Date"), are entitled to notice of
and to vote at the Annual Meeting. On the Record Date, the Company had
outstanding 42,969,676 shares of common stock, par value $0.01 per share (the
"Common Stock").
Each share of Common Stock is entitled to one vote. The presence, in
person or by proxy, of holders of a majority of the outstanding shares of Common
Stock entitled to vote as of the Record Date is necessary to constitute a quorum
at the Annual Meeting. A plurality of the votes of the shares present in person
or by proxy at the Annual Meeting, provided a quorum is constituted, is required
for the election of directors. Approval of the proposal to amend the Company's
Restated Certificate of Incorporation requires the affirmative vote of holders
of a majority of the shares of Common Stock outstanding as of the Record Date.
All other actions proposed herein may be taken upon the affirmative vote of
holders of a majority of the shares of Common Stock represented at the Annual
Meeting, provided a quorum is present in person or by proxy.
With regard to the election of directors, votes may be cast in favor or
withheld; votes that are withheld will be excluded entirely from the vote and
will have no effect. Abstentions may be specified on all other proposals and
will be counted as present for purposes of the item on which the abstention is
noted. Since the amendment to the Company's Certificate of Incorporation will
require the approval of holders of a majority of the outstanding shares of
Common Stock, abstentions will have the effect of a negative vote. In addition,
abstentions on the other specific proposals set forth herein will have the
effect of negative votes because these proposals require the affirmative vote of
holders of a majority of shares present in person or by proxy and entitled to
vote. Under the rules of the New York Stock Exchange, Inc. ("NYSE"), brokers
who hold shares in street name for customers have the authority to vote on
certain "discretionary" items when they have not received instructions from
beneficial owners. NYSE rules provide that brokers who have not received voting
instructions from their clients have discretion to give a proxy and to vote on
the election of directors and the other proposals set forth herein. Under
applicable Delaware law, a broker non-vote will have no effect on the outcome of
the election of directors or the proposal to ratify the appointment of the
auditors, nor will it count as a vote cast in determining
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the total affirmative votes cast on the proposal to adopt the 1996 Management
Incentive Program, the proposal to adopt the 1996 Non-Employee Director Stock
Option Plan or the proposal to amend the Amended and Restated 1990 Stock Option
Plan. However, a broker non-vote will have the same effect as a vote against
the proposed amendment to the Restated Certificate of Incorporation.
Any stockholder has the unconditional right to revoke his proxy at any time
before it is voted. Any proxy given may be revoked either by a written notice
duly signed and delivered to the Secretary of the Company prior to the exercise
of the proxy, by execution of a subsequent proxy and delivery of such subsequent
proxy to the Secretary of the Company, or by voting in person at the Annual
Meeting (although attending the Annual Meeting without executing a ballot or
executing a subsequent proxy will not constitute revocation of a proxy). Where a
stockholder's duly executed proxy specifies a choice with respect to a voting
matter, the shares will be voted accordingly. If no such specification is made,
the shares will be voted (i) FOR the nominees for director identified below,
(ii) FOR the approval of the proposed amendment to Article Fourth of the
Certificate of Incorporation of the Company to increase the number of authorized
shares of Common Stock from 50,000,000 to 100,000,000 shares, (iii) FOR the
adoption of the Input/Output, Inc. 1996 Management Incentive Program, (iv) FOR
the adoption of the Input/Output, Inc. 1996 Non-Employee Director Stock Option
Plan, (v) FOR the amendment of the Input/Output, Inc. Amended and Restated 1990
Stock Option Plan and (vi) FOR the ratification of the appointment of KPMG Peat
Marwick LLP as the Company's independent certified public accountants for the
fiscal year ending May 31, 1997.
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation divides the Board into three
classes. The term of office of one class of directors expires at this Annual
Meeting of Stockholders. A second class of directors will serve until the 1997
Annual Meeting of Stockholders, and the third class of directors will serve
until the 1998 Annual Meeting of Stockholders.
Charles E. Selecman, Dr. Peter T. Flawn, G. Thomas Graves III and Michael
J. Sheen, each of whom is currently a director of the Company with a term
expiring at the 1996 Annual Meeting, are nominees for director and will stand
for election at this year's Annual Meeting for a three-year term of office
expiring at the 1999 Annual Meeting of Stockholders or until their successors
are duly elected and qualified or until their earlier death, resignation or
removal. For additional information regarding Messrs. Selecman, Flawn, Graves
and Sheen, see "Management - Directors and Executive Officers of the Company."
The persons named in the proxy will vote FOR such nominees, except where
authority has been withheld as to a particular nominee or as to all nominees.
Nominees for director receiving a plurality of the votes represented by the
shares of Common Stock present in person or represented by proxy at the Annual
Meeting and entitled to vote thereon will be elected as directors. Each nominee
has consented to being named in this Proxy Statement and to serve his term if
elected. If any nominee should for any reason become unavailable for election,
proxies may be voted with discretionary authority by the persons named therein
for any substitute designated by the Board.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THESE NOMINEES FOR
ELECTION TO THE BOARD.
PROPOSAL TO INCREASE AUTHORIZED SHARES
THE PROPOSAL
The Board is seeking stockholder approval to amend Article Fourth of the
Company's Certificate of Incorporation to increase the number of authorized
shares of Common Stock, par value $0.01 per share, of the
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Company from 50,000,000 to 100,000,000 shares. This proposal has been
adopted by the Board subject to approval thereof by the stockholders of the
Company and is attached hereto as Appendix I and made a part hereof; the
following discussion is qualified in its entirety to such reference.
At a Special Meeting of Stockholders of the Company held on March 4, 1996,
the Company's stockholders were asked to consider and approve an amendment to
the Company's Certificate of Incorporation to (i) increase the number of
authorized shares of Common Stock, par value $0.01 per share, of the Company
from 50,000,000 to 200,000,000 shares and (ii) increase the number of authorized
shares of preferred stock, par value $0.01 per share (the "Preferred Stock"), of
the Company from 5,000,000 to 25,000,000 shares. Holders of approximately 46.5%
(19,633,133 shares) of the Company's outstanding Common Stock voted in favor of
this proposal; holders of approximately 30% (12,683,647 shares) voted against
the proposal and 286,280 shares (less than 1%) abstained. Because the proposal
required for its approval the affirmative vote of a majority of shares of Common
Stock outstanding and entitled to vote at the meeting, it was therefore
rejected. For the reasons discussed below, the Board of Directors considers the
number of currently authorized and unissued shares of Common Stock to be
inadequate to meet the Company's anticipated future requirements, and, as a
result of discussions with certain of its major stockholders, has determined to
re-propose for stockholder approval only an increase in the number of authorized
shares of Common Stock. Therefore, stockholders are not being asked to consider
an increase in the number of authorized shares of Preferred Stock at the Annual
Meeting.
The Company has accomplished two two-for-one stock splits (each effected as
a stock dividend) since May 1994, the latest split being declared in December
1995 and distributed to stockholders in January 1996. As of the Record Date,
42,969,676 shares of Common Stock were outstanding. Also, as of the Record
Date, 5,730,300 shares of Common Stock were reserved for issuance under the
Company's two existing stock option plans, leaving only 1,300,024 unreserved and
otherwise uncommitted shares of Common Stock available for future issuance.
Assuming the proposed Non-Employee Director Stock Option Plan is approved by
stockholders at the Annual Meeting, then only 900,024 shares would remain
unreserved and available for future issuance.
The proposed increase in the authorized Common Stock has been recommended
by the Board to assure that an adequate supply of authorized and unissued shares
is available for general corporate needs, such as employee benefit plans, future
stock splits, stock dividends and other distributions to stockholders, raising
additional capital, financing arrangements, the conversion of other securities
(such as warrants and preferred stock) that may be issued by the Company, and
acquisitions by the Company of other businesses if favorable opportunities
become available. Except for issuances of shares of Common Stock pursuant to
the Company's existing and proposed stock option plans as disclosed herein, the
Company has no present plans, arrangements or understandings to issue any
additional shares of Common Stock.
If approved by the stockholders, the additional authorized shares of Common
Stock would be available for issuance at the discretion of the Board of
Directors without further stockholder approval (subject to applicable Delaware
law and NYSE rules), without the delay and expense incident to the holding of a
special meeting of stockholders to consider any specific issuance. However, the
rules of the NYSE require stockholder approval (i) in connection with the
acquisition of certain stock or assets, including another business, from a
director, officer or substantial stockholder, or from an entity in which one of
such persons has a substantial direct or indirect interest, (ii) in a
transaction or a series of transactions (except for a public offering of Common
Stock for cash) that would result in an increase in the number of shares or
voting power of the outstanding shares by 20% or more, (iii) where the issuance
of Common Stock would result in a change of control of the Company or (iv) in
connection with a stock option or stock purchase plan under which stock may be
acquired by officers or directors.
While the Board of Directors is of the opinion that the proposed amendment
is in the best interests of the Company and its stockholders, the Board
recognizes that there may be some disadvantages to the stockholders.
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The authorized but unissued shares of Common Stock could be used by incumbent
management to make more difficult a change in control of the Company. Under
certain circumstances, such shares could be used to frustrate persons seeking
to effect a takeover or otherwise gain control of the Company. The increase
in authorized shares of Common Stock might also be considered as having the
effect of discouraging an attempt by another person or entity, through
acquisition of a substantial number of shares of the Common Stock, to acquire
control of the Company with a view to imposing a merger, sale of all or any
part of the Company's assets or a similar transaction, since the issuance of
any shares could be used to dilute the stock ownership of shares of the
Company's voting stock held by such person or entity. Any transaction which
may be so discouraged or avoided could be a transaction that the Company's
stockholders might consider to be in their best interests, although it should
be noted that the Board of Directors has a fiduciary duty to act in the best
interests of the Company's stockholders at all times. See also "-- Potential
Anti-Takeover Effects of Proposal."
The Company's Board of Directors has not proposed the amendment to the
Certificate of Incorporation as an anti-takeover measure, nor does the Board
presently intend for the foreseeable future to propose anti-takeover measures
in any future proxy solicitations. Any actions taken by the Company to
discourage an attempt to acquire control of the Company may result in
stockholders not being able to participate in any possible premiums which may
arise in the absence of anti-takeover provisions, as well as may be used to
entrench management's position even if such change in control may be
beneficial to stockholders.
The approval of the amendment to Article Fourth of the Certificate of
Incorporation will not of itself cause any change in the capital stock or
surplus of the Company. However, any future issuance of shares of Common
Stock may have a dilutive effect on the present equity holdings of
stockholders of the Company.
DESCRIPTION OF CAPITAL STOCK
The Common Stock for which authorization is sought would become part of
the existing class of Common Stock. The new shares, when issued, would have
the same rights and privileges as the shares of Common Stock presently
outstanding. No stockholder of the Company has any preemptive right to
subscribe for or purchase any of the shares of Common Stock, and, once
authorized, such shares would be available for issuance at such time and on
such terms as the Board of Directors may consider appropriate.
Holders of Common Stock are entitled to such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. The Company has not paid any cash dividends on the
Common Stock since inception.
Holders of the Common Stock have no redemption, conversion or sinking
fund rights. Holders of Common Stock are entitled to one vote per share on
all matters submitted to a vote of holders of Common Stock and do not have
any cumulative voting rights. In the event of a liquidation, dissolution or
winding-up of the Company, the holders of Common Stock are entitled to share
equally and ratably in the assets of the Company, if any, remaining after the
payment of all debts and liabilities of the Company and the liquidation
preference of any outstanding Preferred Stock.
The Board of Directors is authorized to provide for the issuance of
Preferred Stock in one or more series and to fix the designations,
preferences, powers and relative, participating, optional or other rights and
restrictions thereof, including without limitation, the dividend rate,
conversion rights, voting rights, redemption price and liquidation
preference, to fix the number of shares constituting any such series and to
increase and decrease the number of shares of such series. The Board of
Directors of the Company, without obtaining stockholder approval, may issue
shares of Preferred Stock with voting rights or conversion rights which could
adversely affect the voting power of the holders of Common Stock. The
Company's Certificate of Incorporation currently authorizes the Company to
issue up to 5,000,000 shares of Preferred Stock. The proposed amendment
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would effect no change in the Company's authorized Preferred Stock. No
shares of Preferred Stock have ever been issued, and the Company has no
present plans to issue any shares of Preferred Stock.
POTENTIAL ANTI-TAKEOVER EFFECTS OF PROPOSAL
The additional shares of Common Stock proposed to be authorized would be
available for issuance by the Board in opposing an attempt by another
corporation or individual to acquire or to take control of the Company which
management may deem to not be in the best interests of the Company. For
example, the Company might seek to frustrate a takeover attempt by making a
private sale of a large block of shares to a third party who was opposed to
such an attempt or by issuing shares of Preferred Stock or stock rights to
stockholders, which shares or rights would acquire certain characteristics
(such as conversion or redemption rights) upon an unfriendly attempted
takeover.
The provisions of the Company's Certificate of Incorporation and Bylaws
summarized in the succeeding paragraphs may be deemed to have an
anti-takeover effect and may delay, defer or prevent a tender offer or
takeover attempt that a stockholder might consider in such stockholder's best
interest, including those attempts that might result in a premium over the
market price for the shares held by stockholders.
The Board of Directors of the Company is divided into three classes that
are elected for staggered three-year terms. Stockholders may only remove a
director for cause.
Pursuant to the Certificate of Incorporation, the Company's Board of
Directors by resolution may establish one or more series of Preferred Stock
having such number of shares, designations, relative voting rights, dividend
rates, liquidation and other rights, preferences and limitations as may be
fixed by the Board of Directors without any further stockholder approval.
These include, among other things, each share having more than one vote,
voting as a class on certain matters, and special conversion rights or
redemption features. Such rights, preferences, powers and limitations as may
be established could have the effect of impeding or discouraging the
acquisition of control of the Company.
The Company's Certificate of Incorporation contains a "fair price"
provision that requires the approval of holders of not less than 75% of the
outstanding shares of voting stock of the Company (including not less than
66-2/3% of the outstanding shares of voting stock not owned, directly or
indirectly, by persons who are Related Persons [as defined below]) as a
condition for mergers, consolidations and certain other business
combinations, including management buyouts, involving the Company and any
Related Person, provided that the 66-2/3% voting requirement is not
applicable if the business combination is approved by the holders of not less
than 90% of the outstanding shares of voting stock of the Company. Related
Persons include the holders of 10% or more of the Company's outstanding
voting stock and any affiliate of such persons. The 75% voting requirement
of the "fair price" provision is not applicable to a business combination
between the Company and any wholly-owned subsidiary or a business combination
involving a holder of 10% or more of the Company's outstanding voting stock
if the acquisition by such holder of such stock or the proposed transaction
is approved in advance of such person becoming a holder of 10% of the
Company's outstanding voting stock by not less than 75% of the directors of
the Company then holding office or the following conditions are met: (i) the
transaction is a merger or consolidation proposed to occur within one year of
the time such holder acquired 10% of the Company's outstanding voting stock
and the price to be paid to holders of Common Stock is at least as high as
the highest price paid by such holder in acquiring any of its Common Stock,
(ii) the consideration to be paid in the transaction is cash or the same form
of consideration paid by such holder to acquire a majority of its holdings of
Common Stock, (iii) between the date of the acquisition by such holder of 10%
of the Company's outstanding voting stock and the transaction there has been
no failure to declare and pay Preferred Stock dividends and no reduction in
Common Stock dividends (except as approved by a majority of the unaffiliated
directors), no further acquisition of voting stock by such holder and no
benefit, direct or indirect, received by such holder through
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loans or other financial assistance from the Company or tax credits or other
tax advantages provided by the Company and (iv) a proxy statement shall have
been mailed to stockholders of record at least 30 days prior to the
consummation of the transaction for the purpose of soliciting stockholder
approval of such transaction.
The Company's Certificate of Incorporation further provides that (i)
stockholders may act only at an annual or special meeting of stockholders and
may not act by written consent, (ii) special meetings of stockholders can be
called only by the Board of Directors, (iii) a 75% vote of the outstanding
voting stock is required to amend the Certificate of Incorporation with
respect to certain matters, including, without limitation, the matters set
forth in clause (i) above and the 75% voting requirement for certain business
combinations described in the preceding paragraph and (iv) in addition to the
75% voting requirement referred to in clause (iii), a 66-2/3% vote of the
outstanding shares of voting stock of the Company not owned by a Related
Person is required to amend the provisions of the Certificate of
Incorporation relating to certain business combinations described in the
preceding paragraph.
The Company's Bylaws provide that they may be amended only by the Board
of Directors or the vote of not less than 75% of the outstanding shares of
voting stock of the Company. The Bylaws also establish advance notice
procedures with regard to the nomination, other than by or at the direction
of the Board of Directors or a committee thereof, of candidates for election
as directors and with regard to certain matters to be brought before a
special meeting of stockholders of the Company. These procedures provide
that the notice of proposed stockholder nominations for the election of
directors must be timely given in writing to the Secretary of the Company
prior to the meeting at which directors are to be elected. To be timely,
notice must be received at the principal executive office of the Company not
less than 30 days nor more than 60 days prior to the meeting (or if fewer
than 40 days notice or prior public disclosure of the meeting date is given
or made by the Company, not later than the 10th day following the day on
which the notice was mailed or such public disclosure was made). The
procedures also provide that at an annual meeting of stockholders, and
subject to any other applicable requirements, only such business may be
conducted as has been brought before the meeting by, or at the direction of
the Board of Directors or by a stockholder who has given timely prior
written notice to the Secretary of the Company of such stockholder's
intention to bring such business before the meeting. For such stockholder's
notice to be timely, notice must be delivered to or mailed and received at
the principal executive offices of the Company not later than the date that
corresponds to 120 days prior to the date the Company's proxy statement was
released to stockholders in connection with the previous year's annual
meeting of stockholders. Such notice must contain certain information as
specified in the Bylaws.
The affirmative vote of holders of a majority of shares of Common Stock
outstanding and entitled to vote at the Annual Meeting as of the Record Date
is required to approve the amendment to the Company's Certificate of
Incorporation, provided a quorum is present.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF THE
PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION.
PROPOSAL TO ADOPT THE INPUT/OUTPUT, INC.
1996 MANAGEMENT INCENTIVE PROGRAM
GENERAL
On July 12, 1996, the Board adopted the Input/Output, Inc. 1996
Management Incentive Program (the "Incentive Plan"), subject to approval by
the Company's stockholders at the Annual Meeting.
