<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary proxy statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
SEEQ TECHNOLOGY INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(j)(2) or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
SEEQ TECHNOLOGY INCORPORATED
47200 BAYSIDE PARKWAY
FREMONT, CALIFORNIA 94538
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MARCH 21, 1996
TO OUR STOCKHOLDERS:
You are invited to attend the Annual Meeting of Stockholders of SEEQ
TECHNOLOGY INCORPORATED, a Delaware corporation (the "Company"), to be held on
Thursday, March 21, 1996 at 3:00 p.m., local time, at the offices of the Company
at 47200 Bayside Parkway, Fremont, California 94538, for the following purposes:
1. To elect directors to serve for the ensuing year.
2. To approve an amendment to the Company's Restated 1982 Stock Option Plan
to increase the number of shares of the Company's common stock available
for issuance under the 1982 Stock Option Plan by One Million Four
Hundred Thousand (1,400,000) shares.
3. To approve an amendment to the Company's 1989 Non-Employee Director
Stock Option Plan to provide for special one-time option grants to
certain non-employee members of the Company's Board of Directors.
4. To ratify the appointment of Price Waterhouse LLP as independent
accountants of the Company for the fiscal year ending September 29,
1996.
5. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement that accompanies this Notice.
Only stockholders of record at the close of business on February 1, 1996
are entitled to notice of and to vote at the Annual Meeting and at any
continuation or adjournment thereof.
By order of the Board of Directors
ROBERT O. HERSH
Secretary
Fremont, California
February 15, 1996
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN
PERSON. HOWEVER, TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, YOU ARE
URGED TO VOTE, SIGN, AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN
THE POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE.
<PAGE> 3
SEEQ TECHNOLOGY INCORPORATED
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS OF
SEEQ TECHNOLOGY INCORPORATED
TO BE HELD MARCH 21, 1996
GENERAL
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of SEEQ Technology Incorporated, a Delaware corporation
(the "Company" or "SEEQ"), of proxies to be voted at the Annual Meeting of
Stockholders to be held on March 21, 1996, or at any adjournment or postponement
thereof, for the purposes set forth in the accompanying Notice of Annual Meeting
of Stockholders. Stockholders of record on February 1, 1996 will be entitled to
vote at the Annual Meeting. The Annual Meeting will be held at 3:00 p.m. at the
principal executive offices of the Company located at 47200 Bayside Parkway,
Fremont, California 94538.
It is anticipated that this Proxy Statement and the enclosed proxy card
will be first mailed to stockholders on or about February 21, 1996.
VOTING RIGHTS
The close of business on February 1, 1996 was the record date for
stockholders entitled to notice of and to vote at the Annual Meeting and any
adjournments thereof. As of that date, the Company had 29,996,644 shares of its
common stock, $0.01 par value, outstanding and entitled to vote at the Annual
Meeting. Holders of common stock are entitled to one vote for each share of
common stock so held. A majority of the shares of common stock entitled to vote
will constitute a quorum for the transaction of business at the Annual Meeting.
If any stockholder is unable to attend the Annual Meeting, such stockholder
may vote by proxy. The enclosed proxy card is solicited by the Company's Board
of Directors (the "Board of Directors" or the "Board") and, when the proxy card
is returned properly completed, it will be voted as directed by the stockholder
on the proxy card. Stockholders are urged to specify their choices on the proxy
card. If a proxy card is signed and returned without choices specified, in the
absence of contrary instructions, the shares of common stock represented by such
proxy will be voted FOR Proposals 1, 2, 3 and 4. Management does not know of any
matters to be presented at this Annual Meeting other than those set forth in
this Proxy Statement and in the Notice accompanying this Proxy Statement. If
other matters should properly come before the meeting, the proxy holders will
vote on such matters in accordance with their best judgment.
An affirmative vote of a majority of the shares present and voting at the
meeting is required for approval of all items being submitted to the
stockholders for their consideration. Abstentions and broker non-votes each are
included in determining the number of shares present and voting at the Annual
Meeting and each is tabulated separately. Abstentions are counted in tabulations
of the votes cast on proposals presented to stockholders, whereas broker
non-votes are not counted for purposes of determining whether a proposal has
been approved.
The Annual Report of the Company for the fiscal year ended September 24,
1995 has been mailed concurrently with the mailing of the Notice of Annual
Meeting and Proxy Statement to all stockholders entitled to notice of and to
vote at the Annual Meeting.
1
<PAGE> 4
REVOCABILITY OF PROXIES
Any person giving a proxy has the power to revoke it at any time before its
exercise. A proxy may be revoked by filing with the Secretary of the Company an
instrument of revocation or a duly executed proxy bearing a later date, or may
be revoked by attending the Annual Meeting and voting in person.
SOLICITATION OF PROXIES
The Company will bear the cost of solicitation of proxies. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries, and
custodians holding shares in their names that are beneficially owned by others
to forward to such beneficial owners. The Company may reimburse such persons for
their costs of forwarding the solicitation material to such beneficial owners.
The original solicitation of proxies by mail may be supplemented by solicitation
by telephone, telegram, or other means by directors, officers, employees or
agents of the Company. No additional compensation will be paid to these
individuals for any such services. Except as described above, the Company does
not intend to solicit proxies other than by mail.
2
<PAGE> 5
PROPOSAL NO. 1:
ELECTION OF DIRECTORS
Each director to be elected at the Annual Meeting will hold office until
the next annual meeting of stockholders and until a successor for such director
is elected and has qualified, or until the death, resignation, or removal of
such director. There are four nominees, each of whom is currently a director of
the Company. Each of the Company's current directors was elected to the Board by
the stockholders at the last annual meeting. Each person nominated for election
has agreed to serve if elected, and the Board of Directors has no reason to
believe that any nominee will be unavailable or will decline to serve. In the
event, however, that any nominee is unable or declines to serve as a director at
the time of the Annual Meeting, the proxies will be voted for any nominee who
shall be designated by the current Board of Directors to fill the vacancy. In
the event that additional persons are nominated for election as directors, the
proxyholders intend to vote all proxies received by them for the nominees listed
below. Unless otherwise instructed, the proxyholders will vote the proxies
received by them for the nominees named below. The four candidates receiving the
highest number of the affirmative votes of the shares entitled to vote at the
Annual Meeting will be elected directors of the Company. The proxies solicited
by this Proxy Statement may not be voted for more than four nominees.
NOMINEES
Set forth below is information regarding the nominees to the Board of
Directors.
<TABLE>
<CAPTION>
NAME AGE
--------------------------------------------------------------- ---
<S> <C>
Alan V. Gregory................................................ 62
Charles C. Harwood............................................. 68
Phillip J. Salsbury............................................ 53
Peter C. Chen.................................................. 56
</TABLE>
Alan V. Gregory has served as a member of the Board of Directors of the
Company since August 1992 and has served as the Company's Chairman of the Board
since October 1993. Since 1983, Mr. Gregory has been President, Chief Executive
Officer and Chairman of the Board of Directors of XECOM, Inc., a modem
manufacturer. From 1978 to 1983, Mr. Gregory was a private investor. From 1975
to 1978, he served as Vice President and General manager of the MOS Divisions of
Fairchild Semiconductor Incorporated, a semiconductor manufacturer. From 1969 to
1975, Mr. Gregory was employed by Signetics Corporation, a semiconductor
manufacturer, and served as Corporate Vice President and General manager of the
Analog Division from 1973 to 1975. Mr. Gregory was also a co-founder of Omni
Technology Incorporated, an electronics test services company, and served as one
of its directors from 1980 to 1986.
Charles C. Harwood has served as a member of the Board of Directors of the
Company since May 1994. Since December 1992, Mr. Harwood has been an independent
management consultant. From 1985 through December 1992, Mr. Harwood was a
co-founder of The Quality Improvement Company, a management consulting firm.
From 1970 through 1985, Mr. Harwood served as President of Signetics
Corporation. Mr. Harwood is also a director of XECOM and North American
Management Company, an investment advisory firm.
Phillip J. Salsbury, a founder of the Company, has served as the Company's
President and Chief Executive Officer since October 1993. Dr. Salsbury has
served as a member of the Board of Directors since the founding of the Company
in 1981 and, from 1981 through September 1993, served as the Company's Vice
President, Chief Technical Officer and Secretary. From 1973 until 1980, Dr.
Salsbury served in various engineering management positions for Intel
Corporation, a semiconductor manufacturer. Dr. Salsbury is a co-inventor under
nine patents in the area of MOS (metal oxide silicon) devices and circuits.
Peter C. Chen has served as a member of the Board of Directors of the
Company since January 18, 1994. Since December 1992, Dr. Chen has been Chairman
of Specom Technology Corporation, a multimedia communications subsystem
manufacturer, and President of Crosslink Semiconductor Corporation, a
semiconductor design company. From December 1991 to May 1992, Dr. Chen was the
Chairman of Mosel-Vitelic
3
<PAGE> 6
Corporation, a semiconductor manufacturer. From 1983 to December 1991, Dr. Chen
served as the President and CEO of MOS Electronics Corporation, a semiconductor
manufacturer. Dr. Chen received a Ph.D. in Electrical Engineering from Cornell
University in 1971. Dr. Chen was appointed to the Board of Directors of the
Company pursuant to the right of Hualon Microelectronics Corporation to
designate one member of the Board of Directors for election by the stockholders.
See the "Certain Transactions" section below.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL OF THE
ABOVE NOMINEES FOR ELECTION AS DIRECTORS.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held seven (7) meetings during fiscal 1995. Each
director, other than Mr. Chen, attended more than seventy-five percent (75%) of
the aggregate of (i) the total number of meetings of the Board of Directors held
during the fiscal year, or portion of the fiscal year, during which such
director served as a member of the Board, and (ii) the total number of meetings
held by all committees of the Board on which such director served.
The Audit Committee of the Board of Directors recommends engagement of the
Company's independent accountants, approves services performed by such
accountants, and reviews and evaluates the Company's accounting system and its
system of internal controls. This committee, which consists of Directors Gregory
and Harwood, held two (2) meetings during fiscal 1995.
The Compensation Committee of the Board of Directors has overall
responsibility for the Company's compensation policies and determines the
compensation payable to the Company's executive officers, including their
participation in certain of the Company's employee benefit plans. This
committee, which consists of Directors Gregory and Harwood, held one (1) meeting
during fiscal 1995.
The Stock Option Committee of the Board of Directors has the exclusive
authority to administer the Company's Restated 1982 Stock Option Plan (the "1982
Stock Option Plan") and to make stock option grants under the Plan, including
grants to executive officers. This committee, which consists of Directors
Gregory and Harwood, held three (3) meetings during fiscal 1995.
The Nominating Committee of the Board of Directors nominates persons to
serve on the Board of Directors. Any stockholder who wishes to recommend a
prospective nominee for the Board of Directors for consideration by the
Nominating Committee may submit such recommendation to Mr. Alan V. Gregory,
Chairman of the Board of Directors, SEEQ Technology Incorporated, 47200 Bayside
Parkway, Fremont, California 94538. This Committee, which consists of Directors
Gregory, Harwood and Salsbury, held one (1) meeting during fiscal 1995.
