SANDISK CORPORATION
140 Caspian Court
Sunnyvale, California 94089
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
(the "Annual Meeting") of SanDisk Corporation (the "Company") which will be held
on April 18, 1997, at 9:00 a.m., at the Company's headquarters, 140 Caspian
Court, Sunnyvale, California 94089.
At the Annual Meeting, you will be asked to consider and vote upon the
following proposals: (i) to elect seven (7) directors of the Company, (ii) to
approve a series of amendments to the Company's 1995 Stock Option Plan, (iii) to
approve a series of amendments to the Company's 1995 Non-Employee Directors
Stock Option Plan, (iv) to approve a 450,000 share increase to the reserve under
the Company's Employee Stock Purchase Plan and (v) to ratify the appointment of
Ernst & Young LLP as independent accountants of the Company for the fiscal year
ending December 28, 1997.
The enclosed Proxy Statement more fully describes the details of the
business to be conducted at the Annual Meeting. After careful consideration, the
Company's Board of Directors has unanimously approved the proposals and
recommends that you vote FOR each such proposal.
After reading the Proxy Statement, please mark, date, sign and return
the enclosed proxy card in the accompanying reply envelope as promptly as
possible but no later than April 18, 1997. If you decide to attend the Annual
Meeting and would prefer to vote in person, please notify the Secretary of the
Company that you wish to vote in person and your proxy will not be voted. YOUR
SHARES CANNOT BE VOTED UNLESS YOU SIGN, DATE AND RETURN THE ENCLOSED PROXY OR
ATTEND THE ANNUAL MEETING IN PERSON.
A copy of the Company's 1996 Annual Report has been mailed concurrently
herewith to all stockholders entitled to notice of and to vote at the Annual
Meeting.
We look forward to seeing you at the Annual Meeting.
Sincerely yours,
/s/ Eli Harari
Eli Harari
President and Chief Executive Officer
Sunnyvale, California
March 12 , 1997
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IMPORTANT
PLEASE MARK, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT AT YOUR EARLIEST
CONVENIENCE IN THE ENCLOSED POSTAGE-PREPAID RETURN ENVELOPE SO THAT IF YOU ARE
UNABLE TO ATTEND THE ANNUAL MEETING, YOUR SHARES MAY BE VOTED.
- -------------------------------------------------------------------------------
SANDISK CORPORATION
140 Caspian Court
Sunnyvale, California 94089
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 18, 1997
TO OUR STOCKHOLDERS:
You are cordially invited to attend the Annual Meeting of Stockholders
(the "Annual Meeting") of SanDisk Corporation, a Delaware corporation (the
"Company"), to be held on April 18, 1997 at 9:00 a.m., local time, at the
Company's headquarters, 140 Caspian Court, Sunnyvale, California 94089, for the
following purposes:
1. To elect directors to serve for the ensuing year or until their
respective successors are duly elected and qualified. The nominees are
Dr. Eli Harari, Irwin Federman, William V. Campbell, Catherine P. Lego,
Dr. James D. Meindl, Joseph Rizzi and Alan F. Shugart.
2. To approve a series of amendments to the Company's 1995 Stock Option
Plan (the "Stock Option Plan").
3. To approve a series of amendments to the Company's 1995 Non-Employee
Directors Stock Option Plan (the "Directors Plan").
4. To approve a 450,000 share increase to the reserve under the
Company's Employee Stock Purchase Plan (the "Purchase Plan").
5. To ratify the appointment of Ernst & Young LLP as independent
accountants of the Company for the fiscal year ending December 28,
1997.
6. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement that accompanies this Notice.
Only stockholders of record at the close of business on February 28,
1997 are entitled to notice of and to vote at the Annual Meeting and at any
continuation or adjournment thereof.
All stockholders are cordially invited and encouraged to attend the
Annual Meeting. In any event, to assure your representation at the meeting,
please carefully read the accompanying Proxy Statement which describes the
matters to be voted on at the Annual Meeting and sign, date and return the
enclosed proxy card in the reply envelope provided. Should you receive more than
one proxy because your shares are registered in different names and addresses,
each proxy should be returned to assure that all your shares will be voted. If
you attend the Annual Meeting and vote by ballot, your proxy will be revoked
automatically and only your vote at the Annual Meeting will be counted. The
prompt return of your proxy card will assist us in preparing for the Annual
Meeting.
We look forward to seeing you at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Cindy Burgdorf
CINDY BURGDORF
Chief Financial Officer, Senior Vice President,
Finance and Administration and Secretary
Sunnyvale, California
March 12, 1997
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN
PERSON. IN ANY EVENT, TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, YOU
ARE URGED TO VOTE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN
THE POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE.
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS OF
SANDISK CORPORATION
TO BE HELD APRIL 18, 1997
GENERAL
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of SanDisk Corporation, a Delaware corporation (the
"Company" or "SanDisk"), of proxies to be voted at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held on April 18, 1997, or at any
adjournment or postponement thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. Stockholders of record on
February 28, 1997 will be entitled to vote at the Annual Meeting. The Annual
Meeting will be held at 9:00 a.m. at the Company's headquarters, 140 Caspian
Court, Sunnyvale, California 94089.
It is anticipated that this Proxy Statement and the enclosed proxy card
will be first mailed to stockholders on or about March 14, 1997.
VOTING RIGHTS
The close of business on February 28, 1997 was the record date for
stockholders entitled to notice of and to vote at the Annual Meeting and any
adjournments thereof. At the record date, the Company had approximately
22,457,713 shares of its Common Stock outstanding and entitled to vote at the
Annual Meeting, held by approximately 273 stockholders. Holders of Common Stock
are entitled to one vote for each share of Common Stock so held. In the election
of Directors, however, cumulative voting is authorized for all stockholders if
any stockholder gives notice at the meeting, prior to voting for the election of
Directors, of his or her intention to cumulate votes. Under cumulative voting, a
stockholder may cumulate votes and give to one nominee a number of votes equal
to the number of Directors to be elected (seven at this meeting) multiplied by
the number of votes to which such stockholder is entitled, or may distribute
such number among any or all of the nominees. The seven candidates receiving the
highest number of votes will be elected. The Board of Directors is soliciting
discretionary authority to vote proxies cumulatively. A majority of the shares
of Common Stock entitled to vote will constitute a quorum for the transaction of
business at the Annual Meeting.
If any stockholder is unable to attend the Annual Meeting, such
stockholder may vote by proxy. The enclosed proxy is solicited by the Company's
Board of Directors, (the "Board of Directors" or the "Board") and, when the
proxy card is returned properly completed, it will be voted as directed by the
stockholder on the proxy card. Stockholders are urged to specify their choices
on the enclosed proxy card. If a proxy card is signed and returned without
choices specified, in the absence of contrary instructions, the shares of Common
Stock represented by such proxy will be voted FOR Proposals 1, 2, 3, 4 and 5 and
will be voted in the proxy holders' discretion as to other matters that may
properly come before the Annual Meeting.
An affirmative vote of a majority of the shares present or represented
at the meeting and entitled to vote is required for approval of each item being
submitted to the stockholders for their consideration. An automated system
administered by the Company's transfer agent tabulates stockholder votes.
Abstentions and broker non-votes each are included in determining the number of
shares present and voting at the Annual Meeting for purposes of determining the
presence or absence of a quorum, and each is tabulated separately. Abstentions
are counted as negative votes, whereas broker non-votes are not counted for
purposes of determining whether Proposals 1, 2, 3, 4 or 5 presented to
stockholders have been approved.
1.
REVOCABILITY OF PROXIES
Any person giving a proxy has the power to revoke it at any time before
its exercise. A proxy may be revoked by filing with the Secretary of the Company
an instrument of revocation or a duly executed proxy bearing a later date, or by
attending the Annual Meeting and voting in person.
SOLICITATION OF PROXIES
The Company will bear the cost of soliciting proxies. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries, and
custodians holding shares in their names that are beneficially owned by others
to forward to such beneficial owners. The Company may reimburse such persons for
their costs of forwarding the solicitation material to such beneficial owners.
The original solicitation of proxies by mail may be supplemented by solicitation
by telephone, telegram, or other means by directors, officers, employees or
agents of the Company. No additional compensation will be paid to these
individuals for any such services. Except as described above, the Company does
not intend to solicit proxies other than by mail.
THE ANNUAL REPORT OF THE COMPANY FOR THE FISCAL YEAR ENDED DECEMBER 29,
1996, HAS BEEN MAILED CONCURRENTLY WITH THE MAILING OF THE NOTICE OF ANNUAL
MEETING AND PROXY STATEMENT TO ALL STOCKHOLDERS ENTITLED TO NOTICE OF AND TO
VOTE AT THE ANNUAL MEETING. THE ANNUAL REPORT IS NOT INCORPORATED INTO THIS
PROXY STATEMENT AND IS NOT CONSIDERED PROXY SOLICITING MATERIAL.
2.
-----------------------------------
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
-----------------------------------
At the Annual Meeting, seven directors (constituting the entire board)
are to be elected to serve until the next Annual Meeting of Stockholders and
until a successor for such director is elected and qualified, or until the
death, resignation, or removal of such director. It is intended that the proxies
will be voted for the seven nominees named below for election to the Company's
Board of Directors unless authority to vote for any such nominee is withheld.
There are seven nominees, each of whom is currently a director of the Company.
All of the current directors were elected to the Board by the stockholders at
the last annual meeting. Each person nominated for election has agreed to serve
if elected, and the Board of Directors has no reason to believe that any nominee
will be unavailable or will decline to serve. In the event, however, that any
nominee is unable or declines to serve as a director at the time of the Annual
Meeting, the proxies will be voted for any nominee who is designated by the
current Board of Directors to fill the vacancy. Unless otherwise instructed, the
proxyholders will vote the proxies received by them for the nominees named
below. The seven candidates receiving the highest number of the affirmative
votes of the shares entitled to vote at the Annual Meeting will be elected
directors of the Company. The proxies solicited by this Proxy Statement may not
be voted for more than seven nominees.
NOMINEES
Set forth below is information regarding the nominees to the Board of
Directors.
Name Position(s) with the Age First Elected
Company Director
Dr. Eli Harari ............ President, Chief Executive 51 1988
Officer and Director
Irwin Federman(1).......... Chairman of the Board 61 1988
William V. Campbell(2)..... Director 56 1993
Catherine P. Lego(1)....... Director 40 1989
Dr. James D. Meindl........ Director 63 1989
Joseph Rizzi............... Director 54 1992
Alan F. Shugart(2)......... Director 66 1993
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
3.