During 1993, the United States Congress adopted Section 162(m) of the
Internal Revenue Code of 1986 (the "Code"), which provision places limits on
the Company's ability to deduct certain compensation in excess
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of $1,000,000 for any taxable year paid to certain of its executive officers
("Section 162(m)"). One exception to these limitations is for
"performance-based" compensation that has been disclosed to and approved by
stockholders prior to payment of the awards. Final federal income tax
regulations were promulgated in December 1995, which provide guidelines for
compliance with this exception to the deduction limitation rules.
The Incentive Plan was approved by the Compensation Committee in July
1996 to replace the Company's existing Management Incentive Plan and in
response to Section 162(m) and the adoption of the final treasury regulations
thereunder. The Incentive Plan is intended to comply with the
performance-based exception to Section 162(m). Assuming the Incentive Plan
is approved by the stockholders, the Incentive Plan will terminate on July
12, 2001, unless sooner terminated by action of the Board (Article X of the
Incentive Plan).
The provisions of the Incentive Plan (which include the material terms
of the performance-based compensation that the Company intends to pay
pursuant to the Incentive Plan) are summarized below. The statements herein
concerning the terms and provisions of the Incentive Plan are summaries only
and are qualified in their entirety by reference to the full text of the
Incentive Plan, a copy of which is attached hereto as Appendix II.
The purpose of the Incentive Plan is to advance the interests of the
Company and its stockholders by providing certain of the Company's key
employees with annual incentive compensation which is tied to the achievement
of preestablished and objective performance goals. The Incentive Plan is
designed to provide the Company with flexibility in achieving those purposes
and to implement performance-based compensation strategies that will attract
and retain officers and employees who are important to the long-term success
of the Company.
The Compensation Committee shall within 90 days after the commencement
of each fiscal year, select the particular key employees of the Company and
its subsidiaries to whom bonuses under the Incentive Plan may be granted.
Approximately 53 employees are currently eligible to participate in the
Incentive Plan. Subject to the terms of the Incentive Plan, employees who
participate in the Incentive Plan may also participate in other benefit plans
of the Company or any of its subsidiaries (Articles III and IV of the
Incentive Plan).
The Incentive Plan is administered by the Compensation Committee of the
Board of Directors, each of whom is required by the terms of the Incentive
Plan to be an "outside director" as that term is defined under Section
162(m). See "Proposal to Approve Amendments to the Input/Output, Inc.
Amended and Restated 1990 Stock Option Plan -- Administration of the 1990
Plan."
BONUSES UNDER THE INCENTIVE PLAN
Bonuses will be calculated and awarded under the Incentive Plan
according the participant's position within the Company. Participants will
be classified into Groups as designated by the Compensation Committee from
time to time. Initially, Group I shall consist of the Chief Executive Officer
and Chief Operating Officer of the Company (currently comprised of one
person); Group II shall consist of the vice presidents and the controller of
the Company (seven persons); Group III shall consist of certain tier one key
employees of the Company and its Subsidiaries as designated by the
Compensation Committee (11 persons); and Group IV shall consist of certain
tier two key employees of the Company and its Subsidiaries as designated by
the Compensation Committee (34 persons).
BUDGET AND PBT BONUS. Under the Incentive Plan, a bonus may be awarded
based upon the extent to which actual Profits Before Taxes for a fiscal year
exceed a percentage (not less than 80%), as designated by the Compensation
Committee from year to year, of that year's Budgeted Profit Before Taxes (as
defined in Article I
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of the Incentive Plan) (a "Budget Bonus"). A bonus may also be awarded based
upon the extent to which actual Profits Before Taxes for the relevant fiscal
year exceed Profits Before Taxes for the immediately preceding fiscal year (a
"PBT Bonus"). The Incentive Plan provides that the Compensation Committee
must, within 90 days after the commencement of the fiscal year in question,
establish the Corporate Thresholds and Performance Goals for that year, each
of which is described below.
Corporate Thresholds shall be the minimum levels of Profits Before Taxes
that must be realized by the Company before payment of any Budget Bonus or
PBT Bonus, as the case may be. The Performance Goals for each bonus year
shall be those performance measures established by the Compensation Committee
for each Group, which shall be expressed as percentages. These applicable
percentages will be multiplied by the base salaries of participants in
determining their respective bonus amounts. The amounts of these percentages
will be determined by reference to the extent that actual Profits Before
Taxes exceed the Corporate Thresholds with respect to any bonus year;
provided that the maximum Budget Bonus that may be received by a Participant
may not exceed twenty-five percent (25%) of such participant's base salary
for such bonus year.
ADJUSTMENTS AND LIMITATION ON BONUS. The maximum bonus amounts as
calculated above for any participant who is a "covered employee" under
Section 162(m) may be reduced by an amount of up to 50% by the Compensation
Committee in its sole discretion; however, the total maximum bonus amounts to
any such participant may not be increased. Bonus amounts calculated under
the Incentive Plan for all other participants may be increased or decreased
by the Committee in its sole discretion. In any event, the maximum total
bonus amount payable to any participant with respect to any bonus year shall
not exceed $750,000.
NEW PLAN BENEFITS
As discussed above, bonuses under the Incentive Plan will be based upon
performance goals with respect to fiscal 1997 and future years. No incentive
compensation under these terms has yet been earned by any participant.
Accordingly, the amount of annual incentive compensation to be paid in the
future to participants, including the Company's current or future named
executive officers subject to Section 162(m), cannot be determined at this
time, since actual amounts will depend on actual performance measured against
the attainment of the preestablished performance goals and the Compensation
Committee's discretion to adjust such amounts. However, the following table
provides certain summary information concerning maximum bonuses which could
have been awarded in fiscal 1996 to Mr. Owens, the Company's Chief Executive
Officer, the named executive officers, the Company's executive officers as a
group and all non-executive employees as a group, if the Incentive Plan had
been in effect:
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MAXIMUM AMOUNT AVAILABLE UNDER INCENTIVE PLAN
ASSUMING INCENTIVE PLAN WAS IN EFFECT DURING FISCAL 1996
NAME AND POSITION DOLLAR VALUE
----------------- ------------
Gary D. Owens,
President and Chief Executive Officer $ 306,526
Robert P. Brindley,
Senior Vice President, Chief Financial Officer and Secretary $ 179,742
Michael J. Sheen,
Senior Vice President and Chief Technical Officer $ 179,742
G. Thomas Grisham,
Vice President - Manufacturing $ 147,480
Axel M. Sigmar
Vice President - Corporate Development $ 138,263
Executive Group $ 951,753
Non-Executive Officer Employee Group $1,383,987
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE
INCENTIVE PLAN.
PROPOSAL TO ADOPT THE INPUT/OUTPUT, INC. 1996
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
BACKGROUND
The Company's existing Amended and Restated 1991 Outside Directors Stock
Option Plan (the "1991 Plan") was adopted at the Company's 1991 Annual Meeting
of Stockholders and amended in 1994. As originally adopted, the 1991 Plan
authorized the grant of options to purchase up to 186,000 shares. In May 1994,
the Company effected a two-for-one split of its Common Stock (in the nature of a
stock dividend), so that instead of annual grants of options for 5,000 shares
each year from 1992 through 1996, such annual grants covered 10,000 shares each
pursuant to the adjustment provisions of the 1991 Plan. Subsequently in 1994,
the Company amended the terms of the 1991 Plan to provide for the grant to each
outside director on October 1, 1994, 1995 and 1996, of options for 15,000 shares
of Common Stock, instead of 10,000 shares. In January 1996, the Company
effected another two-for-one stock split, such that pursuant to the adjustment
provisions under the Plan, each outside director of the Company (an "Outside
Director") is entitled under the terms of the 1991 Plan to an option grant for
30,000 shares on October 1, 1996; this will represent the final grants of
options to Outside Directors pursuant to the terms of the 1991 Plan. In order
that the Company might provide a means for future grants of stock options to its
Outside Directors, the Board of Directors of the Company adopted, subject to
stockholder approval, the Input/Output, Inc. 1996 Non-Employee Director Stock
Option Plan (the "Directors' Plan"), effective as of July 12, 1996. See
"Remuneration of Directors and Officers -- Compensation of Directors."
DIRECTORS' PLAN GRANTS
The Directors' Plan provides that each individual serving as an Outside
Director on the first business day of November 1996 will automatically receive a
nonqualified stock option to purchase 20,000 shares of Common Stock and that
each Outside Director who joins the Company's Board of Directors in the future
will
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automatically receive a nonqualified stock option to purchase 20,000 shares
of Common Stock on the date on which such person is first elected or begins
to serve as an Outside Director. This first grant of a stock option for
20,000 shares is herein referred to as the "First Grant". Additionally,
Outside Directors will receive a stock option to purchase 10,000 shares of
Common Stock (the "Second Grant") on the first business day of the November
immediately succeeding the First Grant and a stock option to purchase 10,000
shares of Common Stock (the "Third Grant") on the first business day of the
November immediately succeeding the Second Grant. The First Grant stock
options shall vest in 33.33% installments on the first, second, and third
anniversary dates of the First Grant. The Second Grant stock options shall
vest in 50% installments on the first and second anniversary dates of the
Second Grant. The Third Grant stock options shall be fully exercisable on
and following the first anniversary date of the Third Grant.
The provisions of the Directors' Plan are summarized below. All such
statements are qualified in their entirety by reference to the full text of the
Directors' Plan, which is attached hereto as Appendix III.
The Directors' Plan is not subject to the provisions of ERISA and is not a
"qualified plan" within the meaning of Section 401 of the Code. The Directors'
Plan will terminate on July 12, 2006, and thereafter no options may be granted
thereunder. The holder of an option granted pursuant to the Directors' Plan
does not have any of the rights or privileges of a stockholder except with
respect to shares that have been actually issued.
PURPOSE AND ELIGIBILITY
Only Outside Directors of the Company are eligible to receive options under
the Directors' Plan. At the present time, seven members of the Company's Board
of Directors are considered Outside Directors for purposes of the Directors'
Plan: Charles E. Selecman, Shelby H. Carter, Jr., Ernest E. Cook, Glen H.
Denison, Theodore H. Elliott, Jr., Dr. Peter T. Flawn, and G. Thomas Graves III.
The purpose of the Directors' Plan is to promote the long-term growth of
the Company by increasing the proprietary interest of Outside Directors in the
Company, and to attract, recruit and retain highly qualified and capable Outside
Directors by allowing these directors to participate in the long-term growth and
financial success of the Company, particularly in light of the discontinuance of
the Company's Directors Retirement Plan. See "Remuneration of Directors and
Officers - Compensation of Directors."
ADMINISTRATION OF THE DIRECTORS' PLAN
The Directors' Plan shall be administered by the Compensation Committee of
the Board of Directors. See "Proposal to Approve Amendments to the
Input/Output, Inc. Amended and Restated 1990 Stock Option Plan--Administration
of the 1990 Plan."
STOCK OPTIONS
The maximum number of shares of Common Stock to be authorized for issuance
under the Directors' Plan is 400,000, subject to adjustment for stock splits and
similar events. Shares that by reason of the expiration or unexercised
termination of a stock option are no longer subject to purchase may be reoffered
under the Directors' Plan. Each stock option granted under the Directors' Plan
is required to be evidenced by a stock option agreement, which sets forth the
material terms and provisions of the stock option.
The exercise price for an option granted under the Directors' Plan shall be
equal to the Fair Market Value per share of the Common Stock on the date of
grant, but in any event shall not be less than the par value per share of the
Common Stock. The option period extends for ten years from the date the option
is granted, subject to earlier termination in the event a director ceases to
serve as such.
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On the date that the participant desires to exercise stock options, the
participant is required to deliver to the Company the total exercise price of
the shares to be purchased in cash or in shares of Common Stock owned by the
participant having a Fair Market Value equal to the exercise price (or in any
combination of cash and shares of Common Stock having an aggregate Fair Market
Value equal to the exercise price).
RESTRICTIONS
The options granted and to be granted under the Directors' Plan are not
transferable or assignable other than by will or by the laws of descent and
distribution or pursuant to the terms of a qualified domestic relations order as
defined in the Code.
Stock options may be exercised at any time during the option period, at
such times and in such amounts, in accordance with the terms and conditions and
subject to such restrictions as are set forth in the Directors' Plan and in the
applicable stock option agreements. Upon termination of the participant's
service as a director with the Company and its subsidiaries due to death, total
and permanent disability or retirement, all unmatured installments of options
outstanding shall thereupon automatically be accelerated and exercisable in
full, and the option may be exercised for a period of 12 months after such
termination of service, or until expiration of the stock option period
(whichever is sooner), by the participant or his estate or personal
representative, or by the person who acquired the right to exercise the option
by bequest or inheritance or by reason of the participant's death.
In the event of the termination of a participant's service as a director
other than as a result of death, disability, or retirement, such participant's
stock options may be exercised by the participant for a period of 180 days after
the participant's termination of service, or until expiration of the applicable
option period (whichever is sooner) to the extent of the shares with respect to
which such options could have been exercised by the participant on the date of
termination, and thereafter to the extent not so exercised, such options shall
terminate.
ADJUSTMENTS; AMENDMENTS
The Directors' Plan provides that the number of shares issuable under the
Directors' Plan and upon exercise of outstanding options and the exercise prices
of such options are subject to such adjustments as are appropriate to reflect
any increase or decrease in the number of issued and outstanding shares of
Common Stock through the declaration of a stock dividend or through any
recapitalization resulting in a stock split-up, combination, or exchange of
shares of Common Stock (Article X of the Directors' Plan).
If the Company merges or consolidates, transfers all or substantially all
of its assets to another entity or dissolves or liquidates, then under certain
circumstances a holder of an option will be entitled to purchase the equivalent
number of shares of stock, other securities, cash or property that the option
holder would have been entitled to receive had he or she exercised his or her
option immediately prior to such event.
In the event of a "Change in Control" of the Company (as defined in
Article I of the Plan), then, notwithstanding any other provision in the
Directors' Plan to the contrary, all unmatured installments of stock options
outstanding shall thereupon automatically be accelerated and exercisable in full
(Article XI of the Directors' Plan).
The Directors' Plan provides that the Board of Directors may from time to
time discontinue or amend the Directors' Plan without the consent of the
stockholders unless such discontinuance or amendment is required by applicable
law, rule or regulation (Article VII of the Directors' Plan). In addition, the
Board of Directors may amend the Directors' Plan in any manner advisable in
order for stock options to qualify for the exemption
-11-
granted under Section 16(b) (and any changes or amendments thereto) of the
Securities Exchange Act of 1934 (the "1934 Act").
CERTAIN FEDERAL INCOME TAX ASPECTS
The granting of a stock option under the Plan will not result in federal
income tax consequences to either the Company or the optionee. Upon exercise of
a stock option, the optionee will recognize ordinary income in an amount equal
to the difference between the fair market value of the shares on the date of
exercise and the exercise price, and the Company will be entitled to a
corresponding deduction. See "Proposal to Adopt Amendments to the Input/Output,
Inc. Amended and Restated 1990 Stock Option Plan - Certain Federal Income Tax
Aspects -- Nonqualified Stock Options."
The affirmative vote of the holders of a majority of the shares of Common
Stock represented in person or by proxy at the Annual Meeting and entitled to
vote thereon, provided a quorum is present, is required to adopt the Directors'
Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE THE
DIRECTORS' PLAN.
PROPOSAL TO ADOPT AMENDMENTS TO THE INPUT/OUTPUT, INC.
AMENDED AND RESTATED 1990 STOCK OPTION PLAN
GENERAL
The Company's Amended and Restated 1990 Stock Option Plan was adopted at
the 1990 Annual Meeting of Stockholders and subsequently amended in 1994. In
July 1996, the Board approved, subject to approval by the Company's
stockholders, certain amendments to the 1990 Plan. The Amended and Restated
1990 Stock Option Plan, as proposed to be amended by the terms hereof, is
referred to herein as the "1990 Plan" and is summarized below.
The amendments to the 1990 Plan have been approved by the Compensation
Committee in response to Section 162(m) and the adoption in December 1995 of the
final treasury regulations thereunder, in order for compensation attributable to
future stock options granted under the 1990 Plan to be "performance-based"
compensation exempt from the limitations of Section 162(m). See "Proposal to
Adopt the Input/Output, Inc. 1996 Management Incentive Program -- General." The
principal amendment in this regard limits the aggregate number of shares of
Common Stock represented by grants of stock options to be made to any individual
participant during any four-year period to 750,000 shares (Section 5 of the 1990
Plan). An additional related amendment requires that each member of the
Compensation Committee be an "outside director" as that term is defined under
Section 162(m).
If the proposed amendment to the 1990 Plan is not approved by the
stockholders, the Board intends to rescind the amendment and seek, at a
subsequent meeting, stockholder approval of other amendments that will meet with
the approval of the stockholders and bring the 1990 Plan into compliance with
Section 162(m).
Other principal amendments to the 1990 Plan include:
(i) Amendments which provide that Nonqualified Stock Options terminate
180 days after the termination of an optionee's employment with
the Company, except that if such optionee's employment is
terminated by reason of death, total and permanent disability, or
retirement
-12-
pursuant to Company policies, such options terminate one year
after such termination (Section 6 of the 1990 Plan); and
(ii) Amendments which clarify the Board's authority to amend the 1990
Plan in order to continue to qualify under Section 162(m) of the
Code and with respect to certain exemptions from Section 16(b) of
the 1934 Act (Section 12 of the 1990 Plan); and
(iii) An amendment to the definition of a "Change in Control" of the
Company (Section 8 of the 1990 Plan).
The statements herein concerning the terms and provisions of the 1990 Plan
are summaries only and are qualified in their entirety by reference to the full
text of the 1990 Plan, as proposed to be amended and restated, a copy of which
is attached hereto as Appendix IV.
At May 31, 1996, the Company estimates that approximately 1,000 employees
and officers were eligible to participate in the 1990 Plan, 210 of whom were
participants. As of May 31, 1996, options to purchase 1,984,500 shares of
Common Stock had been granted to 210 persons and were outstanding under the 1990
Plan at exercise prices ranging from $2.03 to $39.25 per share, leaving
2,038,950 shares of Common Stock available for option grants. As of May 31,
1996, the aggregate market value of the shares of Common Stock underlying
outstanding options under the 1990 Plan was $80,124,187 (based on the closing
sales price per share of $40.375 on the New York Stock Exchange composite tape
on such date.)
For information concerning stock options granted during fiscal 1996 under
the 1990 Plan to the named executive officers, the Company's executive officers
as a group, all non-employee directors as a group, and all non-executive
employees as a group, see "Remuneration of Directors and Officers - Stock
Options."
TERMS OF THE 1990 PLAN AND AGREEMENTS
TERM. Unless sooner terminated by action of the Board, the 1990 Plan will
terminate on September 1, 2000, and thereafter no options may be granted
thereunder.
