SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
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LSI LOGIC CORPORATION
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 2, 2002
To the Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of LSI Logic
Corporation (the "Company"), a Delaware corporation, will be held on Thursday,
May 2, 2002, at 10:00 a.m., local time, at the Company's facility located at
1621 Barber Lane, Milpitas, CA 95035, for the following purposes:
1. To elect eight directors to serve for the ensuing year and until
their successors are elected.
2. To approve an amendment to the Amended and Restated Employee Stock
Purchase Plan to increase the number of shares of common stock reserved for
issuance thereunder by 10,000,000.
3. To approve an amendment to the Company's 1991 Equity Incentive Plan
to increase the number of shares of common stock reserved for issuance
thereunder by 6,000,000.
4. To ratify the appointment of PricewaterhouseCoopers LLP as
independent accountants of the Company for its 2002 fiscal year.
5. To transact such other business as may properly come before the
meeting and any adjournments thereof.
These items of business are more fully described in the Proxy Statement
accompanying this Notice.
Only stockholders of record at the close of business on March 8, 2002, are
entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
date, sign and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if he or she returned a proxy.
Sincerely,
David G. Pursel
Corporate Secretary
Milpitas, California
March 29, 2002
YOUR VOTE IS IMPORTANT
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
MARK, SIGN AND DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN
IT IN THE ENCLOSED ENVELOPE (TO WHICH NO POSTAGE NEED BE AFFIXED IF MAILED IN
THE UNITED STATES).
LSI LOGIC CORPORATION
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PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of LSI Logic Corporation
(referred to as "LSI Logic" or the "Company"), a Delaware corporation, for use
at the Annual Meeting of Stockholders to be held on Thursday, May 2, 2002, at
10:00 a.m., local time, or at any adjournment(s) thereof, for the purposes set
forth in this proxy statement and in the accompanying Notice of Annual Meeting
of Stockholders. The annual meeting will be held at the Company's facility
located at 1621 Barber Lane, Milpitas, CA 95035. The address of the Company's
principal executive offices is 1551 McCarthy Boulevard, Milpitas, California
95035, and the Company's telephone number is (408) 433-8000.
These proxy solicitation materials were mailed on or about March 29, 2002,
to all stockholders entitled to vote at the meeting.
RECORD DATE; SHARES OUTSTANDING
Stockholders of record at the close of business on the record date of March
8, 2002 (the "Record Date") are entitled to notice of and to vote at the
meeting. As of the Record Date, 369,190,586 shares of the Company's common
stock, $0.01 par value, were issued and outstanding. On the Record Date, the
closing price of the Company's common stock on the New York Stock Exchange was
$18.58 per share.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Corporate Secretary of
the Company at the Company's principal executive offices a written notice of
revocation or a duly executed proxy bearing a later date or by attending the
meeting and voting in person.
VOTING AND SOLICITATION
On all matters other than the election of directors, each share has one
vote. See "ELECTION OF DIRECTORS -- REQUIRED VOTE." The cost of soliciting
proxies will be borne by the Company. The Company has retained the services of
Georgeson & Company, Inc. to aid in the solicitation of proxies from brokers,
bank nominees and other institutional owners. The Company estimates that it will
pay Georgeson & Company, Inc. a fee not to exceed $10,000 for its services and
will reimburse it for certain out of pocket expenses estimated to be $10,000. In
addition, the Company may reimburse brokerage firms and other persons
representing beneficial owners of shares for their expenses in forwarding
solicitation material to such beneficial owners. Proxies may be solicited by
some of the Company's directors, officers and regular employees, without
additional compensation, personally or by telephone.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the annual meeting
is a majority of the votes eligible to be cast by holders of shares of common
stock issued and outstanding on the Record Date. Shares that are voted "FOR,"
"AGAINST," or "WITHHELD FROM" a matter are treated as being present at the
meeting for purposes of establishing a quorum and are also treated as votes cast
at the annual meeting with respect to that matter (the "Votes Cast").
The Company intends to count abstentions for purposes of determining both
the presence and absence of a quorum and the total number of Votes Cast with
respect to any matter (other than the election of directors).
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Broker non-votes will be counted for purposes of determining the presence or
absence of a quorum for the transaction of business, but will not be considered
to be Votes Cast with respect to the particular proposal on which the broker has
expressly not voted. Accordingly, broker non-votes will not affect the outcome
of the voting on a proposal that requires a majority of the Votes Cast (such as
the approval of a plan amendment). However, with respect to a proposal that
requires a majority of the outstanding shares (such as an amendment to the
certificate of incorporation), a broker non-vote has the same effect as a vote
against the proposal.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 2003 annual meeting and that stockholders
desire to have included in the Company's proxy materials relating to such
meeting must be received by the Company no later than November 29, 2002, which
is 120 calendar days prior to the anniversary of this year's mail date, and must
be in compliance with applicable laws and regulations in order to be considered
for possible inclusion in the proxy statement and form of proxy for that
meeting.
If a stockholder wishes to present a proposal at the Company's annual
meeting in the year 2003 and the proposal is not intended to be included in the
Company's proxy statement relating to that meeting, the stockholder must give
advance notice to the Company prior to the deadline for such meeting determined
in accordance with the Company's Bylaws (the "Bylaw Deadline"), as described
below in the section entitled "Other Matters." If a stockholder gives notice of
such a proposal after the Bylaw Deadline, the stockholder will not be permitted
to present the proposal to the stockholders for a vote at the meeting.
SEC rules also establish a different deadline for submission of stockholder
proposals that are not intended to be included in the Company's proxy statement
with respect to discretionary voting (the "Discretionary Vote Deadline"). The
Discretionary Vote Deadline for the year 2003 annual meeting is February 12,
2003 (45 calendar days prior to the anniversary of the mailing date of this
proxy statement). If a stockholder gives notice of such a proposal after the
Discretionary Vote Deadline, the Company's proxy holders will be allowed to use
their discretionary voting authority to vote against the stockholder proposal
when and if the proposal is raised at the Company's year 2003 annual meeting.
Because the Bylaw Deadline is not capable of being determined until the Company
publicly announces the date for its next annual meeting, it is possible that the
Bylaw Deadline may occur after the Discretionary Vote Deadline. In such a case,
a proposal received after the Discretionary Vote Deadline but before the Bylaw
Deadline would be eligible to be presented at next year's annual meeting and the
Company believes that its proxy holders would be allowed to use the
discretionary authority granted by the proxy card to vote against the proposal
at the meeting without including any disclosure of the proposal in the proxy
statement relating to such meeting.
The Company has not been notified by any stockholder of his or her intent
to present a stockholder proposal from the floor at this year's annual meeting.
The enclosed proxy card grants the proxy holders discretionary authority to vote
on any matter properly brought before the annual meeting, including any
stockholder proposals received between the date of this proxy statement and the
Bylaw Deadline for this year's annual meeting, which is April 5, 2002 (the
seventh day after this proxy statement is mailed).
SECURITY OWNERSHIP
SECURITY OWNERSHIP
The following table sets forth certain information with respect to the
beneficial ownership of the Company's common stock as of the Record Date, by all
persons known to the Company to be beneficial owners of more than five percent
of the Company's common stock, by all directors and executive officers
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named in the Summary Compensation Table on page 17 of this proxy statement and
by all current directors and executive officers as a group.
NUMBER APPROXIMATE
OF SHARES PERCENTAGE
NAME BENEFICIALLY OWNED OWNED
---- ------------------ -----------
FMR Corp (1)............................................. 24,719,004 6.7%
Putnam Investments, LLC (2).............................. 23,659,570 6.4%
Wilfred J. Corrigan (3).................................. 13,653,936 3.7%
T.Z. Chu (4)............................................. 208,150 *
Malcolm R. Currie (5).................................... 262,750 *
James H. Keyes (6)....................................... 201,250 *
R. Douglas Norby (7)..................................... 47,456 *
Matthew J. O'Rourke (8).................................. 72,500 *
Larry W. Sonsini (9)..................................... 33,089 *
Gregorio Reyes........................................... 10,000 *
Joseph M. Zelayeta (10).................................. 956,500 *
W. Richard Marz (11)..................................... 730,854 *
Bryon Look (12).......................................... 363,931 *
Thomas Georgens (13)..................................... 347,650 *
All current directors and executive officers as a group
18 persons (14)........................................ 18,147,239 4.9%
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* Less than 1%
(1) As reported in Amendment No. 3 to Schedule 13G filed February 14, 2002,
with the Commission by the Fidelity and Management Research Corporation
("FMR") on behalf of Edward C. Johnson 3d, Abigail P. Johnson and itself.
As of December 31, 2001, FMR, a parent holding company, had sole voting
power with respect to 6,990,720 shares. FMR, Mr. Johnson and Ms. Johnson
each had sole dispositive power over all shares. The amount shown in the
table includes 1,058,261 shares issuable upon conversion of convertible
notes. The address for FMR is 82 Devonshire Street, Boston, Massachusetts
02109.
(2) As reported in Schedule 13G filed February 13, 2002, with the Commission by
Putnam Investments, LLC ("Putnam"). Putnam, which is a wholly owned
subsidiary of Marsh & McLennan Companies, Inc. ("MMC"), wholly owns two
registered investment advisors, Putnam Investment Management, LLC ("PIM")
and The Putnam Advisory Company, LLC. MMC disclaims beneficial ownership of
the shares owned by Putnam. Putnam, an investment advisor, has shared
voting power with respect to 2,541,737 shares and shared dispositive power
over all of these shares. PIM, which beneficially owns 20,099,521 shares
(5.4%), has no voting power over any shares and shared dispositive power
over 20,099,521 shares. The address for Putnam is One Post Office Square,
Boston, Massachusetts 02109.
(3) Includes options held by Mr. Corrigan to purchase 3,825,000 shares, which
are presently exercisable or will become exercisable within 60 days of the
Record Date.
(4) Includes options held by Mr. Chu to purchase 106,250 shares, which are
presently exercisable or will become exercisable within 60 days of the
Record Date.
(5) Includes options held by Dr. Currie to purchase 106,250 shares, which are
presently exercisable or will become exercisable within 60 days of the
Record Date.
(6) Includes options held by Mr. Keyes to purchase 106,250 shares, which are
presently exercisable or will become exercisable within 60 days of the
Record Date.
(7) Includes options held by Mr. Norby to purchase 25,000 shares, which are
presently exercisable or will become exercisable within 60 days of the
Record Date.
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(8) Includes options held by Mr. O'Rourke to purchase 72,500 shares, which are
presently exercisable or will become exercisable within 60 days of the
Record Date.
(9) Includes options held by Mr. Sonsini to purchase 32,500 shares, which are
presently exercisable or will become exercisable within 60 days of the
Record Date.
(10) Includes options held by Mr. Zelayeta to purchase 925,500 shares, which are
presently exercisable or will become exercisable within 60 days of the
Record Date.
(11) Includes options held by Mr. Marz to purchase 712,500 shares, which are
presently exercisable or will become exercisable within 60 days of the
Record Date.
(12) Includes options held by Mr. Look to purchase 350,000 shares, which are
presently exercisable or will become exercisable within 60 days of the
Record Date.
(13) Includes options held by Mr. Georgens to purchase 312,500 shares, which are
presently exercisable or will become exercisable within 60 days of the
Record Date.
(14) Includes options to purchase 7,776,250 shares, which are presently
exercisable or will become exercisable within 60 days of the Record Date.
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
A board of eight directors is to be elected at the meeting. All directors
are elected annually and serve a one-year term until the next annual meeting or
until his successor has been elected and qualified. The Nominating Committee of
the Board of Directors selected, and the Board of Directors accepted, the eight
nominees named below for election to the Board. All nominees are currently
directors of the Company.
The Board of Directors expects all nominees named below to be available to
serve as directors if elected. If any nominee of the Company is unable or
declines to serve as a director at the time of the annual meeting, the proxies
will be voted for a nominee designated by the current Board of Directors to fill
the vacancy. If additional persons are nominated for election as directors, the
proxy holders intend to vote all proxies received by them in accordance with
cumulative voting so as to elect as many of the nominees listed below as
possible. In such event, the proxy holders will determine the specific nominees
for whom to vote.
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The names of the nominees for election to the Board of Directors, and the
experience and background of each, are set forth below.
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
--------------- --- -------------------- --------
Wilfred J. Corrigan...... 64 Chairman of the Board of Directors 1981
and Chief Executive Officer of the
Company
T.Z. Chu................. 68 Retired President of Hoefer 1992
Pharmacia Biotech, Inc.
Malcolm R. Currie........ 75 Chief Executive Officer, Currie 1992
Technologies, Inc.
James H. Keyes........... 61 Chairman and Chief Executive 1983
Officer, Johnson Controls, Inc.
R. Douglas Norby......... 66 Vice President and Chief Financial 1993
Officer, Zambeel, Inc.
Matthew J. O'Rourke...... 63 Consultant; Retired Partner, Price 1999
Waterhouse LLP
Gregorio Reyes........... 61 Management Consultant; Former 2001
Chairman and Chief Executive
Officer, Sunward Technologies, Inc.
Larry W. Sonsini......... 61 Chairman and Chief Executive 2000
Officer, Wilson Sonsini Goodrich &
Rosati, P.C.
There are no family relationships between or among any directors or
executive officers of the Company.
Mr. Corrigan, a founder of the Company, has served as Chief Executive
Officer and a director of the Company since the Company was founded in January
1981. Mr. Corrigan also serves on the boards of directors of several privately
held corporations.