BUSINESS EXPERIENCE OF NOMINEES FOR ELECTION AS DIRECTORS
Dr. Harari, the founder of the Company, has served as the President and
Chief Executive Officer and as a director of the Company since June 1988. Dr.
Harari founded Wafer Scale Integration, a privately held semiconductor company,
in 1983 and was its President and Chief Executive Officer from 1983 to 1986, and
Chairman and Chief Technical Officer from 1986 to 1988. From 1973 to 1983, Dr.
Harari held various management positions with Honeywell Inc., Intel and Hughes
Aircraft Microelectronics. Dr. Harari holds a Ph.D. degree in Solid State
Sciences from Princeton University.
Mr. Federman has served as Chairman of the Board of Directors since
September 1988. Since April 1990, Mr. Federman has been a general partner in
U.S. Venture Partners, a venture capital firm. From 1988 to 1990, he was a
Managing Director of Dillon Read & Co., an investment banking firm, and a
general partner in its venture capital affiliate, Concord Partners. From August
1987 to December 1987, Mr. Federman was Vice Chairman of AMD, which acquired
Monolithic Memories, a corporation engaged in the production of integrated
circuits, with which he was affiliated for 16 years. From 1979 to 1987, Mr.
Federman was President of Monolithic Memories. Mr. Federman served as Chairman
of the Semiconductor Industry Association from 1986 to 1988. He is also a
director of Komag Incorporated, Western Digital Corporation, TelCom
Semiconductor, Inc., Checkpoint Software Technologies, Ltd. and various private
corporations. Mr. Federman holds a B.S. degree from Brooklyn College.
Mr. Campbell has served as a director of the Company since October
1993. Mr. Campbell has been President and Chief Executive Officer and a director
of Intuit Inc. since April 1994. From 1991 to 1993, Mr. Campbell was President
and Chief Executive Officer of GO Corporation, a pen-based computing software
company. From 1987 to 1991, Mr. Campbell was President and Chief Executive
Officer of Claris Corporation, a software subsidiary of Apple Computer Inc. Mr.
Campbell holds both B.A. and M.A. degrees in Economics from Columbia University.
Ms. Lego has served as a director of the Company since March 1989. Ms.
Lego has been self-employed with her consulting firm, Lego Ventures, since 1992.
From 1981 to 1992, Ms. Lego held various positions with Oak Investment Partners,
a venture capital firm and was general partner of several of the venture capital
partnerships affiliated with Oak Investment Partners. Ms. Lego also serves as a
director of Etec Corporation, Uniphase Corporation, Zitel Corporation and
various private corporations. Ms. Lego is a Certified Public Accountant and
holds a B.A. degree in Economics and Biology from Williams College and an M.S.
degree in Accounting from the New York University Graduate School of Business.
Dr. Meindl has served as a director of the Company since March 1989.
Dr. Meindl has been the Joseph M. Pettit Chair Professor of Microelectronics at
the Georgia Institute of Technology in Atlanta, Georgia since 1993. From 1986 to
1993, Dr. Meindl served as Senior Vice President for Academic Affairs and
Provost of Rensselaer Polytechnic Institute. From 1967 to 1986, he was the John
M. Fluke Professor of Electrical Engineering at Stanford University. Dr. Meindl
serves as a director of Zoran, Inc. and Digital Microwave. Dr. Meindl holds
B.S., M.S. and Ph.D. degrees in Electrical Engineering from Carnegie-Mellon
University.
Mr. Rizzi has served as a director of the Company since February 1992.
Mr. Rizzi has been a general partner of Matrix II L.P. and Matrix III L.P. since
1986. From 1979 to 1986, Mr. Rizzi was Chief Executive Officer of ELXSI Inc., of
which is he is a founder. From 1969 to 1978, Mr. Rizzi was Vice President of
Intersil Inc., of which he is a founder. Mr. Rizzi also serves as a director of
Veritas Software, Inc. and Overland Data, Inc. Mr. Rizzi holds B.S. and M.S.
degrees in Electrical Engineering from the University of New Hampshire.
Mr. Shugart has served as a director of the Company since January 1993.
Mr. Shugart has served as Chief Executive Officer of Seagate since its inception
in 1979, President of Seagate since September 1991 and Chairman of the Board of
Directors of Seagate since October 1992. He also served as Chairman of the Board
of Directors of Seagate from its inception until September 1991 and Chief
Operating Officer of Seagate from September 1991 to March 1995. Mr. Shugart is
also a director of Valence Technology, Inc. Mr. Shugart holds a B.S. degree in
Engineering/Physics from the University of Redlands.
4.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held five (5) meetings during fiscal 1996. Each
member of the Board of Directors during fiscal 1996 attended or participated in
more than seventy-five percent (75%) or more of the aggregate of (i) the total
number of meetings of the Board of Directors held during the fiscal year and
(ii) the total number of meetings held by all committees on which such director
served during the past fiscal year, except Mr. Campbell (who attended fifty
percent (50% of such meetings). There are no family relationships among
executive officers or directors of the Company. The Board of Directors has an
Audit Committee and a Compensation Committee.
The Audit Committee of the Board of Directors held one meeting during
fiscal 1996. The Audit Committee, which is currently comprised of Directors
Federman and Lego, recommends engagement of the Company's independent
accountants, approves services performed by such accountants and reviews and
evaluates the Company's accounting system and its system of internal controls.
The Compensation Committee of the Board of Directors held three
meetings during fiscal 1996 and approved grants of options by written consent on
a monthly basis. The Compensation Committee, which is comprised of Directors
Campbell and Shugart, has overall responsibility for the Company's compensation
policies and determines the compensation payable to the Company's executive
officers, including their participation in certain of the Company's employee
benefit and stock option plans.
DIRECTOR COMPENSATION
Board members do not receive compensation for their services as a
director. Board members are also not compensated for their service on Board
committees or their performance of special assignments. However, the
non-employee Board members are eligible to receive periodic option grants under
the 1995 Non-Employee Directors Stock Option Plan (the "Directors Plan.") In
addition, Dr. Meindl is paid $10,000 per annum in his capacities as Senior
Technical advisor to the Company, and Ms. Lego is paid $10,000 per annum in her
capacity as Financial Advisor to the Company.
Under the Directors Plan, each individual who was serving as a
non-employee Board member on the November 7, 1995 effective date of the
Directors Plan and who had not previously received an option grant from the
Company received an option grant for 16,000 shares of Common Stock with an
exercise price of $10.00 per share, the price per share at which the Common
Stock was sold in the initial public offering on that date. Each individual who
first becomes a non-employee Board member at any time after November 7, 1995
will receive a similar 16,000 share option grant on the date such individual
joins the Board, provided such individual has not been previously employed by
the Company. In addition, on the date of each Annual Stockholders Meeting,
beginning with the 1996 Annual Meeting, each individual who is to continue to
serve as a non-employee Board member, whether or not that individual has been
previously employed by the Company, will receive an option grant to purchase
4,000 shares of Common Stock, provided such individual has served as a
non-employee Board member for at least six months. Messrs. Federman, Rizzi and
Shugart each received an option grant for 16,000 shares on the November 7, 1995
effective date of the Directors Plan. Each of the following non-employee Board
members received an option grant for 4,000 shares on April 24, 1996, the date of
the 1996 Annual Shareholders Meeting, at an exercise price of $13.375 per share:
Messrs. Federman, Campbell, Meindl, Rizzi and Shugart and Ms. Lego.
Each automatic grant will have an exercise price per share equal to the
fair market value per share of Common Stock on the grant date and will have a
maximum term of 10 years, subject to earlier termination following the
optionee's cessation of Board service. Each automatic option will be immediately
exercisable for any or all of the option shares; however, any shares purchased
under the option will be subject to repurchase by the Company, at the option
exercise price paid per share, should the optionee cease service as a Board
member prior to vesting in those shares. The shares subject to each initial
16,000 share grant will vest in four successive equal annual installments over
the optionee's period of Board service, with the first installment to vest upon
the Board member's completion of one year of Board service measured from the
grant date. The shares subject to each 4,000 share grant will vest upon the
optionee's completion of one year of Board service measured from the grant date.
However, the shares subject to each outstanding option will immediately vest
upon
5.
(i) certain changes in the ownership or control of the Company or (ii) the
death or disability of the optionee while serving as a Board member. For further
information concerning the Directors Plan and the option grants to be made
thereunder, please see the summary description of the terms of the Directors
Plan in Proposal 3 of this Proxy Statement.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR ELECTION
OF ALL OF THE ABOVE NOMINEES FOR ELECTION AS DIRECTORS.
6.
---------------------------------------
PROPOSAL NO. 2:
APPROVAL OF AMENDMENTS
TO THE 1995 STOCK OPTION PLAN
----------------------------------------
The Company's stockholders are being asked to approve several
amendments to the Company's 1995 Stock Option Plan (the "Option Plan") that will
(i) increase the maximum number of shares of Common Stock authorized for
issuance over the term of the Option Plan from 3,498,711 shares to 5,998,711
shares, (ii) render non-employee Board members eligible to receive option grants
under the Option Plan, (iii) allow unvested shares issued under the Option Plan
and subsequently repurchased by the Company at the option exercise price paid
per share to be reissued under the Option Plan, and (iv) remove certain
restrictions on the eligibility of non-employee Board members to serve as Plan
Administrator and effect a series of additional changes to the provisions of the
Option Plan (including stockholder approval requirements) in order to take
advantage of the recent amendments to Rule 16b-3 of the Securities Exchange Act
of 1934 (the "Exchange Act") which exempts certain officer and director
transactions under the Option Plan from the short-swing liability provisions of
the federal securities laws.
The increase to the Option Plan share reserve is designed to assure
that a sufficient reserve of Common Stock is available under the Option Plan to
attract and retain the services of key individuals essential to the Company's
long-term growth and success. The other amendments will facilitate plan
administration and enhance the equity incentives available under the Plan for
non-employee Board members.
The Option Plan was adopted by the Board on July 25, 1995, and approved
by the Company's stockholders in August 1995. The Option Plan became effective
on November 7, 1995 in connection with the initial public offering of the
Company's Common Stock. Initially, 3,498,711 shares of Common Stock were
reserved for issuance under the Option Plan. The changes to the Option Plan
effected by the amendments which are the subject of this Proposal were adopted
by the Board on February 10, 1997.