EMPLOYEES. The Compensation Committee will have authority to grant stock
options to key employees of the Company (including officers and directors who
are employees) or any majority-owned subsidiary at such time, in such amounts
and under such terms as the Compensation Committee determines in accordance with
the 1990 Plan.
EXERCISE OF OPTIONS. The exercise price may be paid in cash or in shares
of Common Stock valued at their fair market value on the date of exercise (or in
any combination of cash and shares of Common Stock having an aggregate fair
market value equal to the exercise price). The Compensation Committee is
authorized to prescribe the time or times at which a stock option granted under
the 1990 Plan may be exercised (Section 6(c) of the 1990 Plan).
TERMINATION OF EMPLOYMENT OR SERVICE. The 1990 Plan states that upon
termination of an optionee's employment with the Company, his option will be
exercisable for a period of 180 days after such termination; provided, however,
that if such termination is by reason of death, total and permanent disability,
retirement or otherwise, as the case may be, his option will automatically vest
and become fully exercisable for a period of 12 months after such date of
termination.
-13-
The 1990 Plan provides that in the event of a "Change in Control" of the
Company, all stock options will become fully exercisable and vested,
regardless of provisions under option agreements requiring shares to be
exercised in installments. "Change in Control" is defined in Section 8 of
the 1990 Plan.
ADMINISTRATION OF THE 1990 PLAN
The 1990 Plan is administered by the Compensation Committee of the
Board. The Compensation Committee may grant options under the 1990 Plan and
determine the terms of options granted to key employees. The Board selects
the members of the Compensation Committee from among disinterested members of
the Board. Members of the Compensation Committee serve at the will of the
Board and may be removed from the Compensation Committee at any time at the
Board's discretion.
AMENDMENT OF THE 1990 PLAN
The 1990 Plan provides that the Board may from time to time discontinue
or further amend the 1990 Plan without the consent of the participants or the
Company's stockholders. Additionally, the Board may amend the 1990 Plan in
order for stock options to qualify for the exemption under Rule 16b-3 or to
qualify as "performance-based" compensation under Section 162(m).
CERTAIN FEDERAL INCOME TAX ASPECTS
The following is a summary of the principal federal income tax
consequences associated with grants of options under the 1990 Plan. It does
not describe all federal income tax consequences under the 1990 Plan, nor
does it describe foreign, state or local tax consequences. Each participant
is urged to consult his or her personal tax advisor to determine the specific
tax consequences to him or her of the 1990 Plan.
NONQUALIFIED STOCK OPTIONS. The 1990 Plan is not a "qualified plan"
within the meaning of Section 401 of the Code. The granting of a
nonqualified stock option will not result in federal income tax consequences
to either the Company or the optionee. Upon exercise of a nonqualified stock
option, the optionee will recognize ordinary income in an amount equal to the
difference between the fair market value of the shares on the date of
exercise and the exercise price, and the Company will be entitled to a
corresponding deduction.
For purposes of determining gain or loss realized upon a subsequent sale
or exchange of such shares, the optionee's tax basis will be the sum of the
exercise price paid and the amount of ordinary income, if any, recognized by
the optionee. Any gain or loss realized by an optionee on disposition of
such shares generally will be a long-term capital gain or loss (if the shares
are held as a capital asset for at least one year) and will not result in any
tax deduction to the Company.
INCENTIVE STOCK OPTIONS. In general, no income will be recognized by an
optionee and no deduction will be allowed to the Company at the time of the
grant or exercise of an incentive stock option granted under the 1990 Plan.
When the stock received on exercise of the option is sold, provided that the
stock is held for more than two years from the date of grant of the option
and more than one year from the date of exercise, the optionee will recognize
long-term capital gain or loss equal to the difference between the amount
realized and the exercise price of the option related to such stock. If
these holding period requirements under the Code are not satisfied, the
subsequent sale of stock received upon exercise of an incentive stock option
is treated as a "disqualifying disposition." In general, the optionee will
recognize taxable income at the time of a disqualifying disposition as
follows: (i) ordinary income in an amount equal to the excess of the lesser
of the fair market value of the Common Stock on the date the incentive stock
option is exercised or the amount realized on such disqualifying disposition
over the exercise price and (ii) capital gain to the extent of any excess of
the amount realized on such disqualifying disposition over the fair market
value of the Common Stock on the date the incentive stock option
-14-
is exercised (or capital loss to the extent of any excess of the exercise
price over the amount realized on disposition). Any capital gain or loss
recognized by the optionee will be long-term or short-term depending upon the
holding period for the stock sold. The Company may claim a deduction at the
time of the disqualifying disposition equal to the amount of the ordinary
income the optionee recognizes.
Although an optionee will not realize ordinary income upon the exercise
of an incentive stock option, the excess of the fair market value of the
shares acquired at the time of exercise over the option price is included in
"alternative minimum taxable income" for purposes of calculating the
optionee's alternative minimum tax, if any, pursuant to Section 55 of the
Code.
WITHHOLDING. Withholding of federal income taxes at applicable rates
will be required in connection with any ordinary income realized by a
participant by reason of the exercise of stock options granted pursuant to
the 1990 Plan. A participant must pay such taxes to the Company in cash or
Common Stock prior to the receipt of any Common Stock certificates.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE
THE AMENDMENTS TO THE 1990 PLAN.
PROPOSAL TO RATIFY APPOINTMENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board has selected KPMG Peat Marwick LLP as independent certified
public accountants to examine the consolidated financial statements of the
Company for the fiscal year ending May 31, 1997. Stockholders are being
asked to ratify this appointment. The Company has been informed that neither
KPMG Peat Marwick LLP nor any of its partners have any direct financial
interest or any material indirect financial interest in the Company nor have
had any connection during the past three years with the Company in the
capacity of promoter, underwriter, voting trustee, director, officer or
employee.
Representatives of KPMG Peat Marwick LLP are expected to be present at
the Annual Meeting with the opportunity to make a statement if they so desire
and to be available to respond to appropriate questions.
The affirmative vote of the holders of a majority of the shares of
Common Stock represented in person or by proxy at the Annual Meeting and
entitled to vote thereon, provided a quorum is present, is required for
approval of such proposal.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE COMPANY'S INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING MAY 31, 1997.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names, ages and titles of the
directors and executive officers of the Company.
NAME AGE TITLE
- ---- --- -----
Charles E. Selecman............. 67 Chairman of the Board of Directors
Gary D. Owens................... 49 Director, President and Chief
Executive Officer
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Robert P. Brindley.............. 46 Director, Senior Vice President, Chief
Financial Officer and Secretary
Michael J. Sheen................ 48 Director, Senior Vice President and
Chief Technical Officer
G. Thomas Grisham............... 44 Vice President - Manufacturing
Axel M. Sigmar.................. 35 Vice President - Corporate Development
Shelby H. Carter, Jr. .......... 65 Director
Ernest E. Cook.................. 70 Director
Glen H. Denison................. 72 Director
Theodore H. Elliott, Jr. ....... 60 Director
Dr. Peter T. Flawn.............. 70 Director
G. Thomas Graves III............ 47 Director
Set forth below are descriptions of the backgrounds of the executive
officers and directors of the Company and their principal occupations for the
past five years.
Charles E. Selecman has served as Chairman of the Board of Directors of
the Company since December 1986 and previously served as President from 1989
until January 1993 and Chief Executive Officer until October 1, 1993. Mr.
Selecman served from 1984 through 1986 as president of various oil field
equipment and oil and gas exploration and production subsidiaries of Kidde,
Inc., and also served as the group executive for the Kidde, Inc. energy
group, which included the Company. Mr. Selecman, whose present term as a
director of the Company expires at the 1996 Annual Meeting of Stockholders,
is a nominee for re-election at such meeting. See "Election of Directors."
Gary D. Owens, a director of the Company since June 1992, has served as
President and Chief Executive Officer since October 1, 1993. Mr. Owens
served as President and Chief Operating Officer of the Company from January
1993 to October 1993, and as Executive Vice President and Chief Operating
Officer of the Company from June 1992 to January 1993. He served as
Executive Vice President - Worldwide Marketing from 1991 to 1992. Mr. Owens
served as Vice President - Marketing from 1989 to 1991 and served as the
Company's Manager of Marketing from 1978 until 1989. Mr. Owens' term as a
director of the Company expires at the 1998 Annual Meeting of Stockholders.
Robert P. Brindley, a director of the Company since July 1994, has
served as Senior Vice President and Chief Financial Officer and Secretary of
the Company since 1991. He served as Vice President Finance, Chief Financial
Officer and Secretary of the Company from 1987 to 1991. He was Vice
President and Controller of the Company from 1982 to 1987. Mr. Brindley's
term as a director of the Company expires at the 1997 Annual Meeting of
Stockholders.
Michael J. Sheen, a director of the Company since July 1994, has served
as Senior Vice President and Chief Technical Officer of the Company since
1991. Mr. Sheen served as Vice President - Engineering for the Company from
1989 to 1991. He was the Company's Chief Engineer responsible for directing
the engineering department from 1979 until 1989. Mr. Sheen, whose present
term as a director of the Company expires at the 1996 Annual Meeting of
Stockholders, is a nominee for re-election at such meeting. See "Election of
Directors."
G. Thomas Grisham has served as Vice President - Manufacturing of the
Company since 1992. Mr. Grisham served as Manufacturing Manager for the
Company from 1991 to 1992. Prior to that he held various positions of
increasing responsibility in Marketing and Sales from 1980 until 1991.
Axel M. Sigmar has served as Vice President - Corporate Development of
the Company since September 1992. Mr. Sigmar was a product line manager
having worldwide responsibility for land seismic at Schlumberger
-16-
Geco-Prakla, a seismic contractor, from 1988 to 1992. Mr. Sigmar served in
various international management and technical positions in Schlumberger
Wireline and Testing operations from 1982 to 1988.
Shelby H. Carter, Jr., a director of the Company since February 1987, is
also a founder/director of Bay Networks, Inc., a software and local area
networking company. Since January 1986, Mr. Carter has also served as a
professor at the University of Texas Graduate School of Business and College
of Business Administration. From December 1986 to September 1989, he served
as an advisory partner at Austin Ventures, L.P., a venture capital firm. In
January 1985, Mr. Carter retired from his positions as General Sales Manager,
Worldwide Operations and Corporate Vice President for Xerox Corporation,
where he had been employed since January 1970; prior to that he was employed
for 15 years by IBM Corporation. Mr. Carter also serves on the Board of
Directors of TechWorks, Inc. and Pervasive Software, Inc. Mr. Carter's term
as a director of the Company expires at the 1997 Annual Meeting of
Stockholders.
Ernest E. Cook, a director of the Company since February 1987, is an
independent oil and gas industry consultant. Mr. Cook is also a director of
Triton Energy Corporation. Mr. Cook's term as a director of the Company
expires at the 1998 Annual Meeting of Stockholders.
Glen H. Denison was a director of the Company from 1988 until resigning
in July 1990. Mr. Denison rejoined the Company's Board of Directors in
September 1990 upon retiring as Group Vice President of Hanson Industries,
Inc. and Chief Executive Officer of Axelson, Inc., an oilfield equipment
manufacturer, which were positions he had held since 1984. Mr. Denison
retired as Chairman of Axelson, Inc. in 1993. Mr. Denison's term as a
director of the Company expires at the 1998 Annual Meeting of Stockholders.
Theodore H. Elliott, Jr., a director of the Company since February 1987,
has been Chairman of Prime Capital Management Co. Inc., a Stamford,
Connecticut, venture capital company, during the past five years. Mr.
Elliott's term as a director of the Company expires at the 1997 Annual
Meeting of Stockholders.
Dr. Peter T. Flawn, a director of the Company since September 1990,
currently serves as a consultant to the O'Donnell Foundation, a charity in
Dallas, Texas, and formerly was the President of The University of Texas at
Austin from 1979 to 1985. A member of the National Academy of Engineering,
Dr. Flawn also serves on the Boards of Directors of Tenneco, Inc.,
Harte-Hanks Communications, Inc. and Global Marine, Inc. Dr. Flawn, whose
present term as a director of the Company expires at the 1996 Annual Meeting
of Stockholders, is a nominee for re-election at such meeting. See "Election
of Directors."
G. Thomas Graves III, a director of the Company since February 1987,
currently serves as President of Gralee Capital Corporation, an asset
management company. Mr. Graves served as Senior Vice President of Triton
Energy Corporation from 1987 to 1993 and also served as Chairman and Chief
Executive of Triton Europe Plc, a London Stock Exchange listed company
engaged in the oil and gas exploration industry, from October 1991 to
September 1993. Mr. Graves, whose present term as a director of the Company
expires at the 1996 Annual Meeting of Stockholders, is a nominee for
re-election at such meeting. See "Election of Directors."
No director is related to any other director or executive officer of the
Company or its subsidiaries, and there are no arrangements or understandings
between a director and any other person pursuant to which such person was
elected as director.
Corporate officers are appointed by the Board and serve at the
discretion of the Board.
MEETINGS OF DIRECTORS AND COMMITTEES
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The Board held 13 meetings during fiscal 1996. Each director attended
at least 75% of the aggregate of the total meetings of the Board and any
committee on which such director served.
The Company has the following standing Committees:
The AUDIT COMMITTEE, which currently consists of Messrs. Flawn, Cook,
Elliott and Selecman met once during fiscal 1996. Its principal functions
are to confirm the existence of effective accounting and internal control
systems and to oversee the entire audit function.
THE COMPENSATION COMMITTEE, which currently consists of Messrs. Graves,
Carter and Denison, held eight meetings during fiscal 1996. Its principal
functions are to study, advise and consult with the Company's management
regarding the compensation of officers and directors and other key employees
of the Company.
THE NOMINATING COMMITTEE, which currently consists of Messrs. Selecman,
Carter and Graves, met once during fiscal 1996. Its principal functions are
to identify suitable candidates to fill vacancies on the Board which may
occur from time to time. The Nominating Committee will consider nominees
recommended by holders of Common Stock. Nominations should be sent to the
Nominating Committee c/o the Company at the address set forth on the first
page of this Proxy Statement, on or before May 16, 1997.
REMUNERATION OF DIRECTORS AND OFFICERS
EXECUTIVE COMPENSATION
The following table sets forth information regarding annual and
long-term compensation with respect to the fiscal years ended May 31, 1996,
1995 and 1994 paid or accrued by the Company to or on behalf of those persons
who were at May 31, 1996, (i) the Company's Chief Executive Officer and (ii)
the other four most highly compensated executive officers of the Company.
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SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------- --------------------------- ALL OTHER
NAME AND OPTION RESTRICTED STOCK COMPENSATION
PRINCIPAL POSITION YEAR SALARY BONUS AWARDS(#) AWARDS($)(1) (2)(3)
- ------------------ ---- -------- -------- ------- ---------------- ------------
Gary D. Owens 1996 $300,000 $306,526 200,000 - $67,218
President and Chief 1995 250,000 256,173 - - 67,823
Executive Officer 1994 160,000 215,787 - $1,432,575 66,089
Robert P. Brindley 1996 $195,000 $179,742 80,000 - $44,268
Senior Vice President, 1995 175,000 153,071 - - 43,550
Chief Financial Officer 1994 110,000 131,852 - $859,545 40,001
and Secretary
Michael J. Sheen 1996 $195,000 $179,742 80,000 - $55,378
Senior Vice President 1995 175,000 153,071 - - 53,879
and Chief Technical 1994 110,000 131,852 - $1,337,070 51,192
Officer
G. Thomas Grisham 1996 $160,000 $147,480 80,000 - $13,131
Vice President -- 1995 130,000 113,710 - - 8,264
Manufacturing 1994 85,000 101,887 - $477,525 7,322
Axel M. Sigmar 1996 $150,000 $138,263 50,000 - $43,899
Vice President -- 1995 130,000 113,710 - - 41,172
Corporate Development 1994 100,000 119,867 16,000 - 39,978
(1) The Company is required to use the closing price of its Common Stock on
the date of grant of the restricted stock award for valuation purposes with
respect to this column. The restricted period with respect to each of the
awards included in the table above is two years for 50% of the shares
awarded, three years for an additional 25% of the shares awarded and four
years for the remaining 25% of the shares awarded. Dividend and voting
rights of restricted stock are the same as all other shares of the
Company's outstanding Common Stock. The number and value, based on the
last reported sales price as of May 31, 1996, of Common Stock on the New
York Stock Exchange composite tape of $40.375 per share, of the aggregate
restricted stock holdings of the named individuals were as follows: Mr.
Owens, 90,000 shares, $3,633,750; Mr. Sheen, 76,000 shares, $3,068,500;
Mr. Brindley, 56,000 shares, $2,261,000 and Mr. Grisham 20,000 shares,
$807,500. The restricted stock plan provides that all restrictions with
respect to the shares of restricted stock awarded will automatically lapse
upon a "change of control" (as defined in the plan) of the Company or
termination of employment due to death or retirement.
(2) During fiscal 1996, the Company contributed to its Section 401(k) Plan as
follows: Mr. Owens: $14,983; Mr. Sheen: $13,795; Mr. Brindley: $13,795;
Mr. Grisham: $13,131 and Mr. Sigmar: $12,998.
(3) During fiscal 1996, the Company paid whole life insurance premiums as
contributions with respect to the Company's Supplemental Executive
Retirement Plan (SERP) as follows: Mr. Owens: $52,235; Mr. Sheen: $41,583;
Mr. Brindley: $30,473 and Mr. Sigmar: $30,901.
During fiscal 1996, the named individuals and certain officers included
in the group received benefits in the form of certain perquisites. However,
none of the individuals identified in the foregoing table received
perquisites which exceeded in value the lesser of $50,000 or 10% of such
officer's salary and bonus.
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STOCK OPTIONS
The options shown below were awarded during fiscal 1996 pursuant to the
1990 Plan:
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
- ----------------------------------------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF SECURITIES PERCENT OF TOTAL OPTIONS ASSUMED ANNUAL RATES OF STOCK
UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE OR EXPIRATION PRICE APPRECIATION FOR OPTION
NAME GRANTED(1) IN FISCAL YEAR BASE PRICE(1) DATE TERM(2)
- -----------------------------------------------------------------------------------------------------------------------------
(#) (%) ($/Sh) 5% 10%
- -----------------------------------------------------------------------------------------------------------------------------
Gary D. Owens 200,000 24.43% $20.125 08/08/2005 $3,584,800 $ 9,084,588
Robert P. Brindley 80,000 9.77% $20.125 08/08/2005 $1,433,920 $ 3,633,835
Michael J. Sheen 80,000 9.77% $20.125 08/08/2005 $1,433,920 $ 3,633,835
G. Thomas Grisham 80,000 9.77% $20.125 08/08/2005 $1,433,920 $ 3,633,835
Axel M. Sigmar 50,000 6.11% $20.125 08/08/2005 $ 896,200 $ 2,271,147
Executive Group 490,000 59.85% $20.125
Non-Employee 210,000 N/A $19.1875
Director Group
Non-Executive 328,750 40.15% $17.8125 to
Officer Employee $39.25
Group
(1) These options will vest in four equal annual increments beginning on
the first anniversary date of the grant. The 1990 Plan provides that
in the event of a "change in control" of the Company (as defined in
the 1990 Plan), all stock options will become fully vested. Number
of shares and exercise price adjusted to reflect two-for-one stock
split effected in January 1996.
