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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended March 31, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from _____ to_____
Commission file number: 0-11778
--------------------
SEEQ TECHNOLOGY INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 94-2711298
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
47200 Bayside Parkway
Fremont, California 94538
(510) 226-7400
(Address, including zip code, of Registrant's principal
executive offices and telephone number, including area code)
--------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $0.01 par value 30,651,180
(Class of common stock) (Shares outstanding at March 31, 1998)
- --------------------------------------------------------------------------------
This report on Form 10-Q, including all exhibits, contains 14 pages.
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SEEQ TECHNOLOGY INCORPORATED
FORM 10-Q
Table of Contents
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements ......................................................... 3
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations .. 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ..................................................................... 12
Item 2. Changes in Securities ................................................................. 12
Item 3. Defaults upon Senior Securities ....................................................... 12
Item 4. Submission of Matters to a Vote of Security Holders ................................... 13
Item 5. Other Information ..................................................................... 13
Item 6. Exhibits and Reports on Form 8-K ...................................................... 13
</TABLE>
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This Quarterly Report of Form 10-Q may contain forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
materially from the results discussed in any such forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed under the captions "Legal Proceedings" and "Factors Affecting
Operating Results" contained herein and under the caption "Business Risks" in
the Company's fiscal 1997 annual report on Form 10-K.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEEQ TECHNOLOGY INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
Mar. 31, Mar. 31, Mar. 31, Mar. 31,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $7,880 $8,031 $15,432 $14,655
Cost of revenues 4,442 5,059 8,625 9,619
Gross profit 3,438 2,972 6,807 5,036
Operating expense
Research and development 1,072 902 1,922 1,682
Marketing, general and 1,445 1,444 2,979 2,696
administrative
Total operating expenses 2,517 2,346 4,901 4,378
Income from operations 921 626 1,906 658
Interest expense (80) (87) (168) (170)
Interest and other income, net 164 95 299 181
Income before income taxes 1,005 634 2,037 669
Income tax (provision), benefit (32) (20) 16 (21)
Net income $973 $614 $2,053 $648
======== ======== ======== ========
Net income per share:
Basic $0.03 $0.02 $0.07 $0.02
Diluted $0.03 $0.02 $0.06 $0.02
Shares used in per share calculation:
Basic 30,624 30,288 30,549 30,280
Diluted 32,020 31,571 32,321 31,742
-------- -------- -------- --------
</TABLE>
See accompanying notes to condensed financial statements.
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SEEQ TECHNOLOGY INCORPORATED
CONDENSED BALANCE SHEETS
(In thousands)
(Unaudited)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
(Thousands, except share amounts) 1998 1997
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $10,286 6,937
Accounts receivable, less allowances 5,590 7,284
Inventories 4,330 3,176
Deferred tax asset 2,029 1,950
Other current assets 337 332
------- -------
Total current assets 22,572 19,679
------- -------
Property and equipment, net 4,973 4,384
Other assets 2,875 2,977
------- -------
$30,420 $27,040
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,335 $1,582
Accrued salaries, wages and employee benefits 684 698
Other accrued liabilities 676 997
Deferred income on sales to distributors 227 146
Current portion of capitalized lease obligations 1,422 1,091
------- -------
Total current liabilities 5,344 4,514
------- -------
Long-term liabilities 3,491 3,308
------- -------
Total stockholders' equity 21,585 19,218
------- -------
$30,420 $27,040
======= =======
</TABLE>
See accompanying notes to condensed financial statements.
4
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SEEQ TECHNOLOGY INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
-----------------------
Mar. 31, Mar. 31,
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,053 $ 648
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 916 743
Deferred taxes (79) --
Changes in assets and liabilities:
Accounts receivable 1,694 2,212
Inventories (1,154) (152)
Prepaid expenses and other assets (110) (162)
Accounts payable 753 (2,740)
Accrued liabilities and long term obligations (335) 26
-------- --------
Net cash provided by (used for) operating activities 3,738 575
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (125) (25)
-------- --------
Net cash provided by (used for) investing activities (125) (25)
-------- --------
FINANCING ACTIVITIES:
Payments of capital lease obligations (578) (470)
Proceeds from issuance of stock 314 82
-------- --------
Net cash used for financing activities (264) (388)
-------- --------
Net increase (decrease) in cash and cash equivalents 3,349 162
Cash and cash equivalents at beginning of period 6,937 3,974
-------- --------
Cash and cash equivalents at end of period $ 10,286 $ 4,136
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
5
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SEEQ TECHNOLOGY INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of SEEQ
Technology Incorporated ("SEEQ" or the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual Report to
Stockholders for the fiscal year ended September 30, 1997. These financial
statements reflect, in the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position and results of operations as of and for the periods indicated.