The following is a summary of the principal features of the Option
Plan, together with the applicable tax and accounting implications, which will
be in effect if the amendments to the Option Plan are approved by the
stockholders. However, the summary does not purport to be a complete description
of all the provisions of the Option Plan. Any stockholder of the Company who
wishes to obtain a copy of the actual plan document may do so upon written
request to the Corporate Secretary at the Company's principal executive offices
in Sunnyvale, California.
Administration
The Option Plan is administered by the Compensation Committee of the
Board. The Compensation Committee acting in such administrative capacity (the
"Plan Administrator") has complete discretion (subject to the provisions of the
Option Plan) to authorize option grants under the Option Plan.
Share Reserve
A total of 5,998,711 shares of Common Stock has been reserved for
issuance over the ten-year term of the Option Plan. In no event may any one
participant in the Option Plan be granted stock options and separately
exercisable stock appreciation rights for more than 1,000,000 shares in the
aggregate under the Option Plan.
7.
In the event any change is made to the outstanding shares of Common
Stock by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate structure
effected without the Company's receipt of consideration, appropriate adjustments
will be made to (i) the maximum number and class of securities issuable under
the Option Plan, (ii) the maximum number and class of securities for which any
one participant may be granted stock options and separately excercisable stock
appreciation rights under the Option Plan, and (iii) the number and class of
securities and the exercise price per share in effect under each outstanding
option.
Should an option expire or terminate for any reason prior to exercise
in full, the shares subject to the portion of the option not so exercised will
be available for subsequent issuance under the Option Plan. Unvested shares
issued under the Option Plan and subsequently repurchased by the Company at the
original option price paid per share will be added back to the share reserve and
will accordingly be available for subsequent issuance under the Plan. Shares
subject to any option surrendered in accordance with the stock appreciation
right provisions of the Option Plan will not be available for subsequent
issuance.
Eligibility
Employees of the Company and its parent and subsidiaries (whether now
existing or subsequently established), non-employee members of the Board or the
board of directors of any parent or subsidiary, and consultants and other
independent advisors who provide services to the Company will be eligible to
participate in the Option Plan.
As of February 28, 1997, 5 executive officers, 287 other employees, and
6 non-employee Board members were eligible to participate in the Option Plan.
Valuation
The fair market value per share of Common Stock on any relevant date
under the Option Plan will be the closing selling price per share on that date
on The Nasdaq National Market. On February 28, 1997 the closing selling price
per share was $13.25.
Option Grants
Options may be granted under the Option Plan at an exercise price per
share not less than eighty-five percent (85%) of the fair market value per share
of Common Stock on the option grant date. No granted option will have a term in
excess of ten years. The options will generally become exercisable in a series
of installments over the optionee's period of service with the Company.
Upon cessation of service, the optionee will have a limited period of
time in which to exercise his or her outstanding options for any shares in which
the optionee is vested at that time. The Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of service
during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the Option Plan:
Tandem stock appreciation rights provide the holders with the
right to surrender their options for an appreciation distribution from
the Company equal in amount to the excess of (a) the fair market value
of the vested shares of Common Stock subject to the surrendered option
over (b) the aggregate exercise price payable for such shares. Such
appreciation distribution
8.
may, at the discretion of the Plan Administrator, be made in cash, in
shares of Common Stock, or in a combination of cash and shares of
Common Stock.
Limited stock appreciation rights may be provided to one or
more officers or non-employee Board members of the Company as part of
their option grants. Any option with such a limited stock appreciation
right may be surrendered to the Company upon the successful completion
of a hostile tender offer for more than fifty percent (50%) of the
Company's outstanding voting stock. In return for the surrendered
option, the officer or Board member will be entitled to a cash
distribution from the Company in an amount per surrendered option share
equal to the excess of (a) the highest price paid per share of Common
Stock paid in connection with the tender offer over (b) the exercise
price payable for such share.
The shares of Common Stock acquired upon the exercise of one or more
options may be unvested and subject to repurchase by the Company, at the
original exercise price paid per share, if the optionee ceases service with the
Company prior to vesting in those shares. The Plan Administrator will have
complete discretion to establish the vesting schedule to be in effect for any
such unvested shares and may at any time cancel the Company's outstanding
repurchase rights with respect to those shares and thereby accelerate the
vesting of those shares.
The Plan Administrator will also have the authority to effect the
cancellation of outstanding options under the Option Plan which have exercise
prices in excess of the then current market price of the Common Stock and to
issue replacement options with an exercise price based on the lower current
market price of Common Stock at the time of the new grant.
General Provisions
Acceleration
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Option Plan which is not to be assumed by the
successor corporation or replaced with a cash incentive program by the successor
corporation will automatically accelerate in full, and all unvested shares
issued under the Option Plan will immediately vest, except to the extent the
Company's repurchase rights with respect to those shares are to be assigned to
the successor corporation. Any options assumed in connection with such
acquisition may, in the Plan Administrator's discretion, be subject to immediate
acceleration, and any unvested shares which do not vest at the time of such
acquisition may be subject to full and immediate vesting, in the event the
individual's service with the successor entity is subsequently terminated within
a specified period following the acquisition. In connection with other changes
in control of the Company (whether by successful tender offer for more than
fifty percent (50%) of the outstanding voting stock or a change in the majority
of the Board as a result of one or more proxy contests for the election of Board
members), the Plan Administrator will have the discretionary authority to
provide for automatic acceleration of outstanding options and the automatic
vesting of all unvested shares outstanding under the Option Plan, with such
acceleration or vesting to occur either at the time of such change in control or
upon the subsequent termination of the individual's service.
The acceleration of vesting upon a change in the ownership or control
of the Company may be seen as an anti-takeover provision and may have the effect
of discouraging a merger proposal, a takeover attempt or other efforts to gain
control of the Company.
Financial Assistance
The Plan Administrator may institute a loan program to assist one or
more optionees in financing the exercise of their outstanding options under the
Option Plan. The Plan Administrator will have complete discretion to determine
the terms of any such financial assistance. However, the maximum amount of
financing provided any
9.
individual may not exceed the cash consideration payable for the issued shares
plus all applicable taxes. Any such financing may be subject to forgiveness in
whole or in part, at the discretion of the Plan Administrator, over the
optionee's period of service.
Special Tax Election
The Plan Administrator may provide one or more holders of options or
unvested shares with the right to have the Company withhold a portion of the
shares otherwise issuable to such individuals in satisfaction of the tax
liability incurred by such individuals in connection with the exercise of those
options or the vesting of those shares. Alternatively, the Plan Administrator
may allow such individuals to deliver previously acquired shares of Common Stock
in payment of such tax liability.
Stock Options
The table below shows, as to each of the Company's executive officers
named in the Summary Compensation Table and the various indicated individuals
and groups, the number of shares of Common Stock subject to options granted
under the Option Plan between November 7, 1995 and February 28, 1997, together
with the weighted average exercise price payable per share.
OPTION TRANSACTIONS
Name Options Granted (Number Weighted Average
of Shares) Exercise Price ($)
Dr. Eli Harari, President and Chief Executive Officer 75,000 12.000
Cindy Burgdorf, Chief Financial Officer, Senior Vice 30,000 12.000
President, Finance and Administration
Leon Malmed, Senior Vice President, Marketing and Sales 30,000 12.000
Daniel Auclair, Senior Vice President, Operations and 30,000 12.000
Technology
Marianne Jackson, Vice President, Human Resources 15,000 12.000
All executive officers as a group (5 persons) 180,000 12.000
All non-employee directors as a group (6 persons) -0- -0-
All employees, including current officers who are not 731,000 12.397
executive officers as a group
As of February 28, 1997, options covering 3,002,202 shares of Common
Stock were outstanding under the Option Plan, 2,772,698 shares remained
available for future option grant assuming approval of the 2,500,000 share
increase by the Company's stockholders, and 4,077,028 shares have been issued
under the Option Plan.
10.
Amendment and Termination
The Board may amend or modify the Option Plan in any or all respects
whatsoever, subject to any required stockholder approval. The Board may
terminate the Option Plan at any time, and the Option Plan will in all events
terminate on July 24, 2005.
Federal Income Tax Consequences
Option Grants
Options granted under the Option Plan may be either incentive stock
options which satisfy the requirements of Section 422 of the Internal Revenue
Code or non-statutory options which are not intended to meet such requirements.
The Federal income tax treatment for the two types of options differs as
follows:
Incentive Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of a taxable disposition. For Federal tax purposes, dispositions are
divided into two categories: (i) qualifying and (ii) disqualifying. A qualifying
disposition occurs if the sale or other disposition is made after the optionee
has held the shares for more than two years after the option grant date and more
than one year after the exercise date. If either of these two holding periods is
not satisfied, then a disqualifying disposition will result.
If the optionee makes a disqualifying disposition of the purchased
shares, then the Company will be entitled to an income tax deduction, for the
taxable year in which such disposition occurs, equal to the excess of (i) the
fair market value of such shares on the option exercise date over (ii) the
exercise price paid for the shares. In no other instance will the Company be
allowed a deduction with respect to the optionee's disposition of the purchased
shares.
Non-Statutory Options. No taxable income is recognized by an optionee
upon the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee.
Stock Appreciation Rights
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax
11.
deduction equal to such distribution for the taxable year in which the ordinary
income is recognized by the optionee.
Deductibility of Executive Compensation
The Company anticipates that any compensation deemed paid by it in
connection with disqualifying dispositions of incentive stock option shares or
exercises of non-statutory options granted with exercise prices equal to the
fair market value of the option shares on the grant date will qualify as
performance-based compensation for purposes of Code Section 162(m) and will not
have to be taken into account for purposes of the $1 million maximum limitation
per covered individual on the deductibility of the compensation paid to certain
executive officers of the Company. Accordingly, all compensation deemed paid
with respect to those options will remain deductible by the Company without
limitation under Code Section 162(m).
Accounting Treatment
Option grants with exercise prices less than the fair market value of
the shares on the grant date will result in a compensation expense to the
Company's earnings equal to the difference between the exercise price and the
fair market value of the shares on the grant date. Such expense will be
accruable by the Company over the period that the option shares are to vest.
Option grants at 100% of fair market value will not result in any charge to the
Company's earnings, but the Company must disclose, in footnotes to the Company's
financial statements, the impact those options would have upon the Company's
reported earnings were the value of those options treated as compensation
expense. Whether or not granted at a discount, the number of outstanding options
may be a factor in determining the Company's earnings per share.
Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to the
Company's earnings.
New Plan Benefits
As of February 28, 1997, no options have been granted to date on the
basis of the 2,500,000 share increase to the Option Plan.
Stockholder Approval
The affirmative vote of a majority of the outstanding voting shares of
the Company present or represented and entitled to vote at the Annual Meeting is
required to approve the amendments to the Option Plan. Should such stockholder
approval not be obtained, then non-employee Board members will not be eligible
to participate in the Option Plan, unvested shares that are repurchased by the
Company will reduce on a share-for-share basis the reserve under the Option
Plan, and any options granted on the basis of the 2,500,000 share increase which
forms part of this Proposal will terminate without becoming exercisable for any
of the shares of Common Stock subject to those options, and no further options
will be made on the basis of such share increase. The Option Plan will, however,
continue to remain in effect, and option grants may continue to be made pursuant
to the provisions of the Option Plan prior to the amendments until the available
reserve of Common Stock under the Option Plan last approved by the stockholders
is issued.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
AMENDMENTS TO THE OPTION PLAN.
12.
--------------------------------------------------------------
PROPOSAL NO. 3:
APPROVAL OF AMENDMENTS
TO THE 1995 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
----------------------------------------------------------------
The Company's stockholders are being asked to approve several
amendments to the Company's 1995 Non-Employee Directors Stock Option Plan (the
"Directors Plan") that will (i) increase the maximum number of shares of Common
Stock authorized for issuance over the term of the Directors Plan from 150,000
shares to 200,000 shares, (ii) allow unvested shares issued under the Directors
Plan and subsequently repurchased by the Company at the option exercise price
paid per share to be reissued under the Directors Plan, and (iii) effect a
series of additional changes to the provisions of the Directors Plan (including
the stockholder approval requirements) in order to take advantage of the recent
amendments to Rule 16b-3 of the Securities Exchange Act of 1934 (the "Exchange
Act") which exempts certain officer and director transactions under the
Directors Plan from the short-swing liability provisions of the federal
securities laws.
The purpose of the increase to the share reserve under the Directors
Plan is designed to assure that a sufficient reserve of Common Stock will remain
available to attract and retain the services of highly-qualified non-employee
Board members by providing them with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Company. The
other amendments will remove a number of restrictions in the Directors Plan
which were previously imposed as a result of the requirements of Rule 16b-3
prior to its recent amendment.
The Directors Plan was adopted by the Board on July 25, 1995 and
approved by the Company's stockholders in August 1995. The Directors Plan became
effective on November 7, 1995 in connection with the initial public offering of
the Company's Common Stock. Initially, 150,000 shares of Common Stock were
reserved for issuance under the Directors Plan. The changes to the Directors
Plan effected by the amendments which are the subject of this Proposal were
adopted by the Board on February 10, 1997, subject to stockholder approval at
the 1997 Annual Meeting.
The following is a summary of the principal features of the Directors
Plan, together with the applicable tax and accounting implications, which will
be in effect if the amendments to the Directors Plan are approved by the
stockholders. However, the summary does not purport to be a complete description
of all the provisions of the Directors Plan. Any stockholder of the Company who
wishes to obtain a copy of the actual plan document may do so upon written
request to the Corporate Secretary at the Company's principal executive offices
in Sunnyvale, California.
The terms and conditions of each automatic option grant (including the
timing and pricing of the option grant) are determined by the express provisions
of the Directors Plan. Neither the Board nor any committee of the Board will
perform any discretionary functions under the Directors Plan.
Share Reserve
A total of 200,000 shares of Common Stock has been reserved for
issuance over the ten-year term of the Directors Plan. The shares of Common
Stock issuable under the Directors Plan may be made available from authorized
but unissued shares of the Company's Common Stock or from shares of Common Stock
repurchased by the Company, including shares repurchased on the open market.
13.
In the event any change is made to the outstanding shares of Common
Stock by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate structure
effected without the Company's receipt of consideration, appropriate adjustments
will be made to (i) the maximum number and class of securities issuable under
the Directors Plan, (ii) the number and class of securities for which option
grants are subsequently to be made to newly-elected or continuing non-employee
Board members and (iii) the number and class of securities and the exercise
price per share in effect under each outstanding option.
Should an option expire or terminate for any reason prior to exercise
in full, the shares subject to the portion of the option not so exercised will
be available for subsequent issuance under the Directors Plan. In addition,
unvested shares issued under the Directors Plan and subsequently repurchased by
the Company at the option exercise price paid per share will be added back to
the share reserve and will accordingly be available for subsequent issuance
under the Directors Plan. However, shares subject to any option surrendered in
accordance with the option surrender provisions of the Directors Plan will not
be available for subsequent issuance.
Eligibility
Only non-employee Board members will be eligible to receive option
grants under the Directors Plan. As of February 28, 1997, six (6) non-employee
Board members were eligible to participate in the Directors Plan.
Valuation
The fair market value per share of Common Stock on any relevant date
under the Directors Plan will be the closing selling price per share on that
date on the Nasdaq National Market. On February 28, 1997, the closing selling
price per share was $13.25.
Option Grants
Each individual who was serving as a non-employee Board member on the
November 7, 1995 effective date of the Directors Plan was granted at that time a
non-statutory option to purchase 16,000 shares of Common Stock, provided such
individual had not previously been in the Company's employ and had not otherwise
received any prior option grants from the Company. Each individual who first
becomes a non-employee Board member after November 7, 1995, whether through
election by the stockholders or appointment by the Board, will automatically be
granted, at the time of such initial election or appointment, a similar
non-statutory option to purchase 16,000 shares of Common Stock, provided such
individual has not previously been in the Company's employ. In addition, each
non-employee Board member who is to continue to serve on the Board will receive
a 4,000 share automatic option grant on the date of each Annual Stockholders
Meeting, beginning with the 1996 Annual Meeting, provided such individual has
served as a non-employee Board member for at least six (6) months. There will be
no limit on the number of such 4,000 share option grants that any one
non-employee Board member may receive over his or her period of Board service,
and non-employee Board members who have been in the prior employ of the Company
will be eligible to receive one or more of those annual grants.
Each option will have an exercise price per share equal to 100% of the
fair market value per share of Common Stock on the grant date. The exercise
price will be payable in cash or in shares of Common Stock or through a same-day
sale program with no cash outlay by the optionee. The option will have a maximum
term of ten (10) years measured from the grant date, subject to earlier
termination at the end of the twelve (12)-month period measured from the date of
the optionee's cessation of Board service. Each option will be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option will be subject to repurchase by the Company, at the exercise
price paid per share, upon the optionee's cessation of Board service prior to
vesting in those shares. The shares subject to each initial 16,000 share option
grant will vest in four (4) successive equal annual installments upon the
optionee's completion of each year of Board service over the four (4)-year
period measured from the grant date. The shares subject to each annual 4,000
share option grant will vest in full upon the optionee's completion of one (1)
year of Board service measured from the grant date.
14.
Vesting Acceleration
The shares subject to each option will immediately vest upon (i) the
optionee's death or permanent disability while a Board member, (ii) an
acquisition of the Company by merger or asset sale, (iii) the successful
completion of a tender offer for more than fifty percent (50%) of the Company's
outstanding voting stock or (iv) a change in the majority of the Board effected
through one or more proxy contests for Board membership. In addition, upon the
successful completion of a hostile tender offer for more than fifty percent
(50%) of the Company's outstanding voting stock, each outstanding automatic
option grant may be surrendered to the Company for a cash distribution per
surrendered option share in an amount equal to the excess of (a) the highest
price per share of Common Stock paid in connection with such tender offer over
(b) the exercise price payable for such share. Stockholder approval of this
Proposal will constitute pre-approval of each such option surrender right
subsequently granted under the Directors Plan and the subsequent exercise of
that right in accordance with the terms of the Directors Plan.
The acceleration of vesting upon a change in the ownership or control
of the Company may be seen as an anti takeover provision and may have the effect
of discouraging a merger proposal, a takeover attempt or other efforts to gain
control of the Company. Stock Awards
The table below shows, as to each of the Company's non-employee Board
members, the number of shares of Common Stock subject to options granted under
the Directors Plan between the November 7, 1995 effective date of the Directors
Plan and February 28, 1997, together with the weighted average exercise price
payable per share. Only non-employee Board members received option grants under
the Directors Plan.
1995 NON-EMPLOYEE DIRECTOR PLAN OPTION TRANSACTIONS
Name Options Granted (Number Weighted Average
of Shares) Exercise Price ($)
Irwin Federman, Chairman of the Board 20,000 10.675
William Campbell 4,000 13.375
Catherine P. Lego 4,000 13.375
James Meindl 4,000 13.375
Joseph Rizzi 20,000 10.675
Alan Shugart 20,000 10.675
All non-employee directors as a group 72,000 11.125
(6 persons)
As of February 28, 1997, options covering 72,000 shares of Common Stock
were outstanding under the Directors Plan, 78,000 shares remained available for
future option grant and 72,000 shares have been issued under the Directors Plan.
15.
Amendment and Termination
The Board may amend or modify the provisions of the Directors Plan at
any time. Certain amendments to the Directors Plan may require stockholder
approval pursuant to applicable laws or regulations. The Board may terminate the
Directors Plan at any time, and the Directors Plan will in all events terminate
on July 24, 2005.
Federal Income Tax Consequences
Options granted under the Directors Plan are all non-statutory options
which are not intended to satisfy the requirements of Section 422 of the
Internal Revenue Code. The Federal income tax treatment for non-statutory
options is as follows:
No taxable income is recognized by an optionee upon the grant of a
non-statutory option. The optionee will in general recognize ordinary income, in
the year in which the option is exercised, equal to the excess of the fair
market value of the purchased shares on the exercise date over the exercise
price paid for the shares.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when those shares vest, an amount equal to the excess
of (i) the fair market value of the shares at time of vesting over (ii) the
exercise price paid for those shares. The optionee may, however, elect under
Section 83(b) of the Internal Revenue Code to include as ordinary income, in the
year in which the option is exercised, an amount equal to the excess of (i) the
fair market value of the purchased shares on the exercise date over (ii) the
exercise price paid for such shares. If the Section 83(b) election is made, the
optionee will not recognize any additional income as and when the shares
subsequently vest.
The Company will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee.