(2) Potential realizable value is the amount that would be realized upon
exercise by the Named Executive Officer of the options immediately
prior to the expiration of their respective terms, assuming the
specified annualized rates of appreciation on the Common Stock over
the respective terms of the options.
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The following table shows the number of shares covered by all exercisable
and non-exercisable stock options held by the named executive officers as of
May 31, 1996. Also reported are the year-end values for their unexercised
"in-the-money" options, which represent the positive spread between the
exercise price of any option and the year-end market price of the Common Stock.
AGGREGATED FISCAL YEAR-END OPTION VALUES
SHARES NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED VALUE OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS
NAME ON EXERCISE REALIZED END(#) AT FISCAL YEAR END ($)
- ---- ----------- --------- ---------------------- ----------------------
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
-------------- -------------
Gary D. Owens 129,000 $3,583,060 30,000/345,000 $1,094,061/$9,698,686
Robert P. Brindley 130,000 3,608,748 20,000/176,000 $ 729,374/$5,347,874
Michael J. Sheen 94,000 2,624,623 20,000/176,000 $ 729,374/$5,417,874
G. Thomas Grisham 56,000 1,184,936 15,000/115,000 $ 547,031/$2,974,530
Axel M. Sigmar 48,000 1,255,780 23,000/106,000 $ 774,531/$2,945,781
On May 31, 1996, the last reported sales price of the Common Stock on the
New York Stock Exchange composite tape was $40.375 per share. The named
executive officers exercised Company stock options covering a total of 457,000
shares during fiscal 1996.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Owens,
Brindley and Sheen, all of which are substantially on the terms described
below. These employment agreements provide that they expire January 31, 1993,
but are subject to automatic yearly extensions except in certain events. Among
other provisions, these agreements provide that, in consideration for remaining
in the employ of the Company, each such officer is entitled to receive certain
benefits, subject to certain conditions.
If an officer of the Company is terminated for a reason other than (a)
his death, disability or retirement, (b) for cause or (c) his voluntary
termination other than for good reason, such officer would be entitled to
receive from the Company a lump sum severance payment equal to the sum of the
following amounts: (i) the officer's full base salary through his date of
termination at the rate then in effect, (ii) an amount equal to two times the
officer's annual base salary, (iii) certain relocation and indemnity
payments, along with all legal fees and expenses incurred by the officer as a
result of the termination and (iv) in the event the officer is subject to the
excise tax imposed by Section 4999 of the Code, as a result of a change in
control, an amount equal to the product of (a) 25% multiplied by (b) the
amount of any "excess parachute payment" received by the officer as described
in the provisions of Section 280G(b) of the Code. In the event that an
officer receives a "parachute payment" as the result of a change in control,
such payment would be deemed to be an "excess parachute payment" if it equals
or exceeds 300 percent of the officer's "base amount," generally the average
annual compensation received by the officer over the most recent five tax
years. The "excess parachute payment" is computed as that portion of the
"parachute payment" which exceeds the "base amount." In addition, unless the
officer is terminated for cause, the Company must maintain in full force and
effect for the continued benefit of the officer for a two-year period after
the date of termination all benefit plans and programs or arrangements in
which the officer was entitled to participate immediately prior to the date
of termination.
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SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Input/Output, Inc. Supplemental Executive Retirement Plan
(the "SERP") was established in 1992. The SERP is designed to defer
taxation of participants until their receipt of benefits. The Board,
in its sole discretion, is authorized to determine eligibility for
participation in the SERP. The Board has appointed a committee
composed of directors and executive officers of the Company to
administer the SERP. The SERP provides to each participant, upon such
participant's retirement from the Company at age 65, an annual
deferred benefit equal to 60% of the participant's average annual
compensation for those three consecutive calendar years during his
employment that results in the highest annual compensation, reduced by
certain social security benefits and certain actuarial equivalents of
annual matching contributions made by the Company and credited to the
participant under the Company's Section 401(k) Plan. If a participant
terminates employment prior to his 65th birthday due to death, total
disability or early retirement that is approved by the Board, the
participant will be 50% vested in his deferred benefit upon attaining
age 55 and completing 15 years of service with the Company. A
participant's vested interest increases 5% thereafter for each
additional year of service. A participant is fully vested in his
deferred benefit at age 65, or at age 55 if the participant has
completed 25 years of service with the Company, or upon total
disability of the participant or a change in control of the Company.
In addition, the SERP provides that the Company shall pay a
participant an amount equal to any excise tax pursuant to Section 280G
of the Code in the event that payment of a deferred benefit results in
liability for such tax.
"Change of control" for purposes of the SERP is defined to
include the following: (i) mergers or consolidations in which the
Company is not the surviving corporation (unless the proportionate
ownership of the Company's stockholders in the surviving corporation
is unchanged), (ii) any sale or other disposition of all or
substantially all of the Company's assets, (iii) the approval by the
Company's stockholders of any plan of liquidation or dissolution, (iv)
the acquisition by a third party of beneficial ownership of 50.1% of
the Company's outstanding voting securities and (v) during any two-
year period, persons who constituted at least a majority of the entire
Board of Directors at the beginning of such period cease for any
reason (other than death) to constitute a majority of the directors,
unless the new director was approved by at least two-thirds of the
directors then still in office who were directors at the beginning of
such period.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
includes only directors who are not employees of the Company. The Committee
establishes the salary levels of corporate officers and administers the
Company's stock option and management incentive plans. During fiscal 1996
the Committee was comprised of G. Thomas Graves III, Chairman, Shelby H.
Carter, Jr. and Glen H. Denison. The following report presents the Committee's
summary of the Company's compensation programs and policies and describes the
bases for compensation of the Company's executive officers and its chief
executive officer:
COMPENSATION POLICY
The goal of the Company's executive compensation policy is to support
the overall objective of enhancing stockholder value, while at the same time
attracting, motivating and retaining highly qualified and productive
employees. It is the policy of the Company that a significant portion of the
compensation paid to the executive officers should be based on the Company's
results of operations and the growth in value of its equity. This policy
aligns the interests of the Company's management and stockholders by placing
increased emphasis on performance-based pay and reduced emphasis on fixed pay
in overall total compensation. To achieve its goals, the Company's executive
compensation policies have been designed to provide competitive levels of
compensation that integrate annual base compensation with bonuses based upon
corporate performance and individual initiatives and performance. Also,
since 1990, the Company has adopted and
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maintained stock option plans under which the benefits realized by executives
are directly related to stock price performance. Consistent with this objective,
the Company has had in place for a number of years the Input/Output, Inc.
Management Incentive Plan (the "MIP") that established annual cash bonuses to
the officers and other key employees of the Company, which were tied to actual
profits performance compared to budgeted and prior year's pretax profits.
In its assessment of compensation levels, the Committee takes into
consideration performance relative to the individual responsibilities of the
executive officers, as well as the financial performance of the Company
relative to its goals and relative to the financial performance of other
companies. The Committee also considers the competitiveness of both the
entire executive compensation package and each of its individual components.
To assist it in its consideration, the Committee periodically engages the
services of outside compensation consultants to evaluate the Company's
executive compensation structure from time to time. These consultants report
directly to the Committee and advise the Committee regarding the competitiveness
of the Company's executive compensation package as well as recent trends and
developments in executive compensation for U.S. companies. In this regard,
during fiscal 1996, the Committee engaged the services of William M. Mercer Co.
as independent compensation consultants to review and make recommendations to
the Committee in these areas.
As a result of the Committee's review of the Company's total compensation
program for its executives, the Committee recommended to the Board of Directors
in July 1996 that the Company adopt the Input/Output, Inc. 1996 Management
Incentive Program (the "Incentive Plan") to replace the MIP. The Incentive Plan
adopted by the Board of Directors, which is subject to stockholder approval at
the Annual Meeting, is similar to the MIP regarding its calculation of bonuses
by reference to objective performance criteria. The terms of the Incentive Plan
are included with this Proxy Statement as Appendix II, and certain significant
features of the plan are described elsewhere in this Proxy Statement.
The Committee has considered the impact of Section 162(m) regarding the
corporate limitations on deducting certain compensation expenses. It is the
Committee's intent to adopt policies to obtain maximum tax deductibility of
executive compensation, consistent with providing motivational and competitive
compensation which is truly performance-based. In furtherance of this goal,
the Incentive Plan and amendments to the Amended and Restated 1990 Stock
Option Plan have been proposed for stockholder approval in order to assure
that the Company's executive compensation plans meet the requirements of
Section 162(m) to achieve maximum deductibility of executive compensation
expense. See "Proposal to Approve the Input/Output, Inc. 1996 Management
Incentive Program" and "Proposal to Approve Amendments to the Input/Output,
Inc. Amended and Restated 1990 Stock Option Plan."
The Committee reviews the performance of the Company and each officer
individually to determine salary and bonus adjustments and to determine stock
option awards. In determining appropriate salary levels, the Committee
generally considers compensation levels for executive positions with similar
duties and responsibilities in the external market, including those at
comparable-sized electronics companies, as well as corporate and individual
performance.
Company executive compensation currently consists of two key elements: A
long-term component (stock options) and an annual component (base salary and
bonus). Following is a description of the elements of the Company's current
executive compensation program and how each relates to the objectives and
policies outlined above.
STOCK OPTIONS. The Committee believes that long-term incentives should
be provided to management to increase shareholder value, as measured by stock
price. The Committee believes that stock incentives are appropriate, not only
for senior management, but also for key employees of the Company and its
subsidiaries.
-23-
All options provide for the purchase of shares at an exercise price
equal to fair market value on the date of grant. See "Proposal to
Approve Amendments to the Input/Output, Inc. Amended and Restated 1990
Stock Option Plan."
MANAGEMENT INCENTIVE PLAN. The Committee believes that key
employees should have a significant portion of their total
compensation based on the Company's relative financial performance to
plan projections and the prior year's results. The participant's
annual cash bonus under the proposed Incentive Plan is determined
based on specified performance achievements by the Company.
Each participant is assigned to a group within the Incentive Plan
which reflects his responsibility level within the Company. The
performance criteria for Incentive Plan groups emphasize the Company's
objective for growth in profits before tax compared to budgeted pretax
earnings for the plan year and the actual pretax results for the prior
year. See "Proposal to Approve the Input/Output, Inc. 1996 Management
Incentive Program."
BASE SALARY. The Committee approves the annual salaries for all
officers of the Company. The Committee reviews recommendations made
by the Chief Executive Officer with regard to salary adjustments for
officers other than himself, and then either approves or changes these
recommended salary adjustments. The Committee independently reviews
performance of the Chief Executive Officer and determines an
appropriate salary based on the criteria set forth above. As noted
above, base salaries for the Company's executive officers are also
determined by reference to salary surveys from outside consultants and
other sources.
In previous years, certain executive officers were awarded grants
of restricted stock under the Company's restricted stock plan adopted
in 1990. The Committee believes that these grants served their
purpose at such times increasing the share ownership of key
executives, providing an emphasis on maintaining and enhancing
stockholder value and retaining the executives during important
developmental years of the Company's growth. All shares reserved for
grant under the plan have been awarded, and the Committee does not
intend to implement another restricted stock plan in the foreseeable
future.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In July 1996, Mr. Owens' annual base salary was increased from
$300,000 to $350,000 in recognition of his responsibility for the
Company's revenue growth and earnings performance. In June 1996, the
Committee awarded a bonus of $ 306,526 to Mr. Owens pursuant to the
MIP. In making this award, the Committee noted that the Company's
performance objectives for fiscal 1996 (in accordance with the terms
of the MIP) had been exceeded. Mr. Owens' participation in total
option grants made by the Company during fiscal 1996 under the 1990
Stock Option Plan was based upon overall compensation packages and
option plans provided to senior executives in similar companies as
well as Mr. Owens' level and scope of responsibilities and
contributions to the Company during fiscal 1996. Based on these
criteria, in August 1995, the Committee awarded options to purchase
200,000 shares of Common Stock under the Amended and Restated 1990
Stock Option Plan to Mr. Owens.
SUMMARY
The Committee believes that the Company's executive compensation
policies and programs serve the interests of the stockholders and the
Company effectively. The various compensation programs are believed
appropriately balanced to provide motivation for executives to
contribute to the Company's overall success and enhance the value of
the Company for the stockholders' benefit. As in past years, when
performance goals are met or exceeded, resulting in increased value to
stockholders, executives will be rewarded
-24-
commensurately. In the aggregate, 50.5% of the Named Executive
Officers' cash compensation for fiscal 1996 was derived from incentives
directly linked to corporate performance. Mr. Owens received 52% of his
cash compensation from incentives. The Committee will continue to
monitor the effectiveness of the Company's total compensation program
and continue to make proposals where applicable, to meet the current and
future needs of the Company.
This report has been provided by the Compensation Committee.
G. Thomas Graves III, Chairman
Shelby H. Carter, Jr.
Glen H. Denison
The Compensation Committee Report on executive compensation 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.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
The following 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.
The following graph shows the value of an investment of $100 in
April 1991, when the Company initially became a public company, the
Standard & Poor's 500 Index, and the Standard & Poor's Electronics
index.
S&P Electronics -
INPUT/OUTPUT S&P 500 Instrumentation
------------ ------- -----------------
1991 100.00 100.00 100.00
1992 218.75 109.85 136.36
1993 225.06 122.61 158.62
1994 643.75 127.81 144.75
1995 850.08 153.64 242.68
1996 2018.75 197.33 307.99
COMPENSATION OF DIRECTORS
As compensation for serving on the Company's Board of Directors,
each director who is not an employee of the Company receives $1,500
for each meeting attended and $1,500 for each committee meeting
attended. In addition, each non-employee director receives an annual
stipend of $20,000.
DIRECTORS RETIREMENT PLAN. During June 1992, the Company adopted
the Directors Retirement Plan. Under the Directors Retirement Plan,
participation was limited to directors who served as outside directors
for an aggregate of not less than five years or whose service on the
Board as an outside director terminated due to death or disability or
a change in control of the Company. Payment of benefits under the
Directors Retirement Plan is payable in quarterly installments and
commences at the beginning of the Company's fiscal quarter next
following the later date at which a director (i) attains age sixty-
five or (ii) retires from the Board. Payments of benefits shall
continue for a period equal to the lesser of (a) the number of years
and portions thereof, rounded upwards to the nearest six months,
during which such director served as an outside director or (b) ten
years. (During fiscal 1996, the Board determined to accelerate the
vesting in full of Mr. Selecman's years of service as an outside
director.) In the event of a "change of control" (as defined in the
Plan), the director may elect to receive a lump sum payment
representing the present value of the quarterly payments otherwise
payable. Total benefits payable to an outside director under the
Directors Retirement Plan are equal
-25-
to the greater of (i) 100% of the outside director's annual stipend effective
for the fiscal year in which he retires or (ii) 100% of the outside
director's annual stipend payable in the fiscal year prior to retirement.
In July 1996, the Board of Directors of the Company determined to
discontinue the Directors Retirement Plan. Under the terms adopted by the
Board, all benefit accruals relating to years of service through the date of
discontinuation were frozen; in addition, participation by any individuals
not currently an outside director was prohibited. The Board determined not
to currently distribute any accrued sums under the Plan to the outside
directors, resolving instead to conserve cash and avoid any current charge
against earnings as a result of distribution of benefits.
OUTSIDE DIRECTORS' STOCK OPTION PLANS. Pursuant to the Amended and
Restated 1991 Outside Directors Stock Option Plan (the "1991 Plan"), the
Company is authorized to make automatic grants of options to purchase shares
of Common Stock to outside directors. On October 1, 1996, each outside
director is entitled under the terms of the 1991 Plan to an option grant for
30,000 shares. Under the terms of the 1991 Plan, the purchase price per
share under each option must be not less than 100% of the fair market value
of the shares of Common Stock on the date of grant and the option periods
cannot be more than 10 years from the date the option is granted. Options
granted under the 1991 Plan become exercisable one year following the date of
the grant with respect to 25% of the shares of Common Stock covered thereby.
Additional 25% increments become exercisable, cumulatively, on the next
succeeding anniversary dates from the date of grant, until four years from
the date of the grant, at which time the options may be exercised in full.
The 1991 Plan also permits the exercise of options by the delivery of shares
of Common Stock previously owned by the optionees in lieu of or in addition
to cash. The exercisability of the options accelerates upon a change of
control (as described in the plan) and upon the option holder's death while
serving as a director or upon termination as a director as the result of
retirement or disability. As of August 31, 1996, the Company had granted
options covering a total of 804,000 shares of Common Stock under the 1991
Plan.
On October 1, 1996, the last grants of stock options under the 1991 Plan
will be made to the Company's outside directors, and no further shares will
be available for grant under the 1991 Plan. In order that the Company might
provide a means for grants of stock options to its outside directors and to
attract, recruit and retain qualified outside directors to serve the Company,
the Board of Directors of the Company adopted, subject to stockholder
approval, the Input/Output, Inc. 1996 Non-Employee Director Stock Option Plan
(the "Directors' Plan"), effective as of July 12, 1996. See "Proposal
to Adopt the Input/Output, Inc. 1996 Non-Employee Director Stock Option Plan."
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VOTING AND STOCK OWNERSHIP OF MANAGEMENT
AND PRINCIPAL STOCKHOLDERS
At the Record Date, there were outstanding 42,969,676 shares of Common
Stock which were held of record by 184 stockholders, and the Company believes
that there were approximately 4,812 beneficial owners of the Common Stock on
such date. Each share of Common Stock is entitled to one vote on each matter
to come before the Annual Meeting. The holders of the Common Stock have no
appraisal or similar rights with respect to any of the matters to be voted on
at the Annual Meeting.
The following table sets forth certain information with regard to the
beneficial ownership as of August 23, 1996 of Common Stock by (i) all
persons known by the Company to be the beneficial owners of more than five
percent (5%) of the outstanding Common Stock, (ii) each director of the
Company, (iii) each named executive officer of the Company and (iv) all
executive officers and directors as a group (12 persons).