DIRECTOR COMPENSATION
It is the general policy of the Company that each non-employee director of
the Company who is not appointed as a director pursuant to any contractual or
other right or arrangement be paid $2,000 for each quarterly meeting of the
Board of Directors attended and $1,000 for certain additional Board or committee
meetings attended. In addition, each such director is eligible for reimbursement
in accordance with Company policy for expenses incurred in connection with his
attendance at meetings of the Board of Directors and the committees thereof.
Under the Company's 1989 Non-Employee Director Stock Option Plan (the
"Director Plan"), each individual who first becomes a non-employee Board member
other than pursuant to any contractual or other right or arrangement will
receive, at the time of his initial election or appointment to the Board, an
automatic option grant for 20,000 shares of the Company's common stock, and each
such individual who continues to serve as a non-employee Board member will
receive additional automatic option grants, each for 10,000 shares, at annual
intervals over his period of continued Board service, beginning with the second
Annual Stockholders Meeting following his initial election or appointment to the
Board. Under the Director Plan, Mr. Gregory received a 20,000 share option grant
in August 1992 with an exercise price of $1.4375 per share, a 10,000 share
option grant in February 1994 with an exercise price of $1.375 per share, and a
10,000 share
4
<PAGE> 7
option grant in March 1995 with an exercise price of $2.438 per share; and Mr.
Harwood received a 20,000 share option grant in April 1994 with an exercise
price of $1.125 per share. Each of those options has an exercise price per share
equal to the fair market value of the Company's common stock on the automatic
grant date and has a maximum term of 10 years. Each option will become
exercisable for all the option shares upon the optionee's completion of 6 months
of Board service measured from the grant date, but any shares purchased under
the option will be subject to repurchase by the Company, at the original
exercise price paid per share, should the optionee cease Board service prior to
vesting in the purchased shares. Each 20,000 share option grant will vest in two
equal annual installments over the optionee's period of Board service measured
from the grant date, and each 10,000 share option will vest upon the optionee's
completion of two years of Board service measured from the grant date. However,
the shares subject to each outstanding option grant under the Director Plan will
immediately vest should the Company be acquired by merger or asset sale or
should the optionee die or become disabled while serving as a Board member or
should there occur a hostile takeover of the Company through tender offer for
25% or more of the outstanding common stock or change in the majority of the
Board by proxy contest. Upon the successful completion of a hostile tender offer
for 25% or more of the outstanding common stock, each automatic option grant
will be canceled in return for a cash payment from the Company in an amount per
canceled option share equal to the greater of (i) the highest tender offer price
per share paid for the common stock or (ii) the fair market value per share on
the option cancellation date, less the option exercise price per share.
As described in Proposal No. 3 below, the stockholders are being asked to
vote on a proposal to approve an amendment to the Director Plan which will
provide special one-time option grants to certain non-employee Board members. If
the amendment is approved, then the following special option grants will be made
on the date of the 1996 Annual Meeting: a 40,000 share option grant to the
Company's Chairman of the Board and a 10,000 share grant to the other
non-employee Board member who has not been appointed to the Board pursuant to
any contractual or other right or arrangement. In accordance with the terms of
the Director Plan, the option grant will have an exercise price equal to the
fair market value of the Company's Common Stock on the date of grant and will
have a maximum term of 10 years. Each such option will become exercisable for
all the option shares upon the optionee's completion of 6 months of Board
service measured from the grant date, but any shares purchased under the option
will be subject to repurchase by the Company, at the original exercise price
paid per share, should the optionee cease Board service prior to vesting in the
purchased shares. The shares subject to each option will vest upon that
individual's completion of one year of Board service measured from the grant
date. As a result of this amendment, Mr. Gregory will receive a 40,000 share
option grant and Mr. Harwood will receive a 10,000 share option grant on the
date of the Annual Meeting, provided the amendment is approved by the Company's
stockholders. These special one-time grants to Mr. Gregory and Mr. Harwood will
be in addition to the automatic option grant for 10,000 shares they will each
receive under the existing provisions of the Director Plan upon their
re-election to the Board. The Board of Directors believes that the special
one-time option grants to be made pursuant to the amendment to the Director Plan
provide appropriate compensation for the extraordinary time and effort
contributed by Mr. Gregory and Mr. Harwood to the Company over the past two
fiscal years. Both Mr. Gregory and Mr. Harwood spent considerable time and
effort assisting Company management in addressing the various issues faced in
the Company's restructuring activities over the past two years.
No other compensation is paid to directors of the Company in respect of
their services as directors.
MANAGEMENT
Set forth below is information regarding the executive officers of the
Company who are not directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
---------------------------------- --- -------------------------------------------------
<S> <C> <C>
Robert O. Hersh................... 42 Vice President, Finance, Chief Financial Officer
and Secretary
Philip A. Ortiz................... 49 Vice President, Worldwide Sales
Stephen F. Dreyer................. 43 Vice President and Chief Technical Officer
Barry C. Gray..................... 39 Vice President, Marketing
</TABLE>
5
<PAGE> 8
Robert O. Hersh has served as the Company's Vice President, Finance and
Chief Financial Officer since October 1995 and as the Company's Secretary since
January 1996. From 1987 to September 1995, he served in various capacities at
Alps Electric (North America), Inc., a manufacturer of computer peripheral
equipment, and its subsidiaries, including as Executive Vice President and Chief
Operating Officer and Senior Vice President and Chief Financial Officer.
Philip A. Ortiz has served as the Company's Vice President, Worldwide Sales
since September 1992. From October 1988 until June 1992, he was the Company's
Vice President, Worldwide Sales. From June 1992 to September 1992, Mr. Ortiz was
on leave from the Company. Mr. Ortiz served as the Company's Vice President,
International Sales from March 1988 to October 1988. Mr. Ortiz has served in
international and domestic sales activities for the Company since 1983 and was
first appointed as Vice President in January 1987. From 1980 to 1983, Mr. Ortiz
was director of marketing and sales for California Devices, Inc., a
semiconductor manufacturer. From 1970 to 1980, he held various marketing and
sales positions at American Micro-Systems, Inc., a semiconductor manufacturer.
Stephen F. Dreyer has served as the Company's Vice President and Chief
Technical Officer since April 1995. From June 1993 to March 1995, Mr. Dreyer
served as the President of Talus Technology Incorporated, which was a wholly
owned subsidiary of the Company. From November 1991 to June 1993, Mr. Dreyer was
a consultant in the area of analog integrated circuit design. From October 1984
to October 1991, Mr. Dreyer served as the CMOS Design Manager for Micro Linear
Corporation, a semiconductor manufacturer.
Barry C. Gray has served as the Company's Vice President of Marketing since
September 1995. From 1990 to August 1995, Mr. Gray served in various marketing
positions at Integrated Device Technology, a semiconductor manufacturer,
including Strategic Marketing Manager, Marketing Manager and Product Marketing
Engineer.
CERTAIN TRANSACTIONS
SEEQ and Hualon Microelectronics Corporation, a corporation organized under
the laws of Taiwan, the Republic of China ("Hualon"), entered into a Stock
Purchase Agreement dated July 16, 1990 (the "Stock Purchase Agreement") pursuant
to which Hualon purchased for cash 1,625,000 shares of SEEQ common stock at
$3.25 per share, for an aggregate purchase price of $5,281,250. In addition, the
Stock Purchase Agreement provides for the election of a representative of Hualon
to the SEEQ Board of Directors on the terms set forth in the Stock Purchase
Agreement. Pursuant to this right, Hualon has appointed Dr. Peter C. Chen to the
Company's Board of Directors. SEEQ and Hualon also entered into a Technology
Transfer and Foundry Agreement dated July 16, 1990 (the "Foundry Agreement")
pursuant to which SEEQ agreed to license to Hualon certain of SEEQ's processes
and products, and the underlying technology with respect thereto, and Hualon
agreed to manufacture products on SEEQ's behalf and act as an alternate source
for certain of such products in certain geographical markets (in exchange for
which SEEQ will receive royalty payments). In addition, the Foundry Agreement
provides for the joint development of new products and processes based on
certain of the products and processes licensed by SEEQ under such Agreement.
Pursuant to a settlement of certain litigation between the Company and Hualon,
an Amendment to the Foundry Agreement was entered into by and between the
Company and Hualon during fiscal 1995. Pursuant to the Foundry Agreement, as
amended, the Company paid to Hualon an aggregate of approximately $400,000
during fiscal 1995.
On March 30, 1994 the Company filed a lawsuit in the United States District
Court for the Northern District of California against Hualon, which had
previously been one of the Company's former foundries and joint development
partners. In the lawsuit, the Company originally sought injunctive relief from
the court to prevent Hualon from using certain of the nonvolatile memory
technology previously sold by the Company to Atmel Corporation, to which Hualon
had asserted certain license rights under an alleged license agreement. In
response to the Company's claims, Hualon asserted affirmative defenses and
counterclaims seeking a declaration by the court that the alleged license
agreement was valid and seeking specific performance of the alleged license
agreement and other agreements previously entered into by the two parties.
Hualon subsequently amended its counterclaims to include additional claims in
the proceeding, including claims for
6
<PAGE> 9
damages for breach of, and for money owed pursuant to, other agreements between
the Company and Hualon. The Company subsequently amended its original complaint
to include a number of additional claims against Hualon, including claims for
damages for breach of, and for money owed pursuant to, such other agreements.
On August 16, 1995, the Company and Hualon entered into a Settlement
Agreement, Release and Tolling Agreement. The terms of such Agreement provided,
among other things, for the payment by the Company to Hualon of $500,000 in cash
and the issuance by the Company to Hualon of 100,000 shares of the Company's
Common Stock. In addition, under the terms of such Agreement, the Company agreed
that the claims asserted against Hualon in respect of the alleged license
agreement would be tolled for such time and on such terms as provided therein.
As a result, the Company is not currently pursuing such claims. The Company is
entitled to pursue such claims in the future, however, subject to the terms of
the Settlement Agreement, Release and Tolling Agreement.
SHARE OWNERSHIP
The following table sets forth certain information regarding the ownership
of the Company's common stock as of December 31, 1995 by (i) all persons known
by the Company to be beneficial owners of five percent (5%) or more of its
outstanding common stock, (ii) each director of the Company and each nominee for
director, (iii) each of the Named Executive Officers (as hereinafter defined),
and (iv) all executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP(1)
------------------------
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES CLASS
- ----------------------------------------------------------------------- --------- ----------
<S> <C> <C>
Atmel Corporation...................................................... 3,614,701 12.1%
2125 O'Nel Drive
San Jose, CA 95131
Hualon Microelectronics Corporation.................................... 1,637,000 5.5%
c/o The E-Hsin International Corporation
42 Station 2, 6th Floor
Chung Shan North Road
Taipei, Taiwan
Phillip J. Salsbury.................................................... 688,930(2) 2.2%
Alan V. Gregory........................................................ 138,500(3) *
Peter C. Chen.......................................................... 0(4) *
Charles C. Harwood..................................................... 104,000(5) *
Robert O. Hersh........................................................ 0 *
Philip A. Ortiz........................................................ 22,522(6) *
Stephen F. Dreyer...................................................... 54,877(7) *
Barry C. Gray.......................................................... 0 *
Walter P. Gebauer...................................................... 5,274(8) *
All current directors and executive officers as a group (9 persons).... 994,103(9) 3.3%
</TABLE>
- ---------------
* Less than one percent.