Accounting Treatment
Option grants with exercise prices equal to the fair market value of
the shares on the grant date will not result in any charge to the Company's
earnings, but the Company must disclose, in footnotes to the Company's financial
statements, the impact those options would have upon the Company's reported
earnings were the value of those options at the time of grant treated as
compensation expense. Whether or not granted at a discount, the number of
outstanding options may be a factor in determining the Company's earnings per
share on a fully-diluted basis.
New Plan Benefits
As of February 28, 1997, no options have been granted to date on the
basis of the 50,000 share increase to the Directors Plan.
Stockholder Approval
The affirmative vote of a majority of the outstanding voting shares of
the Company present or represented and entitled to vote at the Annual Meeting is
required to approve the amendments to the Directors Plan. Should such
stockholder approval not be obtained, then any unvested shares issued under the
Directors Plan and repurchased by the Company will reduce on a share-for-share
basis the number of shares reserves for issuance under the Directors Plan, and
any options granted on the basis of the 50,000 share increase which forms part
of
16.
this Proposal will terminate without becoming exercisable for any of the
shares of Common Stock subject to those options, and no further options will be
made on the basis of such share increase. The Directors Plan will, however,
continue to remain in effect, and option grants may continue to be made pursuant
to the provisions of the Directors Plan as in effect prior to the amendments
until the available reserve of Common Stock under the Directors Plan as last
approved by the stockholders is issued.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
AMENDMENTS TO THE DIRECTORS PLAN.
17.
---------------------------------------------
PROPOSAL NO. 4:
APPROVAL OF SHARE INCREASE TO
TO THE EMPLOYEE STOCK PURCHASE PLAN
---------------------------------------------
The Company's stockholders are being asked to approve an increase of
450,000 shares of Common Stock to the reserve available under the Company's
Employee Stock Purchase Plan ("Purchase Plan"). Approval of this amendment to
the Purchase Plan will increase the maximum number of shares of Common Stock
that may be issued over the term of the Plan from 433,333 to 883,333 shares of
Common Stock. This amendment to the Purchase Plan was adopted by the Board of
Directors on February 10, 1997, subject to stockholder approval at the 1997
Annual Meeting.
The Board of Directors believes that it is in the best interests of the
Company's stockholders to increase the number of shares reserved for issuance
under the Purchase Plan so that eligible employees of the Company and its
participating affiliates will continue to have the opportunity to acquire an
equity interest in the Company and thereby further align their interests with
those of the stockholders.
The terms and provisions of the Purchase Plan as most recently amended
are summarized below. This summary, however, does not purport to be a complete
description of the Purchase Plan. Copies of the actual plan document may be
obtained by any stockholder upon written request to the Corporate Secretary at
the Company's principal offices in Sunnyvale, California.
Purchase Plan History
The Purchase Plan was originally adopted by the Board of Directors on
July 25, 1995, and approved by the stockholders in August 1995. The Purchase
Plan became effective on November 7, 1995 in connection with the initial public
offering of the Company's Common Stock.
Administration
The Purchase Plan is administered by the Compensation Committee of the
Board. Such committee, as Plan Administrator, has full authority to adopt
administrative rules and procedures and to interpret the provisions of the
Purchase Plan. All costs and expenses incurred in plan administration are paid
by the Company without charge to participants.
Securities Subject to the Purchase Plan
A total of 883,333 shares of Common Stock has been reserved for
issuance in the aggregate over the term of the Purchase Plan and the Company's
International Employee Stock Purchase Plan, a comparable stock purchase plan for
employees of the Company's foreign subsidiaries who are not residing in the U.S.
(the "International Plan"). Accordingly, stockholder approval of this Proposal
will also result in an increase to the number of shares of Common Stock issuable
under the International Plan, subject to the aggregate limitation of 883,333
shares over the term of this Plan and the International Plan. The shares may be
made available from authorized but unissued shares of the Company's Common Stock
or from shares of Common Stock repurchased by the Company, including shares
repurchased on the open market.
In the event that any change is made to the Company's outstanding
Common Stock (whether by reason of
18.
any recapitalization, stock dividend, stock split, exchange or combination of
shares or other change in corporate structure effected without the Company's
receipt of consideration), appropriate adjustments will be made to (i) the class
and maximum number of securities issuable in the aggregate over the term of the
Purchase Plan and the International Plan, (ii) the class and maximum number of
securities purchasable per participant on any one semi-annual purchase date and
(iii) the class and number of securities and the price per share in effect under
each outstanding purchase right.
Purchase Periods and Purchase Rights
Shares of Common Stock are offered under the Purchase Plan through a
series of successive offering periods. Each such offering period will have a
duration of six (6) months. The offering periods will start on the first
business day in February and August each year and will have a single purchase
date that coincides with the last business day of that six (6)-month offering
period. For example, the current offering period began on February 3, 1997 and
will end on July 31, 1997, which is also the date on which the shares for that
offering period will be purchased.
Eligibility and Participation
Any individual who is employed on a basis under which he or she is
expected to work for more than twenty (20) hours per week for more than five (5)
months per calendar year in the employ of the Company or any participating
parent or subsidiary corporation (including any corporation which subsequently
becomes such at any time during the term of the Purchase Plan) is eligible to
participate in the Purchase Plan. As of February 28, 1997, the Company estimated
that approximately 288 employees, including 4 executive officers, were eligible
to participate in the Purchase Plan.
Only individuals who are eligible employees at the start of an offering
period may join that offering period. At the time the participant joins the
offering period, he or she will be granted a purchase right to acquire shares of
Common Stock on the purchase date for that offering period. Purchase dates will
occur on the last business day in January and July each year, and all payroll
deductions collected from the participant for the period ending with each such
purchase date will automatically be applied to the purchase of Common Stock.
Payroll deductions may not exceed 10% of the participant's cash compensation for
each six (6)-month period of participation, and no participant may purchase more
than 750 shares per purchase date.
Purchase Price
The purchase price of the Common Stock acquired on each semi-annual
purchase date will be equal to 85% of the lower of (i) the fair market value per
share of Common Stock on the participant's entry date into the offering period
or (ii) the fair market value on that purchase date.
The fair market value per share of Common Stock on any particular date
under the Purchase Plan will be deemed to be equal to the closing selling price
per share on such date on the Nasdaq National Market. On February 28, 1997, the
fair market value per share of Common Stock was $13.25, the closing selling
price per share on such date on the Nasdaq National Market.
Payroll Deductions and Stock Purchases
Each participant may authorize periodic payroll deductions in any
multiple of 1% (up to a maximum of 10%) of his or her cash compensation (base
salary plus bonus, overtime and commissions) to be applied to the acquisition of
Common Stock at semi-annual intervals. Accordingly, on each semi-annual purchase
date (the last business day in January and July each year), the accumulated
payroll deductions of each participant will automatically be applied to the
purchase of whole shares of Common Stock at the purchase price in effect for the
participant for that purchase date.
19.
Special Limitations
The Purchase Plan imposes certain limitations upon a participant's
rights to acquire Common Stock, including the following limitations:
- Purchase rights granted to a participant may not permit such
individual to purchase more than $25,000 worth of Common Stock (valued at the
time each purchase right is granted) for each calendar year those purchase
rights are outstanding at any time.
- No participant may purchase more than 750 shares of Common Stock on
any one purchase date.
Termination of Purchase Rights
The participant may withdraw from the Purchase Plan at any time, and
his or her accumulated payroll deductions will, at the participant's election,
either be applied to the purchase of shares on the next semi-annual purchase
date or be refunded immediately.
The participant's purchase right will immediately terminate upon his or
her cessation of employment or loss of eligible employee status. Any payroll
deductions which the participant may have made for the semi-annual period in
which such cessation of employment or loss of eligibility occurs will be
refunded and will not be applied to the purchase of Common Stock.
Stockholder Rights
No participant will have any stockholder rights with respect to the
shares covered by his or her purchase rights until the shares are actually
purchased on the participant's behalf. No adjustment will be made for dividends,
distributions or other rights for which the record date is prior to the date of
such purchase.
Assignability
No purchase rights will be assignable or transferable by the
participant, and the purchase rights will be exercisable only by the
participant.
Change in Control
In the event the Company is acquired by merger or asset sale, all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of such acquisition. The purchase price will be equal to 85%
of the lower of (i) the fair market value per share of Common Stock on the
participant's entry date into the offering period in which such acquisition
occurs or (ii) the fair market value per share of Common Stock immediately prior
to such acquisition.
Share Pro-Ration
Should the total number of shares of Common Stock to be purchased
pursuant to outstanding purchase rights on any particular date exceed the number
of shares then available for issuance under the Purchase Plan, then the Plan
Administrator will make a pro-rata allocation of the available shares on a
uniform and nondiscriminatory basis, and the payroll deductions of each
participant, to the extent in excess of the aggregate purchase price payable for
the Common Stock pro-rated to such individual, will be refunded.
Amendment and Termination
The Purchase Plan will terminate upon the earliest of (i) the last
business day in July, 2005, (ii) the date
20.
on which all shares available for issuance thereunder are sold pursuant to
exercised purchase rights or (iii) the date on which all purchase rights are
exercised in connection with an acquisition of the Company.
The Board may at any time alter, suspend or discontinue the Purchase
Plan. However, the Board may not, without stockholder approval, (i) increase the
number of shares issuable under the Purchase Plan or the maximum number of
shares purchasable per participant on any one semi-annual purchase date, except
in connection with certain changes in the Company's capital structure, (ii)
alter the purchase price formula so as to reduce the purchase price, (iii)
materially increase the benefits accruing to participants or (iv) materially
modify the requirements for eligibility to participate in the Purchase Plan.
Federal Tax Consequences
The Purchase Plan is intended to be an "employee stock purchase plan"
within the meaning of Section 423 of the Internal Revenue Code. Under a plan
which so qualifies, no taxable income will be recognized by a participant, and
no deductions will be allowable to the Company, upon either the grant or the
exercise of the purchase rights. Taxable income will not be recognized until
there is a sale or other disposition of the shares acquired under the Purchase
Plan or in the event the participant should die while still owning the purchased
shares.
If the participant sells or otherwise disposes of the purchased shares
within two (2) years after his or her entry date into the offering period in
which such shares were acquired or within one (1) year after the semi-annual
purchase date on which those shares were actually acquired, then the participant
will recognize ordinary income in the year of sale or disposition equal to the
amount by which the fair market value of the shares on the purchase date
exceeded the purchase price paid for those shares, and the Company will be
entitled to an income tax deduction, for the taxable year in which such
disposition occurs, equal in amount to such excess.