Mr. Chu served as President of Hoefer Pharmacia Biotech, Inc., a
biotechnology company, from March 1995 until his retirement in February 1997.
Dr. Currie has served as Chief Executive Officer of Currie Technologies,
Inc., a manufacturer of electric propulsion systems for bicycles and other light
vehicles, since February 1997. He presently serves on the Board of Directors for
Investment Company of America, ENOVA Systems, Inc., Regal One Corp., Inamed CNP,
and Innovative Micro Technologies, and as a member (former Chairman) of the
Board of Trustees of the University of Southern California.
Mr. Keyes has served as Chairman and Chief Executive Officer of Johnson
Controls, Inc., an automotive systems and facility management and control
company, since January 1993. Mr. Keyes also serves on the Boards of Directors of
Pitney Bowes Inc. and the Chicago Federal Reserve Board.
Mr. Norby has served as Vice President and Chief Financial Officer of
Zambeel, Inc., a storage company, since March 2002. He served as Chief Financial
Officer of Novalux, Inc., an optoelectronics company, from December 2000 to
March 2002. Prior to his tenure with Novalux, Mr. Norby served as Executive Vice
President and Chief Financial Officer of the Company from November 1996 to
November 2000.
Mr. O'Rourke was a partner with the accounting firm Price Waterhouse LLP
from 1972 until his retirement in June 1996. Since his retirement, Mr. O'Rourke
has been engaged as an independent business consultant. Mr. O'Rourke is also a
member of the Board of Directors of Read-Rite Corporation and Infonet Services
Corporation.
Mr. Reyes has been a private investor and management consultant since 1994.
Mr. Reyes serves on the Board of Directors of ARC International (listed on the
London Stock Exchange) and also serves as a director for several privately held
companies.
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Mr. Sonsini has been a partner of the law firm of Wilson Sonsini Goodrich &
Rosati, P.C., since 1969 and has served as its Chairman and Chief Executive
Officer for more than the past five years. Mr. Sonsini serves on the Board of
Directors of the following public companies: Brocade Communications Systems,
Inc., Commerce One, Inc., Echelon Corporation, Lattice Semiconductor
Corporation, Novell, Inc., Simplex Solutions, Inc., Tibco Software, Inc. and
PIXAR, Inc.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of ten regular and
special meetings during the fiscal year ended December 31, 2001. The Board of
Directors has an Audit Committee, a Compensation Committee and a Nominating
Committee. The Audit, Compensation and Nominating Committees consist solely of
non-employee directors. The members and chairmanship of the committees are
appointed by the Board of Directors annually.
The Audit Committee, which consists of Dr. Currie (who serves as its
chairman), Mr. Chu, Mr. Keyes and Mr. O'Rourke, held nine meetings during the
last fiscal year. The Audit Committee reviews the Company's accounting policies
and practices, internal controls, financial reporting practices, contingent
risks and risk management strategies and plans. The Audit Committee recommends
the selection of the Company's independent accountants to serve the following
year to examine the Company's accounts, and reviews the independence of the
independent accountants as a factor in making these recommendations. The Audit
Committee meets alone with the Company's independent accountants and the
director of the Company's Audit Department, and grants them free access to the
Audit Committee at any time.
The Compensation Committee, which consists of Mr. Keyes (who serves as its
chairman), Mr. Chu, Dr. Currie and Mr. O'Rourke, held three meetings during the
last fiscal year. The Compensation Committee establishes the Company's overall
executive compensation strategy, and, in particular, determines the compensation
structure for the Chairman and Chief Executive Officer and other executive
officers of the Company. The Committee approves any incentive, bonus or similar
plans of the Company based upon the recommendations submitted by the Chairman
and Chief Executive Officer and the Vice President of Human Resources. The
Committee reviews and approves the Company's stock option and other stock
incentive award programs and reviews as needed (with an independent consultant)
executive compensation matters and significant issues that relate to executive
compensation.
The Nominating Committee, which consists of Mr. Chu (who serves as its
chairman), Dr. Currie and Mr. O'Rourke, held one meeting during the last fiscal
year. The Nominating Committee provides assistance to the Board of Directors in
identifying, screening and recommending qualified candidates to serve as
directors of the Company. The Nominating Committee will consider nominees
proposed by stockholders. Any recommendations should be directed to the
Corporate Secretary at the Company's principal executive offices.
During the fiscal year ended December 31, 2001, all incumbent directors
attended at least 75% of the aggregate number of meetings of the Board of
Directors and meetings of the committees of the Board on which they served,
except for Mr. Sonsini, who attended 56% and Mr. Chu, who attended 67% of the
meetings of the Board of Directors. Mr. Sonsini recused himself from certain
meetings relating to the Company's acquisition of C-Cube Microsystems Inc., due
to a conflict of interest.
COMPENSATION OF DIRECTORS
Members of the Board of Directors who are not employees of the Company
receive an annual fee of $25,000 paid on a prorated basis and $1,500 for each
regular Board meeting they attend, plus reimbursement of expenses for attendance
at regular Board and committee meetings. The Company's 1995 Director Stock
Option Plan, as adopted by the Board of Directors and approved by the
stockholders, provides for the grant of non-statutory stock options to
non-employee directors of the Company. Under a non-discretionary formula
approved by the stockholders, each non-employee director is granted an initial
option to purchase 30,000 shares of common stock on the date on which he or she
first becomes a director. In addition, on April 1 of each year, each
non-employee director is automatically granted a subsequent option to purchase
25,000 shares of common stock of the Company, if on the date of grant he or she
has served on the Board of Directors for at
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least six months. The vesting schedule for initial options granted under the
1995 Director Stock Option Plan is set at 25% on each of the first four
anniversaries of the grant date. Subsequent option grants become exercisable in
full six months after the date of grant. Options may be exercised only while the
optionee is a director of the Company, within 12 months after death or within
three months after the optionee ceases to serve as a director of the Company,
but in no event after the ten-year term of the option has expired. As of the
Record Date, a total of 1,000,000 shares have been reserved for issuance under
the 1995 Director Stock Option Plan, of which 520,000 shares are subject to
outstanding options, 15,000 shares have been issued upon exercise of options,
and 465,000 shares remain available for grant. During fiscal 2001, an option to
purchase 25,000 shares was granted to each of Directors Chu, Currie, Keyes,
Norby, O'Rourke and Sonsini having an exercise price of $14.94 per share; and an
option to purchase 30,000 shares was granted to Director Reyes, having an
exercise price of $23.14 per share.
REQUIRED VOTE
Directors shall be elected by a plurality vote. The eight nominees for
director receiving the highest number of affirmative votes of the shares
entitled to be voted for them shall be elected as directors. Votes against,
votes withheld and broker non-votes have no legal effect on the election of
directors due to the fact that such elections are by a plurality.
Every stockholder voting in the election of directors may cumulate such
stockholder's votes and give one candidate a number of votes equal to the number
of directors to be elected (eight) multiplied by the number of votes to which
the stockholder's shares are entitled, or may distribute the stockholder's votes
on the same principle among as many candidates as the stockholder thinks fit,
provided that votes cannot be cast for more than eight candidates. However, no
stockholder shall be entitled to cumulate votes for a candidate unless the
candidate's name has been properly placed in nomination in accordance with the
Company's Bylaws prior to the meeting, and the stockholder, or any other
stockholder, has given notice at the meeting prior to the voting of the
stockholder's intention to cumulate votes. The proxy holders will exercise
discretionary authority to cumulate votes in the event that additional persons
are nominated for election as directors.
BOARD RECOMMENDATION
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
PROPOSED SLATE OF DIRECTORS FOR THE CURRENT YEAR.
PROPOSAL TWO
AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN TO INCREASE THE
NUMBER OF SHARES RESERVED FOR ISSUANCE THEREUNDER
GENERAL
The Amended and Restated Employee Stock Purchase Plan (the "ESPP") was
adopted by the Board of Directors and approved by the stockholders in April
1983. A total of 225,000 shares of common stock were initially reserved for
issuance thereunder. From time to time since April 1983, the Board of Directors
and stockholders have approved amendments to the ESPP to increase the number of
shares reserved for issuance thereunder, and to change certain other provisions.
In addition, the Company effected a three-for-two stock split in 1986 and
two-for-one common stock splits in 1995 and 2000. As of the Record Date, of the
50,314,110 shares reserved for issuance under the ESPP (without giving effect to
this amendment), 40,419,231 shares had been issued. The Company estimates that
it will have used a substantial portion of the 9,894,879 remaining available
shares by the end of the exercise period ending May 14, 2002, leaving an
inadequate number of shares available for issuance thereafter.
The Board of Directors believes that it is in the best interests of the
Company and its stockholders to provide employees at all levels with an
opportunity for equity participation through payroll deductions in the ESPP. The
ESPP is an additional incentive to contribute to the success of the Company.
Employees have
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rated the ESPP as their most valuable benefit. As of the Record Date,
approximately 76% of the eligible employees are participating in the ESPP.
PROPOSED AMENDMENT TO THE ESPP
On February 14, 2002, the Board of Directors approved an amendment to the
ESPP to increase the number of shares reserved under the ESPP by 10,000,000 to a
total of 60,314,110 shares.
The total number of shares of common stock reserved for issuance under the
ESPP as of the Record Date is 50,314,110, of which 9,894,879 are available for
future issuance. Management believes this may not be enough shares to meet
anticipated demand, as the lower price of the Company's stock during the past
year requires a greater number of shares to satisfy enrollment requirements.
Therefore, stockholder approval is sought to increase the number of shares of
common stock reserved for issuance under the ESPP by 10,000,000. If the proposed
amendment is approved, the total number of shares of common stock reserved for
issuance under the ESPP will be 60,314,110. The ESPP includes an annual
replenishment (the "Annual Replenishment"), which was previously approved by the
stockholders. The Annual Replenishment consists of 1.15% of the Company's common
stock issued and outstanding at fiscal year end less the number of shares
available for future option grants under the ESPP at fiscal year end. No shares
were added to the ESPP under the Annual Replenishment in January 2002. The
number of shares of common stock reserved for issuance under the ESPP, as
amended by this proposal is anticipated to be sufficient to meet the Company's
requirements for the next 12 months.
REQUIRED VOTE
The affirmative vote of a majority of the Votes Cast at the annual meeting
will be required to approve PROPOSAL TWO.
SUMMARY OF THE ESPP
The essential features of the ESPP are outlined below.
Purpose
The purpose of the ESPP is to provide employees of the Company and of its
majority-owned subsidiaries with an opportunity to purchase common stock of the
Company at a discount through payroll deductions.
Administration
The ESPP is currently being administered by the Board of Directors,
although that body may appoint a committee to perform that function. All
questions of interpretation or application of the ESPP are determined in the
sole discretion of the Board of Directors or its committee, and its decisions
are final and binding upon all participants. Members of the Board of Directors
who are eligible employees are permitted to participate in the ESPP but may not
vote on any matter affecting the administration of the ESPP or the grant of any
option pursuant to the ESPP. No member of the Board of Directors who is eligible
to participate in the ESPP may be a member of any committee appointed to
administer the ESPP. No charges for administrative or other costs may be made
against the payroll deductions of a participant in the ESPP. Members of the
Board of Directors receive no additional compensation for their services in
connection with the administration of the ESPP.
Eligibility
Any person who is employed by the Company (or by any of its majority-owned
subsidiaries designated by the Board) for at least 20 hours per week and more
than five months in a calendar year is eligible to participate in the ESPP. As
of the Record Date, approximately 4,830 employees were eligible to participate
in the ESPP and approximately 3,692 of those were participating.
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Offering Dates
The ESPP is currently implemented by consecutive overlapping 12-month
offering periods. The offering periods begin May 15 and November 15 of each
year. Each offering period is composed of two six-month purchase periods. The
Board of Directors has the power to alter the duration of the offering periods
without stockholder approval if such change is announced prior to the scheduled
beginning of the first offering period to be affected.
Eligible employees become participants in the ESPP by delivering a
subscription agreement to the Company authorizing payroll deductions. An
employee who becomes eligible to participate in the ESPP after the commencement
of an offering period may not participate in the ESPP until the commencement of
the next offering period.
Purchase Price
The purchase price per share at which shares are purchased under the ESPP
is the lower of (a) 85% of the fair market value of a share of Company common
stock on the enrollment date for a 12-month offering period or (b) 85% of the
fair market value of a share of common stock on the applicable purchase date
within that offering period. If shares are to be added to the ESPP at a time
when the fair market value of a share of common stock is higher than it was on
the enrollment date, then the Board of Directors may, at its discretion, set the
purchase price for the added shares at the lesser of 85% of the fair market
value of a share of common stock on the date such shares are authorized by the
stockholders or 85% of the fair market value of shares on the applicable
purchase date within the offering period. The fair market value of the common
stock on a given date is determined by the Board of Directors based upon the
closing sales price as reported by The Wall Street Journal on such date.
Payment of Purchase Price; Payroll Deductions
ESPP shares are purchased with funds that are accumulated through payroll
deductions during the offering period. The deductions may not exceed 15% of a
participant's eligible compensation, which is defined in the ESPP to include the
regular straight time salary as of each payday during the offering period,
payments for overtime, shift premium, incentive compensation, incentive
payments, bonuses and commissions, but exclusive of other compensation. A
participant may decrease the rate of payroll deductions at any time in whole
percentage point increments (but not below 1%), and such decreases are
immediately effective. Increases in the rate of payroll deductions may be made
only at the start of a purchase period.