COMMON STOCK
-------------------------
NAME OF NUMBER OF PERCENT OF
BENEFICIAL OWNER(1) SHARES (1) CLASS
- ------------------- ---------- ----------
Putnam Investment Management 4,382,559 10.2%
One Post Office Square
Boston, MA 02709-2137
Pilgrim Baxter & Associates 3,910,900 9.1%
1255 Drummers Lane
Wayne, PA 19087
First Interstate Bancorp (2) 3,276,932 7.6%
633 West 5th Street
Los Angeles, CA 90071
Charles E. Selecman (3) 45,000 *
Gary D. Owens (4) 268,000 *
Robert P. Brindley (5) 106,000 *
Michael J. Sheen (6) 192,000 *
G. Thomas Grisham (7) 55,000 *
Axel M. Sigmar (8) 35,500 *
Shelby H. Carter, Jr. (9) 7,500 *
Ernest E. Cook (10) 13,500 *
Glen H. Denison (9) 7,500 *
Theodore H. Elliott, Jr. (11) 16,000 *
Dr. Peter T. Flawn (12) 19,000 *
G. Thomas Graves III (10) 11,300 *
All officers and directors
as a group (12 persons) (13) 776,300 1.8%
_________
*Less than 1%.
(1) Except as otherwise indicated, the persons named in the
table possess sole voting and investment power with respect to
all shares of Common Stock shown as beneficially owned by them.
The table also includes shares of Common Stock held by wives and
minor children of such persons and corporations and partnerships
in which such persons hold a controlling interest, but excludes
any controlling interest which may be deemed solely to exist by
virtue of such person being a director of a corporation.
-27-
(2) Shares beneficially owned by Denver Investment Advisors, Inc., a wholly-
owned subsidiary of First Interstate Bank of Denver, which the Company
has been informed is a wholly-owned subsidiary of First Interstate
Bancorp.
(3) Includes 15,000 shares which are subject to a currently exercisable
option granted under the Company's 1991 Directors Stock Option Plan.
(4) Includes 80,000 shares which are subject to a currently exercisable
option granted under the Amended and Restated 1990 Stock Option Plan and
90,000 shares of restricted stock.
(5) Includes 40,000 shares which are subject to a currently exercisable
option granted under the Amended and Restated 1990 Stock Option Plan and
56,000 shares of restricted stock.
(6) Includes 40,000 shares which are subject to a currently exercisable
option granted under the Amended and Restated 1990 Stock Option Plan and
76,000 shares of restricted stock.
(7) Represents 35,000 shares which are subject to a currently exercisable
option granted under the Amended and Restated 1990 Stock Option Plan and
20,000 shares of restricted stock.
(8) Represents 35,500 shares which are subject to a currently exercisable
option granted under the Amended and Restated 1990 Stock Option Plan.
(9) Represents 7,500 shares which are subject to a currently exercisable
option granted under the 1991 Directors Stock Option Plan.
(10) Includes 7,500 shares which are subject to a currently exercisable option
granted under the 1991 Directors Stock Option Plan.
(11) Represents 16,000 shares which are subject to a currently exercisable
option granted under the 1991 Directors Stock Option Plan.
(12) Includes 15,000 shares which are subject to a currently exercisable
option granted under the 1991 Directors Stock Option Plan.
(13) Includes an aggregate of 230,500 shares which are subject to currently
exercisable options granted under the Amended and Restated 1990 Stock
Option Plan and 76,000 shares which are subject to currently exercisable
options granted under the 1991 Directors Stock Option Plan.
_______________
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a)
of the Exchange Act requires the Company's directors, executive officers and
persons who own more than 10% of the Company's Common Stock, to file with the
Securities and Exchange Commission ("SEC") initial reports of ownership and
reports of changes of ownership of Common Stock and other equity securities
of the Company. Such persons are required by SEC regulations to furnish the
Company with copies of all Section 16(a) reports they file. Based solely
upon its review of Forms 3, 4 and 5 and amendments thereto provided to the
Company, during the fiscal year ended May 31, 1996, the Company's directors
and executive officers and the persons who own more than 10% of the Company's
Common Stock had complied with all Section 16(a) filing requirements.
-28-
STOCKHOLDER PROPOSALS AT 1997 ANNUAL MEETING
In order for stockholder proposals to receive consideration for
inclusion in the Company's Proxy Statement for its 1997 Annual Meeting of
Stockholders, such proposals must be received at the Company's offices at
11104 West Airport Blvd., Stafford, Texas 77477, Attention: Secretary, on or
before May 16, 1997. All stockholder proposals must comply with Rule 14a-8
promulgated by the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended.
OTHER MATTERS
The Company will bear all costs of this proxy solicitation. In addition
to soliciting proxies by mail, directors, executive officers and employees of
the Company, without receiving additional compensation, may solicit proxies
by telephone, by telegram or in person. Arrangements will also be made with
brokerage firms and other custodians, nominees and fiduciaries to forward
solicitation materials to the beneficial owners of shares of the Common
Stock, and the Company will reimburse such brokerage firms and other
custodians, nominees and fiduciaries for reasonable out-of-pocket expenses
incurred by them in connection with forwarding such materials. In addition,
the Company has retained Kissel-Blake Inc., a proxy solicitation firm, for
assistance in connection with the Annual Meeting at a cost of approximately
$28,500 plus reimbursement of reasonable out-of-pocket expenses.
The Board does not know of any business to be presented for
consideration at the Annual Meeting other than that stated in the
accompanying Notice. It is intended, however, that the persons authorized
under the proxies may, in the absence of instructions to the contrary, vote
or act in accordance with their judgment with respect to any other proposal
properly presented for action at such meeting.
The Annual Report of Stockholders for the fiscal year ended May 31,
1996, which includes financial statements, is enclosed herewith. The Annual
Report does not form a part of this Proxy Statement or the materials for the
solicitation of proxies to be voted at the Annual Meeting.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING FINANCIAL
STATEMENTS BUT NOT INCLUDING EXHIBITS, WILL BE FURNISHED AT NO CHARGE TO EACH
PERSON TO WHOM A PROXY STATEMENT IS DELIVERED UPON RECEIPT OF A WRITTEN
REQUEST OF SUCH PERSON ADDRESSED TO INPUT/OUTPUT, INC., ATTN: INVESTOR
RELATIONS, 11104 WEST AIRPORT BLVD., STAFFORD, TEXAS 77477, TELEPHONE (713)
933-3339. THE COMPANY WILL ALSO FURNISH SUCH ANNUAL REPORT ON FORM 10-K TO
ANY "BENEFICIAL OWNER" OF SUCH SECURITIES AT NO CHARGE UPON RECEIPT OF A
WRITTEN REQUEST, CONTAINING A GOOD FAITH REPRESENTATION THAT, AT THE RECORD
DATE, SUCH PERSON WAS A BENEFICIAL OWNER OF SECURITIES OF THE COMPANY
ENTITLED TO VOTE AT THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON OCTOBER
10, 1996. COPIES OF ANY EXHIBIT TO THE FORM 10-K WILL BE FURNISHED UPON THE
PAYMENT OF A REASONABLE FEE.
Information contained in the Proxy Statement relating to the security
holdings of and related information concerning directors and officers of the
Company is based upon information received from the individual directors and
officers.
-29-
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD AT YOUR EARLIEST
CONVENIENCE IN THE ENCLOSED RETURN ENVELOPE. NO POSTAGE IS REQUIRED IF
MAILED IN THE UNITED STATES. A PROMPT RETURN OF YOUR PROXY CARD WILL BE
APPRECIATED AS IT WILL SAVE THE EXPENSE OF FURTHER MAILINGS.
By Order of the Board of Directors,
Robert P. Brindley
Secretary
Stafford, Texas
September 5, 1996
-30-
APPENDIX I
AMENDMENT
TO
INCREASE AUTHORIZED SHARES
Following is the text of the proposed amendment to Article FOURTH
of the Restated Certificate of Incorporation of the Company:
SECTION 1 of Article FOURTH of the Corporation's Restated
Certificate of Incorporation be amended so that, as amended, SECTION 1
of Article FOURTH shall be and read as follows:
"SECTION 1. CAPITALIZATION. The Corporation is
authorized to issue one hundred five million (105,000,000)
shares of capital stock. One hundred million (100,000,000)
of the authorized shares shall be common stock, one cent
($0.01) par value each ("Common Stock"), and five million
(5,000,000) of the authorized shares shall be preferred
stock, one cent ($0.01) par value each ("Preferred Stock").
Each holder of shares of capital stock of the
Corporation shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of
the capital stock of the Corporation held by the
stockholder, unless otherwise specifically provided pursuant
to this Restated Certificate of Incorporation."
-31-
APPENDIX II
INPUT/OUTPUT, INC.
1996 MANAGEMENT INCENTIVE PROGRAM
PURPOSE
The purpose of the Input/Output, Inc. 1996 Management Incentive Program is
to advance the interests of Input/Output, Inc. and its stockholders by providing
certain key employees with annual incentive compensation which is tied to the
achievement of preestablished and objective performance goals. The Plan is
intended to provide Participants with annual incentive compensation which is not
subject to the deduction limitation rules prescribed under Section 162(m) of the
Code, and should be construed to the extent possible as providing for
remuneration which is "performance-based compensation" within the meaning of
Section 162(m) of the Code and the regulations promulgated thereunder.
ARTICLE I
DEFINITIONS
For the purposes of this Plan, unless the context requires otherwise, the
following terms shall have the meanings indicated:
"BASE SALARY" means the actual base salary of a Participant (exclusive
of Bonuses and any compensation under any other employee compensation or
benefit plans of the Company) paid or to be paid, as the case may be, to a
Participant with respect to the Bonus Year in question, according to the
books and records of the Company and its Subsidiaries.
"BOARD" means the board of directors of the Company.
"BONUS" means either or both, as the context may require, of a Budget
Bonus or an PBT Bonus awarded pursuant to the Plan.
"BONUS YEAR" means the fiscal year of the Company and its Subsidiaries
with respect to which a Bonus is calculated.
"BUDGET BONUS" means the Bonus calculated in accordance with Article V.
"BUDGETED PROFITS BEFORE TAXES" means the estimated consolidated
earnings before income taxes of the Company and its Subsidiaries for the
Bonus Year in question, as determined in accordance with GAAP and adopted by
the Company for purposes of the Company's annual operating budget for the
Bonus Year in question.
"COMMITTEE" has the meaning assigned to it in Article II.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" means Input/Output, Inc., a Delaware corporation.
"CORPORATE THRESHOLD" means with respect to any Bonus Year, the minimum
level of Profits Before Taxes that must be realized by the Company before
any Budget Bonus or PBT Bonus, as the case may be, can be paid by the
Company.
"COVERED EMPLOYEE" shall have the same meaning as the term "covered
employee" (or its counterpart, as such term may be changed from time to
time) contained in the treasury regulations promulgated under Code Section
162(m), or their respective successor provision or provisions, that being an
employee for which the limitation on deductibility for compensation pursuant
to Code Section 162(m) is applicable.
"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the American Institute of
Certified Public Accountants acting through the Accounting Principles Board
or by the Financial Accounting Standards Board or through other appropriate
boards or committees thereof and which are consistently applied for all
periods so as
to properly reflect the financial condition and the results of operations of
the Company and its Subsidiaries, except that any accounting principle or
practice required to be changed by such Financial Accounting Standards Board
(or other appropriate board or committee of such board) in order to continue
as a generally accepted accounting principle or practice may so be changed.
"GROUP" and "GROUPS" have the meanings assigned to them in Article IV.
"1934 ACT" means the Securities Exchange Act of 1934, as amended.
"PARTICIPANT" means any key employee of the Company or any of its
Subsidiaries that the Committee has determined to be eligible for
participation in the Plan.
"PAYMENT DATE" means the business day selected by the Committee upon
which the Committee shall calculate and declare Bonuses in accordance with
Section 7.2, which shall be a date after the Company's independent
accounting firm issues its audit report on the Company's financial
statements with respect to the Bonus Year in question, and which in any
event shall not be later than ninety (90) days after the end of the
applicable Bonus Year.
"PBT BONUS" means the Bonus calculated in accordance with Article VI.
"PERFORMANCE GOALS" means the performance measures established by the
Committee for each Group for any Bonus Year in accordance with Articles V
and VI of the Plan, which shall be expressed as percentages; these
applicable percentages will be multiplied by the Base Salaries of
Participants in determining their Bonus amounts.
"PLAN" means the Input/Output, Inc. 1996 Management Incentive Program,
as it may be amended from time to time.
"PROFITS BEFORE TAXES" or "PBT" means the consolidated earnings before
income taxes of the Company and its Subsidiaries for the fiscal year in
question, determined by reference to the Company's audited consolidated
statement of operations for such fiscal year prepared in accordance with
GAAP.
"SUBSIDIARY" means any corporation in an unbroken chain of corporations
beginning with the Company if, at the time of granting of the Bonus, each of
the corporations other than the last corporation in the unbroken chain owns
stock possessing more than 50% of the total combined voting power of all
classes of stock in one of the other corporations in the chain, and
"SUBSIDIARIES" means more than one of any such corporations.
"TOTAL BONUS" means the aggregate compensation, if any, awarded to a
Participant on the Payment Date for any Bonus Year pursuant to a Budget
Bonus and/or a PBT Bonus.
ARTICLE II
ADMINISTRATION
Subject to the terms of this Article II, the Plan shall be administered by
the Compensation Committee (the "Committee") of the Board, which shall consist
of at least two members. Any member of the Committee may be removed at any time,
with or without cause, by resolution of the Board. Any vacancy occurring in the
membership of the Committee may be filled by appointment by the Board. Each
member of the Committee, at the time of his appointment to the Committee and
while he is a member thereof, must be an "outside director" as such term is used
in Code Section 162(m).
The Board shall select one of its members to act as the Chairman of the
Committee, and the Committee shall make such rules and regulations for its
operation as it deems appropriate. A majority of the Committee shall constitute
a quorum, and the act of a majority of the members of the Committee present at a
meeting at which a quorum is present shall be the act of the Committee.
2
Subject to the terms hereof, the Committee shall interpret the Plan, prescribe,
amend, and rescind any rules and regulations necessary or appropriate for the
administration of the Plan, and make such other determinations and take such
other action as it deems necessary or advisable.
The Committee shall have full authority to select the key employees who will
participate in the Plan, to designate the Groups in which they will participate,
to establish Performance Goals with respect to each Group and certify the extent
of their achievement, establish and certify the achievement of the Corporate
Thresholds, and generally to administer the Plan, including authority to
interpret and construe any provision of the Plan. Except as provided below, any
interpretation, determination, or other action made or taken by the Committee
shall be final, binding, and conclusive on all interested parties, including the
Company and all Participants.
ARTICLE III
ELIGIBILITY
The Committee shall, on a date within the first ninety (90) days of the
Bonus Year in question, select the particular key members of management of the
Company and the particular key employees of the Company and its Subsidiaries to
whom Bonuses under the Plan may be granted. Except as otherwise provided in
Article IV, employees who participate in the Plan may also participate in other
incentive or benefit plans of the Company or any Subsidiary. As used herein, the
term "employee" shall mean any person employed full-time by the Company or a
Subsidiary on a salaried basis, and the term "employment" shall mean full-time
salaried employment by the Company or a Subsidiary.
ARTICLE IV
INCENTIVE PLAN GROUPS
Each Participant in the Plan shall be designated as a member of a Group by
the Committee in accordance with the terms of the Plan. The initial Groups of
Participants under the Plan shall be constituted as follows:
Group I: Chief Executive Officer and Chief Operating Officer of the
Company
Group II: Vice Presidents and Controller of the Company
Group III: Tier One key employees of the Company and its Subsidiaries, as
determined by the Committee
Group IV: Tier Two key employees of the Company and its Subsidiaries as
determined by the Committee
The Committee may hereafter establish different Groups or classes of Groups with
respect to any Bonus Year if such designation is accomplished within the first
90 days of such Bonus Year.
In addition, certain officers and key employees may participate in similar
Subsidiary-only management incentive plans adopted by that Subsidiary and, by
reason of such participation, as determined by the Committee, may not be
eligible for participation in this Plan.
ARTICLE V
BUDGET BONUS
Prior to that date which is 90 days after the commencement of the Bonus Year
in question, the Board shall have reviewed and approved the operations budget
for such Bonus Year, which shall reflect the Budgeted Profits Before Taxes for
such Bonus Year. Not later than the 90th day of the Bonus Year in question, the
Committee shall set forth in writing the key employees designated as
Participants for the Bonus Year and their appropriate Group, whether that Group
will participate in the Budget Bonus, the Corporate Threshold with respect to
the Budget Bonus for such Bonus Year, and the
3
Performance Goals with respect to each participating Group. The Corporate
Threshold with respect to the Budget Bonus for any particular Bonus Year shall
be an amount equal to (i) the Budgeted Profits Before Taxes, multiplied by (ii)
a percentage determined by the Committee; provided that such Corporate Threshold
shall not be less than an amount equal to 80% of Budgeted Profits Before Taxes.
The actual percentage amounts of the Performance Goals to apply with respect to
the Base Salaries of Participants in each Group will be determined by reference
to the extent of the amount that the Profits Before Taxes exceeds the Corporate
Threshold for the Budget Bonus for that Bonus Year; provided that the maximum
Budget Bonus that may be received by a Participant may not exceed twenty-five
percent (25%) of such Participant's Base Salary for such Bonus Year.
ARTICLE VI
PBT BONUS
Not later than the 90th day of the Bonus Year in question, the Committee
shall set forth in writing the key employees designated as Participants for the
Bonus Year and their appropriate Group, whether that Group will participate in
the PBT Bonus, the Corporate Threshold with respect to the PBT Bonus for such
Bonus Year, and the Performance Goals with respect to each participating Group.
The Corporate Threshold with respect to the PBT Bonus for any particular Bonus
Year shall be not less than the amount of the Profits Before Taxes for the
immediately preceding Bonus Year in question. The actual percentage amounts of
the Performance Goals to apply with respect to the Base Salaries of Participants
in each Group for purposes of determining a PBT Bonus will be determined by
reference to the extent of the amount that the Profits Before Taxes exceeds the
Corporate Threshold for the PBT Bonus for that Bonus Year.