If the participant sells or disposes of the purchased shares more than
two (2) years after his or her entry date into the offering period in which the
shares were acquired and more than one (1) year after the semi-annual purchase
date of those shares, then the participant will recognize ordinary income in the
year of sale or disposition equal to the lesser of (i) the amount by which the
fair market value of the shares on the sale or disposition date exceeded the
purchase price paid for those shares or (ii) 15% of the fair market value of the
shares on the participant's entry date into that offering period; and any
additional gain upon the disposition will be taxed as a long-term capital gain.
The Company will not be entitled to an income tax deduction with respect to such
disposition.
If the participant still owns the purchased shares at the time of
death, the lesser of (i) the amount by which the fair market value of the shares
on the date of death exceeds the purchase price or (ii) 15% of the fair market
value of the shares on his or her entry date into the offering period in which
those shares were acquired will constitute ordinary income in the year of death.
Accounting Treatment
Under current accounting rules, the issuance of Common Stock under the
Purchase Plan will not result in a compensation expense chargeable against the
Company's reported earnings. However, the Company must disclose, in footnotes to
the Company's financial statements, the impact the purchase rights granted under
the Purchase Plan would have upon the Company's reported earnings were the value
of those purchase rights treated as compensation expense.
21.
Stock Issuances
The table below shows, as to each of the Company's executive officers
named in the Summary Compensation Table and the various indicated groups, the
number of shares of Common Stock purchased under the Purchase Plan between the
November 7, 1995 effective date and February 28, 1997, together with the
weighted average purchase price paid per share.
PURCHASE PLAN TRANSACTIONS
Name Number of Weighted
Purchased Average
Shares Purchase Price ($)
Dr. Eli Harari, President and Chief Executive Officer -0- -0-
Cindy Burgdorf, Chief Financial Officer, Senior Vice 2,250 8.500
President, Finance and Administration
Leon Malmed, Senior Vice President, Marketing and Sales 2,250 8.500
Daniel Auclair, Senior Vice President, 2,250 8.500
Operations/Technology
Marianne Jackson, Vice President, Human Resources 1,777 8.500
All Executive officers as a group (5 persons) 8,527 8.500
All non-employee directors as a group (6 persons) -0- -0-
All employees, including current officers who are not 149,643 8.596
executive officers as a group
New Plan Benefits
As of February 28, 1997, no shares have been purchased on the basis of
the 450,000 share increase to the Purchase Plan.
Stockholder Approval
The affirmative vote of a majority of the outstanding voting shares of
the Company present or represented and entitled to vote at the Annual Meeting is
required to approve the share increase to the Purchase Plan. Should such
stockholder approval not be obtained, then the maximum number of shares of
Common Stock that may be issued over the term of the Purchase Plan will remain
at the level of 433,333 shares. The Purchase Plan will continue to remain in
effect, and stock purchases may continue to be made pursuant to the provisions
of the Purchase Plan until the available reserve of Common Stock under the
Purchase Plan last approved by the stockholders is issued.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
AMENDMENTS TO THE PURCHASE PLAN.
22.
------------------------------------------------------------
PROPOSAL NO. 5:
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------------------------------------
The Company is asking the stockholders to ratify the selection of Ernst
& Young LLP as the Company's independent public accountants for the fiscal year
ending December 28, 1997. The affirmative vote of the holders of a majority of
the shares represented and voting at the Annual Meeting will be required to
ratify the selection of Ernst & Young LLP.
In the event the stockholders fail to ratify the appointment, the Audit
Committee of the Board of Directors will consider it as a direction to select
other auditors for the subsequent year. Even if the selection is ratified, the
Board in its discretion may direct the appointment of a different independent
accounting firm at any time during the year if the Board determines that such a
change would be in the best interest of the Company and its stockholders.
Ernst & Young LLP has audited the Company's financial statements
annually since 1991. Its representatives are expected to be present at the
Annual Meeting, will have the opportunity to make a statement if they desire to
do so, and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
PROPOSAL TO RATIFY THE SELECTION OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 28, 1997.
23.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of February 28, 1997 by (i) all
persons known by the Company to be beneficial owners of five percent (5%) or
more of its outstanding Common Stock, (ii) each director of the Company and each
nominee for director, (iii) the Chief Executive Officer and each of the four
most highly compensated executive officers of the Company serving as such as of
the end of the last fiscal year whose compensation for such year was in excess
of $100,000, and (iv) all executive officers and directors of the Company as a
group.
Amount and Nature of
Beneficial Ownership(1)
Name or Group of Beneficial Owners Number of Shares Percent Owned(2)
Seagate Technology, Inc................................ 6,141,374 27.34
920 Disc Drive
Scotts Valley, CA 95066
William Campbell(3).................................... 43,608 *
Irwin Federman(4)...................................... 131,664 *
Catherine P. Lego(5)................................... 60,037 *
Dr. Eli Harari(6)...................................... 1,443,331 6.42
Dr. James D. Meindl(7)................................. 61,665 *
Joseph Rizzi(8)........................................ 38,333 *
Alan F. Shugart(9)..................................... 6,161,374 27.43
Daniel Auclair(10)..................................... 233,581 1.04
Cindy Burgdorf(11)..................................... 166,749 *
Leon Malmed(12)........................................ 225,415 1.00
Marianne Jackson(13)................................... 49,776 *
All directors and executive officers as a group 8,615,533 38.36
(11 persons)(14).......................................
* Less than 1%
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock. The number of shares beneficially owned includes Common Stock of
which such individual has the right to acquire beneficial ownership
either currently or within 60 days after February 28, 1997, including,
but not limited to, upon the exercise of an option.
(2) Percentage of beneficial ownership is based upon 22,457,713 shares of
Common Stock, all of which were outstanding on February 28, 1997. For
each individual, this percentage includes Common Stock of which such
individual has the right to acquire beneficial ownership either currently
or within 60 days of February 28, 1997, including, but not limited to,
upon the exercise of an option; however, such Common Stock shall not be
deemed outstanding for the purpose of computing the percentage owned by
any other individual. Such calculation is required by General Rule
13d-3(d)(1)(i) under the Securities Exchange Act of 1934. Based upon a
review of 13G filings made with the Securities and Exchange Commission
during 1996, the table above includes all greater than 5% stockholders.
24.
(3) Includes 4,000 shares owned by Mr. Campbell in the form of immediately
exercisable options, some of which, if exercised and issued, would be
subject to a repurchase right of the Company that lapses over time.
(4) Includes 20,000 shares owned by Mr. Federman in the form of immediately
exercisable options, some of which, if exercised and issued, would be
subject to a repurchase right of the Company that lapses over time.
Includes 16,666 shares owned by U.S. Venture Partners III, Limited
Partnership. Also includes 66,665 shares issuable upon exercise of
warrants issued by the Company to the U.S.V. entities. Mr. Federman, a
director of the Company, is a general partner of BHMS Partners III, which
is the general partner of each of the foregoing venture funds. Mr.
Federman disclaims beneficial ownership of the shares held by U.S.V.
Entrepreneur Partners, U.S.Venture Partners III and Second Ventures, L.P.
except to the extent of his pecuniary interest therein.
(5) Includes 4,000 shares owned by Ms. Lego in the form of immediately
exercisable options, some of which, if exercised and issued, would be
subject to a repurchase right of the Company that lapses over time.
(6) Includes 1,277,408 shares held in the name of a trust for the benefit of
Dr. Harari and his wife. Also includes 133,332 shares owned by Dr. Harari
in the form of immediately exercisable options, some of which, if
exercised and issued, would be subject to a repurchase right of the
Company that lapses over time. Also includes 13,333 shares owned directly
by his son and 5,925 shares held in the name of a trust for the benefit
of his children.
(7) Represents 57,665 shares held by a trust in the name of Dr. Meindl and
his wife. Also includes 4,000 shares owned by Mr. Meindl in the form of
immediately exercisable options, some of which, if exercised and issued,
would be subject to a repurchase right of the Company that lapses over
time.
(8) Includes 20,000 shares owned by Mr. Rizzi in the form of immediately
exercisable options, some of which, if exercised and issued, would be
subject to a repurchase right of the Company that lapses over time.
(9) Includes 20,000 shares owned by Mr. Shugart in the form of immediately
exercisable options, some of which, if exercised and issued, would be
subject to a repurchase right of the Company that lapses over time.
Represents 6,141,374 shares beneficially owned by Seagate. Mr. Shugart is
Chairman of the Board, President and Chief Executive Officer of Seagate.
Mr. Shugart disclaims beneficial ownership of the securities held by
Seagate.
(10) Includes 153,331 shares owned by Mr. Auclair in the form of immediately
exercisable options, some of which, if exercised and issued, would be
subject to a repurchase right of the Company that lapses over time.
Includes an aggregate of 4,000 shares owned by his children held in his
name as custodian.
(11) Represents 159,999 shares owned by Ms. Burgdorf in the form of
immediately exercisable options, some of which, if exercised and issued,
would be subject to a repurchase right of the Company that lapses over
time.
(12) Represents 215,399 shares owned by Mr. Malmed in the form of immediately
exercisable options, some of which, if exercised and issued, would be
subject to a repurchase right of the Company that lapses over time.
(13) Includes 47,999 shares owned by Ms. Jackson in the form of immediately
exercisable options, some of which, if exercised and issued, would be
subject to a repurchase right of the Company that lapses over time.
(14) Includes 848,725 shares subject to options and warrants, including those
identified in notes (3), (4), (5), (6), (7), (8), (9), (10), (11), (12),
and (13).
25.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES ACT OF 1934
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities, to file
with the Securities and Exchange Commission (the "SEC") initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, directors and greater than ten percent
(10%) stockholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based upon (i) the copies of Section 16(a) reports which the Company
received from such persons for their 1996 fiscal year transactions in the Common
Stock and their Common Stock holdings, and (ii) the written representations
received from one or more of such persons that no annual Form 5 reports were
required to be filed by them for the 1996 fiscal year, the Company believes that
all executive officers and Board members complied with all their reporting
requirements under Section 16(a) for such fiscal year, except that the Form 5
reports for the exempt option grants made to Eliyahou Harari, Cindy Burgdorf,
Leon Malmed, Dan Auclair and Marianne Jackson on December 16, 1996 were filed
two days late based on a fiscal year ending date of December 31, 1996. However,
the Company's fiscal year ended on December 29, 1996.