All payroll deductions are credited to the participant's account under the
ESPP; no interest accrues on the payroll deductions. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose and such payroll deductions need not be segregated.
Purchase of Stock; Exercise of Option
At the beginning of each offering period, each participating employee is in
effect granted an option to purchase shares of common stock. The maximum number
of shares placed under option to a participant in an offering period is
determined by dividing the participant's accumulated payroll deductions during
the purchase period by 85% of the fair market value of the common stock at the
beginning of the offering period or on the applicable purchase date, whichever
is lower. However, the number of shares placed under option may not exceed 1,500
shares in each purchase period within offering periods commencing in the year
2001. Under no circumstances may an employee make aggregate purchases of stock
of the Company and its majority-owned subsidiaries under the ESPP and any other
employee stock purchase plans qualified as such under Section 423(b) of the
Internal Revenue Code in excess of $25,000 (determined using the fair market
value of the shares at the time the option is granted) during any calendar year.
Furthermore, no employee who owns 5% or more of the total combined voting power
or value of all classes of shares of Company stock or the Company's
subsidiaries' stock, including shares that may be purchased under the ESPP or
pursuant to any other options, will be permitted to purchase shares under the
ESPP.
9
Withdrawal
A participant may terminate his or her participation in the ESPP at any
time at least 30 days prior to the purchase date by signing and delivering to
the Company a notice of withdrawal from the ESPP. All of the participant's
accumulated payroll deductions will be paid to the participant promptly after
receipt of his or her notice of withdrawal and his or her participation in the
current offering period will be automatically terminated. No resumption of
payroll deductions will occur on behalf of such participant unless such
participant re-enrolls in the ESPP by delivering a new subscription agreement to
the Company during the applicable open enrollment period preceding the
commencement of a subsequent offering period. A participant's withdrawal from
the ESPP during an offering period does not have any effect upon such
participant's eligibility to participate in subsequent offering periods under
the ESPP.
Termination of Employment
Termination of a participant's employment for any reason, including
retirement or death, cancels his or her participation in the ESPP immediately.
In such event, the payroll deductions credited to the participant's account will
be returned to such participant or, in the case of death, to the person or
persons designated in the subscription agreement. In the case of death of the
participant, the beneficiary may elect to have funds remain in the participant's
account until the next purchase date and the shares purchased with the funds
will be forwarded to the beneficiary. A participant who receives payment in lieu
of notice of termination of employment shall be treated as continuing to be an
employee during the period in which the participant is subject to such payment
in lieu of notice.
Capital Changes
If any change is made in the capitalization of the Company, such as stock
splits or stock dividends, which results in an increase or decrease in the
number of shares of common stock outstanding without receipt of consideration by
the Company, appropriate adjustments will be made by the Company in the number
of shares subject to purchase and in the purchase price per share, subject to
any required action by the stockholders of the Company. In the event of the
proposed dissolution or liquidation of the Company, the offering period then in
progress will terminate immediately, unless otherwise provided by the Board. In
the event of the proposed sale of all or substantially all of the assets of the
Company or the merger of the Company with or into another corporation, each
outstanding option shall be assumed or an equivalent option shall be substituted
by the successor corporation, unless the Board determines, in its discretion, to
accelerate the exercisability of all outstanding options under the ESPP. The
Board may also make provisions for adjusting the number of shares subject to the
ESPP and the purchase price per share if the Company effects one or more
reorganizations, recapitalizations, rights offerings or other increases or
reductions of shares of the Company's outstanding common stock.
Amendment and Termination of the ESPP
The Board of Directors may at any time amend or terminate the ESPP. An
offering period may be terminated by the Board of Directors on any purchase date
if it determines that the termination of the offering period or the ESPP is in
the best interests of the Company and its stockholders. No amendment may be made
to the ESPP without prior approval of the stockholders of the Company where such
approval is necessary to comply with Section 423 of the Internal Revenue Code
(i.e., if such amendment would increase the number of shares reserved under the
ESPP or modify the eligibility requirements).
Without stockholder consent and without regard to whether any participant
rights may be considered to have been "adversely affected," the Board of
Directors shall be entitled to change the duration of the offering periods,
limit the frequency and/or number of changes in the amount withheld during an
offering period, establish the exchange ratio applicable to amounts withheld in
a currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied
10
toward the purchase of common stock for each participant properly correspond
with amounts withheld from the participant's compensation and establish such
other limitations or procedures consistent with the ESPP as the Board of
Directors determines in its sole discretion to be advisable.
In the event the Board of Directors determines that the ongoing operation
of the ESPP may result in unfavorable financial accounting consequences, the
Board of Directors may, in its discretion, modify or amend the ESPP to reduce or
eliminate such accounting consequences, including, but not limited to, altering
the purchase price for any offering period, including an offering period
underway at the time of the change, shortening any offering period so that
offering period ends on a new purchase date, including an offering period
underway at the time, and allocating shares.
Certain United States Federal Income Tax Information
The ESPP, and the right of participants to make purchases thereunder, is
intended to qualify under the provisions of Sections 421 and 423 of the Internal
Revenue Code. Under these provisions, no income will be taxable to a participant
at the time of grant of the option or purchase of shares.
However, participants should be aware that the Internal Revenue Service has
issued proposed regulations that would require Social Security (FICA) and FUTA
taxes to be withheld on the spread of the purchased ESPP shares on the date of
purchase. Currently, these proposed regulations are slated to commence with
purchases occurring on or after January 1, 2003. Upon disposition of the shares,
the participant will generally be subject to tax and the amount of the tax will
depend upon the length of time that the shares have been held. If the shares
have been held by the participant for more than two years after the offering
date and more than one year after the purchase date, the participant will
recognize ordinary income equal to the lesser of: (a) the excess of the fair
market value of the shares at the time of such disposition over the purchase
price, or (b) an amount equal to 15% of the fair market value of the shares as
of the applicable offering date. Any further gain will be treated as long-term
capital gain. If the shares are disposed of before the expiration of these
holding periods, the excess of the fair market value of the shares on the
purchase date over the purchase price will generally be treated as ordinary
income, and any further gain or any loss on such disposition will be long-term
or short-term capital gain or loss, depending on how long the shares have been
held from the date of purchase. Different rules may apply with respect to
participants subject to Section 16(b) of the Securities Exchange Act of 1934, as
amended. The Company generally is not entitled to a deduction for amounts taxed
as ordinary income or capital gain to a participant, except to the extent of
ordinary income reported by participants upon disposition of shares prior to the
expiration of the two holding periods described above.
The foregoing is only a summary of the effect of federal income taxation
upon the participant and the Company with respect to the purchase of shares
under the ESPP, is not intended to be complete, and does not discuss the income
tax laws of any municipality, state or foreign country.
11
PARTICIPATION IN THE ESPP
Participation in the ESPP is voluntary and dependent on each eligible
employee's election to participate and his or her determination as to the level
of payroll deductions. Accordingly, future purchases under the ESPP are not
determinable. Non-employee directors are not eligible to participate in the
ESPP. The following table sets forth certain information regarding shares
purchased under the ESPP during the last fiscal year and the payroll deductions
accumulated at the end of the last fiscal year in accounts under the ESPP for
each of the Named Executive Officers, for all current executive officers as a
group and for all other employees who participated in the ESPP as a group:
AMENDED PLAN BENEFITS
EMPLOYEE STOCK PURCHASE PLAN
PAYROLL DEDUCTIONS
NAME OF INDIVIDUAL OR IDENTITY OF NUMBER OF SHARES AS OF
GROUP AND POSITION PURCHASED(#) DOLLAR VALUE($)(1) FISCAL YEAR END
--------------------------------- ---------------- ------------------ ------------------
Wilfred J. Corrigan........... 0 N/A N/A
Chairman and Chief Executive
Officer
Thomas Georgens............... 1,275 3,749 21,250
Executive Vice President, SAN
Systems
Bryon Look.................... 1,310 3,851 21,250
Executive Vice President and
Chief Financial Officer
W. Richard Marz............... 1,275 3,749 21,250
Executive Vice President,
Communications and ASIC
Technology
Joseph M. Zelayeta............ 0 N/A N/A
Executive Vice President,
Worldwide Operations
All current executive officers as
a group....................... 12,433 36,518 191,250
All other employees as a group... 2,566,606 7,471,754 41,513,748
--------------------------------------------------------------------------------
(1) Market value of shares on date of purchase, minus the purchase price under
the ESPP.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE AMENDED
AND RESTATED EMPLOYEE STOCK PURCHASE PLAN. THE EFFECT OF AN ABSTENTION IS THE
SAME AS THAT OF A VOTE AGAINST THE AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE
PLAN. UNLESS YOU INDICATE OTHERWISE, YOUR PROXY WILL VOTE "FOR" THE PROPOSAL.
PROPOSAL THREE
AMENDMENT TO THE 1991 EQUITY INCENTIVE PLAN TO INCREASE
THE NUMBER OF SHARES RESERVED FOR ISSUANCE THEREUNDER
GENERAL
The 1991 Equity Incentive Plan (the "EIP") was adopted by the Board of
Directors and approved by the stockholders in May 1991, and a total of 2,000,000
shares of common stock were initially reserved for issuance thereunder. From
time to time since May 1991, the Board of Directors and stockholders have
approved
12
amendments to the EIP to increase the number of shares reserved for issuance
thereunder. Additionally, two-for-one common stock splits were authorized in
1995 and 2000 respectively, resulting in an aggregate number of shares
authorized under the EIP of 77,500,000.
As of the Record Date, 22,468,097 shares had been issued pursuant to the
exercise of options granted under the EIP and options to purchase 36,408,059
shares were outstanding, leaving 18,623,844 shares available for future grants
under the EIP.
PROPOSED AMENDMENT TO INCREASE SHARES RESERVED
Stockholder approval is hereby sought for an amendment approved by the
Board of Directors on February 14, 2002, increasing the number of shares of
common stock reserved for issuance under the EIP by 6,000,000 shares. If the
proposed amendment is approved, the total aggregate number of shares of common
stock reserved since the inception of the EIP for issuance under the EIP will be
83,500,000.
REQUIRED VOTE
The affirmative vote of a majority of the Votes Cast at the annual meeting
will be required to approve PROPOSAL THREE.
SUMMARY OF THE 1991 EQUITY INCENTIVE PLAN
The essential features of the EIP are outlined below.
Purpose
The purpose of the EIP is to encourage equity ownership in the Company by
eligible employees and consultants whose long-term employment is essential to
the continued success of the Company, and to enable the Company to hire and
retain the best available talent in a highly competitive market for the
successful conduct of its business.
The Board of Directors believes that the continued growth of the Company
will depend upon its ability to attract, hire and retain qualified managerial
talent, including executive officers. A challenge of the Company is to ensure
that these valued employees are appropriately rewarded and encouraged to stay
with the Company during economic downturns, help it grow and increase
shareholder value. Employers with whom the Company competes for such highly
qualified individuals frequently offer grants of substantial numbers of stock
options as part of a comprehensive compensation package. Accordingly, management
believes that it must be in a position to offer a competitive stock option
incentive program, such as the EIP, to attract the caliber of employees that the
Company believes is necessary to achieve its objectives. The proposed amendment
to the EIP is intended to provide a reasonable number of shares to meet these
needs for the coming year.
Stock Options
The EIP initially permitted the granting of stock options that either are
intended to qualify as Incentive Stock Options, or ISOs, and of stock options
that are not intended to so qualify, known as Nonstatutory Stock Options or
NSOs. However, with respect to shares previously approved by the shareholders,
no ISOs may be granted under the EIP after March 8, 2001. If the stockholders
approve the proposed amendment to the EIP, the Company will be permitted to
grant ISOs with respect to the newly added shares.
The exercise price for each option may not be less than 100% of the fair
market value of a share of common stock on the date such option is granted (or
not less than 110% of such fair market value in the case of grants of ISOs to
10% stockholders). The exercise price of outstanding options may not be reduced
without stockholder approval. No employee may be granted, in any fiscal year,
options to purchase more than 1,500,000 shares.
The Board of Directors fixes the term of each option at the time of the
grant, generally at ten years from the date of grant. (In the case of ISOs, the
term may not exceed five years in the case of grants to a 10%
13
stockholder and ten years for others.) The Board of Directors also determines
the vesting schedule for each option grant, which is generally 25% on each of
the first four anniversaries of the date of grant.
The exercise price of options granted under the EIP, including applicable
tax withholding, if any, must be paid in full at the time of exercise. The
method of payment is determined by the Board of Directors or its designated
committee administering the EIP and may consist of cash, check, promissory note,
other shares of common stock, delivery of a properly executed exercise notice
with irrevocable instructions to the optionee's broker to deliver to the Company
the amount of sale proceeds required to pay the exercise price, any combination
of the foregoing methods of payment or such other consideration and method of
payment as is permitted under the Delaware General Corporation Law.
If an optionee's employment terminates for any reason, including
retirement, his or her exercisable options may be exercised within the time
period set forth in the option agreement, which is generally 90 days from the
date of termination. If the Board of Directors or its designated committee
determines that an employee was discharged for misconduct (as defined in the
EIP), the employee has no further rights under the options granted to him or her
or under the plan. If an optionee's employment is terminated by reason of the
optionee's death or permanent total disability, the option will be exercisable
for 12 months following the date of death or disability, subject to the stated
term of the option. Options granted to consultants have such terms and
conditions with respect to the effect of termination of the consulting
relationship (including upon the death of the consultant) as the Board of
Directors or its designated committee may determine in each case.