ARTICLE VII
PAYMENT OF BONUSES AND GENERAL PROVISIONS
7.1 LIMITATION ON TOTAL BONUS. Notwithstanding any provision to the
contrary contained herein, the maximum Total Bonus payable to any Participant
with respect to any Bonus Year shall not exceed $750,000. The Bonus amounts
calculated in accordance with Articles V and/or VI hereof for any Participant
who is a Covered Employee with respect to the Bonus Year in question may be
reduced by an amount of up to 50% by the Committee in its sole discretion;
PROVIDED, HOWEVER, that under no circumstances may the amount of a Bonus
determined under Articles V and/or VI of this Plan with respect to any
Participant who is a Covered Employee with respect to the Bonus Year in question
be increased. Bonus amounts calculated hereunder with respect to any Participant
who is not a Covered Employee for the Bonus Year in question may be reduced or
increased by the Committee in its sole discretion.
7.2 PAYMENT. As a condition to eligibility for payment of a Bonus with
respect to any particular Bonus Year, a Participant shall be required to be in
the employ of the Company or one of its Subsidiaries through the applicable
Payment Date, UNLESS (i) such Participant terminated his or her employment
during such period due to retirement from the Company and its Subsidiaries in
accordance with standard retirement policies of the Company and its Subsidiaries
then in effect, or (ii) the Participant, while in the employ of the Company or
one of its Subsidiaries, became totally and permanently disabled (as that term
is defined in Section 22(e) of the Code) or died during such period. In the
event of such retirement, death or disability, the Participant (or, in the case
of death or disability, the Participant's estate or legal representative, as the
case may be, or a designated beneficiary in accordance with Section 11.6) shall
receive a prorated portion of his Bonus based on the portion of the Bonus Year
that the Participant was in the employ of the Company or one of its
Subsidiaries.
In the event that a person becomes an employee of the Company or one of its
Subsidiaries during a Bonus Year and the Committee determines to designate such
person as a member of Group III or Group IV (or their successor Group(s), if
subsequently designated by the Committee in accordance
4
with Article IV), such person will become a Participant as of the date of each
designation, and shall be entitled to receive a prorated portion of his Bonus
based on the portion of the Bonus Year that the Participant was in the employ of
the Company or one of its Subsidiaries. If a Participant that is a member of
Group I or Group II (or their successor Group(s), if designated by the
Committee) ceases to be employed by the Company or such Participant's status
with the Company as an officer changes as a result of a reassignment of duties,
any person who succeeds the Participant in the same or a comparable position
within the Company, may be designated by the Committee as a Participant and a
member of Group I or Group II (or their successor(s)), as may be applicable, for
the duration of the applicable Bonus Year, effective as of the date such person
assumes such position.
Following the verification by the Company's independent accountants of the
Company's financial results for any Bonus Year, the Committee shall certify (i)
whether the Profits Before Taxes exceeded the Corporate Thresholds for the
Budget Bonus and the PBT Bonus; (ii) whether and the extent to which PBT Bonuses
and Budget Bonuses are payable to the Participants in each Group by applying
their applicable Performance Goals to their respective Base Salaries; and (iii)
the amounts of the Bonuses, if any, to be paid to the Participants in accordance
with Articles V and VI, as may be applicable (and Section 7.1, if applicable).
The Committee shall instruct the Company, or instruct the Company to cause any
Subsidiary, as applicable, to pay to each Participant his Bonus in accordance
with this Article, as promptly as reasonably practicable after such Payment
Date.
7.3 PARTIAL FISCAL YEARS. In the event that the Company and its
Subsidiaries adopt any different fiscal year which results in a fiscal year
having less than twelve months, the Committee shall, in its sole discretion,
award Bonuses computed as provided in Articles V and VI (and Section 7.1, if
applicable) but reduced by the Committee for such shortened fiscal year, or
defer any awards of Bonuses for such fiscal period until a Payment Date
following such full twelve-month fiscal year.
7.4 NO RIGHTS TO BONUS. The prospective recipient of a Bonus shall not
have any rights with respect to any Bonus, or any portion thereof, until the
award thereof on the Payment Date to which the particular Bonus amount relates.
ARTICLE VIII
AMENDMENT OR DISCONTINUANCE
The Committee may at any time and from time to time, without the consent of
the Participants, alter, amend, revise, suspend, or discontinue the Plan in
whole or in part; provided that any amendment that modifies any preestablished
performance goal for Participants in Group I or Group II (or their successor(s),
as may be applicable) under this Plan with respect to any particular Bonus Year
may only be effected on or prior to that date which is 90 days following the
commencement of such Bonus Year. In addition, the Board shall have the power to
amend the Plan in any manner advisable in order for Bonuses granted under the
Plan to qualify as "performance-based" compensation under Section 162(m) of the
Code (including amendments as a result of changes to Section 162(m) or the
regulations thereunder to permit greater flexibility with respect to Bonuses
granted under the Plan).
ARTICLE IX
EFFECT OF THE PLAN
Neither the adoption of this Plan nor any action of the Board or the
Committee shall be deemed to give any Participant any right to be granted a
Bonus or any other rights. In addition, nothing contained in this Plan and no
action taken pursuant to its provisions shall be construed to (a) give any
Participant any right to any compensation, except as expressly provided herein;
(b) be evidence of any agreement, contract or understanding, express or implied,
that the Company will employ a Participant in any particular position; (c) give
any Participant any right, title, or interest whatsoever in or to
5
any investments which the Company may make to aid it in meeting its obligations
hereunder; or (d) create a trust of any kind or a fiduciary relationship between
the Company and a Participant or any other person.
ARTICLE X
TERM
The effective date of this Plan shall be as of July 12, 1996, subject to
stockholder approval. This Plan and any benefits granted hereunder shall be null
and void if stockholder approval is not obtained at the next annual meeting of
stockholders of the Company. Unless sooner terminated by action of the Board,
the Plan will terminate on the 12th day of July, 2001.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 NO RIGHT TO CONTINUE EMPLOYMENT. Nothing in the Plan confers upon any
Participant the right to continue in the employ of the Company or interferes
with or restricts in any way the right of the Company to discharge any employee
at any time (subject to any contract rights of such employee).
11.2 TAX REQUIREMENTS. The Company (and, where applicable, its
Subsidiaries) shall have the power and the right to deduct or withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
applicable taxes required by law to be withheld with respect to any payment of
any Bonus to a Participant.
11.3 INDEMNIFICATION OF BOARD AND COMMITTEE. No member of the Committee,
nor any officer, employee or agent of the Company acting on behalf of the
Committee, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Committee and each and every officer, employee or agent of the
Company acting on their behalf shall, to the fullest extent permitted by law, be
fully indemnified and protected by the Company in respect of any such action,
determination or interpretation. Each member of the Committee shall, in the
performance of his or her duties under the Plan, be fully protected in relying
in good faith upon the financial statements of the Company as contemplated by
the terms of the Plan.
11.4 EFFECT ON PARTICIPATION. The award of a Bonus to a Participant shall
not by itself be deemed either to entitle the Participant to, or to disqualify
the Participant from, as the case may be, participation in any other future
grant of Bonuses under the Plan or otherwise, or in any other compensation or
benefit plan of the Company or any of its Subsidiaries currently existing or
hereafter established.
11.5 OTHER COMPENSATION AGREEMENTS. Nothing contained in this Plan shall
prevent the Board from adopting other or additional compensation arrangements,
subject to stockholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in specific
cases.
11.6 APPLICABILITY TO SUCCESSORS. The Plan shall be binding upon and inure
to the benefit of the Company and each Participant, the successors and assigns
of the Company, and the beneficiaries, personal representatives and heirs of
each Participant. Any interests of Participants under the Plan may not be
voluntarily sold, transferred, alienated, assigned or encumbered, other than by
will or pursuant to the laws of descent and distribution; provided however, that
a Participant may designate a beneficiary or beneficiaries to receive payments
after the Participant's death, by written notice to the Committee. If the
Company becomes a party to any merger, consolidation or reorganization, the Plan
shall remain in full force and effect as an obligation of the Company or its
successors in interest.
11.7 REORGANIZATION, MERGER OR CONSOLIDATION. In the event of a merger,
consolidation, sale of assets, reorganization or other business combination in
which the Company is not the surviving or
6
continuing corporation, or pursuant to which shares of the Company's Common
Stock would be converted into cash, securities or other property (other than a
merger of the Company in which the holders of the Company's Common Stock
immediately prior to the merger have the same proportionate ownership of Common
Stock of the surviving corporation immediately after the merger), the Bonus Year
will be deemed to have ended on the date such transaction is consummated. PBT
Bonus calculations will be determined based on the Bonus Year-to-date profits
before taxes and will be determined based on a comparison of (i) profits before
taxes for such Bonus Year to the date of the event, to (ii) profits before taxes
for the immediately preceding fiscal year to the same date of such preceding
year. The Budget Bonus calculations will be determined based on a comparison of
(x) profits before taxes for such Bonus Year to the date the transaction is
consummated, to (y) Budgeted Profits Before Taxes for such Bonus Year, pro-rated
to the date the transaction is consummated. Such calculations will be based upon
the Company's consolidated statement of earnings for the month ended immediately
prior to the date of consummation of the sale, merger, reorganization or
business combination.
11.8 GENDER AND NUMBER. Where the context permits, words in the masculine
gender shall include the feminine and neuter genders, the plural form of a word
shall include the singular form, and the singular form of a word shall include
the plural form.
11.9 STOCKHOLDER VOTE. The material terms of this Plan shall be disclosed
to the stockholders of the Company for approval in accordance with Section
162(m) of the Code. No award or payment of any Bonus under this Plan shall made
unless such stockholder approval is obtained.
ARTICLE XII
UNFUNDED STATUS OF PLAN
The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any Bonuses granted but not yet paid to a
Participant by the Company, nothing contained herein shall give any such
Participant any rights that are greater than those of a general unsecured
creditor of the Company.
7
APPENDIX III
INPUT/OUTPUT, INC.
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
PURPOSE
The purpose of the Plan is to promote the long-term growth of the Company by
increasing the proprietary interest of Non-Employee Directors in the Company,
and to attract and retain highly qualified and capable Non-Employee Directors by
allowing these Non-Employee Directors to participate in the long-term growth and
financial success of the Company.
ARTICLE I
DEFINITIONS
For the purpose of this Plan, unless the context requires otherwise, the
following terms shall have the meanings indicated:
1.1 "Board" means the board of directors of the Company.
1.2 "Change in Control" means the occurrence of any of the following events:
(i) there shall be consummated any merger or consolidation pursuant to which
shares of the Company's Common Stock would be converted into cash, securities or
other property, or any sale, lease, exchange or other disposition (excluding
disposition by way of mortgage, pledge or hypothecation), in one transaction or
a series of related transactions, of all or substantially all of the assets of
the Company (a "Business Combination"), in each case unless, following such
Business Combination, the holders of the outstanding Common Stock immediately
prior to such Business Combination beneficially own, directly or indirectly,
more than 51% of the outstanding common stock or equivalent equity interests of
the corporation or entity resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination, of the outstanding
Common Stock, (ii) the stockholders of the Company approve any plan or proposal
for the complete liquidation or dissolution of the Company, (iii) any "person"
(as such term is defined in Section 3(a)(9) or Section 13(d)(3) under the 1934
Act) or any "group" (as such term is used in Rule 13d-5 promulgated under the
1934 Act), other than the Company, any successor to the Company or any
Subsidiary or any employee benefit plan of the Company or any Subsidiary
(including such plan's trustee), becomes a beneficial owner for purposes of Rule
13d-3 promulgated under the 1934 Act, directly or indirectly, of securities of
the Company representing 40% or more of the Company's then outstanding
securities having the right to vote in the election of directors, or (iv) during
any period of two consecutive years, individuals who, at the beginning of such
period constituted the entire Board, cease for any reason (other than death) to
constitute a majority of the directors, unless the election, or the nomination
for election by the Company's stockholders, of each new director was approved by
a vote of at least a majority of the directors then still in office who were
directors at the beginning of the period.
1.3 "Code" means the Internal Revenue Code of 1986, as amended.
1.4 "Common Stock" means the common stock which the Company is currently
authorized to issue or may in the future be authorized to issue.
1.5 "Company" means Input/Output, Inc., a Delaware corporation.
1.6 "Date of Grant" means the effective date on which an option is awarded
to a Participant as set forth in the relevant stock option agreement.
1.7 "Fair Market Value" of the Company's shares of Common Stock means (i)
the closing sale price per share on the principal securities exchange on which
the Common Stock is traded (or if there
is no sale on the relevant date, then on the last previous day on which a sale
was reported), or (ii) the mean between the closing or average (as the case may
be) bid and asked prices per share of Common Stock on the over-the-counter
market, whichever is applicable.
1.8 "First Grant" shall have the meaning set forth in Section 4.2 hereof.
1.9 "1934 Act" means the Securities Exchange Act of 1934, as amended.
1.10 "Non-Employee Director" means a director of the Company who is not an
employee of the Company or any Subsidiary.
1.11 "Nonqualified Stock Option" or "Stock Option" means an option to
purchase shares of Common Stock granted to a Participant pursuant to Article IV
and which is not intended to qualify as an incentive stock option under Section
422 of the Code.
1.12 "Participant" means any Non-Employee Director who is, or who is
proposed to be, a recipient of a Stock Option pursuant to the terms of this
Plan.
1.13 "Plan" means the Input/Output, Inc. Non-Employee Director Stock Option
Plan, as it may be amended from time to time.
1.14 "Second Grant" shall have the meaning set forth in Section 4.2 hereof.
1.15 "Stock Dividend" means a dividend or other distribution declared on
the shares of Common Stock payable in (i) capital stock of the Company or any
Subsidiary of the Company, or (ii) rights, options or warrants to receive or
purchase capital stock of the Company or any Subsidiary of the Company, or (iii)
securities convertible into or exchangeable for capital stock of the Company or
any Subsidiary of the Company, or (iv) any capital stock received upon the
exercise, or with respect to, the foregoing.
1.16 "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of granting of the Stock
Option, each of the corporations other than the last corporation in the unbroken
chain owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in the chain, and
"Subsidiaries" means more than one of any such corporations.
1.17 "Third Grant" shall have the meaning set forth in Section 4.2 hereof.
ARTICLE II
ADMINISTRATION
Subject to the terms of this Article II, the Plan shall be administered by
the Compensation Committee (the "Committee") of the Board, which shall consist
of at least two members. Any member of the Committee may be removed at any time,
with or without cause, by resolution of the Board. Any vacancy occurring in the
membership of the Committee may be filled by appointment by the Board. Each
member of the Committee, at the time of his appointment to the Committee and
while he is a member thereof, must be a "disinterested person", as that term is
defined in Rule 16b-3 promulgated under the 1934 Act, and an "outside director"
under Section 162(m) of the Code.
The Board shall select one of its members to act as the Chairman of the
Committee, and the Committee shall make such rules and regulations for its
operation as it deems appropriate. A majority of the Committee shall constitute
a quorum, and the act of a majority of the members of the Committee present at a
meeting at which a quorum is present shall be the act of the Committee.
The Committee shall have full authority and responsibility to administer the
Plan, including authority to interpret and construe any provision of the Plan
and to adopt such rules and regulations for administering the Plan as it may
deem necessary. Except as provided below, any interpretation, determination, or
other action made or taken by the Committee shall be final, binding, and
conclusive on all interested parties, including the Company and all
Participants.
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ARTICLE III
SHARES SUBJECT TO THE PLAN
Subject to the provisions of Articles X and XI of the Plan, the aggregate
number of shares which may be issued to Participants under grants of Stock
Options made by the Committee under the Plan shall not exceed 400,000. In the
event that shares of Common Stock are delivered to the Company in full or
partial payment of the exercise price for the exercise of a stock option granted
under the Plan in accordance with Article V of this Plan, the number of shares
available for future grants of options under the Plan shall be reduced only by
the net number of shares issued upon the exercise of the option.
Shares to be distributed and sold may be made available from either
authorized but unissued Common Stock or Common Stock held by the Company in its
treasury. Shares that by reason of the expiration or unexercised termination of
a Stock Option are no longer subject to purchase may be reoffered under the
Plan.
ARTICLE IV
NON-ELECTIVE STOCK OPTION GRANTS
4.1 ELIGIBILITY. Only Non-Employee Directors serving as such as of the
Date of Grant shall be eligible to receive grants of Stock Options under this
Plan.
4.2 GRANT OF STOCK OPTIONS. On the first business day of November 1996,
each person who is a then a Non-Employee Director shall be granted a
Nonqualified Stock Option to purchase 20,000 shares of Common Stock. Thereafter,
on the first business day of November 1997, each such Non-Employee Director
shall be granted a Nonqualified Stock Option to purchase 10,000 shares and on
the first business day of November 1998, each such Non-Employee Director shall
be granted a Nonqualified Stock Option to purchase 10,000 shares.
With respect to any Non-Employee Director who joins the Board after the
first business day of November 1996, on that date on which such person is first
elected or otherwise commences serving as a Non-Employee Director, such person
shall be granted a Nonqualified Stock Option to purchase 20,000 shares.
Thereafter, on the first business day of the immediately succeeding November
following such date, such Non-Employee Director shall be granted a Nonqualified
Stock Option to purchase 10,000 shares, and on the first business day of the
November immediately succeeding the date that such 10,000-share Stock Option was
granted, such Non-Employee Director shall be granted an additional Nonqualified
Stock Option to purchase 10,000 shares.
The first grant of a Nonqualified Stock Option for 20,000 shares pursuant to
this Section 4.2 is herein referred to as the "First Grant"; the second grant
and third grant of Nonqualified Stock Options for 10,000 shares each pursuant to
this Section 4.2 is herein referred to as the "Second Grant" and the "Third
Grant," respectively.
Each grant of Stock Options shall be evidenced by a stock option agreement
setting forth the number of shares subject to the Stock Option, the option
exercise price, the option period of the Stock Option, and such other terms and
provisions as, except to the extent permitted herein, are not inconsistent with
the Plan.
4.3 EXERCISE PRICE. The exercise price for a Stock Option shall be equal
to the Fair Market Value per share of the Common Stock on the Date of Grant.
Notwithstanding anything to the contrary contained in this Section 4.3, the
exercise price of each Stock Option granted pursuant to the Plan shall not be
less than the par value per share of the Common Stock.
4.4 VESTING; OPTION PERIOD. Each Stock Option shall vest and be
exercisable as follows: The First Grant Stock Options shall vest in 33.33%
installments on the first, second and third anniversary dates of the First
Grant; the Second Grant Stock Options shall vest in 50% installments on the
first
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and second anniversary dates of the Second Grant; and the Third Grant Stock
Options shall be fully exercisable on and after the first anniversary date of
the Third Grant. In no event shall the period of time during which a
Nonqualified Stock Option may be exercised exceed ten years from the Date of
Grant of the Stock Option in question. No Stock Option may be exercised at any
time after the expiration of its option period. A Stock Option, or portion
thereof, may be exercised in whole or in part only with respect to whole shares
of Common Stock.