(1) Unless otherwise indicated, each of the beneficial owners named in the table
has sole voting and investment power with respect to all shares shown as
owned by them, subject to applicable community property laws.
(2) Excludes 1,333 shares of common stock owned by trusts for the benefit of Mr.
Salsbury's children, as to which Mr. Salsbury disclaims beneficial
ownership. Includes 595,327 shares of common stock subject to issuance upon
exercise of options exercisable within 60 days after December 31, 1995.
(3) Includes 40,000 shares of Common Stock issuable upon exercise of options
that are currently exercisable or that will become exercisable within 60
days after December 31, 1995.
7
<PAGE> 10
(4) Does not include the 1,637,000 shares held by Hualon. Dr. Chen has been
appointed to the Company's Board of Directors as the representative of
Hualon. See "Certain Transactions."
(5) Includes 20,000 shares of Common Stock issuable upon exercise of options
that are currently exercisable or that will become exercisable within 60
days after December 31, 1995.
(6) Includes 22,515 shares of Common Stock issuable upon exercise of options
that are currently exercisable or that will become exercisable within 60
days after December 31, 1995.
(7) Includes 54,877 shares of Common Stock issuable upon exercise of options
that are currently exercisable or that will become exercisable within 60
days after December 31, 1995.
(8) Includes 5,274 shares of Common Stock issuable upon exercise of options that
are currently exercisable or that will become exercisable within 60 days
after December 31, 1995. Mr. Gebauer terminated his employment effective
January 31, 1996.
(9) Includes 737,993 shares of Common Stock issuable upon exercise of options
that are currently exercisable or that will become exercisable within 60
days after December 31, 1995.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES ACT OF 1934
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission (the "SEC") initial reports of ownership
and reports of changes in ownership of common stock and other equity securities
of the Company. Officers, directors and greater than ten percent stockholders
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely upon review of copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended September 24, 1995, all
Section 16(a) filing requirements applicable to the Company's officers,
directors and greater than ten percent beneficial owners stock were complied
with, other than a Form 3 for Stephen F. Dreyer which was filed late.
8
<PAGE> 11
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
compensation earned by the Company's Chief Executive Officer and each of the
three other most highly compensated executive officers of the Company
(determined as of the end of the last fiscal year) for services rendered in all
capacities to the Company and its subsidiaries for the 1995, 1994 and 1993
fiscal years. In addition, the table includes certain summary compensation
information for Mr. Ralph Harms who terminated his employment in June 1995. Such
individuals will be hereinafter referred to as the Named Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
OTHER COMPENSATION
ANNUAL COMPENSATION ANNUAL AWARDS ALL OTHER
FISCAL -------------------------- COMPENSATION (OPTIONS) COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($)(1) ($)(2)(3) (NO. OF SHARES) SATION($)(4)
- ------------------------------- ------ ------------ ----------- ------------ --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Phillip J. Salsbury............ 1995 205,400 -- 4,103 -- 182,682
President and Chief Executive 1994 214,499 -- 62,519 400,000 362,536
Officer(5) 1993 148,843 3,588 40,588 185,208(6) --
Ralph J. Harms................. 1995 97,269 5,000 2,175 -- 50,315
Vice President, Finance and 1994 130,000 20,000 62,360 135,000 72,872
Administration, Chief 1993 123,982 2,949 9,328 94,370(6) --
Financial Officer and
Secretary(7)
Philip A. Ortiz................ 1995 100,001 -- 92,592(8) -- 66,877
Vice President, Worldwide 1994 100,001 -- 81,999(8) 20,000 98,560
Sales 1993 90,963 1,125 77,531(8) 109,728(6) --
Walter P. Gebauer.............. 1995 127,036 -- -- -- --
Vice President, 1994 117,162 -- -- -- --
Manufacturing(9) 1993 109,154 100,000 -- -- --
Stephen F. Dreyer,............. 1995 102,846 -- -- 540,000 --
Vice President, Research and 1994 100,000 -- -- -- --
Development(10) 1993 28,846 -- 13,188(10) -- --
</TABLE>
- ---------------
(1) Includes amounts deferred under the Company's Retirement Income (401(k))
Plan.
(2) Except where otherwise specifically noted, all amounts shown in the column
"Other Annual Compensation" represent amounts reimbursed to the named
executive officers in respect of certain financial and tax preparation
services and automobile allowances.
(3) Except where otherwise specifically described in footnotes (2) and (7), all
amounts shown in the column "Other Annual Compensation" represent amounts
paid to each Named Executive Officer pursuant to the Company's Supplemental
Cash Bonus Plan. A portion of each such award was immediately repaid to the
Company in satisfaction of the accrued interest on the outstanding
promissory notes which the Named Executive Officer delivered to the Company
in payment of the exercise price of shares purchased by that individual
under the Company's 1982 Stock Option Plan, and the remainder of the award
represented a reimbursement for income taxes payable by the Named Executive
Officer with respect to the bonus award. The bonus awards for each Named
Executive Officer were as follows: (i) for fiscal year 1995: Dr. Salsbury:
$4,103, of which $2,551 represented the amount repaid to the Company as
interest and $1,552 represented the tax reimbursement on the award; Mr.
Harms: $825, of which $513 represented the amount repaid to the Company as
interest and $312 represented the tax
9
<PAGE> 12
reimbursement on the award; and Mr. Ortiz: $1,115, of which $694
represented the amount repaid to the Company as interest and $421
represented the tax reimbursement on the award; (ii) for fiscal year 1994:
Dr. Salsbury: $62,519, of which $39,075 represented the amount repaid to
the Company as interest and $23,444 represented the tax reimbursement on
the award; Mr. Harms: $8,870, of which $5,544 represented the amount repaid
to the Company as interest and $3,326 represented the tax reimbursement on
the award; and Mr. Ortiz: $17,411, of which $10,882 represented the amount
repaid to the Company as interest and $6,529 represented the tax
reimbursement on the award; (iii) for fiscal year 1993: Dr. Salsbury:
$39,203, of which $24,502 represented the amount repaid to the Company as
interest and $14,701 represented the tax reimbursement on the award; Mr.
Harms: $7,767, of which $4,854 represented the amount repaid to the Company
as interest and $2,913 represented the tax reimbursement on the award; and
Mr. Ortiz: $11,080, of which $6,925 represented the amount repaid to the
Company as interest and $4,155 represented the tax reimbursement on the
award. For a description of the Supplemental Cash Bonus Plan, see
"Supplemental Cash Bonus Plan" below.
(4) All amounts shown in the column "All Other Compensation" represents: (i)
the amount of forgiveness of indebtedness which the Named Executive Officer
owed to the Company under the promissory notes such Named Executive Officer
delivered in payment of the option exercise price of certain stock options
granted under the 1982 Stock Option Plan. Under the terms of the Special
Loan Forgiveness Program adopted by the Company, such indebtedness is to be
forgiven over an 18-month period beginning October 1, 1993 so long as such
Named Executive Officer continues as an employee of the Company; and (ii)
the amount reimbursed to the Named Executive Officer for the income tax
liability incurred as a result of the forgiveness of such promissory notes;
provided, however, that, for accounting purposes, the entire amount of such
forgiveness and reimbursement has been accrued as compensation expense for
the 1995 fiscal year. During fiscal 1994, the amounts forgiven and
reimbursed to the Named Executive Officers under the Special Loan
Forgiveness Program were as follows: Dr. Salsbury: $226,584 forgiven and
$135,952 reimbursed; Mr. Harms: $45,544 forgiven and $27,328 reimbursed;
and Mr. Ortiz: $61,600 forgiven and $39,960 reimbursed. During fiscal 1995,
the amounts forgiven and reimbursed to the Named Executive Officers under
the Special Loan Forgiveness Program were as follows: Dr. Salsbury:
$113,291 forgiven and $69,391 reimbursed; Mr. Harms: $22,773 forgiven and
$27,542 reimbursed; and Mr. Ortiz: $30,798 forgiven and $36,079 reimbursed.
See "Special Loan Forgiveness Program."
(5) Dr. Salsbury was appointed to be President and Chief Executive Officer of
the Company on October 1, 1993. Prior thereto, Dr. Salsbury was the
Company's Vice President and Chief Technical Officer.
(6) The options granted to the named executive officers during fiscal 1993
include options to purchase shares of common stock granted under the
Company's 1982 Stock Option Plan in replacement of the shares previously
purchased upon the exercise of options and subsequently sold by such
officers pursuant to the Company's Loan Forgiveness Program in the
following amounts: Mr. Salsbury: 110,208 shares; Mr. Harms: 19,370 shares;
and Mr. Ortiz: 29,728 shares. See "Special Loan Forgiveness Program."
(7) Mr. Harms terminated his employment in June 1995.
(8) Includes sales commissions paid to Mr. Ortiz in the amount of $82,600,
$56,349 and $58,463 for fiscal years 1995, 1994 and 1993, respectively.
(9) Mr. Gebauer terminated his employment effective January 31, 1996.
(10) Mr. Dreyer was appointed to be the Company's Vice President and Chief
Technical Officer in April 1995. From June 1993 to April 1995, Mr. Dreyer
was the President of Talus Technology Incorporated, a wholly owned
subsidiary of the Company. Prior thereto, Mr. Dreyer was employed as a
consultant to the Company. The amounts paid to Mr. Dreyer in fiscal 1993
represent consulting fees.
SUPPLEMENTAL CASH BONUS PLAN
The Supplemental Cash Bonus Plan was implemented as a special program to
provide the Named Executive Officers with an opportunity to earn additional
compensation to be applied to the satisfaction of their outstanding indebtedness
to the Company arising from the exercise of the stock options granted to them
10
<PAGE> 13
under the Company's 1982 Stock Option Plan. At the time when those options were
exercised, the rules of the Securities and Exchange Commission applicable to
short-swing trading transactions in the Company's common stock required the
officer to hold the purchased shares for at least six months before those shares
could be sold without short-swing liability. In order to avoid liquidity
problems for the Named Executive Officers, the Company permitted the option
exercise price to be paid through a promissory note. The purchased shares were
then held by the Company as security for the notes and were to be released as
the shares were sold and the proceeds applied to the payment of the notes.
During fiscal 1987 and 1988, the Company accepted promissory notes from the
following Named Executive Officers in payment of the option exercise price for
the number of shares specified for each such individual: Dr. Salsbury: 110,208
shares at an average exercise price of $4.18 per share; Mr. Harms: 19,370 shares
at an average exercise price of $4.68 per share; and Mr. Ortiz: 29,728 shares at
an average exercise price of $4.27 per share. Accordingly, the amount of the
promissory notes delivered under the 1982 Stock Option Plan in payment for the
shares purchased by the Named Executive Officers were in the following aggregate
amounts: Dr. Salsbury: $460,539; Mr. Harms: $90,748; and Mr. Ortiz: $126,831.