Eligibility
Any employee (including any officer) or consultant of the Company or of its
majority-owned subsidiaries whom the Board of Directors deems to have the
potential to contribute to the future success of the Company is eligible to
receive NSO option grants under the EIP. Only employees of the Company or of its
subsidiaries are eligible to receive ISO grants. As of December 31, 2001, the
Company had 6,737 employees and approximately 65 consultants.
Adjustments for Recapitalizations and Reorganizations
In the event of a stock dividend, stock split, combination or similar
event, the number of shares of common stock available for issuance under the EIP
shall be increased or decreased proportionately, and the number of shares of
common stock deliverable upon exercise, and, where applicable, the exercise
price of each option, shall be proportionately adjusted. In the event of a
merger, reorganization, liquidation or similar event, the Board of Directors may
either provide for the assumption or substitution of outstanding options or
provide that the options must be exercised within 30 days. In either case, the
Board of Directors may provide for accelerated vesting of such options.
Administration
The EIP is administered by the Board of Directors or by a committee
appointed by the Board of Directors in compliance with Rule 16b-3 promulgated
under the Securities Exchange Act of 1934. If permitted by Rule 16b-3, the EIP
may be administered by different bodies with respect to employees who are
directors, non-director officers, employees who are neither directors nor
officers, and consultants. A member of the Board of Directors who is an eligible
employee is permitted to participate in the EIP but may not be a member of a
committee appointed to administer it. Members of the Board of Directors receive
no additional compensation for their services in connection with the
administration of the EIP.
Amendment and Termination of the EIP
The Board of Directors may amend, alter, suspend or discontinue the EIP at
any time, but such amendment, alteration, suspension or discontinuation may not
impair the rights of any participant in the EIP without the participant's
consent. In addition, no ISO may be granted under the EIP after March 8, 2001
with respect to shares previously approved by stockholders.
14
In addition, to the extent necessary and desirable to comply with Section
422 of the Internal Revenue Code of 1986, as amended (or any other applicable
law or regulation), the Company shall obtain stockholder approval of any EIP
amendment, in such a manner and to such a degree as required to comply with such
laws or regulations.
Certain United States Federal Income Tax Information
The following is only a brief summary of the effect of federal income
taxation upon the participant and the Company under the EIP based upon the
Internal Revenue Code. This summary is not intended to be complete and does not
discuss the income tax laws of any municipality, state or country outside of the
United States. It is advisable that a participant contact his or her own tax
adviser concerning the application of tax laws.
If an option granted under the EIP qualifies as an ISO, the optionee will
recognize no taxable income upon grant or exercise of the ISO unless the
alternative minimum tax rules apply. However, the optionees should be aware that
the Internal Revenue Service has issued proposed regulations that would require
Social Security (FICA) and FUTA taxes to be withheld on the spread of ISOs on
the date of exercise. Currently, these proposed regulations are slated to
commence with exercises occurring on or after January 1, 2003.
Upon the resale or exchange of the shares, the optionee will generally be
subject to tax and the amount of tax will depend on the length of time that the
shares have been held. If the shares have been held by the optionee for at least
two years after grant of the ISO and one year after exercise, any gain (or loss)
will be taxed to the optionee as capital gain (or loss). If shares acquired upon
the exercise of an ISO are disposed of before the expiration of these holding
periods (called a "disqualifying disposition") the optionee will recognize
ordinary income (or loss) in the year of disposition in an amount equal to the
excess (if any) of the fair market value of the shares at exercise (or, if less,
the amount realized on the disposition of the shares) over the option exercise
price paid for such shares. Any further gain or loss realized by the stockholder
will be taxed as short-term or long-term capital gain (or loss), depending on
how long the shares have been held from the date of exercise.
If an option designated as an ISO first becomes exercisable in any calendar
year for shares in which the aggregate fair market value exceeds $100,000, the
exercise of such excess shares will be treated for income tax purposes as having
been acquired pursuant to an NSO. For purposes of this rule, ISOs granted to an
optionee by the Company are aggregated; the fair market value of an option share
is its value on the date of grant of the option, and options are taken into
account in the order in which they are granted.
All options that do not qualify as ISOs are taxed as NSOs. An optionee will
not recognize any taxable income at the time he or she is granted an NSO.
However, upon the exercise of an NSO, the optionee will generally recognize
ordinary income for federal income tax purposes measured by the excess, if any,
of the then fair market value of the shares over the exercise price. The
ordinary income recognized upon exercise of an NSO by an optionee who is also an
employee of the Company will be treated as wages for tax purposes and will be
subject to tax withholding out of the current compensation, if any, paid to the
optionee. Upon resale of such shares by the optionee, any difference between the
sale price and fair market value on the date of exercise will be treated as
capital gain (or loss).
The Company will be entitled to a tax deduction in the same amount as the
ordinary income, if any, recognized by the optionee (i) upon exercise of an NSO
and (ii) upon the sale of shares acquired by exercise of an ISO in a
disqualifying disposition. The Company will not be allowed a deduction for
federal income tax purposes as a result of the exercise of an ISO, regardless of
the applicability of the alternative minimum tax.
15
PARTICIPATION IN THE 1991 EQUITY INCENTIVE PLAN
The grant of options under the 1991 Equity Incentive Plan to employees,
including the Named Executive Officers, is subject to the discretion of the
plan's administrator. As of the date of this proxy statement, there has been no
determination by the administrator with respect to future awards under the 1991
Equity Incentive Plan. Accordingly, future awards are not determinable.
Non-employee directors are not eligible to participate in the 1991 Equity
Incentive Plan. The following table sets forth information with respect to the
grant of options to the Named Executive Officers, to all current executive
officers as a group and to all other employees as a group during the last fiscal
year:
AMENDED PLAN BENEFITS
1991 EQUITY INCENTIVE PLAN
WEIGHTED AVERAGE
SHARES UNDERLYING EXERCISE PRICE PER
NAME OF INDIVIDUAL OR IDENTITY OF GROUP AND POSITION OPTIONS GRANTED(#) SHARE($/SH.)
---------------------------------------------------- ------------------ ------------------
Wilfred J. Corrigan............................. 1,500,000 14.94
Chairman and Chief Executive Officer
Thomas Georgens................................. 150,000 22.38
Executive Vice President, SAN Systems
Bryon Look...................................... 200,000 18.69
Executive Vice President,
Chief Financial Officer
W. Richard Marz................................. 275,000 22.38
Executive Vice President,
Communications & ASIC Technology
Joseph M. Zelayeta.............................. 300,000 22.38
Executive Vice President,
Worldwide Operations
All current executive officers as a group....... 3,550,000 18.79
All other employees as a group.................. 3,390,000 21.96
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT OF THE 1991
EQUITY INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE
THEREUNDER. UNLESS YOU INDICATE OTHERWISE, YOUR PROXY WILL VOTE "FOR" THE
PROPOSAL.
PROPOSAL FOUR
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board has selected PricewaterhouseCoopers LLP, independent accountants,
to audit the consolidated financial statements of the Company for its 2002
fiscal year and recommends that the stockholders vote for ratification of such
appointment. If there is a negative vote on such ratification, the Board will
reconsider its selection. PricewaterhouseCoopers LLP (or its predecessor) has
audited the Company's consolidated financial statements since the fiscal year
ended December 31, 1981. Representatives of PricewaterhouseCoopers LLP are
expected to be present at the annual meeting with the opportunity to make a
statement if they desire to do so, and are expected to be available to respond
to appropriate questions.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT ACCOUNTANTS FOR THE
2002 FISCAL YEAR. UNLESS YOU INDICATE OTHERWISE, YOUR PROXY WILL VOTE "FOR" THE
PROPOSAL.
16
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION
The following table shows, as to (i) the Chief Executive Officer and (ii)
each of the four other most highly compensated executive officers who were
serving as such at fiscal year end and whose salary plus bonus exceeded $100,000
in 2001 (all persons listed in the table are collectively referred to as the
"Named Executive Officers"), information concerning all reportable compensation
awarded to, earned by or paid to each for services to the Company in all
capacities during the fiscal year ended December 31, 2001, as well as such
compensation for each such individual for the previous two fiscal years (if such
person was an executive officer during any part of such previous fiscal year).
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
------------
AWARDS
SECURITIES
ANNUAL COMPENSATION UNDERLYING ALL OTHER
------------------------ OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) (#)(2) ($)(3)
--------------------------- ---- ------------ --------- ------------ ------------
Wilfred J. Corrigan.................. 2001 793,858 0 1,500,000 5,544
Chairman and Chief Executive Officer 2000 848,478 1,200,000 0 5,544
1999 787,897 1,400,000 1,000,000 7,686
Joseph M. Zelayeta................... 2001 383,082 0 300,000 3,612
Executive Vice President, 2000 409,618 300,000 200,000 1,932
Worldwide Operations 1999 381,086 500,000 300,000 2,982
Bryon Look(4)........................ 2001 323,090 0 200,000 1,260
Executive Vice President 2000 254,642 265,000 450,000 1,260
and Chief Financial Officer
W. Richard Marz...................... 2001 360,000 0 275,000 3,612
Executive Vice President 2000 386,156 300,000 75,000 3,612
Communications and ASIC Technology 1999 365,974 300,000 150,000 4,956
Thomas Georgens...................... 2001 323,090 0 150,000 840
Executive Vice President SAN Systems 2000 319,048 325,000 250,000 840
1999 239,242 250,000 250,000 1,134
---------------
(1) This amount reflects the full base salary until March 6, 2001, at which
point all the Named Executive Officers took a voluntary 10% reduction in
pay.
(2) The Company has not granted any stock appreciation rights.
(3) "All Other Compensation" for 2001 consists solely of group life insurance.
(4) Mr. Look was named an executive officer of the Company in November 2000.
CHANGE-IN-CONTROL AND EMPLOYMENT AGREEMENTS
The Company entered into change-in-control agreements with each of the
Named Executive Officers, except Mr. Corrigan, to ensure the continued services
of management to the Company. Mr. Corrigan's employment agreement dated
September 2001 supercedes his change-in-control agreement and is discussed in
this proxy statement in the section entitled "CEO Employment Agreement,"
beginning on page 18 below.
For purposes of the change-in-control agreements made with the Named
Executive Officers, benefits are payable only upon a change-in-control of the
Company, which is deemed to have occurred in the event of (1) the consummation
by the Company of a merger or consolidation of the Company with any other
corporation, other than merger or consolidation that would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent more than 50% of the total voting power
17
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; (2) the approval by
the shareholders of the Company of a plan of complete liquidation of the Company
or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets; or (3) any person becoming the
beneficial owner, directly or indirectly, of securities of the Company
representing 50% or more of the total voting power represented by the Company's
then outstanding voting securities.
Under the change-in-control agreements, if the executive officer's
employment is terminated involuntarily at any time within 12 months after a
change of control, the executive officer will receive a lump sum payment equal
to the sum of two years' base salary plus 200% of the executive officer's target
bonus for the year in which the change of control occurs, and continued
health-care benefits during the two years following the termination. In
addition, the vesting and exercisability of all options that were granted at
least six months prior to the change of control shall be automatically
accelerated and fully vested and exercisable at the date of the involuntary
termination. These agreements shall terminate in November 2003, unless a change
of control occurs, in which case, the agreements shall terminate upon the date
that all obligations of the parties have been satisfied.
CEO Employment Agreement
In September 2001, the Company entered into an employment agreement (the
"Agreement") with Wilfred J. Corrigan, now age 64, the Company's Chairman of the
Board and Chief Executive Officer ("CEO"). The Agreement provides for Mr.
Corrigan to continue to serve as CEO and Chairman of the Company's Board of
Directors, and further provides for an annual base salary as determined by the
Board and an annual bonus based on performance goals determined by the
Compensation Committee of the Board.
If the Company terminates Mr. Corrigan's employment other than for cause,
or his employment terminates as a result of death or disability, Mr. Corrigan
will receive 36 months base salary, 300% of his target bonus for the immediate
year, 24 months of health, dental and vision benefits, 18 months of life
insurance benefits and vesting of unexpired options granted in November 1999,
April 2001 and after September 2001. With respect to each such option, Mr.
Corrigan will have the full term of each option to exercise the vested part of
the option. An additional payment will be made to Mr. Corrigan in order to
offset the effect of any federal excise taxes on payments made under the
Agreement. If Mr. Corrigan voluntarily terminates his employment as CEO for any
reason other than death or disability and the Company does not ask him to remain
as the employee Chairman of the Board, Mr. Corrigan will receive all of the
payments and benefits described above. If Mr. Corrigan voluntarily resigns for
any reason other than death or disability and the Company asks Mr. Corrigan to
remain as the employee Chairman of the Board and he agrees to do so, Mr.
Corrigan will receive the payments and benefits describe above except for the
accelerated option vesting. Instead, unexpired options from grants after
September 2001 and two option grants made in November 1999 and April 2001
respectively, will be converted to a monthly vesting schedule such that all such
options will vest within 36 months of the resignation date. If Mr. Corrigan is
terminated for cause or if he voluntarily resigns and does not remain as the
employee Chairman of the Board following a Company request to do so, he will not
receive any of the payments or benefits described above and instead, will
receive only salary and other benefits that accrued prior to his termination of
employment or as may be required by law.
STOCK OPTION GRANTS AND EXERCISES
The following tables set forth information with respect to the stock
options granted to the Named Executive Officers under the Company's stock option
plans, the options exercised by such Named Executive Officers during the fiscal
year ended December 31, 2001 and the options held by the Named Executive
Officers at December 31, 2001.