26.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
Summary of Cash and Certain Other Compensation
The following table provides certain summary information concerning the
compensation earned, by (i) the Company's Chief Executive Officer and (ii) each
of the four other most highly compensated executive officers of the Company
whose compensation was in excess of $100,000 for the 1996 fiscal year, for
services rendered in all capacities to the Company and its subsidiaries for each
of the last three fiscal years. Such individuals will be hereafter referred to
as the Named Executive Officers. No other executive officer who would have
otherwise been includible in such table on the basis of salary and bonus earned
for the 1996 fiscal year has resigned or terminated employment during that
fiscal year.
Summary Compensation Table
Long-Term
Compensation All Other
Annual Compensation Awards Compensation
---------------------------------------------- ---------- ------------
Securities
Name and Principal Underlying
Position Years Salary($)(1) Bonus($)(2) Options(#)
Dr. Eli Harari 1996 $ 232,875 $ 130,992 75,000 $ 0
President and Chief 1995 $ 217,498 $ 171,105 66,666 $ 0
Executive Officer 1994 $ 199,568 $ 43,500 66,666 $ 0
Cindy Burgdorf (3) 1996 $ 174,477 $ 45,800 30,000 $ 0
Chief Financial Officer, 1995 $ 164,420 $ 67,042 26,666 $ 0
Senior Vice President, 1994 $ 86,165 $ 20,000 133,333 $ 0
Finance and Administration
and Secretary
Leon Malmed 1996 $ 195,903 $ 50,602 30,000 $ 0
Senior Vice President 1995 $ 187,010 $ 110,737 26,666 $ 0
Marketing and Sales 1994 $ 178,955 $ 45,000 -- $ 0
Daniel Auclair 1996 $ 186,464 $ 45,324 30,000 $ 0
Senior Vice President 1995 $ 177,174 $ 65,292 43,332 $ 0
Operations and Technology 1994 $ 168,424 $ 20,000 33,333 $ 0
Marianne Jackson (4) 1996 $ 138,955 $ 20,218 15,000 $ 0
Vice President Human 1995 $ 92,432 $ 32,996 49,999 $ 0
Resources
<FN>
- -----------------
(1) Includes salary deferral contributions to the Company's 401(k) Plan.
(2) Bonus earned in the respective year but paid in the following year.
(3) Commenced employment in June 1994.
(4) Commenced employment in April 1995. Ms. Jackson's annualized base salary for the 1995 fiscal year was $135,012.
</FN>
27.
Stock Options
The following table contains information concerning the stock option
grants made to each of the Named Executive Officers for fiscal 1996. Except for
the limited stock appreciation rights described in footnote (1) below, no stock
appreciation rights were granted to those individuals during such year.
Individual Grants(1)
Number of Potential Realizable
Securities Value at Assumed
Underlying % of Total Annual Rates of Stock
Options Options Granted Exercise Price Appreciation
Granted to Employees in Price Expiration For Option Term(4)
Name (#) Fiscal Year(2) ($/Sh)(3) Date 5%($) 10%($)
---- ------- --------------- ---------- ---------- ------ ------
Dr. Eli Harari 75,000 8.36% $12.00 12/16/06 $566,005.17 $1,434,368.22
Cindy Burgdorf 30,000 3.34% 12.00 12/16/06 226,402.07 573,747.29
Leon Malmed 30,000 3.34% 12.00 12/16/06 226,402.07 573,747.29
Daniel Auclair 30,000 3.34% 12.00 12/16/06 226,402.07 573,747.29
Marianne Jackson 15,000 1.67% 12.00 12/16/06 113,201.03 286,873.64
(1) Each option will become exercisable for 25% of the option shares upon the
optionee's completion of one year of service measured December 19, 1996,
the vesting commencement date, and the option will become exercisable for
the remaining shares in a series of successive equal quarterly installments
upon completion of each quarter of service with the company during the
36-month period beginning December 19, 1997 and ending December 19, 2000.
The option will become immediately exercisable for all the option shares
upon an acquisition of the Company by merger or asset sale, unless the
option is assumed by the acquiring entity. Each option has a maximum term
of ten (10) years, subject to earlier termination in the event of the
optionee's cessation of service with the Company. Each option includes a
limited stock appreciation right that will allow the optionee, upon the
acquisition of 25% or more of the Company's outstanding voting stock
pursuant to a hostile tender offer, to surrender that option to the
Company, to the extent the option is at the time exercisable for vested
shares, in exchange for a cash distribution based on the tender offer
price.
(2) The Company granted options to purchase 897,500 shares of Common Stock
during 1996.
(3) The exercise price may be paid in cash or in shares of the Company's Common
Stock valued at fair market value on the exercise date. The Company may
finance the option exercise by loaning the optionee sufficient funds to pay
the exercise price for the purchased shares, together with any federal and
state income tax liability incurred by the optionee in connection with such
exercise. The Plan Administrator also has the discretionary authority to
reprice the options through the cancellation of the option and the grant of
a replacement option with an exercise price based on the fair market value
of the Company's Common Stock on the regrant date.
(4) Potential gains are net of exercise price, but before taxes associated with
exercise. There is no assurance that the actual stock price appreciation
over the 10-year option term will be at the assumed 5% and 10% levels of
assumed annual rates of compounded stock price appreciation or at any other
defined level. Unless the market price of the Common Stock appreciates over
the option term, no value will be realized from the option grants made to
the executive officers.
28.
Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values
The following table sets forth information concerning option exercises
and option holdings for the 1996 fiscal year by each of the Named Executive
Officers. Except for the limited stock appreciation rights described in footnote
(1) to the Stock Options table above, no stock appreciation rights were
exercised during such year or were outstanding at the end of that year.
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money Options at
Options at FY-End (#) FY-End $(1)
------------- -------------- ------------- -------------
Name Shares Aggregate Exercis-able Unexer-cisable Exercis-able Unexer-cisable
Acquired on Value
Exercise (#) Realized($)
--------------- ---------------- ------------- -------------- ------------- -------------
Eli Harari 0 0 133,332(2) 75,000 999,990 0
Cindy Burgdorf 0 0 159,999(3) 30,000 1,589,993 0
Leon Malmed 10,000 127,500 215,399(4) 30,000 2,334,018 0
Daniel Auclair 0 0 153,331(5) 30,000 1,433,732 0
Marianne Jackson 0 0 49,999(6) 15,000 427,492 0
(1) Based on the fair market value of the Company's Common Stock at December
27, 1996, $12.00 per share, (the closing selling price of the Company's
Common Stock on that date on the Nasdaq National Market) less the exercise
price payable for such shares.
(2) Includes 133,332 shares that are unvested and subject to repurchase by the
Company.
(3) Includes 97,499 shares that are unvested and subject to repurchase by the
Company.
(4) Includes 44,028 shares that are unvested and subject to repurchase by the
Company.
(5) Includes 83,332 shares that are unvested and subject to repurchase by the
Company.
(6) Includes 36,250 shares that are unvested and subject to repurchase by the
Company.
29.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is
responsible for establishing the base salary and incentive cash bonus programs
for the Company's executive officers and other key employees and administering
certain other compensation programs for such individuals, subject in each
instance to review by the full Board. The Compensation Committee also has the
exclusive responsibility for the administration of the Company's 1995 Stock
Option Plan under which grants may be made to executive officers and other key
employees. The Compensation Committee is comprised of two non-employee
directors, William V. Campbell and Alan F. Shugart.
GENERAL COMPENSATION POLICY. The overall policy of the Compensation
Committee is to provide the Company's executive officers and other key employees
with competitive compensation opportunities based upon their contribution to the
financial success of the Company and their personal performance. It is the
Compensation Committee's objective to have a substantial portion of each
officer's compensation contingent upon the Company's performance as well as upon
the officer's own level of performance. Accordingly, the compensation package
for each executive officer and key employee is comprised of three elements: (i)
base salary which reflects individual performance and is designed primarily to
be competitive with salary levels in effect at companies within and outside the
industry with which the Company competes for executive talent, (ii) annual
variable performance awards payable in cash and tied to the Company's
achievement of financial and individual performance targets, and (iii) long-term
stock-based incentive awards which strengthen the mutuality of interests between
the executive officers and the Company's stockholders. As an executive officer's
level of responsibility increases, it is the intent of the Compensation
Committee to have a greater portion of the executive officer's total
compensation be dependent upon Company performance and stock price appreciation
rather than base salary.
Factors. The principal factors which the Compensation Committee
considered in establishing the components of each executive officer's
compensation package for the 1996 fiscal year are summarized below. The
Compensation Committee may, however, in its discretion apply entirely different
factors, particularly different measures of financial performance, in setting
executive compensation for future fiscal years.
* Base Salary. For comparative compensation purposes for the 1996
fiscal year, the Compensation Committee selected a peer group of companies
within the industry which are comparable in size and growth pattern with the
Company and which compete with the Company for executive talent. The base salary
for each officer was then determined on the basis of the following factors: the
salary levels in effect for comparable positions at the peer group companies
(determined on the basis of their published 1995 fiscal year data), the
experience and personal performance of the officer and internal comparability
considerations. The weight given to each of these factors differed from
individual to individual, as the Compensation Committee deemed appropriate. The
compensation level for the Company's executive officers for the 1996 fiscal year
ranged from the 50th percentile to the 75th percentile of the base salary levels
in effect for executive officers with comparable positions at the peer group
companies, based on the published 1995 fiscal year data for those companies.
In selecting companies to survey for such compensation purposes, the
Compensation Committee considered many factors not directly associated with
stock price performance, such as geographic location, development stage,
organizational structure and market capitalization. For this reason, there is
not a meaningful correlation between the companies included within the peer
group identified for comparative compensation purposes and the companies
included within the S&P Electronics Semiconductor Index which the Company has
selected as the industry index for purposes of the stock performance graph
appearing later in this Proxy Statement.
* Annual Incentive Compensation. Annual bonuses are earned by each
executive officer on the basis of the Company's achievement of certain corporate
financial performance targets established for the fiscal year and the
individual's level of performance. For fiscal year 1996, a minimum of 75% of the
bonus was earned on the basis of Company performance and the remaining 25% on
the basis of individual performance. Company performance was measured on the
basis of pre-tax profit (exclusive of royalties) and net revenue targets
established
30.
by the Compensation Committee at the start of the 1996 fiscal year, and each of
those targets was exceeded for the year. Accordingly, the executive officers
were awarded the bonuses indicated for them in the Summary Compensation Table
which appears earlier in this proxy statement.