Each promissory note is full recourse and currently bears interest at 6% per
annum. The promissory notes were originally due and payable within three years
after issuance, but the due date for payment has been extended on several
occasions, including the recent extension to March 1995 under the terms of the
Loan Forgiveness Program, as described below. During fiscal year 1994, the
amount of the outstanding notes of each Named Executive Officer was reduced
through payments applied to such indebtedness pursuant to the Loan Forgiveness
Program.
Under the Supplemental Cash Bonus Plan, each officer of the Company with an
outstanding promissory note under the 1982 Stock Option Plan is to receive an
annual cash payment equal to the interest due and payable on his promissory note
plus an additional amount to reimburse him for the additional income tax
incurred as a result of the payment. No executive officer to whom payments have
been made under the Supplemental Cash Bonus Plan has received any amounts
thereunder in excess of the amount necessary to satisfy the interest payment due
on his promissory note and the taxes payable on the bonus. The total amounts
accrued and paid in fiscal 1995, 1994 and 1993 under the Supplemental Cash Bonus
Plan on behalf of the Named Executive Officers are included in the Summary
Compensation Table and described in footnote (3) thereto.
SPECIAL LOAN FORGIVENESS PROGRAM
The Special Loan Forgiveness Program (the "Loan Forgiveness Program")
adopted by the Company was designed to achieve two primary purposes: (i) obtain
working capital for the Company and (ii) allow the Named Executive Officers who
have outstanding promissory notes under the 1982 Stock Option Plan the
opportunity to have that indebtedness forgiven over their period of continued
service with the Company. The Loan Forgiveness Program consists of three
separate components: the sale of the pledged shares and the paydown of the
promissory note, the grant of new stock options and the forgiveness of the
balance of the note over a period of future service.
Accordingly, each Named Executive Officer was required to sell all the
shares of Company's common stock securing his promissory note and to apply the
entire sale proceeds (net of sales commissions) to the partial payment of such
note. The remaining balance of the note is forgiven in six equal and successive
quarterly increments. However, unless otherwise provided by the Company, the
Named Executive Officer must continue in the Company's employ through each
forgiveness date in order to have the increment for that quarter forgiven. If
the Named Executive Officer leaves the Company's employ prior to full
forgiveness of his promissory note, then, unless otherwise provided by the
Company, the entire unpaid balance of that note will become due and payable on
the fifteenth (15th) day following such cessation of employee status.
The number of shares of the Company's common stock sold by each of the
Named Executive Officers under the Loan Forgiveness Program, the selling prices
per share, and the total net proceeds paid to the Company as a result of such
sales were as follows: Mr. Salsbury sold 52,650 shares at $1.0625 per share and
57,567 shares at $1.15625 per share, for total net proceeds of approximately
$120,664; Mr. Ortiz sold 14,250 shares at $1.0625 per share and 15,478 shares at
$1.3125 per share, for total net proceeds of approximately
11
<PAGE> 14
$34,433; and Mr. Harms sold 9,300 shares at $1.0625 per share and 10,070 shares
at $1.1325 per share, for total net proceeds of approximately $22,431.
As the promissory note is forgiven in quarterly increments, the Named
Executive Officer receives a cash bonus as a reimbursement from the Company in
an amount equal to the Federal and state income tax liability incurred as a
result of (i) the loan forgiveness and (ii) the cash bonus. As a result, the
officer incurs no additional tax liability in connection with the forgiveness of
his promissory note. The total amounts forgiven and reimbursed under the Loan
Forgiveness Program on behalf of the Named Executive Officers are included in
the Summary Compensation Table and described in footnote (4) thereto.
Each Named Executive Officer was granted a new stock option under the 1982
Stock Option Plan for the same number of shares of common stock as were sold in
connection with the paydown of his promissory note. The exercise price is equal
100% of the fair market value per share of the Company's common stock on the
grant date and the option will vest on a daily basis over an 18-month period
over the officer's continued service with the Company, measured from the grant
date. Any shares purchased by the Named Executive Officer under the new option
will automatically be pledged as security for the unpaid balance of his
promissory note and will be released incrementally as that note is forgiven.
STOCK OPTIONS
The following table sets forth information concerning the stock options
granted under the 1982 Stock Option Plan during the 1995 fiscal year to the
Named Executive Officers. The table also sets forth hypothetical gains or
potential "option spreads" for those options at the end of their respective
ten-year terms. These potential realizable values are based on the assumption
that the market price of the Company's common stock will appreciate at the rate
of five percent (5%) and ten percent (10%), compounded annually, from the date
the option was granted to the last day of the full option term. The actual value
realized upon the exercise of these options, if any, will be dependent upon the
future performance of the Company's common stock and overall market conditions.
During the 1995 fiscal year, no stock appreciation rights were granted to the
Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
OPTIONS STOCK PRICE
OPTIONS GRANTED TO EXERCISE APPRECIATION FOR
GRANTED EMPLOYEES IN PRICE OPTION TERM(2)
(NO. OF FISCAL PER EXPIRATION ---------------------
NAME SHARES) YEAR(1) SHARE($) DATE 5%($) 10%($)
- ---------------------------- ----------- ------------ -------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Philip J. Salsbury.......... -- -- -- -- -- --
Ralph J. Harms.............. -- -- -- -- -- --
Philip A. Ortiz............. -- -- -- -- -- --
Walter P. Gebauer........... -- -- -- -- -- --
Stephen F. Dreyer........... 540,000(2) 36.3% 1.375 March 2005 $466,954 $1,183,354
</TABLE>
- ---------------
(1) The Company granted options to purchase a total of 1,487,000 shares of
common stock during the year ended September 24, 1995.
(2) The option will become exercisable for the option shares in a equal daily
increments over a five-year period of service with the Company measured from
the March 10, 1995 grant date. However, the option will become immediately
exercisable for all the option shares in the event the Company is acquired
by merger or asset sale, unless the option is assumed by the acquiring
entity. The option has a maximum term of 10 years, subject to earlier
termination following the optionee's cessation of service with the Company.
The option was granted under the Company's Restated 1982 Stock Option Plan,
and the remaining terms of the option are in accordance with the provisions
of that plan as summarized in "Proposal No.2: Approval of Amendment to
Restated 1982 Stock Option Plan."
12
<PAGE> 15
STOCK OPTION EXERCISES AND HOLDINGS
The following table sets forth certain information concerning the number of
options exercised during the fiscal year ended September 24, 1995 and the number
of shares subject to exercisable and unexercisable stock options held by the
Named Executive Officers as of September 24, 1995. No stock appreciation rights
were exercised by the Named Executive Officers during the 1995 fiscal year, and
no stock appreciation rights were outstanding at the end of that year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF IN-THE-MONEY OPTIONS AT
UNEXERCISED OPTIONS FISCAL YEAR END (MARKET
AT FISCAL YEAR-END PRICE OF SHARES LESS
SHARES (NO. OF SHARES) EXERCISE PRICE)($)(2)(3)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Phillip J. Salsbury......... -- -- 566,818 207,211 $ 1,915,542 $ 690,094
Ralph J. Harms.............. 202,539 $ 288,721 -- -- $ -- $ --
Philip A. Ortiz............. 62,000 $ 98,672 25,806 41,922 $ 90,537 $ 148,701
Walter P. Gebauer........... -- -- 101,802 33,198 $ 336,545 $ 114,135
Stephen F. Dreyer........... -- -- 75,888 464,112 $ 251,417 $ 1,537,603
</TABLE>
- ---------------
(1) The "value realized" represents the difference between the exercise price of
the option shares and the market price of the option shares on the date the
option was exercised. The value realized was determined without considering
any taxes which may have been owed.
(2) "In-the-money" options are options whose exercise price was less than the
market price of common stock at September 24, 1995.
(3) Assuming a stock price of $4.688 per share, which was the closing price of a
share of the Company's common stock reported on the Nasdaq National Market
on September 24, 1995.
COMPENSATION AND STOCK OPTION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
The Compensation and Stock Option Committees of the Board of Directors (the
"Committees") administer the Company's compensation policies and programs. The
Compensation Committee makes and reviews recommendations regarding the Company's
compensation policies and executive compensation, including setting the base
salaries of the Company's executive officers, approving individual bonuses and
bonus programs for executive officers, and administering certain of the
Company's stock option and other employee benefit plans. The Stock Option
Committee is solely responsible for administering the Company's 1982 Stock
Option Plan, under which grants may be made to executive officers and other key
employees. The following is a summary of policies of the Committees that affect
the compensation paid to executive officers, as reflected in the tables and text
set forth elsewhere in this proxy statement.
GENERAL COMPENSATION POLICY. The overall policy of the Committees is to
offer the Company's executive officers competitive compensation opportunities
based upon their personal performance, the financial performance of the Company
and their contribution to that performance. One of the primary objectives is to
have a substantial portion of each executive officer's compensation contingent
upon the Company's performance as well as upon such executive officer's own
level of performance. Each executive officer's compensation package is generally
comprised of three elements: (i) base salary, which reflects an individual's
position and responsibilities, as well as past performance, and is generally
designed primarily to be competitive with the salary levels of the Company's
competitors in the semiconductor industry, (ii) annual variable performance
awards payable in cash and tied to the achievement of annual performance goals,
and (iii) long-term stock-based incentive awards designed to strengthen the
mutuality of interests between the executive officers and the Company's
stockholders. Generally, as an executive officer's level of responsibility
13
<PAGE> 16
increases, a greater portion of such executive officer's total compensation will
be dependent upon Company performance and stock price appreciation rather than
base salary.
FACTORS. The primary factors considered in establishing the components of
each executive officer's compensation package for the 1995 fiscal year are
summarized below. Additional factors were taken However, the Committees may in
its discretion apply entirely different factors, such as different measures of
financial performance, for future fiscal years.
Base Salary. The base salary for each officer is primarily set on the
basis of personal performance and internal comparability considerations, and, to
a lesser extent, on the financial performance of the Company. Because of the
Company's financial performance over the past three fiscal years, the base
salary levels of the executive officers have not increased significantly above
the levels in effect for the 1993 fiscal year, except to compensate them for the
promotions and the accompanying additional responsibilities assumed by Dr.
Salsbury, Mr. Harms and Mr. Gebauer.
Annual Incentive Compensation. For the 1995 fiscal year, a bonus program
was established under which each executive officer could earn a series of
quarterly bonuses on the basis of the Company's pre-tax profits for each fiscal
quarter. Under the program, a specified portion of the pre-tax profits for each
quarter was to be reserved for allocation to all individuals employed by the
Company at the end of that quarter. The amount allocated to each employee was to
be based upon such employee's salary for that quarter, and the allocated amount
was to be paid out at the end of each quarter. The amounts paid to each
executive officer under the program were not substantial and ranged from a high
of $5,000 to a low of $0 for the entire 1995 fiscal year. A similar program was
implemented for the 1994 fiscal year. For prior fiscal years, the bonuses
payable to executive officers were based primarily on individual performance and
were not tied to Company performance.