The results of operations for the six months ended March 31, 1998 are
not necessarily indicative of the results expected for the year ending September
30, 1998.
For purposes of presentation, the Company has shown its fiscal quarters
as ending on December 31, March 31, June 30 and September 30; whereas, in fact,
the Company operates on a 52/53-week fiscal year ending on the last Sunday in
September of each year. The fiscal quarter ends are actually December 28, March
29, June 28 and September 27 for the year ending September 30, 1998, and
actually December 29, March 30, June 29 and September 28 for the year ending
September 30, 1997.
NOTE 2. INVENTORIES
Inventories were comprised of the following:
<TABLE>
<CAPTION>
Mar. 31, Sep. 30,
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Work in process $1,243 $ 437
Finished goods 3,087 2,739
------ ------
$4,330 $3,176
====== ======
</TABLE>
NOTE 3. NON-RECURRING PRODUCTION TRANSFER COSTS
Non-recurring costs such as tooling and engineering costs resulting from
transferring production of current products to new foundries are capitalized and
amortized to cost of revenues over the shorter of: the remaining life of the
product, the term of the foundry agreement or two years. Non-recurring costs
which are associated with the development of new products are expensed as
research and development costs when incurred. During the six month period ended
March 31, 1998 the Company did not capitalize any of such costs. During the six
month period ended March 31, 1997 the Company capitalized $250,000 of
non-recurring production transfer costs. Amortization of aggregate capitalized
non-recurring costs for the six month periods ended March 31, 1998 and March 31,
1997 was $207,000 and $245,000, respectively.
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NOTE 4. NET INCOME PER SHARE
Diluted net income per share for the six month periods ended March 31,
1998 and March 31, 1997 was determined using the treasury stock method. Diluted
net income per common share is computed using the weighted average number of
shares outstanding during the respective periods, including dilutive stock
options and warrants. The effect of such shares are excluded from the
computation if their effect is anti-dilutive.
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") during the first quarter of fiscal 1998. This
statement simplifies the standards for computing earnings per share (EPS)
previously defined in Accounting Principles Board Opinion No. 15 "Earnings Per
Share." All prior-period earnings per share data has been restated in accordance
with SFAS 128. SFAS 128 requires presentation of both Basic EPS and Diluted EPS
on the face of the income statement. Basic EPS is computed by dividing net
income available to common stockholders (numerator) by the weighted average
number of common shares outstanding (denominator) during the period. Diluted EPS
gives effect to all dilutive potential common shares outstanding during the
period including stock options, using the treasury stock method. In computing
Diluted EPS, the average stock price for the period is used in determining the
number of shares assumed to be purchased from the exercise of stock options.
Following is a reconciliation of the numerators and denominators of the
Basic and Diluted EPS computations for the periods presented below:
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- --------------------
March 31, March 31, March 31, March 31,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income available to common stockholders (numerator) $ 973 $ 614 $2,053 $ 648
Shares calculation (denominator):
Weighted average shares outstanding 30,624 30,288 30,549 30,280
Effect of dilutive securities:
Options 1,396 1,283 1,772 1,462
------ ------ ------ ------
Average shares outstanding assuming dilution 32,020 31,571 32,321 31,742
====== ====== ====== ======
Basic earnings per share $ 0.03 $ 0.02 $ 0.07 $ 0.02
====== ====== ====== ======
Diluted earnings per share $ 0.03 $ 0.02 $ 0.06 $ 0.02
====== ====== ====== ======
</TABLE>
Options to purchase 621,000 and 987,000 shares of common stock were outstanding
during the three month periods ended March 31, 1998 and March 31, 1997
respectively but were not included in the computations of diluted EPS as the
option exercise price was higher than the average market price of the common
shares. Options to purchase 383,000 and 709,000 shares of common stock were
outstanding during the six month periods ended March 31, 1998 and March 31, 1997
respectively but were not included in the computations of diluted EPS as the
option exercise price was higher than the average market price of the common
shares.