The Option Grants Table sets forth hypothetical gains or "option spreads"
for the options at the end of their respective ten-year terms, as calculated in
accordance with the rules of the Securities and Exchange Commission. Each gain
is based on an arbitrarily assumed annualized rate of compound appreciation of
the market price of 5% or 10% from the date the option was granted to the end of
the option term and does not
18
represent the Company's projection of future stock price performance. Actual
gains, if any, on option exercises are dependent on the future performance of
the Company's common stock and overall market conditions.
OPTION(1) GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
----------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF AT ASSUMED ANNUAL RATES
SECURITIES TOTAL OPTIONS OF STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION
OPTIONS EMPLOYEES IN EXERCISE FOR OPTION TERM(4)
GRANTED IN FISCAL PRICE EXPIRATION ---------------------------
NAME FISCAL YEAR(#)(2) YEAR(3) ($/SHARE) DATE 5%($) 10%($)
---- ----------------- -------------- --------- ---------- ------------ ------------
Wilfred J. Corrigan... 1,500,000 7.27 14.94 4/2/2011 14,093,529 35,715,769
Joseph M. Zelayeta.... 300,000 1.45 22.38 2/15/2011 4,222,399 10,700,387
Bryon Look............ 200,000 0.97 18.69 11/15/2011 2,350,808 5,957,409
W. Richard Marz....... 200,000 0.97 22.38 2/15/2011 2,814,932 7,133,591
75,000 0.36 22.37 8/16/2011 1,055,128 2,673,901
Thomas Georgens....... 150,000 0.73 22.38 2/15/2011 2,111,199 5,350,193
------------
(1) The Company has not granted any stock appreciation rights.
(2) All options shown in the table were granted under the 1991 Equity Incentive
Plan. The material terms of the options are: (a) The exercise price of the
options is the fair market value of the common stock as of the date of
grant; (b) The options vest cumulatively in equal 25% increments on each of
the first four anniversaries of the date of grant; (c) To the extent
unexercised, the options lapse after ten years; (d) The options are
non-transferable and are only exercisable during the period of employment of
the optionee (or within 90 days following termination of employment),
subject to limited exceptions in the cases of certain terminations, death or
permanent disability of the optionee. These options are subject to
acceleration of exercisability in certain events. See "Change-in-Control and
Employment Agreements" above.
(3) Based on options granted to all employees in 2001 to purchase an aggregate
of 20,634,655 shares.
(4) These assumed rates of annual appreciation are specified by the Securities
and Exchange Commission and do not represent the Company's estimate of
future stock prices.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTIONS VALUES
NUMBER OF VALUE(1) OF
SECURITIES UNDERLYING UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
SHARES AT FISCAL YEAR END(#) FISCAL YEAR END($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Wilfred J. Corrigan... 0 0 3,450,000 2,250,000 10,434,563 3,072,188
Joseph M. Zelayeta.... 0 0 800,500 617,500 3,589,581 110,447
Bryon Look............ 0 0 325,000 615,000 416,941 110,447
W. Richard Marz....... 0 0 643,750 423,750 426,606 110,447
Thomas Georgens....... 0 0 225,000 487,500 342,500 211,656
------------
(1) Value of unexercised options is based on the difference between the fair
market value of Company's common stock of $15.78 per share as of December
31, 2001 (the last day of the last completed fiscal year) and the exercise
price of the unexercised in-the-money options.
CERTAIN TRANSACTIONS
Mr. Larry W. Sonsini, a director of the Company, is Chairman and CEO of
Wilson, Sonsini, Goodrich & Rosati, a professional corporation that performed
legal services for the Company during 2001 and is expected to perform legal
services for the Company in the future.
19
BOARD COMPENSATION COMMITTEE REPORT ON CEO AND OTHER
EXECUTIVE OFFICER COMPENSATION FOR LSI LOGIC CORPORATION
OVERVIEW AND PHILOSOPHY
The Compensation Committee of the Board of Directors (the "Compensation
Committee") establishes the overall executive compensation strategies of the
Company and approves compensation elements for the chief executive officer and
other executive officers. The Compensation Committee periodically reviews its
approach to executive compensation.
The Compensation Committee is comprised of outside, non-employee members of
the Board of Directors (four), none of whom has any interlocking relationships
as defined by the Securities and Exchange Commission. The Compensation Committee
has available to it such external compensation advice and data as the Committee
deems appropriate to obtain.
The compensation philosophy of the Compensation Committee is to provide a
comprehensive compensation package for each executive officer that is well
suited to support accomplishment of the Company's business strategies,
objectives and initiatives. For incentive-based compensation, the Committee
considers the desirability of structuring such compensation arrangements so as
to qualify for deductibility by the Company under Section 162(m) of the Internal
Revenue Code, as amended. Options granted under the Company's option plan
qualify as "performance-based" compensation that is not subject to the
limitations on deductibility of certain executive compensation under Section
162(m). The Company's cash bonus plans do not qualify as "performance-based"
compensation under Section 162(m). As the Compensation Committee applies this
compensation philosophy in determining appropriate executive compensation levels
and other compensation factors, the Compensation Committee reaches its decisions
with a view towards the Company's overall financial performance.
EXECUTIVE OFFICER COMPENSATION
The Compensation Committee's approach is based upon a belief that a
substantial portion of aggregate annual compensation for executive officers
should be contingent upon the Company's performance and an individual's
contribution to the Company's success. In addition, the Committee strives to
align the interests of the Company's executive officers with the long-term
interests of shareholders through stock option grants that can result in
ownership of the Company's common stock. The Compensation Committee endeavors to
structure each executive officer's overall compensation package to be consistent
with this approach and to enable the Company to attract, retain and reward
individuals who contribute to the success of the Company.
The Company's compensation program for executive officers is based on the
following guidelines:
- Establishment of base salary levels and participation in generally
available employee benefit programs based on competitive compensation
package practices.
- Utilization of a performance-based, cash incentive plan.
- Inclusion of equity opportunities that create long-term incentives based
upon increases in shareholder return.
The Company had a cash incentive plan during 2001 that provided for bonus
awards to be made to the executive officers (other than the CEO) and other
members of senior management subject to an aggregate budget for all awards under
the plan. The plan established a minimum level of operating income to be
achieved by the Company for the year 2001 before any payments would be made
under the plan. The plan also allowed upward adjustments in awards to be made if
the minimum operating income target was exceeded. In addition, the plan provides
for the CEO to determine individual bonus award amounts pursuant to his judgment
of each participant's personal contributions to the Company's performance for
the year, subject to the approval of the Committee of awards to executive
officers. The Company's operating income for 2001 fell short of the threshold
performance established under the plan. Accordingly, no bonus awards were
granted.
20
During 2001, the Compensation Committee did not provide for increases in
the base salary levels of executive officers. Due to the economic recession, the
chief executive officer and ten executive officers voluntarily imposed upon
themselves a temporary ten percent cut in base salary effective March 6, 2001.
In addition, with the assistance of a leading compensation consultant, the
Company analyzed executive pay using compensation data from 25 selected high
technology companies. The analysis confirmed that, assuming restoration of the
voluntary ten percent pay cut, the base salaries for the executive officers are,
on average, within competitive range of the Company's market target of the 60th
percentile.
The Company maintains a set of guidelines for use in making recommendations
to the Compensation Committee on individual grants to executive officers of
options to purchase common stock of the Company. Stock option grants were made
to executive officers during 2001 by reference to the guidelines. These
guidelines are developed by reference to external published surveys and other
information that are believed to fairly reflect the competitive environment in
which the Company operates and that are consistent with the compensation
principles set forth above.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Corrigan has been Chairman of the Board and Chief Executive Officer
("CEO") of the Company since its founding in 1981. His annual base salary prior
to the beginning of fiscal 2001 was $860,000. During 2001, the Committee
considered information regarding competitive compensation practices and levels
for chief executive officers, the above described approach to compensation for
executive officers, the Company's performance during the economic downturn and
the Committee's assessment of Mr. Corrigan's contribution to the Company's
performance. Effective March 6, 2001, Mr. Corrigan voluntarily imposed upon
himself a temporary ten percent cut in base salary, reducing his annual base
salary to $774,000. The base salary established by the Compensation Committee
prior to the voluntary salary decrease for Mr. Corrigan falls in the median of
the range of such information used for competitive comparisons.
During 2001, Mr. Corrigan was granted an option to purchase 1,500,000
shares of the Company's common stock. The Committee determined this portion of
Mr. Corrigan's total compensation after consideration of the compensation
principles set forth above. Also, the Committee considered external published
survey data and other information sources that it believes fairly reflect
competitive equity incentive practices for chief executive officers of publicly
traded companies against which the Company's practices for the chief executive
officer should be compared.
In September 2001, the Company entered into an employment agreement (the
"Agreement") with Mr. Corrigan. The Board of Directors determined that the
Agreement is in the best interest of the Company and its stockholders in that it
provides clarity with respect to the CEO's compensation, severance arrangements
in the event of an employment termination, position in the event of a change of
control of the Company and status with the Company for succession planning. A
summary of the Agreement is set forth in the section on "CEO Employment
Agreement" above.
MEMBERS OF THE COMPENSATION COMMITTEE
James H. Keyes, Chairman
T.Z. Chu
Malcolm R. Currie
Matthew J. O'Rourke
February 14, 2002
21
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of the Board of Directors of LSI Logic Corporation
("Audit Committee") assists the Board in executing its responsibilities. The
Audit Committee is responsible for, among other things, monitoring the integrity
and adequacy of the Company's financial information, control systems, and
reporting practices and for recommending to the Board for adoption by the
stockholders the Audit Committee's selection of independent accountants for the
Company.
The Audit Committee is composed of four non-employee members, each of whom
is independent as defined by the New York Stock Exchange listing rules. The
Company's independent accountants, PricewaterhouseCoopers LLP
("PricewaterhouseCoopers"), are responsible for expressing an opinion on the
conformity of the Company's audited financial statements to generally accepted
accounting principles. A copy of the Audit Committee Charter, which was first
adopted by the Board of Directors on November 11, 1999, was attached to last
year's Proxy Statement.
The Audit Committee has reviewed and discussed the audited financial
statements with the Company's management. The Audit Committee has discussed with
PricewaterhouseCoopers certain matters required under Statement on Auditing
Standard No. 61 and has received written disclosures and the letter required by
Independent Standards Board Standard No. 1 from the outside accountants and has
discussed with them their independence.
Audit Fees: The aggregate fees for professional services rendered by
PricewaterhouseCoopers in connection with its audit of the Company's
consolidated financial statements as of and for the year ended December 31, 2001
and its limited reviews of the Company's unaudited condensed consolidated
interim financial statements were $1.0 million.
Financial Information Systems Design and Implementation Fees: During the
year ended December 31, 2001, PricewaterhouseCoopers rendered no professional
services to the Company in connection with the design and implementation of
financial information systems as described in Paragraph (c)(4)(ii) of Rule 2-01
of Regulation S-X (17 CFR 210.2-01 (c)(4)(ii)).
All Other Fees: Aggregate fees billed for all other services rendered by
PricewaterhouseCoopers, other than the services covered in the two previous
paragraphs, for the year ended December 31, 2001 were $1.53 million, primarily
for the following professional services (in millions):
Audit-related services(1) $ 0.5
Income tax compliance and related tax services $ 1.0
Other(2) $ 0.03
(1) Audit-related fees include fees for issuance of consents and comfort
letters, audit and accounting assistance with respect to restructuring
activities, leasing transactions and acquisitions during the year.
(2) Primarily consists of review of regulatory filings and other services.
The Audit Committee has considered whether the non-audit services provided
by PricewaterhouseCoopers are compatible with maintaining the independence of
PricewaterhouseCoopers and has concluded that the independence of
PricewaterhouseCoopers is maintained and is not compromised by the services
provided.
Based on the review and discussion referred to above, the Audit Committee
recommended to the Board of Directors, and the Board of Directors approved, that
the audited financial statements be included in the
22
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2001, for filing with the Securities and Exchange Commission.
MEMBERS OF THE AUDIT COMMITTEE
Malcolm R. Currie, Chairman
T.Z. Chu
James H. Keyes
Matthew J. O'Rourke
March 8, 2002
23
PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG LSI LOGIC CORPORATION*, S&P 500 INDEX
AND THE PHILADELPHIA SEMICONDUCTOR INDEX
The stock price performance shown on the graph following is not necessarily
indicative of future price performance.
[PERFORMANCE GRAPH]
--------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
--------------------------------------------------------------------------------
LSI Logic Corp. 100 73 60 252 128 118
S&P 500(R) 100 133 171 208 189 166
Philadelphia
Semiconductor
Index 100 110 146 293 240 217
* During 1997, the Company changed its fiscal year to a straight calendar year
from a 52/53 week fiscal year that ended on the Sunday closest to December
31. Prior to the change, the Company's last trading day of its fiscal year
may have varied. For consistent presentation and comparison to the industry
indices shown herein, the Company has calculated its stock performance graph
assuming a December 31 year-end.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, officers and beneficial
owners of more than 10% of the Company's common stock 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. Based solely on its review of the copies of such reports received
by it, or written representations from reporting persons, the Company believes
that during the fiscal year ended December 31, 2001, its officers, directors and
holders of more than 10% of the Company's common stock complied with all Section
16(a) filing requirements, except for the following: a Form 4 for Mr. Larry
Sonsini, Director, reporting one transaction, was filed late, and a Form 4 for
Mr. John D'Errico, Executive Vice President, Storage Components, reporting one
transaction, was filed late.