Long-Term Stock-Based Incentive Compensation. Generally, the Stock Option
Committee approves annual grants of stock options to each of the Company's
executive officers under the 1982 Stock Option Plan. The grants are designed to
align the interests of each executive officer with those of the stockholders and
provide each individual with a significant incentive to manage the Company from
the perspective of an owner with an equity stake in the business. Each grant
generally allows the officer to acquire shares of the Company's common stock at
a fixed price per share (the market price on the grant date) over a specified
period of time (up to 10 years), thus providing a return to the executive
officer only if the market price of the shares appreciates over the option term
and the officer continues in the Company's employ. The size of the option grant
to each executive officer is designed to create a meaningful opportunity for
stock ownership based upon the executive officer's current position with the
Company, internal comparability with option grants made to other Company
executives, the executive officer's current level of performance and the
executive officer's potential for future responsibility and promotion over the
option term. The Stock Option Committee also takes into account the number of
vested and unvested options held by the executive officer in order to maintain
an appropriate level of equity incentive for that individual. However, the Stock
Option Committee does not adhere to any specific guidelines as to the relative
option holdings of the Company's executive officers. In fiscal year 1995, no
option grants were made to the executive officers other than to Mr. Dreyer in
connection with his appointment to his position at the Company.
CEO COMPENSATION. In setting the compensation payable to Mr. Salsbury, the
Company's Chief Executive Officer during fiscal 1995, the Compensation Committee
sought to be competitive with the Company's competitors in the semiconductor
industry, while at the same time tying a significant percentage of such
compensation to Company performance and stock price appreciation. The
Compensation Committee established Mr. Salsbury's base salary for fiscal 1995
with the intent to provide him with a minimum level of compensation not tied to
any significant degree to Company performance factors.
The incentive bonus component of Mr. Salsbury's compensation for the 1995
fiscal year was dependent primarily upon the Company's pre-tax quarterly profits
and provided no dollar guarantees. No bonus was earned by Mr. Salsbury during
fiscal 1995 on the basis of this performance factor. However, as described
above, Mr. Salsbury also participated in the Supplemental Cash Bonus Plan and
the Loan Forgiveness Program, along with other executive officers of the
Company, and earned compensation under those programs solely on the basis of his
continued employment.
14
<PAGE> 17
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly held companies for compensation exceeding
$1 million paid to certain of the corporation's executive officers. The
compensation to be paid to the Company's executive officers for the 1995 fiscal
year did not exceed the $1 million limit per officer, nor is it expected that
the compensation to be paid to the Company's executive officers for fiscal 1996
will exceed that limit. The Company's Restated 1992 Stock Option Plan is
structured so that any compensation deemed paid to an executive officer when he
exercises an outstanding option under such plan with an exercise price equal to
the fair market value of the option shares on the grant date will qualify as
performance-based compensation which will not be subject to the $1 million
limitation. Because it is very unlikely that the cash compensation payable to
any of the Company's executive officers in the foreseeable future will approach
the $1 million limit, the Committee has decided at this time not to take any
other action to limit or restructure the elements of cash compensation payable
to the Company's executive officers. The Committee will reconsider this decision
should the individual compensation of any executive officer ever approach the $1
million level.
Submitted by the Compensation Committee and Stock Option Committee of the
Board of Directors:
Alan V. Gregory, Member, Compensation and Stock Option Committees
Charles C. Harwood, Member, Compensation and Stock Option Committees
COMPENSATION AND STOCK OPTION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
The Compensation Committee of the Board is currently comprised of Messrs.
Gregory and Hardwood. Neither of those individuals was at any time during the
fiscal year ended September 24, 1995 or at any other time an officer or employee
of the Company.
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
TERMINATION OF EMPLOYMENT ARRANGEMENTS
In July 1987, the Company's Board of Directors adopted a special Severance
Pay Program for the benefit of its executive officers. Under the program, a
participant who voluntarily terminates such participant's employment within 12
months following a change in control of the Company will remain as a consultant
to the Company for a maximum of six months following such termination of
employment. For each month during the period the participant is available to
provide consulting services, the Company will pay the participant 1/12th of such
participant's then current annual compensation (i.e., annualized base salary for
the year plus the amount of any commissions, cash bonuses and deferred
compensation for the prior year). A participant whose employment is
involuntarily terminated within 18 months of a change in control will receive a
lump sum severance payment equal to 1.5 times such participant's then current
annual compensation. Under the program, full vesting of all outstanding stock
options may also occur upon certain changes in control, and the participants
will have the right, in the event of a hostile change in control, to surrender
their options for a cash distribution equal to the difference between the
aggregate fair market value of the shares purchasable under their options and
the aggregate exercise price payable for such shares ("limited stock
appreciation rights"). Under no circumstances may the aggregate value of the
payments and benefits under the program exceed three times the participant's
average W-2 wages for the five calendar years immediately preceding the calendar
year in which the change in control occurs. For purposes of the program, a
change in control will occur in the event of (i) a stockholderapproved merger or
acquisition of the Company in which 50% or more of the Company's outstanding
voting stock is transferred to different holders, (ii) the acquisition of 25% or
more of the Company's outstanding voting stock pursuant to a tender or exchange
offer which the Company's Board of Directors does not recommend the stockholders
of the Company accept, or (iii) a change in the composition of the Board of
Directors which results in members of the Board who were elected at the last
uncontested election of Board members ceasing to comprise a majority of the
Board by reason of a contested election. Each of the Named Executive Officers is
a participant in the Severance Pay Program.
15
<PAGE> 18
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
common stock of the Company with that of the S&P 500 Stock Index, a broad market
index published by the Standard & Poor's Corporation, and the H&Q Semiconductor
Index, a semiconductor company stock index published by Hambrecht & Quist
Incorporated. The comparison for each of the periods assumes that $100 was
invested on September 30, 1990 in the Company's common stock, the stocks
included in the S&P 500 Stock Index and the stocks included in the H&Q
Semiconductor Index. These indices, which reflect formulas for dividend
reinvestment and weighting of individual stocks, do not necessarily reflect
returns that could be achieved by individual investors.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG SEEQ TECHNOLOGY INCORPORATED, THE S&P 500 INDEX
AND THE HAMBRECHT & QUIST SEMICONDUCTORS INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD H&Q SEMI-
(FISCAL YEAR COVERED) SEEQ S&P 500 CONDUCTOR
<S> <C> <C> <C>
9/30/90 100 100 100
9/30/91 129 131 132
9/30/92 67 146 192
9/30/93 92 165 407
9/30/94 75 171 419
9/30/95 313 221 848
</TABLE>
* $100 INVESTED ON 09/30/90 IN STOCK OR INDEX -- INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING SEPTEMBER 30.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended or the Securities
Exchange Act of 1934, as amended that might incorporate future filings,
including this Proxy Statement, in whole or in part, the preceding Compensation
and Stock Option Committee Report on Executive Compensation and the preceding
Company Stock Performance Graph shall not be incorporated by reference into any
such filings; nor shall such Report or Graph be incorporated by reference into
any future filings.
16
<PAGE> 19
PROPOSAL NO. 2:
APPROVAL OF AMENDMENT TO RESTATED 1982 STOCK OPTION PLAN
The stockholders are being asked to vote on a proposal to approve an
amendment to the Restated 1982 Stock Option Plan (the "1982 Stock Option Plan")
which will increase the number of shares of the Company's common stock available
for issuance under the 1982 Stock Option Plan by One Million Four Hundred
Thousand (1,400,000) shares.
The Board of Directors believes that the share increase is necessary in
order to ensure that the Company will continue to have the ability in the future
to attract and retain the services of highly qualified officers and other
employees by providing them with adequate equity incentives in the form of stock
option grants. Without taking into account the proposed 1,400,000 share
increase, the Company had a total of 4,120,629 shares of common stock available
for issuance under the 1982 Stock Option Plan as of February 1, 1996. 3,508,182
of those shares were subject to outstanding options, leaving 612,447 shares
available for issuance pursuant to options that may be granted in the future.
The Board believes that the number of shares currently available for future
option grant may not be sufficient for the Company to attract and retain the
individuals essential to the Company's long-term success, and has for this
reason authorized the 1,400,000 share increase, subject to stockholder approval
at the Annual Meeting.
The terms and provisions of the 1982 Stock Option Plan, as amended and
restated, are described more fully below. The description, however, is not
intended to be a complete summary of all the terms of the 1982 Stock Option
Plan. A copy of the 1982 Stock Option Plan will be furnished by the Company to
any stockholder upon written request to the Corporate Secretary.
ADMINISTRATION
The 1982 Stock Option Plan is administered by the Stock Option Committee
(the "Stock Option Committee") comprised of two or more Board members appointed
by the Board. The Stock Option Committee has full authority to determine which
eligible individuals are to receive option grants, the number of shares to be
covered by each granted option, the date or dates on which the option is to
become exercisable, and the maximum term for which the option is to remain
outstanding. The Stock Option Committee also has the discretion to determine
whether the granted option is to be an incentive stock option under the Federal
tax laws or a non-statutory option. In addition, the Stock Option Committee has
full authority to accelerate the exercisability of outstanding options and to
terminate the Company's outstanding repurchase rights with respect to unvested
shares, all upon such terms and conditions as it deems appropriate.
ELIGIBILITY
Under the 1982 Stock Option Plan, employees (including officers who are
directors) and independent consultants of the Company or its parent or
subsidiary corporations (whether now existing or subsequently established) are
eligible to receive option grants from time to time under the Plan. As of
February 1, 1996, approximately 69 employees of the Company (including the
Company's six (6) executive officers, one (1) of whom is currently a Board
member) were eligible to receive option grants under the 1982 Stock Option Plan.
STOCK AWARDS
The table below shows, as to each of the Company's executive officers named
in the Summary Compensation Table and the various indicated individuals and
groups, the number of shares of the Company's common stock subject to options
granted under the 1982 Plan during the period beginning January 1, 1995 and
ending February 1, 1996, together with the weighted average exercise price
payable per share.
17
<PAGE> 20
OPTION TRANSACTIONS
<TABLE>
<CAPTION>
OPTIONS GRANTED
(NUMBER OF WEIGHTED AVERAGE
NAME SHARES) EXERCISE PRICE
- -------------------------------------------------------------- --------------- ----------------
<S> <C> <C>
Phillip J. Salsbury........................................... -- --
Ralph J. Harms................................................ -- --
Philip A. Ortiz............................................... -- --
Walter P. Gebauer............................................. -- --
Stephen F. Dreyer............................................. 540,000 $1.375
All executive officers as a group............................. 870,000 $1.896
All non-employee directors as a group......................... -- --
All employees, including current officers who are not 1,421,500 $1.693
executive officers of a group...............................
</TABLE>
No options have been granted to date on the basis of the 1,400,000-share
increase to the 1982 Stock Option Plan which the stockholders are being asked to
approve under this Proposal No. 2.
PRICE AND EXERCISABILITY
The exercise price per share may not be less than eighty-five percent (85%)
of the fair market value per share of the Company's common stock on the grant
date. However, if the option is intended to be an incentive stock option under
the Federal tax laws, then the exercise price per share must not be less than
one hundred percent (100%) of such fair market value. No option may be
outstanding for more than a 10-year term. Options granted under the 1982 Stock
Option Plan will generally become exercisable for the option shares in one or
more installments over the optionee's period of service.
For purposes of establishing the exercise price and for all other valuation
purposes under the 1982 Stock Option Plan, the fair market value per share of
the Company's common stock on any relevant date will be the closing selling
price per share on such date as reported on the Nasdaq National Market. As of
December 31, 1995, the fair market value per share was $4.375, based on the
closing selling price per share on such date on the Nasdaq National Market.