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NOTE 5. LITIGATION
On November 28, 1995, Level One Communications Incorporated ("Level
One") filed a complaint against the Company, in the United States District Court
of Northern California, alleging patent infringement. In the complaint, Level
One claims that the Company has used and sold products in violation of two of
Level One's patents. Level One seeks immediate and permanent injunctive relief
preventing the Company from making, using, or selling any devices that infringe
such patents and unspecified damages. The Company intends to vigorously contest
all of Level One's claims. Based on the Company's review to date, management
believes that it has meritorious defenses to the claims asserted by Level One;
however, there can be no assurance that the outcome of these legal proceedings
will not have a material adverse effect on the Company's financial position or
results of operations. Patent litigation is often highly complex, can extend for
a protracted period of time, can involve substantial cost to the Company and may
divert the attention of the Company's management and technical personnel, which
can substantially increase the cost of such litigation. There can be no
assurance that such costs and diversion of resources will not have a material
adverse effect on the Company's business, financial condition and results of
operations.
On January 21, 1998, the Court ruled upon certain motions filed by SEEQ.
SEEQ had filed motions to declare all asserted claims of the Level One patents
in the suit as invalid in view of certain prior art. As to these motions, the
Court denied SEEQ's request. SEEQ also had requested leave to amend its
counterclaim to add SEEQ's U.S. Patent 5,504,738. SEEQ asserts that Level One's
products, including the LXT 970 product, infringe the `738 patent in the manner
in which these products incorporate an auto-negotiate feature. The Court granted
SEEQ's motion to amend. Currently, the Level One litigation involves two Level
One patents and SEEQ's `738 patent. The Court has set a trial date for August,
1998. No other motions are currently pending. There can be no assurance that
such costs and diversion of resources will not have a material adverse effect on
the Company's business, financial condition and results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Interim
Condensed Financial Statements and Notes thereto and the SEEQ Technology
Incorporated Annual Report and Form 10-K for the fiscal year ended September 30,
1997.
This Quarterly Report of Form 10-Q contains forward-looking statements
that involve risks and uncertainties. The Company's actual results may differ
materially from the results discussed in any such forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed under the captions "Legal Proceedings" and "Factors Affecting
Operating Results" contained herein and under the caption "Business Risks" in
the Company's fiscal 1997 annual report on Form 10-K.
RESULTS OF OPERATIONS
Revenues
Net revenues were $7,880,000 in the second quarter of fiscal 1998, a
decrease of $151,000 or 2% compared to net revenues of $8,031,000 for the second
quarter of fiscal 1997. Net revenues were $15,432,000 in the six month period
ended March 31, 1998 compared to $14,655,000 for the six month period ended
March 31, 1997, an increase of $777,000 or 5%. In the second quarter of fiscal
1998, products servicing the Fast Ethernet market accounted for approximately
77% of revenues compared to 48% of revenues for the second quarter of fiscal
1997. Revenues from Fast Ethernet products were approximately 69% and 46% of
total revenues for the six month periods ended March 31, 1998 and 1997,
respectively.
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Gross Product Margins
The Company includes in cost of revenues all costs associated with
subcontractor manufacturing, electrical testing, subcontractor assembly and
final test of its integrated circuits and subsystems, warehousing, shipping,
product returns and reserves for inventory obsolescence. Allowances for product
returns are netted against revenues. Gross profit for the second quarter of
fiscal 1998 was $3,438,000 or 44% of net revenues, an increase of $466,000 over
the second quarter of fiscal 1997's gross profit of $2,972,000 or 37% of net
revenues. For the six month period ended March 31, 1998, the gross profit margin
was $6,807,000 or 44% of net revenues, compared to $5,036,000 or 34% of revenues
for the comparable period of fiscal 1997. The increase in gross profit margins
is primarily attributable to changes in product mix, a decline in low margin
10Mbps transceiver revenues, a shift to higher margin products and lower
production costs, all of which were partially offset by the under-utilization of
manufacturing capacity. Gross margins in future periods will be affected
primarily by revenue levels and changes in product mix, average selling prices,
factory utilization, wafer yields, the introduction of new products, and changes
in manufacturing costs.
Research and Development
Research and development expenditures increased $170,000 from $902,000
in the second quarter of fiscal 1997 to $1,072,000 in the second quarter of
fiscal 1998 primarily due to an increase in outside consulting services for new
product development, partly offset by lower tooling and payroll costs. For the
six month periods ended March 31, 1997 and 1998, research and development
expenses increased $240,000 from $1,682,000 to $1,922,000, respectively. As a
percentage of net revenues, research and development expenditures increased from
11% in the second quarter of fiscal 1997 to 14% in the second quarter of fiscal
1998 and from 11% to 12% for the six month periods ended March 31, 1997 and
1998, respectively. The Company expects that the level of research and
development spending will increase in absolute dollars in the next several
quarters as a result of increased development efforts on new LAN products, but
may vary as a percentage of net revenues.