ARTICLE V
EXERCISE OF STOCK OPTIONS
Full payment for shares purchased upon exercise of a Stock Option shall be
made in cash or by the Participant's delivery to the Company of shares of Common
Stock which have a Fair Market Value equal to the exercise price (or in any
combination of cash and shares of Common Stock having an aggregate Fair Market
Value equal to the exercise price). No shares may be issued until full payment
of the purchase price therefor has been made, and a Participant will have none
of the rights of a stockholder until shares are issued to him. Additionally,
shares covered by a Stock Option may be purchased upon exercise, in whole or in
part, in accordance with the applicable stock option agreement, by authorizing a
third party to sell the shares (or a sufficient portion thereof) acquired upon
exercise of a Stock Option, and assigning the delivery to the Company of a
sufficient amount of the sale proceeds to pay for all the shares acquired
through such exercise and any tax withholding obligations resulting from such
exercise.
ARTICLE VI
TERMINATION OF EMPLOYMENT OR SERVICE
In the event a Participant shall cease to serve in his capacity as a
director of the Company for any reason other than death, disability or
retirement pursuant to Company policies, such Participant's Stock Options may be
exercised by the Participant for a period of one hundred eighty (180) days after
the Participant's termination of service, or until expiration of the applicable
Option Period (if sooner), to the extent of the shares with respect to which
such Stock Options could have been exercised by the Participant on the date of
termination, and thereafter to the extent not so exercised, such Stock Options
shall terminate. In addition, a Participant's Stock Options may be exercised as
follows in the event of such Participant's death, disability or retirement:
(a) DEATH. In the event of death while serving as a director, all
unmatured installments of Stock Options outstanding shall thereupon
automatically be accelerated and become fully vested and exercisable in
full, and the Stock Option may be exercised for a period of twelve (12)
months after the Participant's death or until expiration of the Stock Option
period (if sooner), by the Participant's estate or personal representative,
or by the person who acquired the right to exercise the Stock Option by
bequest or inheritance or by reason of the Participant's death; and
(b) DISABILITY OR RETIREMENT. In the event of termination of service
as a director as the result of a total and permanent disability (as defined
in Section 22(e) of the Code) or retirement as a director pursuant to
standard Company policies applicable to directors, then all unmatured
installments of Stock Options outstanding shall thereupon automatically be
accelerated and become fully vested and exercisable in full, and the Stock
Option may be exercised by the Participant or his guardian or legal
representative for a period of twelve (12) months after such termination or
until expiration of the Stock Option period (if sooner).
ARTICLE VII
AMENDMENT OR DISCONTINUANCE
The Board may at any time and from time to time, without the consent of the
Participants, alter, amend, revise, suspend, or discontinue the Plan in whole or
in part.
4
In addition, the Board shall have the power to amend the Plan in any manner
advisable in order for Stock Options granted under the Plan to qualify for the
exemption provided by Rule 16b-3 (or any successor rule relating to exemption
from Section 16(b) of the 1934 Act), including amendments as a result of changes
to Rule 16b-3 or the regulations thereunder to permit greater flexibility with
respect to Stock Options granted under the Plan, and any such amendment shall,
to the extent deemed necessary or advisable by the Committee, be applicable to
any outstanding Stock Options theretofore granted under the Plan,
notwithstanding any contrary provisions contained in any stock option agreement.
In the event of any such amendment to the Plan, the holder of any Stock Option
outstanding under the Plan shall, upon request of the Committee and as a
condition to the exercisability thereof, execute a conforming amendment in the
form prescribed by the Committee to any stock option agreement relating thereto
within such reasonable time as the Committee shall specify in such request.
Notwithstanding anything contained in this Plan to the contrary, unless required
by law, no action contemplated or permitted by this Article VII shall adversely
affect any rights of Participants or obligations of the Company to Participants
with respect to any Stock Options theretofore granted under the Plan without the
consent of the affected Participant.
ARTICLE VIII
EFFECT OF THE PLAN
Neither the adoption of this Plan nor any action of the Board or the
Committee shall be deemed to give any director any right to be granted a Stock
Option to purchase or receive Common Stock of the Company or any other rights
except as may be evidenced by a stock option agreement, or any amendment
thereto, duly authorized by and executed on behalf of the Company and then only
to the extent of and upon the terms and conditions expressly set forth therein.
ARTICLE IX
TERM
The Plan shall be submitted to the Company's stockholders for their
approval. Unless sooner terminated by action of the Board, the Plan will
terminate on the 12th day of July, 2006. Stock Options under the Plan may not be
granted after that date, but Stock Options granted before that date will
continue to be effective in accordance with their terms and conditions.
ARTICLE X
CAPITAL ADJUSTMENTS
If at any time while the Plan is in effect or unexercised Stock Options are
outstanding there shall be any increase or decrease in the number of issued and
outstanding shares of Common Stock through the declaration of a Stock Dividend
or through any recapitalization resulting in a stock split-up, combination, or
exchange of shares of Common Stock, then and in such event:
(i) An appropriate adjustment shall be made in the maximum number of
shares of Common Stock then subject to being awarded under grants pursuant
to the Plan, to the end that the same proportion of the Company's issued and
outstanding shares of Common Stock shall continue to be subject to being so
awarded; and
(ii) Appropriate adjustments shall be made in the number of shares of
Common Stock and the exercise price per share thereof then subject to
purchase pursuant to each such Stock Option previously granted and
unexercised, to the end that the same proportion of the Company's issued and
outstanding shares of Common Stock in each instance shall remain subject to
purchase at the same aggregate exercise price.
Any fractional shares resulting from any adjustment made pursuant to this
Article X shall be eliminated for the purposes of such adjustment. Except as
otherwise expressly provided herein, the
5
issuance by the Company of shares of its capital stock of any class, or
securities convertible into shares of capital stock of any class, either in
connection with direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number of or
exercise price of shares of Common Stock then subject to outstanding Stock
Options granted under the Plan.
ARTICLE XI
RECAPITALIZATION, MERGER AND CONSOLIDATION
(a) The existence of this Plan and Stock Options granted hereunder shall not
affect in any way the right or power of the Company or its stockholders to make
or authorize any or all adjustments, recapitalizations, reorganizations or other
changes in the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred or
prior preference stocks ranking prior to or otherwise affecting the Common Stock
or the rights thereof (or any rights, options or warrants to purchase same), or
the dissolution or liquidation of the Company, or any sale or transfer of all or
any part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
(b) Subject to any required action by the stockholders, if the Company shall
be the surviving or resulting corporation in any merger or consolidation, any
outstanding Stock Option granted hereunder shall pertain to and apply to the
securities or rights (including cash, property or assets) to which a holder of
the number of shares of Common Stock subject to the Stock Option would have been
entitled. Notwithstanding any other provision of the Plan, and without affecting
the number of shares reserved or available hereunder, the Committee shall
authorize the issuance, continuation or assumption of outstanding Stock Options
or provide for other equitable adjustments after changes in the shares of Common
Stock resulting from any merger, consolidation, sale of assets, acquisition of
property or stock, recapitalization, reorganization, or similar occurrence in
which the Company is the continuing or surviving corporation, upon such terms
and conditions as it may deem necessary in order to preserve Participants'
rights under the Plan.
(c) In the event of any reorganization, merger or consolidation pursuant to
which the Company is not the surviving or resulting corporation, or of any
proposed sale of substantially all of the assets of the Company, there may be
substituted for each share of Common Stock subject to the unexercised portions
of such outstanding Stock Option that number of shares of each class of stock or
other securities or that amount of cash, property or assets of the surviving or
consolidated company which were distributed or distributable to the stockholders
of the Company in respect of each share of Common Stock held by them, such
outstanding Stock Options to be thereafter exercisable for such stock,
securities, cash or property in accordance with their terms.
(d) In the event of a Change in Control of the Company, then,
notwithstanding any other provision in the Plan to the contrary, all unmatured
installments of Stock Options outstanding shall thereupon automatically be
accelerated and exercisable in full.
(e) Upon the occurrence of each event requiring an adjustment of the
exercise price and/or the number of shares purchasable pursuant to Stock Options
granted pursuant to the terms of this Plan, the Company shall mail forthwith to
each Participant a copy of its computation of such adjustment which shall be
conclusive and shall be binding upon each such Participant, except as to any
Participant who contests such computation by written notice to the Company
within thirty (30) days after receipt thereof by such Participant.
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ARTICLE XII
OPTIONS IN SUBSTITUTION FOR STOCK OPTIONS
GRANTED BY OTHER CORPORATIONS
Stock Options may be granted under the Plan from time to time in
substitution for such stock options held by directors of a corporation who
become or are about to become directors of the Company as the result of a merger
or consolidation of the corporation with the Company or a Subsidiary or the
acquisition by either of the foregoing of stock of the corporation as the result
of which it becomes a Subsidiary.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1 EXERCISE OF STOCK OPTIONS. Stock Options granted under the Plan may
be exercised during the option period, at such times and in such amounts, in
accordance with the terms and conditions and subject to such restrictions as are
set forth herein and in the applicable stock option agreements. Notwithstanding
anything to the contrary contained herein, Stock Options may not be exercised,
nor may shares be issued pursuant to a Stock Option if any necessary listing of
the shares on a stock exchange or any registration or qualification under state
or federal securities laws required under the circumstances has not been
accomplished.
13.2 NON-ASSIGNABILITY. A Stock Option granted to a Participant may not be
transferred or assigned, other than (i) by will or the laws of descent and
distribution or (ii) pursuant to a qualified domestic relations order (as
defined in Section 401(a)(13) of the Code or Section 206(d)(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")). Subject to the
foregoing, during a Participant's lifetime, Stock Options granted to a
Participant may be exercised only by the Participant or, if the particular stock
option agreement so provides, by the Participant's guardian or legal
representative.
13.3 INVESTMENT INTENT. The Company may require that there be presented to
and filed with it by any Participant(s) under the Plan, such evidence as it may
deem necessary to establish that the Stock Options granted or the shares of
Common Stock to be purchased or transferred are being acquired for investment
and not with a view to their distribution.
13.4 STOCKHOLDERS' RIGHTS. The holder of a Stock Option shall have none of
the rights or privileges of a stockholder except with respect to shares which
have been actually issued.
13.5 INDEMNIFICATION OF BOARD AND COMMITTEE. No current or previous member
of the Board or the Committee, nor any officer or employee of the Company acting
on behalf of the Board or the Committee, shall be personally liable for any
action, determination, or interpretation taken or made in good faith with
respect to the Plan, and all such members of the Board or the Committee and each
and any officer or employee of the Company acting on their behalf shall, to the
extent permitted by law, be fully indemnified and protected by the Company in
respect of any such action, determination or interpretation. The foregoing right
of indemnification shall not be exclusive of any other rights of indemnification
to which such individuals may be entitled under the Company's Certificate of
Incorporation or Bylaws, as a matter of law, or otherwise.
13.6 INTERPRETATION. Where the context permits, words in the masculine
gender shall include the feminine and neuter genders, the plural form of a word
shall include the singular form, and the singular form of a word shall include
the plural form. All references in this Plan to sections of the Code or ERISA
shall be deemed to include any successor provisions to such sections as
contained in any laws or regulations adopted or promulgated subsequent to August
1, 1996.
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ARTICLE XIV
EFFECTIVE DATE
This Plan will be submitted for approval by the stockholders of the Company
at the 1996 annual meeting of stockholders of the Company and, if approved by
the stockholders in accordance with applicable law, the Plan will be effective
as of the date of its approval by the Board and will continue in effect until
the expiration of its term or until earlier terminated, amended, or suspended in
accordance with the terms hereof. If stockholder approval is not obtained at the
1996 annual meeting of stockholders, the Plan shall be nullified.
8
APPENDIX IV
INPUT/OUTPUT, INC.
AMENDED AND RESTATED 1990 STOCK OPTION PLAN
(AS AMENDED, EFFECTIVE SEPTEMBER 26, 1994 AND , 1996)
1. PURPOSE.
The 1990 Stock Option Plan (the "Plan") is intended to provide a means of
attracting and retaining in the service of Input/Output, Inc. (the "Company")
and its Subsidiaries certain key employees of ability and potential, to
encourage such persons to exert their best efforts on behalf of the Company and
to align their interests more closely with those of the stockholders. It is
intended that these purposes will be effected through the granting of options,
which may be in the form of stock options intended to qualify ("Incentive Stock
Options") under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") or stock options which are not intended to so qualify ("Non-
Qualified Stock Options")
2. ADMINISTRATION.
The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"), which
Committee shall consist of at least two members.
The Committee shall have full power and authority to select the key
employees to be granted options hereunder at such time or times, in such
amounts, and upon such terms and conditions as the Committee may prescribe. The
Committee shall have full power and authority to interpret and construe the Plan
and to establish and amend general rules and regulations for the administration
of the Plan. The Committee's interpretation and construction of the Plan shall
be conclusive and binding upon all persons. Administrative costs in connection
with the Plan shall be paid by the Company.
No current or previous member of the Board or the Committee, nor any officer
or employee of the Company acting on behalf of the Board or the Committee, shall
be personally liable for any action, determination, or interpretation taken or
made in good faith with respect to the Plan, and all such members of the Board
or the Committee and each and any officer or employee of the Company acting on
their behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company in respect of any such action, determination or
interpretation. The foregoing right of indemnification shall not be exclusive of
any other rights of indemnification to which such individuals may be entitled
under the Company's Certificate of Incorporation or Bylaws, as a matter of law,
or otherwise.
Each option shall be evidenced by a written stock option agreement. Unless
otherwise provided in the resolution approving such grant, the date on which the
Committee approves the granting of an option shall be considered the date on
which such option is granted. The Committee shall prescribe the terms of each
option agreement, which terms shall not be inconsistent with the terms of this
Plan.
3. ELIGIBILITY.
The individuals who shall be eligible to participate in the Plan shall be
such key employees (including officers and directors who are employees) of the
Company or of any corporation or entity (hereinafter called a "Subsidiary") in
which the Company has a proprietary interest by reason of stock ownership or
otherwise (including any corporation or entity in which the Company acquires a
proprietary interest after the adoption of this Plan), but only if the Company
owns, directly or indirectly, stock or equity interests possessing not less than
50% of the total combined voting power of all classes of stock or equity
interests in such corporation. Such key employees shall be executive,
administrative, professional or technical personnel of the Company or of any
Subsidiary who have principal or shared responsibility for the management,
direction and financial success of the Company. More than one (1) option may be
granted from time to time to any employee. The holders of options shall not be,
or have any of the rights or privileges of, a stockholder of the Company in
respect of any shares purchasable upon the exercise of any part of an option
unless and until certificates representing such shares shall have been issued by
the Company to such holders.
4. STOCKHOLDER APPROVAL AND TERM.
This Plan shall become effective as of the date approved by the stockholders
of the Company. Subject to its termination pursuant to Section 12, the Plan
shall remain in effect until all options granted hereunder shall have been
exercised, earned, or distributed, or shall have expired or have been canceled;
PROVIDED HOWEVER, that no options hereunder shall be granted after September 1,
2000.
5. SHARES SUBJECT TO THE PLAN.
Subject to adjustment pursuant to Section 9, the total number of shares of
common stock of the Company, $.01 par value ("Common Stock"), with respect to
which stock options may be granted hereunder shall not exceed 7,000,000. In the
event that shares of Common Stock are delivered to the Company in full or
partial payment of the exercise price for the exercise of a stock option granted
under the Plan in accordance with Section 6 of this Plan, the number of shares
available for future grants of options under the Plan shall be reduced only by
the net number of shares issued upon the exercise of the option.
The aggregate number of shares of Common Stock that may be represented by
grants of stock options made to any optionee during any consecutive four-year
period may not exceed in any event 750,000 shares. Should any option granted
under this Plan expire or terminate unexercised, in whole or in part, the shares
of Common Stock formerly subject to such option shall again be available for
grant under the Plan. Shares granted or issued hereunder may be authorized but
unissued Common Stock or shares reacquired by the Company and held in its
treasury, as may from time to time be determined by the Committee.
6. STOCK OPTIONS.
All stock options granted hereunder shall be evidenced by written stock
option agreements setting forth the following terms and conditions:
(a) NUMBER OF SHARES. The option agreement shall state the total
number of shares to which it pertains.
(b) EXERCISE PRICE. The exercise price shall be not less than the fair
market value, as defined in Section 11(a) hereof, for each share of Common
Stock on the date of grant of the option. If an Incentive Stock Option is
granted to an employee and if the employee owns or is deemed to own (by
reason of the attribution rules applicable under Section 424(d) of the Code)
more than 10% of the combined voting power of all classes of stock of the
Company (or of any parent corporation or Subsidiary of the Company), the
exercise price for each share (to the extent required by the Code at the
time of grant) shall not be less than 110% of the fair market value of a
share of Common Stock on the date such Incentive Stock Option is granted.
(c) EXERCISE OF STOCK OPTION. The Committee, in its sole discretion,
shall prescribe in each option agreement the time or times at which a stock
option shall be exercisable, in full or in part; PROVIDED that the
Committee, in its sole discretion, may accelerate the time or times at which
stock options shall became exercisable. In no event may an option be
exercised or shares be issued pursuant to an option if any necessary listing
of the shares on a securities exchange or any registration or qualification
required under applicable state or federal securities laws has not been
accomplished. Unless the Committee directs otherwise, an option granted
hereunder may be exercised no sooner than as follows:
EXERCISE DATE NUMBER OF SHARES
-------------------------------------------- ---------------------------------------------------------------
1. One (1) year from the date of grant Up to 25% of the total optioned shares under the option
2. Two (2) years from the date of grant Up to an additional 25% of the total optioned shares
3. Three (3) years from the date of grant Up to an additional 25% of the total optioned shares
4. Four (4) years from the date of grant Up to an additional 25% of the total optioned shares
2
(d) EXERCISE PROCEDURES. A stock option shall be exercised by delivery
of written notice of exercise to the Secretary of the Company and payment of
the full exercise price of the shares for which the option is being
exercised. The exercise price may be paid:
(1) in cash or by check payable to the order of the Company, or
(2) through the delivery of Common Stock owned by the optionee,
having an aggregate fair market value on the date of exercise equal to
the exercise price, or
(3) by any combination of (1) and (2) above.
The Committee may impose such limitations and prohibitions on the use of
shares of Common Stock to exercise an option as it deems appropriate.