24
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote the shares they represent as
the Board of Directors may recommend. Under the Company's Bylaws, in order to be
deemed properly presented, notice must be delivered to the Corporate Secretary
of the Company at the principal executive offices of the Company no less than 60
days nor more than 90 days prior to the annual meeting; provided, however, if
less than 65 days notice of the date of the annual meeting has been given to
stockholders, notice by the stockholder to be timely must be delivered to the
Company not later than the close of business on the seventh day following the
day on which such notice of the annual meeting was mailed. The stockholder's
notice must set forth, as to each proposed matter: (a) a reasonably detailed
description of the business and reason for conducting such business at the
meeting; (b) the name and address as they appear on the Company's books of the
stockholder proposing such business, or the name of the beneficial holder or
other party on whose behalf the proposal is made; (c) the class and number of
shares of the Company owned by the stockholder or beneficial holder or other
party on whose behalf the proposal is made; and (d) any material interest of the
stockholder or beneficial holder or other party on whose behalf the proposal is
made in such business.
THE BOARD OF DIRECTORS
March 29, 2002
25
LSI LOGIC CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
AMENDED AND RESTATED
The following constitutes the provisions of the Employee Stock Purchase
Plan (the "Plan") of LSI Logic Corporation amended and restated effective March
31, 1999.
1. PURPOSE. The purpose of the Plan is to provide employees of the Company
and its Designated Subsidiaries with an opportunity to purchase Common Stock of
the Company through accumulated payroll deductions. It is the intention of the
Company that the Plan qualify as an "Employee Stock Purchase Plan" under Section
423 of the Internal Revenue Code of 1986, as amended. The provisions of the Plan
shall, accordingly, be construed so as to extend and limit participation in a
manner consistent with the requirements of that section of the Code.
2. DEFINITIONS.
(a) "Board" means the Board of Directors of the Company, or to the
extent authorized by the Board, a Committee of the Board.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means the common stock of the Company.
(d) "Company" means LSI Logic Corporation and any Designated
Subsidiary of the Company.
(e) "Compensation" means, for Offering Periods commencing prior to
November 15, 2000, all regular straight time earnings, exclusive of payments for
overtime, shift premium, incentive compensation, incentive payments, bonuses,
commissions and other compensation. For Offering Periods commencing on or after
November 15, 2000, "Compensation" shall mean all regular and recurring straight
time earnings, payments for overtime, shift premium, incentive compensation,
incentive payments, bonuses, commissions, but exclusive of other compensation.
(f) "Designated Subsidiary" means any Subsidiary which has been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" means any individual who is an Employee of the Company
for tax purposes whose customary employment with the Company is at least 20
hours per week and more than five months in a calendar year. For purposes of the
Plan, the employment relationship will be treated as continuing intact while the
individual is on sick leave or other leave of absence approved in writing by the
Company. Where the period of leave exceeds 90 days and the individual's right to
reemployment is not guaranteed either by statute or by contract, the employment
relationship shall be deemed to have terminated on the 91st day of such leave.
It shall not include any independent contractors providing services to the
Company or its Subsidiaries, regardless of the length of such service.
1
(h) "Enrollment Date" means the first Trading Day of each Offering
Period.
(i) "Exercise Date" means the last Trading Day of each Purchase
Period.
(j) "Fair Market Value" means, as of any date, the value of the
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, its Fair Market Value shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such exchange or system for the last market trading day on the date of
such determination, as reported in The Wall Street Journal or such other source
as the Board deems reliable;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable; or
(3) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the Board.
(k) "Offering Periods" means a period of approximately 12 months
during which an option granted pursuant to the Plan may be exercised as further
described in Section 4, except that the Offering Period that began October 1,
1998 will end on September 29, 2000 and an Offering Period shall commence on
October 1, 2000 and end on November 14, 2000. The duration and timing of
Offering Periods may be changed pursuant to Sections 4 and 20 of this Plan.
(l) "Plan" means this Amended and Restated Employee Stock Purchase
Plan.
(m) "Purchase Period" means the approximately six-month period
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period will commence on
the Enrollment Date and end with the next Exercise Date. Notwithstanding the
foregoing, with respect to the Offering Period commencing upon October 1, 2000
and ending on November 14, 2000, "Purchase Period" shall be the same
(approximately) six week period.
(n) "Purchase Price" means 85% of the Fair Market Value of a share of
Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower;
provided, however, that with respect to the Offering Periods commencing on or
after January 1, 1999, unless otherwise directed by the Board, if the Fair
Market Value of a share of Common Stock on the date on which additional shares
of Common Stock (the "New Shares") are authorized for issuance hereunder by the
Company's stockholders (the "Authorization Date") is higher than the Fair Market
Value of a share of Common Stock on the Enrollment Date of any outstanding
Offering Period that commenced prior to the Authorization Date, the Purchase
Price for only New Shares to be issued on any remaining
2
Exercise Date of any Offering Period in effect on the Authorization Date shall
be 85% of the Fair Market Value of a share of Common Stock on the Authorization
Date or on the Exercise Date, whichever is lower. The Purchase Price may be
adjusted by the Board pursuant to Section 20.
(o) "Reserves" means the number of shares of Common Stock covered by
each option under the Plan which have not yet been exercised and the number of
shares of Common Stock that have been authorized for issuance under the Plan but
not yet placed under option.
(p) "Subsidiary" means any corporation, domestic or foreign, of which
not less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
(q) "Trading Day" means a day on which national stock exchanges and
the Nasdaq System are open for trading.
3. ELIGIBILITY.
(a) Any Employee who is employed by the Company on a given Enrollment
Date shall be eligible to participate in the Plan, subject to the requirements
of Section 5(a) and the limitations imposed by Section 423(b) of the Code.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
ownership would be attributed to such Employee pursuant to Section 424(d) of the
Code) would own capital stock and/or hold outstanding options to purchase shares
possessing five percent or more of the total combined voting power or value of
all classes of the capital stock of the Company or of any Subsidiary, or (ii) to
the extent that his or her rights to purchase stock under all employee stock
purchase plans (described in Section 423 of the Code) of the Company and its
Subsidiaries accrue (i.e., become exercisable) at a rate which exceeds $25,000
worth of stock (determined at the fair market value of the shares at the time
such option is granted) for each calendar year in which such option is
outstanding at any time.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 15 and November 15 each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof, except as set forth in this Section 4. The
first Offering Period of the Plan as amended and restated shall commence with
the first Trading Day on or after May 15, 1999 and end on the last Trading Day
on or before May 14, 2000. The Offering Period which began on October 1, 1998
will end on September 29, 2000 and an Offering Period shall commence on October
1, 2000 and end on November 14, 2000. The Board shall have the power to change
the duration of Offering Periods (including the commencement dates thereof) with
respect to future offerings without stockholder approval, if such change is
announced prior to the scheduled beginning of the first Offering Period to be
affected thereafter.
3
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
provided by the Company and filing it with the Company payroll office prior to
the applicable Enrollment Date, unless a later time for filing the subscription
agreement is set for all eligible Employees with respect to such Offering
Period.
(b) Payroll deductions for a participant shall commence with the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each payday
during all subsequent Offering Periods commencing prior to November 15, 2000 in
an amount not exceeding 10%, and during all Offering Periods commencing on or
after November 15, 2000 in an amount not exceeding 15%, or such other rate as
may be determined from time to time by the Board, expressed as a whole percent,
of the Compensation which he or she receives on such payday during said Offering
Period and the aggregate of such deduction during the Offering Period shall not
exceed 10% or 15%, as applicable in accordance with the foregoing, of the
aggregate Compensation during such Offering Period.
(b) All payroll deductions authorized by a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10, or may decrease the rate of his or her payroll
deductions (but not below 1%) effective immediately or may increase (but not
above 10% and for Offering Periods commencing on or after November 15, 2000, not
above 15%) the rate of his payroll deductions effective as of the first date of
the next Purchase Period within such Offering Period by completing and filing
with the Company a new subscription agreement authorizing a change in payroll
deduction. The Board may, in its discretion, limit the number of participation
rate changes during any Offering Period. The change in rate shall be effective
as soon as administratively feasible following the Company's receipt of the new
authorization. A participant's subscription agreement shall remain in effect for
successive Offering Periods unless terminated as provided in Section 10.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) of the Plan, a participant's
payroll deductions may be automatically decreased to zero percent at any time
during a Purchase Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Purchase Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10.
4
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state or other tax withholding obligations, if any, which arise on the
exercise of the option or the disposition of the Common Stock. At any time the
Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. GRANT OF OPTION. On each Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of full shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Employee's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase more than 1,500 shares in each Purchase
Period within Offering Periods commencing in the year 2001, provided further
that such purchase shall be subject to the limitations set forth in Sections
3(b) and 13. The Board may, for future Offering Periods, increase or decrease,
in its absolute discretion, the maximum number of shares of the Company's Common
Stock an Employee may purchase during each Purchase Period of such Offering
Period. Exercise of the option shall occur as provided in Section 8, unless the
participant has withdrawn pursuant to Section 10. The option shall expire on the
last day of the Offering Period.
8. EXERCISE OF OPTION.
(a) Unless a participant withdraws from the Offering Period as
provided in Section 10, his or her option for the purchase of shares will be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option will be purchased at the applicable Purchase Price with
the accumulated payroll deductions in his or her account. No fractional shares
will be purchased. Any payroll deductions accumulated in a participant's account
that are not sufficient to purchase a full share will be retained in the
participant's account for the subsequent Purchase Period or Offering Period,
subject to earlier withdrawal by the participant as provided in Section 10 or
unless the Offering Period has been over-subscribed, in which event such amount
shall be refunded to the participant. During his or her lifetime, a
participant's option to purchase shares hereunder is exercisable only by the
participant.
(b) If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under the
Plan on the Enrollment Date of the applicable Offering Period, or (ii) the
number of shares available for sale under the Plan on such Exercise Date, the
Board may in its sole discretion provide that the Company shall make a pro rata
allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and (x) continue all Offering Periods then in effect, or
(y) terminate any or all Offering
5
Periods then in effect pursuant to Section 20. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
stockholders subsequent to such Enrollment Date.
9. DELIVERY. As promptly as practicable after each Exercise Date on which a
purchase of shares occurs, the Company shall arrange for the shares purchased
upon exercise of his or her option to be electronically credited to the
participant's brokerage account at the securities brokerage firms designated by
the Company for its direct deposit program from time to time.
10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A participant may withdraw all, but not less than all, the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company on a form provided for such purpose. All of the participant's payroll
deductions credited to his or her account will be paid to the participant as
soon as practicable after receipt of the notice of withdrawal, his or her option
for the current Offering Period will be automatically canceled, and no further
payroll deductions for the purchase of shares will be made during such Offering
Period. If a participant withdraws from an Offering Period, payroll deductions
shall not resume at the beginning of the succeeding Offering Period unless the
participant delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period will not have
any effect upon his or her eligibility to participate in a succeeding Offering
Period which begins after the end of the Offering Period from which the
participant withdraws or in any similar plan which may hereafter be adopted by
the Company.
11. TERMINATION OF EMPLOYMENT. Upon a participant's ceasing to be an
Employee for any reason, including retirement or death, he or she will be deemed
to have elected to withdraw from the Plan and the payroll deductions accumulated
in his or her account during the Offering Period but not yet used to exercise
the option will be returned to him or her as soon as practicable after such
termination or, in the case of death, to the person or persons entitled thereto
under Section 15, and his or her option will be automatically terminated. The
preceding sentence notwithstanding, a participant who receives payment in lieu
of notice of termination of employment shall be treated as continuing to be an
Employee for the participant's customary number of hours per week of employment
during the period in which the participant is subject to such payment in lieu of
notice. In the case of death of the participant, the payroll deductions credited
to the participant's account will be paid to the person or persons entitled
thereto under paragraph 15, and such participant's option will be automatically
terminated, except that the beneficiary may elect to have funds remain in the
participant's account until the next Exercise Date in which case the shares
purchased with the funds in the participant's account at the time of death in
accordance with paragraph 8 will be forwarded to the beneficiary.
12. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
6
13. STOCK.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19, the maximum number of shares of the Company's
Common Stock which shall be reserved for sale under the Plan shall be 60,314,110
shares, subject to stockholder approval at the 2002 Annual Meeting of
Stockholders, plus an annual increase to be added as of the first day of each
fiscal year by an amount equal to (x) 1.15% of the shares of the Company's
Common Stock issued and outstanding on the last day of the immediately preceding
fiscal year less (y) the number of shares available for future option grants
under the Plan on the last day of the immediately preceding fiscal year, or a
lesser amount determined by the Board, but not to exceed 3,000,000 shares
(subject to any adjustment pursuant to Section 19) in any fiscal year.
(b) The participant will have no interest or voting rights in shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. ADMINISTRATION. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive shares and/or cash, if any, from the participant's account under
the Plan in the event of such participant's death at a time when cash or shares
are held for his or her account. If the participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant in the
absence of a valid designation of a beneficiary who is living at the time of
such participant's death, the Company shall deliver such shares and/or cash to
the executor or administrator of the estate of the participant; or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may reasonably designate.
16. TRANSFERABILITY. Neither payroll deductions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of
7
descent and distribution, or as provided in Section 15 hereof) by the
participant. Any such attempt at assignment, transfer, pledge or other
disposition shall be without effect, except that the Company may treat such act
as an election to withdraw funds in accordance with Section 10.