Marketing, General and Administrative Expenses
Marketing, general and administrative expenses increased from
$1,444,000, or 18% of revenues in the second quarter of fiscal 1997 to
$1,445,000, or 18% or revenues in the second quarter of fiscal 1998, as higher
legal and employment fees were offset by lower commissions and payroll costs.
For the six month periods ended March 31, 1997 and 1998, marketing, general and
administrative expenses increased from $2,696,000, or 18% of revenues to
$2,979,000, or 19% or revenues, respectively. This dollar increase is primarily
attributable to higher payroll, recruitment, and travel and entertainment
expenses. The Company anticipates that the level of marketing, general and
administrative expenses will vary in future periods based on expected revenue
growth.
Interest and other, net
Interest and other income, net increased from $95,000 in the second
quarter of fiscal 1997 to $164,000 in the second quarter of fiscal 1998 and
increased from $181,000 for the six months ended March 31, 1997 to $299,000 for
the six months ended March 31, 1998. The fluctuations in interest income are
directly affected by average cash balances. Interest expense decreased from
$87,000 in the second fiscal quarter of 1997 to $80,000 in the second quarter of
fiscal 1998. Interest expense decreased from $170,000 for the six months ended
March 31, 1997 to $168,000 for the six months ended March 31, 1998.
Income Taxes
The provision for income taxes increased from $20,000 in the second
quarter of fiscal 1997 to $32,000 in the second quarter of fiscal 1998. For the
first six months of fiscal 1998 the Company recognized a portion of its deferred
tax asset in the amount of $79,000. This was partially offset by a
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provision of $63,000 for income taxes. For the first six months of fiscal 1997
the Company recorded a provision of $21,000 for income taxes. The Company's
provisions were computed by applying the estimated annual tax rate to income
taxes, taking into account net operating loss carryforwards and alternative
minimum taxes.
FACTORS AFFECTING OPERATING RESULTS
The Company's quarterly operating results have varied significantly in
the past and are likely to vary significantly in the future, depending on a
number of factors, many of which are outside the control of the Company. A
complete description of risk factors is contained in the Company's 1997 Annual
Report on Form 10-K, in the section entitled "Risk Factors That May Affect
Future Results." These factors include, among others, customer concentration,
the timing of introduction of new products by the Company and its competitors,
changes in the markets addressed by the Company's products, market acceptance of
the Company's and its customers' products, the volume and timing of orders
received, changes in the Company's product mix and customer base, the timing and
extent of research and development expenditures, the availability and cost of
semiconductor wafers from outside foundries, fluctuations in manufacturing
yields, product obsolescence, price erosion, competitive factors, litigation
expenses, cyclical semiconductor industry conditions and general economic
conditions.
The Company's net revenue and cost of revenues may vary depending upon
the mix of products sold. Any unfavorable change in manufacturing yields or
product mix, delays in new product introductions, under-utilization of
manufacturing capacity, increased price competition or other factors could have
a material adverse effect on the Company's operating results and financial
condition. Historically, average selling prices in the semiconductor industry
have decreased over the life of any particular product. There can be no
assurance that the average selling prices of the Company's current or future
products will not be subject to significant pricing pressures. In addition, the
Company's business is characterized by short-term orders and shipment schedules,
and customer orders typically can be cancelled or rescheduled without
significant penalty to the customer. Due to the absence of significant
non-cancelable backlog, the Company typically plans its production and inventory
levels based on internal forecasts of customer demand, which are highly
unpredictable and can fluctuate substantially. The Company is also limited in
its ability to reduce costs quickly in response to any revenue shortfalls, which
could have a material adverse effect on the Company's business, operating
results and financial condition. Due to the foregoing factors, it is possible
that in some future quarter the Company's operating results will be below the
expectations of public market analysts and investors. In such event, the price
of the Company's Common Stock would likely be materially adversely affected.
The "Year 2000 issue" arises because most computer systems and programs
were designed to handle only a two-digit year, not a four-digit year. When the
Year 2000 begins, these computers may interpret "00" as the year 1900 and could
either stop processing date-related computations or could process them
incorrectly. The Company has recently updated its information systems and
accordingly does not anticipate any internal Year 2000 issues from its own
information systems, databases or programs. However, the Company could be
adversely impacted by Year 2000 issues faced by major distributors, suppliers,
customers, vendors and financial service organizations with which the Company
interacts.