The exercise price may be paid in cash or in shares of the Company's common
stock. The option may also be exercised through a same-day sale program whereby
the purchased shares are sold immediately and a portion of the sale proceeds
delivered to the Company in payment of the exercise price of the purchased
shares. The Stock Option Committee may also assist any optionee (including an
officer) in the exercise of the option by permitting the optionee to pay the
exercise price in installments over a period of years. Such an installment
obligation will be evidenced by a full-recourse, interest-bearing promissory
note of the optionee, and the maximum credit extended to the optionee may in no
event exceed the aggregate exercise price payable for the purchased shares, plus
any Federal and state income or employment taxes incurred in connection with the
purchase.
No optionee is to have any stockholder rights with respect to the option
shares until such optionee has exercised the option and paid the exercise price
for the purchased shares. Options are not assignable or transferable other than
by will or the laws of inheritance, and, during the optionee's lifetime, the
option may be exercised only by such optionee.
SECURITIES SUBJECT TO PLAN
The total number of shares of the Company's common stock issuable over the
term of the 1982 Stock Option Plan may not exceed 7,760,000 shares,1 assuming
stockholder approval of this Proposal No. 2, and not more than 5,520,629 shares
may be issued under the 1982 Stock Option Plan after February 1, 1996. The
- ---------------
1 Each share number is subject to adjustment in the event of certain
changes to the capitalization of the Company. See "Changes in Capitalization"
below.
18
<PAGE> 21
shares issuable under the Plan will be made available either from the Company's
authorized but unissued common stock or from common stock reacquired by the
Company. Should an option be terminated or canceled for any reason prior to
exercise or surrender in full, the shares subject to the portion of the option
not so exercised or surrendered will be available for subsequent option grant.
In no event may any one individual participating in the 1982 Stock Option
Plan be granted stock options for more than 2,500,000 shares of the Company's
common stock over the remaining term of such plan. For purposes of this
limitation, any option grants made prior to December 31, 1993 will not be taken
into account.
CHANGES IN CAPITALIZATION
In the event any change is made to the Company's common stock issuable
under the 1982 Stock Option Plan (by reason of any stock split, stock dividend,
combination of shares, exchange of shares or other change in the corporate
structure of the Company effected without the Company's receipt of
consideration), appropriate adjustments will be made to (i) the maximum number
and/or class of securities available for issuance over the term of the 1982
Stock Option Plan and after February 1, 1996, (ii) the maximum number and/or
class of securities for which any one individual may be granted stock options
under the 1982 Stock Option Plan after December 31, 1993 and (iii) the number
and/or class of securities purchasable under each outstanding option and the
exercise price payable per share so that no dilution or enlargement of benefits
will occur under such option.
TERMINATION OF EMPLOYMENT OR SERVICE AND REPURCHASE RIGHTS
All options granted under the 1982 Stock Option Plan must be exercised
within 24 months (or such shorter period as the Stock Option Committee may
establish at the time of grant) after the optionee ceases for any reason to
remain in the Company's Service. Should the optionee die while holding one or
more outstanding options, then each such option may be exercised within eighteen
(18) months after the optionee's death by the personal representative of the
optionee's estate or by the person inheriting the option. The Stock Option
Committee will, however, have complete discretion to extend the period of time
for which any option is to remain exercisable following the optionee's cessation
of Service, but under no circumstances may an option be exercised after the
specified expiration date of the option term.
Each option will be exercisable only to the extent of the number of shares
for which such option is exercisable at the time of the optionee's cessation of
Service, unless the Stock Option Committee determines, at any time while the
option remains outstanding, to accelerate the exercisability of that option in
whole or in part. However, if the optionee's Service is terminated for
misconduct, all options held by such individual will immediately expire on the
date of such termination.
Unvested shares of common stock acquired upon the exercise of one or more
options will be subject to repurchase by the Company, at the original exercise
price, upon the optionee's cessation of Service prior to vesting in those
shares. The Stock Option Committee has complete discretion in establishing the
terms and conditions upon which such repurchase rights are to become
exercisable, including the establishment of appropriate vesting schedules and
other provisions for the expiration of such rights in one or more installments.
Any shares so repurchased by the Company will not be available for reissuance
under the 1982 Stock Option Plan.
For purposes of the 1982 Stock Option Plan, the optionee will be deemed to
continue in Service for so long as he remains in the service of the Company or
any parent or subsidiary corporation, whether as an employee, a member of the
board of directors or an independent consultant.
SURRENDER OF OPTIONS
The 1982 Stock Option Plan includes a stock appreciation rights feature,
whereby the Stock Option Committee has the authority to accept the surrender of
one or more outstanding options under the 1982 Stock Option Plan in return for
the payment by the Company of an appreciation distribution equal to the excess
of (i) the fair market value (on the option surrender date) of the vested shares
of common stock for which the
19
<PAGE> 22
surrendered option is at the time exercisable over (ii) the exercise price
payable for such vested shares ("Appreciation Distribution"). Such payment may
be made, at the discretion of the Stock Option Committee, in shares of common
stock valued at fair market value on the option surrender date, in cash, or
partly in shares and partly in cash.
An officer or director subject to the short-swing profit trading
restrictions of the Federal securities laws may be granted a limited right to
surrender an option upon the occurrence of a Change in Control (as defined
below). The exercise of such a limited right will not require the approval of
the Stock Option Committee, and the Appreciation Distribution will be paid in
cash. For purposes of computing such Appreciation Distribution, the fair market
value of the shares subject to the surrendered option will be deemed to be the
greater of (i) the fair market value of such shares on the option surrender date
(as determined in accordance with the normal valuation provisions of the 1982
Stock Option Plan) or (ii) the highest reported price per share paid by the
acquiring entity in effecting the Change in Control. A Change in Control will be
deemed to occur should a person or related group of persons, other than the
Company or a person that directly or indirectly controls, is controlled by, or
is under common control with the Company, acquire twenty-five percent (25%) or
more of the outstanding common stock pursuant to a tender or exchange offer
which the Board of Directors does not recommend the stockholders to accept and
more than fifty percent (50%) of the common stock so acquired is accepted from
holders other than the Company's executive officers and directors.
Whether an option is surrendered for cash or common stock, the shares
covered by the surrendered option will not thereafter be available for
subsequent issuance under the 1982 Stock Option Plan.
CORPORATE TRANSACTION
In the event of one or more of the following transactions ("Corporate
Transaction"): (a) a merger or acquisition in which the Company is not the
surviving entity, (b) the sale, transfer or other disposition of substantially
all of the Company's assets, or (c) any reverse merger in which the Company is
the surviving entity, each option at the time outstanding under the 1982 Stock
Option Plan will become immediately exercisable for all of the shares of common
stock at the time subject to that option. However, no such acceleration will
occur, however, if (i) the option is assumed by the successor corporation (or
its parent company) or (ii) the acceleration of such option would, when added to
the present value of other compensatory payments which become due and payable to
the option holder in connection with the Corporate Transaction, result in the
payment to such individual of an excess parachute payment under the /Federal tax
laws. Outstanding repurchase rights under the 1982 Stock Option Plan will also
terminate upon the Corporate Transaction, unless (i) the repurchase right is to
be assigned to the successor corporation or (ii) the termination of such
repurchase right would result in an excess parachute payment under the Federal
tax laws to the individual whose shares are subject to such repurchase right.
Immediately following the consummation of the Corporate Transaction, all
outstanding options will terminate and cease to be exercisable, unless assumed
by the successor corporation (or its parent company).
CANCELLATION AND NEW GRANT OF OPTIONS
The Stock Option Committee has the authority to effect, at any time and
from time to time, the cancellation of any or all options outstanding under the
1982 Stock Option Plan and to grant in substitution new options covering the
same or different numbers of shares of common stock but with an exercise price
per share not less than eighty-five percent (85%) of the fair market value per
share of the Company's common stock on the new grant date (or one hundred
percent (100%) of such fair market value if the new option is to be an incentive
stock option). However, it is expected that the exercise price in effect under
the new grant will in all instances be less than the exercise price in effect
under the cancelled option.
SPECIAL TAX ELECTION
The Stock Option Committee may provide one or more holders of non-statutory
options under the 1982 Stock Option Plan with the election to have the Company
withhold shares purchased under those options in order to satisfy the Federal
and state income taxes required to be withheld in connection with such option
20
<PAGE> 23
exercises. Alternatively, the Stock Option Committee may permit such holders to
deliver existing shares of the Company's common stock in satisfaction of the tax
liability.
Any such withholding election or share delivery will be subject to the
following terms and conditions:
(i) The election must be made on or before the date the amount of the
Federal and state income tax liability incurred in connection with the
exercise of such non-statutory option is determined (the "Tax Determination
Date").
(ii) The election must be irrevocable.
(iii) The election will be subject to the approval of the Stock Option
Committee, and no shares of the Company's common stock will be accepted in
satisfaction of the withholding taxes unless the election is approved by
the Stock Option Committee.
(iv) The shares of common stock withheld or delivered pursuant to the
election will be valued at fair market value on the Tax Determination Date
in accordance with the valuation provisions of the 1982 Stock Option Plan.
(v) In no event may the optionee's requested withholding or delivered
shares exceed in value the amount of Federal and state income taxes
required to be withheld as a result of the option exercise.
Additional restrictions will apply to any withholding election made by an
officer or director of the Company subject to the short-swing profit
restrictions of the Federal securities laws.
EXCESS GRANTS
The 1982 Stock Option Plan permits the grant of options to purchase shares
of the Company's common stock in excess of the number of shares then available
for issuance under the 1982 Stock Option Plan. Any option so granted cannot be
exercised prior to stockholder approval of an amendment increasing the number of
shares available for issuance under the 1982 Stock Option Plan.
AMENDMENT AND TERMINATION OF THE PLAN
The Board may amend or modify the 1982 Stock Option Plan in any or all
respects whatsoever; provided, however, that the rights of existing optionees
may not be altered without their consent. In addition, the Board may not amend
the 1982 Stock Option Plan without the approval of the Company's stockholders if
such amendment would increase the maximum number of issuable shares under the
1982 Stock Option Plan (other than in connection with certain changes in the
Company's capital structure), materially increase the benefits accruing to
participants under the 1982 Stock Option Plan, or materially modify the
eligibility requirements for option grants under the 1982 Stock Option Plan.
The Board may terminate the 1982 Stock Option Plan at any time, but in all
events the 1982 Stock Option Plan will terminate upon the earlier of November
30, 2000 or the date on which all shares available for issuance under the 1982
Stock Option Plan have been issued or canceled pursuant to the exercise or
surrender of options granted under the 1982 Stock Option Plan. Any options
outstanding at the time of the termination of the 1982 Stock Option Plan will
remain in force in accordance with the provisions of the instruments evidencing
those grants.