17. USE OF FUNDS. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. REPORTS. Individual accounts will be maintained for each participant in
the Plan. Statements of account will be given to participating Employees at
least annually, and will set forth the amounts of payroll deductions, the
Purchase Price, the number of shares purchased and the remaining cash balance,
if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (under Section 7), as well as the
price per share and the number of shares of Common Stock covered by each option
under the Plan that has not yet been exercised, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
will be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless otherwise provided by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Company shall notify each participant in writing at least ten
business days prior to the New Exercise Date, that the Exercise Date for the
participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each option under the Plan shall be assumed or
an equivalent option shall be substituted by the successor corporation or a
parent or Subsidiary of the successor corporation. If the successor corporation
refuses to assume or substitute for the option, any Purchase Periods then in
progress shall be
8
shortened by setting a new Exercise Date (the "New Exercise Date") and any
Offering Periods then in progress shall end on the New Exercise Date. The New
Exercise Date shall be before the date of the Company's proposed sale or merger.
The Company shall notify each participant in writing prior to the New Exercise
Date, that the Exercise Date for the participant's option has been changed to
the New Exercise Date and that the participant's option will be exercised
automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 10.
The Board may, if it so determines in the exercise of its sole discretion, also
make provision for adjusting the Reserves, as well as the price per share of
Common Stock covered by each outstanding option, in the event that the Company
effects one or more reorganizations, recapitalizations, rights offerings or
other increases or reductions of shares of its outstanding Common Stock, and in
the event of the Company being consolidated with or merged into any other
corporation.
20. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19, no such
termination will affect options previously granted, provided that an Offering
Period may be terminated by the Board on any Exercise Date if the Board
determines that the termination of the Offering Period or the Plan is in the
best interests of the Company and its stockholders. Except as provided in
Section 19 and this Section 20, no amendment may make any change in any option
theretofore granted which adversely affects the rights of any participant. To
the extent necessary to comply with Section 423 of the Code (or any successor
rule or provision or any other applicable law, regulation or stock exchange
rule), the Company shall obtain stockholder approval in such a manner and to
such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation and establish such other limitations or procedures as
the Board determines in its sole discretion advisable which are consistent with
the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
9
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that the Offering Period
ends on a new Exercise Date, including an Offering Period underway at the time
of the Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder approval or the
consent of any Plan participants.
21. NOTICES. All notices or other communications by a participant to the
Company in connection with the Plan shall be deemed to have been duly given when
received in the form specified by the Company at the location, or by the person,
designated by the Company for the receipt thereof. Notices given by means of the
Company's intranet (Planet) or similar system will be deemed to be written
notices under the Plan.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, if required by applicable
securities laws, the Company may require the participant for whose account the
option is being exercised to represent and warrant at the time of such exercise
that the shares are being purchased only for investment and without any present
intention to sell or distribute such shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
applicable provisions of law.
23. TERM OF PLAN. The Plan shall become effective upon the earlier to occur
of its adoption by the Board of Directors of the Company or it is approved by
the stockholders. It shall continue in effect for a term of 10 years unless
sooner terminated under Section 20.
24. EMPLOYMENT RELATIONSHIP Nothing in the Plan shall be construed as
creating a contract for employment for any period or shall interfere with or
limit in any way the right of the Company or of any Subsidiary to terminate any
participant's employment relationship at any time, with or without cause, nor
confer upon any participant any right to continue in the employ of the Company
or any Subsidiary.
10
LSI LOGIC CORPORATION
1991 EQUITY INCENTIVE PLAN
AMENDED AND RESTATED
1. Purpose of the Plan. The purpose of the LSI Logic Corporation
1991 Equity Incentive Plan (the "Plan") is to enable LSI Logic Corporation (the
"Company") to provide an incentive to eligible employees, including officers,
and consultants whose present and potential contributions are important to the
continued success of the Company, to afford them an opportunity to acquire a
proprietary interest in the Company, and to enable the Company to enlist and
retain in its employ the best available talent for the successful conduct of its
business. It is intended that this purpose will be effected through the granting
of stock options.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Award" means any Option granted.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Committee" means the Committee or Committees referred to
in Section 5 of the Plan. If at any time no Committee shall be in office, then
the functions of the Committee specified in the Plan shall be exercised by the
Board.
(e) "Common Stock" means the Common Stock, $0.01 par value (as
adjusted from time to time), of the Company.
(f) "Company" means LSI Logic Corporation, a corporation
organized under the laws of the state of Delaware, or any successor corporation.
(g) "Consultant" means any person, including an advisor, who
is engaged by the Company or any Parent or Subsidiary to render services for its
benefit and is compensated for such services, provided the term Consultant shall
not include directors who are not compensated for their services or are paid
only a director's fee by the Company.
(h) "Director" means a member of the Board.
(i) "Disability" means a disability, whether temporary or
permanent, partial or total, as defined in Section 22(e)(3) of the Code.
1
(j) "Employee" means any person, including officers and
directors, employed by the Company or any Subsidiary, provided the term Employee
shall not include non-employee directors and the payment of directors' fees by
the Company shall not be sufficient to constitute "employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(l) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) if such Common Stock shall then be listed on a
national securities exchange, the closing sales price (or the
closing bid, if no sales were reported) as quoted on the
principal national securities exchange on which the Common Stock
is listed or admitted to trading, or
(ii) the closing sales price (or the closing bid, if no
sales were reported) as quoted on the NASDAQ National Market
System, or
(iii) if such Common Stock shall not be quoted on such
National Market System nor listed or admitted to trading on a
national securities exchange, then the average of the closing bid
and asked prices, as reported by The Wall Street Journal for the
over-the-counter market, or
(iv) if none of the foregoing is applicable, then the
Fair Market Value of a share of Common Stock shall be determined
by the Board of Directors of the Company in its discretion.
(m) "Incentive Stock Option" means an Option intended to be
and designated as an "Incentive Stock Option" within the meaning of Section 422
of the Code.
(n) "Nonstatutory Stock Option" means any Option that is not
an Incentive Stock Option.
(o) "Option" means any option to purchase shares of Common
Stock granted pursuant to Section 7 below.
(p) "Optionee" means any holder of an Option.
(q) "Outside Director" means a Director who is not an Employee
of the Company.
(r) "Plan" means this 1991 Equity Incentive Plan, as
hereinafter amended from time to time.
2
(s) "Senior Management Employees" means Employees who are
executive officers or vice presidents of the Company.
(t) "Subsidiary" means a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or by a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or by a Subsidiary.
In addition, the terms "Tax Date" and "Insiders" shall have meanings set
forth in Section 8.
3. Eligible Participants. Any Employee or Consultant of the Company
or of a Subsidiary whom the Committee deems to have the potential to contribute
to the future success of the Company shall be eligible to receive Awards under
the Plan; provided, however, that any Options intended to qualify as Incentive
Stock Options shall be granted only to Employees of the Company or its
Subsidiaries.
4. Stock Subject to the Plan. Subject to Sections 9 and 10, the
total number of shares of Common Stock reserved and available for distribution
pursuant to the Plan shall be 83,500,000 shares subject to stockholder approval
at the 2002 Annual Meeting of Stockholders (this number has been adjusted for
various stock splits). Subject to Sections 9 and 10 below, if any shares of
Common Stock that have been optioned under an Option cease to be subject to such
Option Award granted hereunder are forfeited or repurchased or any such award
otherwise terminates without a payment being made to the participant in the form
of Common Stock, such shares shall again be available for distribution in
connection with future Awards under the Plan.
5. Administration.
(a) Procedure. The Plan shall be administered by the Board or a
Committee designated by the Board to administer the Plan, which Committee shall
be constituted to permit the Plan to comply with Rule 16b-3 promulgated under
the Exchange Act, or any successor rule thereto ("Rule 16b-3"). If permitted by
Rule 16b-3, the Plan may be administered by different bodies with respect to
Employees who are Directors, Senior Management Employees, or Employees who are
neither directors nor officers and Consultants.
Once appointed, a Committee shall continue to serve until
otherwise directed by the Board. From time to time the Board may change the size
of a Committee, appoint additional members thereof, remove members (with or
without cause), appoint new members in substitution therefor, fill vacancies,
however caused and remove all members of a Committee and thereafter directly
administer the Plan, all to the extent permitted by Rule 16b-3. As used
herein, except in Sections 10, 12 and
3
17, reference to Committee shall mean such Committee or the Board, whichever is
then acting with respect to the Plan.
(b) Authority. Subject to the general purposes, terms, and
conditions of the Plan, and to the direction of the Board, the Committee, if
there be one, shall have full power to implement and carry out the Plan
including, but not limited to, the following:
(i) to select the Employees and Consultants of the
Company and/or its Subsidiaries to whom Options may from time to time be
granted hereunder;
(ii) to determine whether and to what extent Options are
to be granted hereunder;
(iii) to determine the number of shares of Common Stock
to be covered by each such Award granted hereunder;
(iv) to approve forms of agreement for use under the
Plan;
(v) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Award granted hereunder
(including, but not limited to, the share price and any restriction or
limitation, or any vesting acceleration or waiver of forfeiture
restrictions regarding any Option and/or the shares of Common Stock
relating thereto, based in each case on such factors as the Committee
shall determine, in its sole discretion);
(vi) to determine whether and under what circumstances
an Option may be settled in cash instead of Common Stock;
(vii) to determine the form of payment that will be
acceptable consideration for exercise of an Option granted under the
Plan;
(viii) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with respect to an
Award under this Plan shall be deferred either automatically or at the
election of the participant (including providing for and determining the
amount (if any) of any deemed earnings on any deferred amount during any
deferral period);
Shareholder approval shall be required to reduce the exercise
price of any Option. For grants of Incentive Stock Options only, any other
material amendments to the Plan shall require shareholder approval. The
Committee shall have the authority to construe and interpret the Plan, to
prescribe, amend and rescind rules and
4
regulations relating to the Plan, and to make all other determinations necessary
or advisable for the administration of the Plan.
6. Duration of the Plan. The Plan shall remain in effect until
terminated by the Board under the terms of the Plan, provided that in no event
may Incentive Stock Options be granted under the Plan later than March 8, 2001,
ten years from the date the Plan was adopted by the Board.
7. Stock Options. The Committee, in its discretion, may grant
Options to eligible participants and shall determine whether such Options shall
be Incentive Stock Options or Nonstatutory Stock Options. Each Option shall be
evidenced by a written Option agreement which shall expressly identify the
Option as an Incentive Stock Option or as a Nonstatutory Stock Option, and shall
be in such form and contain such provisions as the Committee shall from time to
time deem appropriate. Option agreements shall contain the following terms and
conditions:
(a) Option Price; Number of Shares. The Option price, which
shall be approved by the Committee, may not be less than the Fair Market Value
of the Common Stock at the time the Option is granted.
The Option agreement shall specify the number of shares of Common
Stock to which it pertains.
(b) Waiting Period until Option Vesting and Exercise Dates. At
the time an Option is granted, the Committee will determine the terms and
conditions to be satisfied before shares may be purchased, including the dates
on which the right to purchase shares subject to the Option will vest and such
shares may first be purchased. The Committee may specify that an Option may not
be exercised until the completion of the waiting period specified at the time of
grant. (Any such period is referred to herein as the "Initial Vesting Period.")
At the time an Option is granted, the Committee shall fix the period within
which such Option may be exercised, which shall not be less than the Initial
Vesting Period, if any, nor, in the case of an Incentive Stock Option, more than
10 years from the date of grant.
(c) Form of Payment. The consideration to be paid for the
shares of Common Stock to be issued upon exercise of an Option, including the
method of payment, shall be determined by the Committee (and, in the case of an
Incentive Stock Option, shall be determined at the time of grant) and may
consist entirely of (i) cash, (ii) check, (iii) promissory note, (iv) other
shares of Common Stock which (x) either have been owned by the Optionee for more
than six months on the date of surrender or were not acquired, directly or
indirectly, from the Company, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the shares as to which said
Option shall be exercised, (v) delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan proceeds required to pay the exercise price,
(vi) delivery of an
5
irrevocable subscription agreement for the shares which obligates the option
holder to take and pay for the shares not more than 12 months after the date of
delivery of the subscription agreement, (vii) any combination of the foregoing
methods of payment, or (viii) such other consideration and method of payment for
the issuance of shares to the extent permitted under the Delaware General
Corporation Law.
(d) Effect of Termination of Employment or Death or Disability
of Employee Participants.
(i) Termination of Employment in General. In the event
that an Optionee during his or her lifetime ceases to be an Employee of the
Company or of any Subsidiary for any reason, other than misconduct of the
Optionee, including retirement, any Option, including any unexercised portion
thereof, which was otherwise exercisable on the date of termination of
employment, shall expire in accordance with the following provisions:
(A) Nonstatutory Stock Options shall expire
unless exercised within such time period as is determined by the Committee;
which shall be ninety (90) days from the date the Optionee ceases to be an
Employee unless the Committee has specified another time period prior to the
expiration of such ninety (90) day period; and
(B) Incentive Stock Options shall expire unless
exercised within a period of ninety (90) days from the date on which the
Optionee ceased to be an Employee (or such lesser period as is set out in Option
agreement),
Notwithstanding the foregoing, the period of
exercisability provided for above, as applicable shall in no event continue
after the expiration of the term of such Option as set forth in the Option
agreement.