Additionally, shares covered by a stock option may be purchased upon
exercise, in whole or in part, in accordance with the applicable stock
option agreement, by authorizing a third party to sell the shares (or a
sufficient portion thereof) acquired upon exercise of a stock option, and
assigning the delivery to the Company of a sufficient amount of the sale
proceeds to pay for all the shares acquired through such exercise and any
tax withholding obligations resulting from such exercise.
(e) PERIOD OF OPTIONS. The Committee shall prescribe in each stock
option agreement the period during which a stock option may be exercised;
PROVIDED HOWEVER, that no stock option shall be granted for a period of
longer than ten years. However, if an employee owns or is deemed to own (by
reason of the attribution rules of Section 424(d) of the Code) more than 10%
of the combined voting power of all classes of stock of the Company (or any
parent corporation or Subsidiary of the Company) and an Incentive Stock
Option is granted to such employee, the term of such Incentive Stock Option
(to the extent required by the Code at the time of grant) shall be no more
than five years from the date of grant.
(f) INCENTIVE STOCK OPTIONS. To the extent required by the Code for
incentive stock options, the exercise of Incentive Stock Options granted
under the Plan shall be subject to the $100,000 calendar year limit as set
forth in Section 422(d) of the Code; to the extent that any grant exceeds
such $100,000 calendar year limit, the portion of such granted Stock Option
shall be deemed a Non-Qualified Stock Option.
If Common Stock acquired upon exercise of an Incentive Stock Option is
disposed of by an optionee prior to the expiration of either two years from
the date of grant of such option or one year from the transfer of shares to
the optionee pursuant to the exercise of such option or in any other
disqualifying disposition within the meaning of Section 422 of the Code,
then such optionee shall promptly notify the Company in writing of the date
and terms of such disposition. A disqualifying disposition by an optionee
shall not affect the status of any other option granted under the Plan as an
Incentive Stock Option within the meaning of Section 422 of the Code.
Notwithstanding the provisions of Section 7, the option period of an
optionee's Incentive Stock Options shall terminate no later than ninety (90)
days after termination of such optionee's employment with the Company and
its Subsidiaries; PROVIDED that if such employment terminates by reason of
the death or total and permanent disability (as defined in Section 22(e) of
the Code) of the optionee, then the option period of such optionee's
Incentive Stock Options shall terminate no later than one hundred eighty
(180) days after such termination by reason of death or disability.
7. TERM OF EMPLOYMENT.
In the event an optionee shall cease to be employed by the Company, the
unexercised portions of such optionee's options which are eligible to be
exercised in accordance with this Plan as of the date of such termination of
employment may be exercised within one hundred eighty (180) days after such date
of termination; PROVIDED HOWEVER, that the option shall be exercisable as
follows in the event of death, disability or retirement:
3
(a) DEATH. In the event of death while employed, all unmatured
installments of the stock option outstanding shall thereupon automatically
be accelerated and become fully vested and exercisable in full, and the
stock option may be exercised, for a period of twelve (12) months after the
optionee's death or until expiration of the option term (if sooner), by the
optionee's estate or personal representative, or by the person who acquired
the right to exercise the option by bequest or inheritance or by reason of
the optionee's death; and
(b) RETIREMENT OR DISABILITY. In the event of termination of
employment as the result of retirement or disability, all unmatured
installments of the stock option outstanding shall thereupon automatically
be accelerated and become fully vested and exercisable in full, and the
stock option may be exercised in full for a period of twelve (12) months
after such termination or until expiration of the option term (if sooner).
For the purposes of this Plan, the "retirement" of an optionee shall be
deemed to be retirement after qualification therefor pursuant to a
retirement plan or a retirement policy of the Company. Also, for the
purposes of this Plan, the "disability" of an optionee shall mean the total
and permanent disability (as that term is described in Section 22(e) of the
Code) of such optionee.
8. CHANGE OF CONTROL.
In the event of a Change of Control affecting the Company, all unmatured
installments of outstanding options shall automatically be accelerated and
become fully vested and exercisable in full, without regard to the provisions of
subsection 6(c) hereof. For the purposes of this Plan, a "Change in Control"
shall mean the occurrence of any of the following events: (i) there shall be
consummated any merger or consolidation pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or other
property, or any sale, lease, exchange or other disposition (excluding
disposition by way of mortgage, pledge or hypothecation), in one transaction or
a series of related transactions, of all or substantially all of the assets of
the Company (a "Business Combination"), in each case unless, following such
Business Combination, the holders of the outstanding Common Stock immediately
prior to such Business Combination beneficially own, directly or indirectly,
more than 51% of the outstanding common stock or equivalent equity interests of
the corporation or entity resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination, of the outstanding
Common Stock, (ii) the stockholders of the Company approve any plan or proposal
for the complete liquidation or dissolution of the Company, (iii) any "person"
(as such term is defined in Section 3(a)(9) or Section 13(d)(3) under the
Securities Exchange Act of 1934 (the "1934 Act") or any "group" (as such term is
used in Rule 13d-5 promulgated under the 1934 Act), other than the Company, any
successor of the Company or any Subsidiary or any employee benefit plan of the
Company or any Subsidiary (including such plan's trustee), becomes a beneficial
owner for purposes of Rule 13d-3 promulgated under the 1934 Act, directly or
indirectly, of securities of the Company representing 40% or more of the
Company's then outstanding securities having the right to vote in the election
of directors, or (iv) during any period of two consecutive years, individuals
who, at the beginning of such period constituted the entire Board, cease for any
reason (other than death) to constitute a majority of the directors, unless the
election, or the nomination for election by the Company's stockholders, of each
new director was approved by a vote of at least a majority of the directors then
still in office who were directors at the beginning of the period.
9. ADJUSTMENTS.
(a) If at any time while the Plan is in effect or unexercised options are
outstanding, there shall be any increase or decrease in the number of issued and
outstanding shares of Common Stock through the declaration of a stock dividend
or through any recapitalization resulting in a stock split-up, combination, or
exchange of shares of Common Stock, then and in such event:
4
(1) An appropriate adjustment shall be made in the maximum number of
shares of Common Stock then subject to being awarded under the Plan to the
end that the same proportion of the Company's issued and outstanding shares
of Common Stock shall continue to be subject to being so awarded; and
(2) Appropriate adjustments shall be made in the number of shares of
Common Stock and the exercise price per share thereof then subject to
purchase pursuant to each option previously granted, to the end that the
same proportion of the Company's issued and outstanding shares of Common
Stock in each such instance shall remain subject to purchase at the same
aggregate exercise price.
(b) Except as otherwise expressly provided herein, the issuance by the
Company of shares of its capital stock of any class, or securities convertible
into shares of capital stock of any class, either in connection with direct sale
or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number of or exercise price of shares of Common Stock then
subject to outstanding options granted under the Plan.
Without limiting the generality of the foregoing, the presence of
outstanding options granted under the Plan shall not affect in any manner the
right or power of the Company to make, authorize or consummate (1) any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business; (2) any merger or consolidation of
the Company; (3) any issuance by the Company of debt securities or preferred or
preference stock which would rank senior to the shares of Common Stock subject
to outstanding options; (4) the dissolution or liquidation of the Company; (5)
any sale, transfer or assignment of all or any part of the assets or business of
the Company; or (6) any other corporate act or proceeding, whether of a similar
character or otherwise.
(c) Subject to any required action by the stockholders, if the Company shall
be the surviving or resulting corporation in any reorganization, merger or
consolidation, any outstanding stock option granted hereunder shall pertain to
and apply to the securities or rights (including cash, property or assets) to
which a holder of the number of shares of Common Stock subject to the stock
option would have been entitled. Notwithstanding any other provision of the
Plan, and without affecting the number of shares reserved or available
hereunder, the Committee shall authorize the issuance, continuation or
assumption of outstanding stock options or provide for other equitable
adjustments after changes in the shares of Common Stock resulting from any
merger, consolidation, sale of assets, acquisition of property or stock,
recapitalization, reorganization, or similar occurrence in which the Company is
the continuing or surviving corporation, upon such terms and conditions as it
may deem necessary in order to preserve optionees' rights under the Plan.
(d) In the event of any reorganization, merger or consolidation pursuant to
which the Company is not the surviving or resulting corporation, or of any
proposed sale of all or substantially all of the assets of the Company, there
shall be substituted for each share of Common Stock subject to the unexercised
portions of such outstanding stock option that number of shares of each class of
stock or other securities or that amount of cash, property or assets of the
surviving or consolidated company which were distributed or distributable to the
stockholders of the Company in respect of each share of Common Stock held by
them, such outstanding stock options to be thereafter exercisable for such
stock, securities, cash or property in accordance with their terms.
(e) Upon the occurrence of each event requiring an adjustment of the
exercise price and/or the number of shares purchasable pursuant to stock options
granted pursuant to the terms of this Plan, the Company shall mail forthwith to
each optionee a copy of its computation of such adjustment which shall be
conclusive and shall be binding upon each such optionee, except as to any
optionee who contests such computation by written notice to the Company within
thirty (30) days after receipt thereof by such optionee.
5
10. OPTIONS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER CORPORATIONS.
Stock options may be granted under the Plan from time to time in
substitution for such options held by employees of a corporation or other entity
who become or are about to become key employees of the Company or a Subsidiary
as the result of a merger or consolidation of the employing corporation or
entity with the Company or a Subsidiary or the acquisition by the Company or a
Subsidiary of equity securities of the employing corporation or entity as the
result of which it becomes a Subsidiary. The terms and conditions of the
substitute options so granted may vary from the terms and conditions set forth
in Section 6 of this Plan to such extent as the Board or the Committee, as the
case may be, at the time of grant deem appropriate to conform, in whole or in
part, to the provisions of the options in substitution for which they are
granted.
11. MISCELLANEOUS PROVISIONS.
The following provisions shall apply hereunder:
(a) FAIR MARKET VALUE. For the purposes of this Plan, "fair market
value" of the Company's shares of Common Stock means (i) the closing sales
price per share on the principal securities exchange on which the Common
Stock is traded (or if there is no sale on the relevant date, then on the
last previous day on which a sale was reported), or (ii) the mean between
the closing or average (as the case may be) bid and asked prices per share
of Common Stock on the over-the-counter market, whichever is applicable.
(b) NO RIGHT TO CONTINUE EMPLOYMENT. Nothing in the Plan or in any
stock option agreement confers upon any employee the right to continue in
the employ of the Company or interferes with or restricts in any way the
right of the Company to discharge any employee at any time.
(c) STOCKHOLDERS' RIGHTS. The holder of a stock option shall have none
of the rights or privileges of a stockholder except with respect to shares
which have been issued.
(d) TAX REQUIREMENTS. The Company shall have the right to deduct from
all amounts hereunder paid in cash, any federal, state or local taxes
required by law to be withheld with respect to such cash payments. The
employee receiving shares issued upon exercise of any stock option shall be
required to pay the Company the amount of any taxes which the Company is
required to withhold with respect to such shares of Common Stock. Such
payment shall be required to be made prior to or concurrent with the
delivery of any certificate representing such shares of Common Stock. Such
payment may be made in cash, by check, or through the delivery of shares of
Common Stock which the employee owns or is entitled to receive after payment
of the exercise price, which shares have an aggregate fair market value
equal to the required withholding payment, or any combination thereof. With
respect to an Incentive Stock Option, in the event of a subsequent
disqualifying disposition of Common Stock within the meaning of Section 422
of the Code, such payment of taxes may be made in cash, by check or through
the delivery of shares of Common Stock which the employee then owns, which
shares have an aggregate fair market value equal to the required withholding
payment, or any combination thereof.
(e) GOVERNMENT REGULATIONS. Notwithstanding any of the provisions
hereof, or of any written agreements evidencing options granted hereunder,
the obligation of the Company to sell and deliver shares shall be subject to
all applicable laws, rules and regulations and to such approvals by any
government agencies or national securities exchanges as may be required. The
employee shall agree not to exercise any stock option, and the Company shall
not be obligated to issue any shares, if the exercise thereof or if the
issuance of shares shall constitute a violation by the employee or the
Company of any provision of any law or regulation of any governmental
authority.
(f) BENEFIT PLAN COMPUTATIONS. Any benefits received or amounts paid
to an employee with respect to any option under the Plan shall not affect
the level of benefits provided to or received by any employee, or the
employee's estate or beneficiary, pursuant to any employee benefit plan of
the Company.
6
(g) NONTRANSFERABILITY OF OPTION. A stock option granted to an
optionee may not be transferred or assigned, other than (i) by will or the
laws of descent and distribution or (ii) pursuant to a qualified domestic
relations order (as defined in Section 401(a)(13) of the Code or Section
206(d)(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), PROVIDED, that in the case of an Incentive Stock Option, such
transfer or assignment may occur only to the extent it will not result in
disqualifying such option as an incentive stock option under Section 422 of
the Code, or any successor provision. Subject to the foregoing, during an
optionee's lifetime, stock options granted to an optionee may be exercised
only by the optionee or, provided the particular stock option agreement so
provides, by the optionee's guardian or legal representative.
(h) EMPLOYMENT. Employment by the Company shall be deemed to include
employment by a Subsidiary. The Committee shall have the authority to
determine whether or not an optionee has terminated his employment with the
Company.
(i) INVESTMENT INTENT. The Company may require that there be presented
to and filed with it by any optionee(s) under the Plan, such evidence as it
may deem necessary to establish that the options or the shares of Common
Stock to be purchased or transferred are being acquired for investment and
not with a view to their distribution.
(j) INTERPRETATION. Where the context requires, words in the masculine
gender shall include the feminine and neuter genders, the plural form of a
word shall include the singular form, and the singular form of a word shall
include the plural form. All references in this Plan to sections of the Code
or sections of ERISA shall be deemed to include any successor provisions to
such sections as contained in any laws or regulations adopted subsequent to
August 1, 1996.
12. SUSPENSION, TERMINATION OR AMENDMENT OF THE PLAN.
Subject to the limitations set forth in this Section 12, the Board may at
any time and from time to time, without the consent of the optionees, alter,
amend, revise, suspend, or discontinue the Plan in whole or in part, except that
the Board shall not amend this Plan in any manner which would have the effect of
preventing Incentive Stock Options granted under this Plan from being "incentive
stock options" as defined in Section 422 of the Code, although it is recognized
that stock options are not prevented from being "incentive stock options" at
grant solely because the requirements of Section 422 of the Code are not met
upon exercise of the stock option or sale of the Common Stock acquired upon
exercise, or as a result of any cancellation of the stock option.
In addition, the Board shall have the power to amend the Plan in any manner
advisable in order for stock options granted under the Plan to qualify for the
exemption provided by Rule 16b-3 (or any successor rule relating to exemption
from Section 16(b) of the 1934 Act) or to qualify as "performance-based"
compensation under Section 162(m) of the Code (including amendments as a result
of changes to Rule 16b-3 or Section 162(m) or the regulations promulgated
thereunder to permit greater flexibility with respect to stock options granted
under the Plan), and any such amendment shall, to the extent deemed necessary or
advisable by the Committee, be applicable to any outstanding stock options
theretofore granted under the Plan, notwithstanding any contrary provisions
contained in any stock option agreement. In the event of any such amendment to
the Plan, the holder of any stock option outstanding under the Plan shall, upon
request of the Committee and as a condition to the exercisability thereof,
execute a conforming amendment in the form prescribed by the Committee to any
stock option agreement relating thereto within such reasonable time as the
Committee shall specify in such request. Notwithstanding anything contained in
this Plan to the contrary, unless required by law, no action contemplated or
permitted by this Section 12 shall adversely affect any rights of optionees or
obligations of the Company to optionees with respect to any stock options
theretofore granted under the Plan without the consent of the affected optionee.
7
PROXY
FOR
ANNUAL
MEETING
OF
STOCKHOLDERS
OCTOBER 10, 1996
INPUT/OUTPUT, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
OCTOBER 10, 1996
The undersigned stockholder acknowledges receipt of the Notice of Annual
Meeting of Stockholders and the Proxy Statement, each dated September 5,
1996, and hereby appoints Gary D. Owens and Robert P. Brindley, or either of
them, proxies for the undersigned, each with full power of substitution, to
vote all of the undersigned's shares of common stock of Input/Output, Inc
(the "Company") at the Annual Meeting of Stockholders of the Company to be
held at the Stafford Civic Center, 1415 Constitution Avenue, Stafford, Texas
77477, on Thursday, October 10, 1996 at 10:00 a.m., Stafford, Texas time, and
at any adjournments or postponements thereof.
1. / / For / / Withheld Election of Directors, Nominees:
Charles E. Selecman, Dr. Peter T. Flawn,
G. Thomas Graves III and Michael J.
Sheen. For, except withheld from the
following nominee(s):
_____________________________________
2. / / For / / Against / / Abstain The proposed Amendment to the Company's
Certificate of Incorporation to increase
the number of authorized shares of Common
Stock, par value $0.01 per share, of the
Company from 50,000,000 to 100,000,000
shares.
3. / / For / / Against / / Abstain The proposal to adopt the Input/Output,
Inc. 1996 Management Incentive Program.
4. / / For / / Against / / Abstain The proposal to adopt the Input/Output,
Inc. 1996 Non-Employee Director Stock
Option Plan.
5. / / For / / Against / / Abstain The proposal to adopt amendments to the
Input/Output, Inc. Amended and Restated
1990 Stock Option Plan.
6. / / For / / Against / / Abstain The ratification of the appointment of
KPMG Peat Marwick LLP as the Company's
independent certified public accountants
for the fiscal year ending May 31, 1997.
7. / / For / / Against / / Abstain In their discretion, upon such other
matters as may properly come before
the meeting.
(PLEASE SIGN ON REVERSE SIDE)
(CONTINUED FROM OTHER SIDE)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL
ABOVE AND IF NO SPECIFICATION IS MADE, THE SHARES WILL BE
VOTED FOR SUCH PROPOSAL.
Dated ..........................., 1996
.......................................
Stockholder's Signature
........................................
Stockholder's Signature
Signature should agree with name printed
hereon. If Stock is held in the name of
more than one person, EACH joint owner
should sign. Executors, administrators,
trustees, guardians, and attorneys
should indicate the capacity in
which they sign. Attorneys should
submit powers of attorney.
PLEASE SIGN, DATE AND RETURN THE PROXY IN THE ENVELOPE ENCLOSED. THIS PROXY
WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL
NOMINEES IN ITEM 1, FOR THE PROPOSALS SET FORTH IN ITEMS 2-6 AND WILL GRANT
DISCRETIONARY AUTHORITY PURSUANT TO ITEM 7. THIS PROXY WILL REVOKE ALL PRIOR
PROXIES SIGNED BY YOU.