FEDERAL TAX CONSEQUENCES
Options granted under the 1982 Stock Option Plan may be either incentive
stock options which satisfy the requirements of Section 422 of the Internal
Revenue Code or non-statutory options which are not intended to meet such
requirements. The Federal income tax treatment for the two types of options
differs as described below:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of
21
<PAGE> 24
disposition. For Federal tax purposes, dispositions are divided into two
categories: (i) qualifying and (ii) disqualifying. The optionee will make a
qualifying disposition of the purchased shares if the sale or other disposition
of such shares is made after the optionee has held the shares for more than two
years after the grant date of the option and more than one year after the
exercise date. If the optionee fails to satisfy either of these two minimum
holding periods prior to the sale or other disposition of the purchased shares,
then a disqualifying disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for those shares. If there is a disqualifying
disposition of the shares, then the excess of (i) the fair market value of those
shares on the option exercise date over (ii) the exercise price paid for the
shares will be taxable as ordinary income. Any additional gain recognized upon
the disposition will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
The Company anticipates that the ordinary income recognized in connection with
one or more disqualifying dispositions of incentive stock option shares will
qualify as performance-based compensation which will not have to be taken into
account for purposes of the limitation on the deductibility of the compensation
paid to certain executive officers, to the extent that compensation exceeds $1
million per executive officer.
Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
Special provisions of the Internal Revenue Code apply to the acquisition of
UNVESTED shares of the Company's common stock under a non-statutory option.
These special provisions may be summarized as follows:
-- If the shares acquired upon exercise of the non-statutory option
are subject to repurchase by the Company at the original exercise price in
the event of the optionee's termination of service prior to vesting in
those shares, then the optionee will not recognize any taxable income at
the time of exercise but will have to report as ordinary income, as and
when the corporation's repurchase right lapses, an amount equal to the
excess of (i) the fair market value of the shares on the date the
repurchase right lapses with respect to those shares over (ii) the exercise
price paid for the shares.
-- The optionee may, however, elect under Section 83(b) of the
Internal Revenue Code to include as ordinary income in the year of exercise
of the non-statutory option an amount equal to the excess of (i) the fair
market value of the purchased shares on the exercise date over (ii) the
exercise price paid for such shares. If the Section 83(b) election is made,
the optionee will not recognize any additional income as and when the
repurchase right lapses.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the corporation in which such ordinary income is recognized by
the optionee. The Company anticipates that the ordinary income recognized upon
the exercise of the non-statutory options granted under the 1982 Stock Option
Plan with an exercise price per share equal to the fair market value per share
of the Company's common stock on the grant date will qualify as
performance-based compensation which will not have to be taken into account for
purposes of the limitation on the deductibility of compensation paid to certain
executive officers, to the extent that compensation is in excess of $1 million
per executive officer.
22
<PAGE> 25
STOCK APPRECIATION RIGHTS
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to a business expense deduction equal
to the appreciation distribution for the taxable year in which the ordinary
income is recognized by the optionee.
ACCOUNTING TREATMENT
Option grants with exercise prices not less than the fair market value of
the option shares on the grant date will not result in any charge to the
Company's reported earnings. However, the Company must disclose, in footnotes to
the Company's financial statements, the impact those options would have had upon
the Company's reported earnings were the value of those options at the time of
grant treated as compensation expense. In addition, the number of outstanding
options may be a factor in determining the Company's earnings per share on a
fully-diluted basis.
Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to be
charged against the Company's earnings. Accordingly, at the end of each fiscal
quarter, the amount (if any) by which the fair market value of the shares of the
Company's common stock subject to such outstanding stock appreciation rights has
increased from the prior quarter-end will be accrued as compensation expense, to
the extent such amount is in excess of the aggregate exercise price in effect
for those rights.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the shares of the Company's common
stock present or represented and entitled to vote at the Annual Meeting is
required for the approval of the amendment to the 1982 Stock Option Plan. The
Board believes that it is in the best interests of the Company to maintain an
equity incentive program which will provide a meaningful opportunity for
officers, employees and independent consultants to acquire a substantial
proprietary interest in the enterprise and thereby encourage such individuals to
remain in the Company's service and more closely align their interests with
those of the stockholders. ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THIS PROPOSAL. If the stockholders do not approve the proposal, then the
1,400,000 share increase will not be implemented, any options granted on the
basis of that increase will terminate without ever becoming exercisable for any
of the option shares, and the 1982 Stock Option Plan will terminate once the
remaining share reserve has been issued pursuant to outstanding option grants
under such Plan.
PROPOSAL NO. 3:
APPROVAL OF AMENDMENT TO 1989 NON-EMPLOYEE DIRECTOR
STOCK OPTION PLAN
The stockholders are being asked to vote on a proposal to approve an
amendment to the 1989 Non-Employee Director Stock Option Plan (the "Director
Plan") which will provide for special one-time option grants to the Company's
Chairman of the Board and the Company's other non-employee Board member who was
not appointed to the Board pursuant to any contractual or other right or
arrangement.
The amendment provides for a 40,000 share option grant to the Company's
Chairman of the Board, Mr. Gregory, and a 10,000 share grant to the other
eligible non-employee Board member, Mr. Harwood. Each grant will be made on the
date of the 1996 Annual Meeting, provided the amendment is approved by the
stockholders. In accordance with the terms of the Director Plan, each option
grant will have an exercise price equal to the fair market value of the
Company's Common Stock on the date of grant and will have a maximum term of 10
years. Each option will become exercisable for all the option shares upon the
optionee's completion of 6 months of Board service measured from the grant date,
but any shares purchased under the option will be subject to repurchase by the
Company, at the original exercise price paid per share, should the
23
<PAGE> 26
optionee cease Board service prior to vesting in the purchased shares. The
shares subject to each option will vest upon the optionee's completion of one
year of Board service measured from the grant date.
The Board of Directors believes that the one-time automatic share option
grants to be made pursuant to the amendment to the Director Plan provides
appropriate compensation for the extraordinary time and effort contributed by
Mr. Gregory and Mr. Harwood to the Company over the past two fiscal years. Both
Mr. Gregory and Mr. Harwood spent considerable time and effort assisting Company
management in addressing the various issues faced in the Company's restructuring
activities over the past two years.
The terms and provisions of the Director Plan, as amended and restated, are
described more fully below. The description, however, is not intended to be a
complete summary of all the terms of the Director Plan. A copy of the Director
Plan will be furnished by the Company to any stockholder upon written request to
the Corporate Secretary.
PURPOSE
The Board adopted the Director Plan on November 8, 1989, and the Director
Plan was approved by stockholders at the 1990 Annual Meeting. The purpose of the
Director Plan is to make service on the Board more attractive to present and
prospective non-employee Board members, since the continued service of qualified
non-employee directors is considered essential to the management, growth and
sustained financial success of the Company.
ELIGIBILITY
Each non-employee Board member who has not been elected or appointed to the
Board pursuant to any contractual or other right or arrangement will be eligible
to receive automatic option grants under the Director Plan. Except for such
automatic option grants, non-employee Board members will not be eligible to
receive any additional option grants or stock issuances under the Director Plan
or any other stock plan of the Company or its parent or subsidiary corporations.
As of February 1, 1996, two of the Company's non-employee Board members were
eligible to participate under the Director Plan.
AUTOMATIC OPTION GRANTS
Under the Director Plan, each individual who is first elected or appointed
to the Board as a non-employee Board member (other than pursuant to any
contractual or other right or arrangement) will receive an automatic grant for
20,000 shares at the time of such initial election or appointment to the Board
and will be eligible to receive subsequent 10,000-share grants at each Annual
Stockholders Meeting at which he is re-elected to the Board, beginning with the
second Annual Meeting following the date of his initial 20,000-share option
grant. In addition, upon approval of the amendment subject to this Proposal No.
3, the Company's Chairman of the Board, Mr. Gregory, will receive a special
one-time 40,000 share option grant and the Company's other eligible non-employee
Board member, Mr. Harwood, will receive a special onetime 10,000 share grant.
Each of these special grants will be made at the 1996 Annual Meeting and will be
in addition to the 10,000-share option grant to be made to each of these
individuals under the existing provisions of the Director Plan upon their
re-election to the Board at the 1996 Annual Meeting.
PRICE AND EXERCISABILITY
The option price per share will be 100% of the fair market value of the
Common Stock on the grant date, and no option may be outstanding for more than a
10-year term. Granted options will not become exercisable prior to the
expiration of an initial six-month waiting period measured from the grant date.
Upon the expiration of such period, the option will become fully exercisable.
The six-month waiting period will not be applicable in the event of the
optionee's death or permanent disability while a member of the Board or in the
event of a Corporate Transaction or Change in Control (as such terms are defined
below).
Upon exercise of the option, the option price for the purchased shares will
be immediately payable in cash or cash equivalents or in shares of Common Stock
valued at fair market value on the date of exercise, provided
24
<PAGE> 27
that such shares have been held for the requisite period necessary to avoid a
charge to the Company's reported earnings.
No optionee is to have any stockholder rights with respect to the option
shares until such optionee has exercised the option, paid the option price and
been issued a stock certificate for the purchased shares. Options are not
assignable or transferable other than by will or the laws of inheritance, and,
during the optionee's lifetime, the option may be exercised only by such
optionee.
TERMINATION OF SERVICE AND REPURCHASE RIGHTS
All options granted under the Director Plan must be exercised within three
months after the optionee ceases to remain in the service of the Company.
However, in the event of the optionee's death, the personal representative of
the optionee's estate or the person inheriting the option will have up to a
twelve-month period following the date of the optionee's death in which to
exercise the option, but under no circumstances may the option be exercised
after the specified expiration date of the option term. Each option will be
exercisable only to the extent of the number of shares in which the optionee is
vested at the time of the optionee's cessation of Board service.
Unvested shares of Common Stock acquired upon the exercise of one or more
automatic option grants will be subject to repurchase by the Company, at the
original option price, upon the optionee's cessation of Board service. The
optionee will vest in the shares purchased under the initial grant, and the
Company's repurchase rights accordingly will lapse, in two successive equal
annual installments beginning one year after the automatic grant date. The
optionee will vest in the shares purchased under each subsequent annual grant,
and the Company's repurchase rights accordingly will lapse, upon the optionee's
completion of two years of Board service measured from the automatic grant date.
The optionee will vest in the shares purchased under the one-time grants, and
the Company's repurchase rights accordingly will lapse, upon the optionee's
completion of one year of Board service measured from the grant date. Full and
immediate vesting will also occur upon the optionee's cessation of Board service
by reason of death or permanent disability.
SECURITIES SUBJECT TO PLAN
The total number of shares of Common Stock issuable over the term of the
Director Plan may not exceed 200,000 shares.(2) Such shares will be made
available either from the Company's authorized but unissued Common Stock or
from Common Stock reacquired by the Company.
If any option granted under the Director Plan expires or terminates
unexercised prior to exercise in full, then the number of shares for which such
option is not exercised may be made the subject of subsequent grants under the
Director Plan. Shares subject to any option cashed-out in accordance with the
provisions of the Director Plan upon certain changes in control of the Company
and unvested shares of Common Stock repurchased by the Company pursuant to its
repurchase rights under the Director Plan will not be available for reissuance.