(ii) Misconduct: If in any case the Committee shall
determine that an Employee or Consultant shall have been discharged due to the
Employee's or Consultant's misconduct (as defined below) such Employee or
Consultant, as the case may be, shall not thereafter have any rights under the
Plan or any Option that shall have been granted to him or her under the Plan.
For purposes of the Plan, "misconduct" means conduct for which the Company's
determines to terminate the employment of an Employee or to terminate any
Consultant's arrangements with the Company that constitutes (i) willful breach
or neglect of duty; (ii) failure or refusal to work or to comply with the
Company's rules, policies, and practices; (iii) dishonesty; (iv)
insubordination; (v) being under the influence of drugs (except to the extent
medically prescribed) or alcohol while on duty or on Company premises; (vi)
conduct endangering, or likely to endanger, the health or safety of another
Employee, any other person or the property of the Company; or (vii) conviction
of a felony.
6
(iii) Termination of Employment due to Disability or
Death. In the event of the death or permanent, total Disability of an Optionee
during the period of employment, that portion of the Option which had become
exercisable as of the date of death or permanent, total Disability shall be
exercisable by the employee or his or her personal representatives, heirs, or
legatees within 12 months of the date of death or permanent, total Disability or
such time period as is determined by the Committee (but in the case of an
Incentive Stock Option, in no event no more than 12 months after the date of
death or permanent, total Disability or after the expiration of the term of such
Option as set forth in the Option agreement.) In the event of the death of an
Optionee within three months after termination of employment, that portion of
the Option which had become exercisable as of the date of termination shall be
exercisable by his or her personal representatives, heirs, or legatees within
six months of the date of death or such time period as is determined by the
Committee (but in the case of an Incentive Stock Option, in no event after the
expiration of the term of such Option as set forth in the Option agreement.) In
the event that an Optionee ceases to be an Employee of the Company or of any
Subsidiary for any reason, including death, Disability or retirement, prior to
the lapse of the Initial Vesting Period, if any, his or her Option shall
terminate and be null and void to the extent the requirement for such Initial
Vesting Period has not been satisfied.
(e) Leave of Absence. The employment relationship shall not be
considered interrupted in the case of: (i) sick leave, military leave or any
other leave of absence approved by the Board; provided that any such leave is
for a period of not more than 90 days, unless reemployment upon the expiration
of such leave is guaranteed by contract, statute or pursuant to formal policy
adopted from time to time by the Company and issued and promulgated to Employees
in writing, or (ii) in the case of transfer between locations of the Company or
between the Company, its Subsidiaries or its successor. In the case of any
Employee on an approved leave of absence, the Committee may make such provisions
respecting suspension of vesting of the Option while on leave from the employ of
the Company or a Subsidiary as it may deem appropriate, if any, except that in
no event shall an Option be exercised after the expiration of the term set forth
in the Option agreement.
(f) Acceleration of Vesting or Initial Vesting Period. The
Committee may accelerate the earliest date on which outstanding Options (or any
installments thereof) are exercisable.
(g) Special Incentive Stock Option Provisions. In addition to
the foregoing, Options granted to Employees under the Plan which are intended to
be Incentive Stock Options under Section 422 of the Code shall be subject to the
following terms and conditions:
(i) Dollar Limitation. To the extent that the aggregate
Fair Market Value of the shares of Common Stock with respect to which
Options designated as Incentive Stock Options become exercisable for the
first time by
7
any individual during any calendar year (under all plans of the Company)
exceeds $100,000, such Options shall be treated as Nonstatutory Stock
Options. For purposes of the preceding sentence, (i) Options shall be
taken into account in the order in which they were granted and (ii) the
Fair Market Value of the shares shall be determined as of the time the
Option with respect to such shares was granted.
(ii) 10% Stockholder. If any person to whom an Incentive
Stock Option is to be granted pursuant to the provisions of the Plan is,
on the date of grant, the owner of Common Stock (as determined under
Section 425(d) of the Code) possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of any
Subsidiary, then the following special provisions shall be applicable to
the Option granted to such individual:
(A) The Option price per share of the
Common Stock subject to such Incentive Stock Option shall not be
less than 110% of the Fair Market Value of the Common Stock on
the date of grant; and
(B) The Option shall not have a term in
excess of five years from the date of grant.
Except as modified by the preceding provisions of this Subsection 7(g) and
except as otherwise required by Section 422 of the Code, all of the provisions
of the Plan shall be applicable to the Incentive Stock Options granted
hereunder.
(h) Other Provisions. Each Option granted under the Plan may
contain such other terms, provisions, and conditions not inconsistent with the
Plan as may be determined by the Committee.
(i) Options to Consultants. Except as set forth in Section
7(d)(ii), Options granted to Consultants shall not be subject to Section 7(d) of
the Plan, but shall have such terms and conditions pertaining to the Initial
Vesting Period (if any), exercise date, and effect of termination of the
consulting relationship as the Committee shall determine in each case. Unless
otherwise stated, termination of the consulting relationship shall be deemed to
have occurred at the completion of the consulting project for which Consultant
was engaged at the time of the grant or termination of the Consulting Agreement,
if earlier.
(j) Buyout Provisions. The Committee may at any time offer to
buy out for a payment in cash or Common Stock, an Option previously granted,
based on such terms and conditions as the Committee shall establish and
communicate to the Optionee at the time that such offer is made.
(k) Rule 16b-3. Options granted to persons subject to Section
16(b) of the Exchange Act must comply with Rule 16b-3 and shall be deemed to
contain such
8
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(l) Limits. The following limitations shall apply to grants of
Options to employees:
(i) No employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 1,500,000 Shares.
(ii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the
Company's capitalization or organization as described in
Sections 9 and 10.
(iii) If an Option grant made under the Plan is canceled
in the same fiscal year of the Company in which it was
granted (other than in connection with a transaction
described in Section 9 or Section 10), the canceled Option
grant will be counted against the limit set forth in
Section 7(l)(i), above. For this purpose, if the exercise
price of an Option grant is reduced, the transaction will
be treated as a cancellation of the Option grant and the
grant of a new Option.
8. Withholding Taxes; Stock Withholding to Satisfy Withholding Tax
Obligations. Whenever, under the Plan, shares are to be issued in satisfaction
of Options granted hereunder, the Company shall have the right to require the
recipient to remit to the Company an amount sufficient to satisfy federal,
state, and local withholding tax requirements prior to the delivery of any
certificate or certificates for such shares. Whenever, under the Plan, payments
are to be made in cash, such payment shall be net of an amount sufficient to
satisfy federal, state, and local withholding tax requirements.
When a participant incurs tax liability in connection with the exercise
or vesting of any Option, which tax liability is subject to tax withholding
under applicable tax laws, and the participant is obligated to pay the Company
an amount required to be withheld under applicable tax laws, the participant may
satisfy the withholding tax obligation by electing to have the Company withhold
from the shares to be issued that number of shares having a Fair Market Value
equal to the amount required to be withheld determined on the date that the
amount of tax to be withheld is to be determined (the "Tax Date").
All elections by participant to have shares withheld for this
purpose shall be made in writing in a form acceptable to the Committee and shall
be subject to the following restrictions:
9
(i) the election must be made on or prior to the
applicable Tax Date;
(ii) once made, the election shall be irrevocable as to
the particular shares as to which the election is made;
(iii) all elections shall be subject to the disapproval
of the Committee; and
(iv) if the participant is an officer or Director of the
Company or other person whose transactions in Common Stock
are subject to Section 16(b) of the Exchange Act
(collectively "Insiders"), the election may not be made
during such time or times, if any, as are restricted by
Rule 16b-3 or any successor provision.
9. Recapitalization. In the event that dividends are payable in
Common Stock or in the event there are splits, subdivisions, or combinations of
shares of Common Stock, the number of shares available under the Plan shall be
increased or decreased proportionately, as the case may be, and the number of
shares of Common Stock deliverable in connection with any Option theretofore
granted shall be increased or decreased proportionately, as the case may be,
without change in the aggregate purchase price (where applicable).
10. Reorganization. In case the Company is merged or consolidated
with another corporation and the Company is not the surviving corporation, or in
case the property or stock of the Company is acquired by another corporation, or
in case of separation, reorganization, or liquidation of the Company, then the
Board, or the board of directors of any corporation assuming the obligations of
the Company hereunder, shall, as to outstanding Options either (a) make
appropriate provision for the protection of any such outstanding Options by the
assumption or substitution on an equitable basis of appropriate stock of the
Company or of the merged, consolidated, or otherwise reorganized corporation
which will be issuable in respect to the shares of Common Stock, provided that
in the case of Incentive Stock Options, such assumption or substitution comply
with Section 424 of the Code, or (b) upon written notice to the participant,
provide that the Option must be exercised within 30 days of the date of such
notice or it will be terminated. In any such case, the Board or the Committee
may, in its discretion, advance the lapse of vesting periods, Initial Vesting
Periods, and exercise dates.
11. Employment Relationship. Nothing in the Plan or any Award made
hereunder shall be construed as a contract for employment or consulting for any
period or shall interfere with or limit in any way the right of the Company or
of any Subsidiary to terminate any recipient's employment or consulting
relationship at any time, with or without cause, nor confer upon any recipient
any right to continue in the employ or service of the Company or any Subsidiary.
10
12. General Restriction. Each Award shall be subject to the
requirement that, if, at any time, the Board shall determine, in its discretion,
that the listing, registration, or qualification of the shares subject to such
Award upon any securities exchange or under any state or federal law, or the
consent or approval of any government regulatory body, is necessary or desirable
as a condition of, or in connection with, such Award or the issue or purchase of
shares thereunder, such Award may not be exercised in whole or in part unless
such listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Board.
13. Rights as a Stockholder. The holder of an Option shall have no
rights as a stockholder with respect to any shares covered by the Option until
the date of exercise. Once an Option is exercised by the holder thereof, the
participant shall have the rights equivalent to those of a stockholder, and
shall be a stockholder when his or her holding is entered upon the records of
the duly authorized transfer agent of the Company. Except as otherwise expressly
provided in the Plan, no adjustment shall be made for dividends or other rights
for which the record date is prior to the date such stock certificate is issued.
14. Nonassignability of Awards. Awards made hereunder shall not be
assignable or transferable by the recipient in accordance with their terms,
except to the extent permitted by the tax and securities laws, including by will
or by the laws of descent and distribution, and as otherwise consistent with the
specific Plan provisions relating thereto.
15. Nonexclusivity of the Plan. Neither the adoption of the Plan by
the Board, the submission of the Plan to the stockholders of the Company for
approval, nor any provision of the Plan shall be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under the Plan, and such arrangements
may be either generally applicable or applicable only in specific cases.
16. Amendment, Suspension, or Termination of the Plan. The Board may
at any time amend, alter, suspend, or discontinue the Plan, but no amendment,
alteration, suspension, or discontinuation shall be made which would impair the
rights of any participant in the Plan without his or her consent. Further, no
amendment shall be made without the approval of the Company's stockholders that
would materially increase benefits accruing to participants under the Plan,
increase the aggregate number of securities to be issued under the Plan or
modify the eligibility requirements for participants in the Plan. In addition,
to the extent necessary and desirable to comply with Rule 16b-3 under the
Exchange Act or under Section 423 of the Code (or any other applicable law or
regulation), the Company shall obtain stockholder approval of any Plan amendment
in such a manner and to such a degree as required.
11
17. Effective Date of the Plan. The Amended and Restated Plan is
effective upon adoption by the Board and shall be subject to stockholder
approval within 12 months of adoption by the Board. Options may be granted and
exercised under the Plan only after there has been compliance with all
applicable federal and state securities laws.
12
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS
LSI LOGIC CORPORATION
2002 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of LSI Logic Corporation, a Delaware corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and
Proxy Statement, each dated March 29, 2002, and hereby appoints Wilfred J.
Corrigan and David G. Pursel, or either of them, proxies and attorneys-in-fact,
with full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the 2002 Annual Meeting of
Stockholders of LSI Logic Corporation to be held on May 2, 2002, at 10:00 a.m.,
local time, at the Company's facility located at 1621 Barber Lane, Milpitas, CA
95035 and at any adjournment(s) thereof, and to vote all shares of Common Stock
that the undersigned would be entitled to vote if then and there personally
present, on the matters set forth on the reverse side.
SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
[X] Please mark
votes as in
this example.
THIS PROXY WILL BE VOTED AS DIRECTED OR IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR PROPOSALS 2,
3, AND 4, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING.
1. Election of Directors
NOMINEES: Wilfred J. Corrigan; James H. Keyes; Malcolm R. Currie; T.Z. Chu;
R. Douglas Norby; Matthew J. O'Rourke;
Gregorio Reyes; Larry W. Sonsini
FOR WITHHELD
[ ] [ ]
[ ]______________________________________________________
For all nominees except those listed on the line above
Signature: _______________________________________ Date: _____________
FOR AGAINST ABSTAIN
2. Approval of amendment to the Amended and Restated [ ] [ ] [ ]
Employee Stock Purchase Plan to increase the number
of shares of Common Stock reserved for issuance
thereunder by 10,000,000.
3. Approval of amendment to the 1991 Equity Incentive [ ] [ ] [ ]
Plan to increase the number of shares of Common
Stock reserved for issuance thereunder by 6,000,000.
4. Ratification of the appointment of Pricewaterhouse- [ ] [ ] [ ]
Coopers LLP as independent accountants for its 2002
fiscal year.
5. In the proxies' discretion on such other matters [ ] [ ] [ ]
as may properly come before the meeting.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
(This Proxy should be marked, dated and signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
Signature: _______________________________________ Date: _____________