* Long-Term Incentive Compensation. Long-term incentives are provided
through stock option grants. The grants are designed to align the interests of
each executive officer with those of the stockholders and provide each
individual with a significant incentive to manage the Company from the
perspective of an owner with an equity stake in the business. Each grant allows
the individual to acquire shares of the Company's common stock at a fixed price
per share (the market price on the grant date) over a specified period of time
(up to 10 years). Each option generally becomes exercisable in installments over
the executive officer's continued employment with the Company. Accordingly, the
option will provide a return to the executive officer only if the executive
officer remains employed by the Company during the applicable vesting period,
and then only if the market price of the underlying shares appreciates over the
option term.
The number of shares subject to each option grant is set at a level
intended to create a meaningful opportunity for stock ownership based on the
officer's current position with the Company, the size of comparable awards made
to individuals in similar positions within the industry, the individual's
potential for increased responsibility and promotion over the option term, and
the individual's personal performance in recent periods. The Compensation
Committee also takes into account the number of unvested options held by the
executive officer in order to maintain an appropriate level of equity incentive
for that individual. However, the Compensation Committee does not adhere to any
specific guidelines as to the relative option holdings of the Company's
executive officers.
CEO COMPENSATION. In setting Dr. Harari's base salary as Chief
Executive Officer for the 1996 fiscal year, the Compensation Committee sought to
achieve two objectives: (i) establish a level of base salary competitive with
that paid to other chief executive officers of the peer group companies and (ii)
make a significant percentage of the total compensation package contingent upon
Company performance. The base salary established for Dr. Harari on the basis of
the foregoing criteria was intended to provide him with a level of stability and
certainty each year. Accordingly, this element of Dr. Harari's compensation was
not affected to any significant degree by Company performance factors and was at
the 50th percentile of the base salary levels in effect for other chief
executive officers at the same peer group of companies surveyed for comparative
compensation purposes. The remaining components of the compensation earned by
Dr. Harari for the 1996 fiscal year were entirely dependent upon financial
performance and provided no dollar guarantees. The cash bonus paid to Dr. Harari
for the 1996 fiscal year was based primarily on the Company's achievement of the
operating profit and revenue targets established for that year and the
Compensation Committee's assessment of his individual performance for the year.
A stock option for an additional 75,000 shares of Common Stock was granted to
Dr. Harari on December 16, 1996 in order to bring his level of unvested stock
option holdings to a level the Compensation Committee deemed appropriate to
provide him with a meaningful incentive to remain in the Company's employ and
contribute to the financial success of the Company in the form of stock price
appreciation.
31.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M). Section 162(m) of
the Internal Revenue Code, enacted in 1993, generally disallows a tax deduction
to publicly-held companies for compensation paid to certain executive officers,
to the extent that compensation exceeds $1 million per officer in any year. The
compensation paid to the Company's executive officers for the 1996 fiscal year
did not exceed the $1 million limit per officer, and it is not expected the
compensation to be paid to the Company's executive officers for the 1997 fiscal
year will exceed that limit. In addition, the Company's 1995 Stock Option Plan
is structured so that any compensation deemed paid to an executive officer in
connection with the exercise of his or her outstanding options under the 1995
Plan with an exercise price per share equal to the fair market value per share
of the Common Stock on the grant date will qualify as performance-based
compensation which will not be subject to the $1 million limitation. Because it
is very unlikely that the cash compensation payable to any of the Company's
executive officers in the foreseeable future will approach the $1 million limit,
the Compensation Committee has decided at this time not to take any other action
to limit or restructure the elements of cash compensation payable to the
Company's executive officers. The Compensation Committee will reconsider this
decision should the individual compensation of any executive officer ever
approach the $1 million level.
William V. Campbell, Compensation Committee Member
Alan F. Shugart, Compensation Committee Member
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors was
formed in June 1990 and is comprised of Messrs. William V. Campbell and Alan F.
Shugart. Neither of these individuals was at any time during fiscal 1996, or at
any other time, an officer or employee of the Company. No executive officer of
the Company serves as a member of the board of directors or compensation
committee of any other entity that has one or more executive officers serving as
a member of the Company's Board of Directors or Compensation Committee.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL AGREEMENTS
None of the Company's executive officers have employment agreements
with the Company, and their employment may be terminated at any time at the
discretion of the Board of Directors. Pursuant to the express provisions of the
1995 Stock Option Plan, the outstanding options under the 1995 Plan held by the
Chief Executive Officer and the Company's other executive officers will
immediately accelerate in full, and all unvested shares of Common Stock at the
time held by such individuals under the 1995 Plan will immediately vest, in the
event their employment were to be terminated (whether involuntarily or through a
forced resignation) within twelve (12) months after any acquisition of the
Company by merger or asset sale in which those options and shares did not
otherwise vest. In addition, the Compensation Committee of the Board of
Directors has the authority as Plan Administrator of the 1995 Stock Option Plan
to provide for the accelerated vesting of the outstanding options under the 1995
Plan held by the Chief Executive Officer and the Company's other executive
officers and the immediate vesting of all unvested shares of Common Stock at the
time held by such individuals under the 1995 Plan, in the event their employment
were to be terminated (whether involuntarily or through a forced resignation)
following a successful tender offer for more than fifty percent (50%) of the
Company's outstanding Common Stock or a change in the majority of the Board as a
result of one or more contested elections for Board membership.
32.
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on
the Common Stock of the Company with that of the Standard & Poors 500 Stock
Index, a broad market index published by S&P, and a selected S&P
Electronics/Semiconductor company stock index compiled by Morgan Stanley &
Company. The comparison for each of the periods assumes that $100 was invested
on November 7, 1995 (the date of the Company's initial public offering) in the
Company's Common Stock, the stocks included in the S&P 500 Stock Index and the
stocks included in the S&P Electronics/Semiconductor company index. These
indices, which reflect formulas for dividend reinvestment and weighing of
individual stocks, do not necessarily reflect returns that could be achieved by
individual investors.
COMPARISON OF CUMULATIVE TOTAL RETURN FROM
NOVEMBER 7, 1995 TO DECEMBER 27, 1996.
AMONG SANDISK, S&P 500 STOCK INDEX AND
S&P ELECTRONICS SEMICONDUCTOR COMPANY INDEX
SanDisk S&P Electronics
Date Corporation Semiconductor Index S&P 500
--------- ----------- ------------------- -------
(% Index)
7-Nov-95 100.00 100.00 100.00
5-Dec-95 215.00 88.87 105.35
2-Jan-96 160.00 80.01 105.87
30-Jan-96 192.50 76.13 107.48
27-Feb-96 148.75 81.25 110.39
26-Mar-96 127.50 75.71 111.37
23-Apr-96 130.00 82.72 111.13
21-May-96 160.00 90.82 114.81
18-Jun-96 126.25 92.28 112.92
16-Jul-96 101.25 85.53 107.17
13-Aug-96 117.50 94.38 112.60
10-Sep-96 115.00 92.38 113.22
8-Oct-96 145.00 111.10 119.50
5-Nov-96 143.75 119.41 121.80
3-Dec-96 142.50 141.16 127.62
27-Dec-96 120.00 147.91 129.07
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933 or the Exchange Act
that might incorporate future filings, including this Proxy Statement, in whole
or in part, the preceding Compensation Committee Report on Executive
Compensation and the preceding Performance Graph shall not be incorporated by
reference into any such filings; nor shall such Report or graph be incorporated
by reference into any future filings.
33.
CERTAIN TRANSACTIONS
In January 1993, the Company entered into an equity investment
agreement with Seagate Technology, Inc. ("Seagate") pursuant to which Seagate
acquired a 25% ownership interest in the Company, calculated on a fully diluted
basis. Until July 15, 1997, Seagate has agreed to standstill provisions and has
the right to maintain a 25% ownership interest. Pursuant to this right, on
November 13, 1995, Seagate acquired 1,084,750 shares of Common Stock at a price
per share of $10.00. Seagate has agreed, until July 15, 1997, not to solicit
proxies in opposition of management, initiate stockholder proposals, enter into
any voting agreements or act in concert with any other person for the purpose of
acquiring, holding or disposing of the Company's securities without the consent
of the Company, and the Company is prevented, prior to such date, from selling
more than 5% of its equity securities to certain competitors of Seagate.
As long as Seagate owns at least 10% of the Company's voting
securities, on a fully diluted basis, the Company is required to include one
nominee selected by Seagate in the slate of nominees for election as directors
at each annual meeting of stockholders of the Company and to use its best
efforts to cause to be voted in favor of the election of such nominee the shares
for which management holds proxies or is otherwise entitled to vote. As long as
Seagate continues such 10% ownership, the Company must also notify Seagate of
any negotiations with or proposals from potential acquirors and has agreed not
to enter into any agreements that preclude the Company from negotiating an
acquisition by Seagate or that provide for a break-up fee in the event of such
negotiation with Seagate. As long as Seagate holds at least 303,030 shares, as
adjusted for subsequent stock splits, stock dividends and the like, Seagate has
granted the Company a right of first offer with respect to future sales or
exchanges by Seagate in any tender offer opposed by the Board of Directors that
would result in the person or group making the tender offer owning more than 25%
of the Company's voting securities, on a fully diluted basis.
The Company believes that all of the transactions set forth above were
made on terms no less favorable to the Company than could have been obtained
from unaffiliated third parties. The Company intends that all future
transactions, including loans, between the Company and its officers, directors,
principal stockholders and their affiliates be approved by a majority of the
Board of Directors, including a majority of the independent and disinterested
outside directors on the Board of Directors, and be on terms no less favorable
to the Company than could be obtained from unaffiliated third parties. In
addition, the Company has entered into indemnification agreements with each of
its directors and executive officers.
34.
OTHER BUSINESS
The Board of Directors knows of no other business that will be
presented for consideration at the Annual Meeting. If other matters are properly
brought before the Annual Meeting, however, it is the intention of the persons
named in the accompanying proxy to vote the shares represented thereby on such
matters in accordance with their best judgment.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's annual meeting of stockholders to be held in 1998 must be received by
December 22, 1997 in order to be included in the proxy statement and proxy
relating to that meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Cindy Burgdorf
CINDY BURGDORF
Chief Financial Officer, Senior Vice President,
Finance and Administration and Secretary
March 12, 1997
35.