CHANGES IN CAPITALIZATION
In the event any change is made to the Common Stock issuable under the
Director Plan (by reason of any stock split, stock dividend, combination of
shares, exchange of shares or other change in the corporate structure of the
Company effected without receipt of consideration), appropriate adjustments will
be made to (i) the aggregate number and/or class of shares of Common Stock
available for issuance under the Director Plan, (ii) the number of shares of
Common Stock to be made the subject of each subsequent automatic grant and (iii)
the number and/or class of shares of Common Stock purchasable under each
outstanding option and the exercise price payable per share so that no dilution
or enlargement of benefits will occur under such option.
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(2) This number is subject to adjustment in the event of certain changes to
the capitalization of the Company. See "Changes in Capitalization" below.
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VALUATION
For purposes of establishing the option price and for all other valuation
purposes under the Director Plan, the fair market value per share of Common
Stock on any relevant date is to be determined in accordance with the following
rules:
(i) If the Common Stock is not at the time listed or admitted to
trading on any stock exchange but is traded on the Nasdaq National Market,
then the fair market value will be deemed equal to the closing selling
price per share of Common Stock on the Nasdaq National Market on the date
in question.
(ii) If the Common Stock is at the time listed or admitted to trading
on any national securities exchange, then the fair market value will be the
closing selling price per share of Common Stock on the date in question on
the securities exchange serving as the primary market for the Common Stock,
as such price is officially quoted on such exchange.
As of December 31, 1995, the fair market value per share of the Company's
common stock was $4.375 per share, based on the closing selling price per share
on such date on the Nasdaq National Market.
CHANGE IN CONTROL
In the event there should occur any Change in Control (as defined below),
each automatic grant at the time outstanding under the Director Plan will become
immediately exercisable for all of the shares of Common Stock at the time
subject to that option, and any unvested shares at the time outstanding under
the Director Plan or otherwise issuable pursuant to outstanding option grants
under the Director Plan will immediately vest in full. In addition, each option
which has been outstanding for at least six months will be automatically
cancelled on the tenth business day following the Change in Control, in exchange
for a cash payment from the Company equal to the excess of (i) the fair market
value (on the date of cancellation) of the shares of Common Stock for which the
cancelled option is at the time exercisable, whether or not such shares are
otherwise at the time vested, over (ii) the option price payable for such shares
("Appreciation Distribution"). A Change in Control will be deemed to occur
should (i) a person or related group of persons, other than the Company or a
person that directly or indirectly controls, is controlled by, or is under
common control with the Company, acquire twenty-five percent (25%) or more of
the outstanding Common Stock pursuant to a tender or exchange offer which the
Board of Directors does not recommend the stockholders to accept or should (ii)
there occur a change in the composition of the Board of Directors such that the
individuals elected to the Board at the last stockholder meeting at which there
is not a contested election subsequently cease to comprise a majority of the
Board by reason of a contested election for Board membership. For purposes of
determining the amount payable to an optionee upon cancellation of the option,
the fair market value of the shares for which the cancelled option is
exercisable will be deemed to be equal to the greater of the value per share on
the date of cancellation (as determined in accordance with the normal valuation
procedures summarized above) or, if applicable, the highest reported price per
share paid by the tender offeror in effecting the Change in Control.
CORPORATE TRANSACTION
In the event of one or more of the following transactions ("Corporate
Transaction"): (i) a merger or acquisition in which the Company is not the
surviving entity, (ii) the sale, transfer or other disposition of substantially
all of the Company's assets, or (iii) any reverse merger in which the Company is
the surviving entity, each automatic grant at the time outstanding under the
Director Plan will become immediately exercisable for all of the shares of
Common Stock at the time subject to that option, and any unvested shares at the
time outstanding under the Director Plan or otherwise issuable pursuant to
outstanding option grants under the Director Plan will immediately vest in full.
Upon the consummation of the Corporate Transaction, all outstanding options will
terminate and cease to be exercisable, except to the extent assumed by the
successor entity.
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<PAGE> 29
TERM OF THE PLAN
The Director Plan will terminate upon the earlier of November 7, 1999 or
the date all shares available for issuance under the Director Plan are issued or
cancelled pursuant to the exercise or cancellation of options granted under the
Director Plan. Any options outstanding at the time of the termination of the
Director Plan will remain in force in accordance with the provisions of the
instruments evidencing such grants.
FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS GRANTED UNDER THE DIRECTOR PLAN
Options granted under the Director Plan are nonstatutory options which are
not intended to satisfy the requirements of Section 422 of the Internal Revenue
Code. The tax treatment of a nonstatutory option is summarized below.
No taxable income is recognized by an optionee upon the grant of a
nonstatutory option. The optionee will in general recognize ordinary income in
the year in which the option is exercised equal to the excess of the fair market
value of the purchased shares at the date of exercise over the exercise price.
However, special provisions of the Internal Revenue Code apply to the
acquisition of shares under a nonstatutory option if the purchased shares are
subject to repurchase by the Company or other substantial risk of forfeiture
such as the short-swing profit restrictions of the Federal securities laws.
These special provisions may be summarized as follows:
If the shares acquired upon exercise of the nonstatutory option are subject
to repurchase by the Company at the original option price in the event the
optionee ceases Board service prior to vesting in the shares or are subject to
other substantial risk of forfeiture, the optionee will not recognize any
taxable income at the time of exercise but will have to report as ordinary
income, as and when the repurchase right or the risk of forfeiture lapses, an
amount equal to the difference between the fair market value of the shares on
the date the repurchase right or risk of forfeiture lapses and the option price
paid for the shares.
The optionee may, however, elect under Section 83(b) of the Internal
Revenue Code to include as ordinary income in the year of exercise of the
nonstatutory option an amount equal to the difference between the fair market
value of the purchased shares on the date of exercise (determined as if the
shares were not subject to the Company's repurchase right or other substantial
risk of forfeiture) and the option price paid for the shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right or risk of forfeiture lapses.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee in connection with the
exercise of the nonstatutory option. The deduction will in general be allowed
for the taxable year of the Company which includes the last day of the calendar
year in which such ordinary income is recognized by the optionee.
An optionee whose option is cancelled in exchange for an Appreciation
Distribution will recognize ordinary income in the year of cancellation equal to
the amount of the Appreciation Distribution. The Company will be entitled to a
business expense deduction equal to the Appreciation Distribution for the
taxable year of the Company in which the ordinary income is recognized by the
optionee.
ACCOUNTING TREATMENT
Option grants with exercise prices not less than the fair market value of
the option shares on the grant date will not result in any charge to the
Company's reported earnings. However, the Company must disclose, in footnotes to
the Company's financial statements, the impact those options would have had upon
the Company's reported earnings were the value of those options at the time of
grant treated as compensation expense. In addition, the number of outstanding
options may be a factor in determining the Company's earnings per share on a
fully-diluted basis.
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<PAGE> 30
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the shares of the Company's common
stock present or represented and entitled to vote at the Annual Meeting is
required for the approval of the amendment to the Director Plan. The Board
believes that the one-time automatic share option grants to be made pursuant to
the amendment provide appropriate compensation for the extraordinary time and
effort contributed by Mr. Gregory and Mr. Harwood to the Company over the past
two fiscal years. ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS
PROPOSAL. If the stockholders do not approve the proposal, then neither the
special one-time option grant for 40,000 shares to Mr. Gregory nor the special
one-time option grant for 10,000 shares to Mr. Harwood will be made. However,
the Director Plan will continue in effect in accordance with its existing
provisions as last approved by the stockholders, and Mr. Gregory and Mr. Harwood
will each receive an option grant for 10,000 shares under the Director Plan upon
their re-election to the Board at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL.
PROPOSAL NO. 4:
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Company is asking the stockholders to ratify the selection of Price
Waterhouse LLP as the Company's independent public accountants for the fiscal
year ending September 29, 1996. The affirmative vote of the holders of a
majority of the shares represented and voting at the Annual Meeting will be
required to ratify the selection of Price Waterhouse LLP.
In the event the stockholders fail to ratify the appointment, the Audit
Committee of the Board of Directors will consider it as a direction to select
other auditors for the subsequent year. Even if the selection is ratified, the
Board in its discretion may direct the appointment of a different independent
accounting firm at any time during the year if the Board determines that such a
change would be in the best interest of the Company and its stockholders.
Price Waterhouse LLP has audited the Company's financial statements
annually since its inception. Its representatives are expected to be present at
the Annual Meeting, will have the opportunity to make a statement if they desire
to do so, and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE
SELECTION OF PRICE WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE FISCAL YEAR ENDING SEPTEMBER 29, 1996.
OTHER BUSINESS
The Board of Directors knows of no other business that will be presented
for consideration at the Annual Meeting. If other matters are properly brought
before the Annual Meeting, however, it is the intention of the persons named in
the accompanying proxy to vote the shares represented thereby on such matters in
accordance with their best judgment.
28
<PAGE> 31
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's annual meeting of stockholders to be held in 1997 must be received by
October 16, 1996 in order to be included in the proxy statement and proxy
relating to that meeting.
By order of the Board of Directors
ROBERT O. HERSH
Secretary
February 15, 1996
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<PAGE> 32
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
SEEQ TECHNOLOGY INCORPORATED
PHILLIP J. SALSBURY and ROBERT O. HERSH, or either of them, are hereby
appointed as the lawful agents and proxies of the undersigned (with all powers
the undersigned would possess if personally present, including full power of
substitution) to represent and to vote all shares of capital stock of SEEQ
Technology Incorporated (the "Company") which the undersigned is entitled to
vote at the Company's Annual Meeting of Shareholders on March 21, 1996, and at
any adjournments or postponements thereof as follows:
1. The election of all nominees listed below for the Board of Directors, as
described in the Proxy Statement:
Alan V. Gregory, Charles C. Harwood, Phillip J. Salsbury and Peter C. Chen
FOR / / AUTHORIZATION WITHHELD / /
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
such name or names in the space provided below.)
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2. Proposal to approve an amendment to the Company's Restated 1982 Stock
Option Plan to increase the number of shares of the Company's common
stock available for issuance under the 1982 Stock Option Plan by One
Million Four Hundred Thousand (1,400,000) shares.
FOR / / AGAINST / / ABSTAIN / /
3. Proposal to approve an amendment to the Company's 1989 Non-Employee
Director Stock Option Plan to provide for special one-time option grants
to certain members of the Company's Board of Directors.
FOR / / AGAINST / / ABSTAIN / /
4. Proposal to ratify the appointment of Price Waterhouse LLP as independent
accountants of the Company for the fiscal year ending September 29, 1996:
FOR / / AGAINST / / ABSTAIN / /
5. Transaction of any other business which may properly come before the
meeting and any adjournment or postponement thereof.
<PAGE> 33
The Board of Directors recommends a vote FOR each of the above proposals.
THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO DIRECTION IS INDICATED, WILL BE
VOTED FOR EACH OF THE ABOVE PROPOSALS AND, AT THE DISCRETION OF THE PERSONS
NAMED AS PROXIES, UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING. This proxy may be revoked at any time before it is voted.
DATE: , 1996
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(Signature)
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(Signature if held jointly)
(Please sign exactly as shown on
your stock certificate and on the
envelope in which this proxy was
mailed. When signing as partner,
corporate officer, attorney,
executor, administrator, trustee,
guardian or in any other
representative capacity, give full
title as such and sign your own
name as well. If stock is held
jointly, each joint owner should
sign.)
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY,
USING THE ENCLOSED ENVELOPE.