LIQUIDITY AND CAPITAL RESOURCES
The Company has satisfied its cash requirements principally through cash
flow from operations, borrowings under bank lines of credit, capital lease
financing and the public and private sale of securities.
The Company believes that existing sources of liquidity, anticipated
cash flow from operations, and borrowings under the Company's credit facility
will be adequate to satisfy its cash requirements at least through the end of
fiscal 1998. However, there can be no assurance that the Company will have
adequate resources to satisfy such requirements. It may become necessary for the
Company to raise funds from debt and/or equity financing. There can be no
assurance that such funds will be available on terms acceptable to the Company,
if at all. Issuance of additional equity securities could result in dilution to
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stockholders. The inability to fund capital requirements would have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company's cash and cash equivalents balance increased from
$6,937,000 as of September 30, 1997 to $10,286,000 as of March 31, 1998,
primarily from cash provided by operating activities, and partially offset by
capital expenditures and payments of capital lease obligations.
Operating Activities
Cash flows provided by operating activities were $3,738,000 for the six
months ended March 31, 1998 compared to $575,000 for the six months ended March
31, 1997. The increase is a result of higher net income and depreciation, and an
increase in accounts payable, partially offset by lower collections of accounts
receivable, higher inventories, and lower accrued liabilities.
Investing Activities
Cash flows used for investing activities were $125,000 during the first
six months of fiscal 1998, compared to $25,000 for the first six months of
fiscal 1997.
Financing Activities
Cash flows used for financing activities were $264,000 in the six month
period ended March 31, 1998 compared to $388,000 in the six month period ended
March 31, 1997. Net proceeds from the issuance of stock pursuant to stock
options and the Company's employee periodic stock purchase plan were $314,000
for the first six months of fiscal 1998 compared to $82,000 for the first six
months of fiscal 1997. Principal payments against capital lease obligations were
$578,000 for the six months ended March 31, 1998 compared to $470,000 for the
three months ended March 31, 1997.
In August 1996, the Company entered into a one-year revolving line of
credit agreement with Silicon Valley Bank. This credit agreement was renewed by
the Company in July 1997. Under the terms of the revolving line of credit, the
Company can borrow the lesser of $7,000,000 or an amount determined by a formula
applied to eligible accounts receivable, at a variable interest rate equal to
the prime rate plus 0.25%. The revolving line of credit is secured by a security
interest in the Company's assets, including intellectual property and expires
August 5, 1998. The loan agreement requires the Company to remain profitable
each fiscal quarter and to maintain certain quarterly financial ratios. The loan
agreement also requires the Company to maintain a level of tangible net worth
which, in effect, limits the ability of the Company to make payments of cash
dividends. There were no borrowings outstanding under this revolving line of
credit as of March 31, 1998.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 28, 1995, Level One Communications Incorporated ("Level One") filed
a complaint against the Company, in the United States District Court of Northern
California, alleging patent infringement. In the complaint, Level One claims
that the Company has used and sold products in violation of two of Level One's
patents. Level One seeks immediate and permanent injunctive relief preventing
the Company from making, using, or selling any devices that infringe such
patents and unspecified damages. The Company intends to vigorously contest all
of Level One's claims. Based on the Company's review to date, management
believes that it has meritorious defenses to the claims asserted by Level One;
however, there can be no assurance that the outcome of these legal proceedings
will not have a material adverse effect on the Company's financial position or
results of operations. Patent litigation is often highly complex, can extend for
a protracted period of time, can involve substantial cost to the Company and may
divert the attention of the Company's management and technical personnel, which
can substantially increase the cost of such litigation. There can be no
assurance that such costs and diversion of resources will not have a material
adverse effect on the Company's business, financial condition and results of
operations.
On January 21, 1998, the Court ruled upon certain motions filed by SEEQ.
SEEQ had filed motions to declare all asserted claims of the Level One patents
in the suit as invalid in view of certain prior art. As to these motions, the
Court denied SEEQ's request. SEEQ also had requested leave to amend its
counterclaim to add SEEQ's U.S. Patent 5,504,738. SEEQ asserts that Level One's
products, including the LXT 970 product, infringe the `738 patent in the manner
in which these products incorporate an auto-negotiate feature. The Court granted
SEEQ's motion to amend. Currently, the Level One litigation involves two Level
One patents and SEEQ's `738 patent. The Court has set a trial date for August,
1998. No other motions are currently pending.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 10, 1998 an Annual Meeting of Stockholders was held. The
following Directors were elected at this meeting:
Charles H. Giancarlo
Alan V. Gregory
Charles C. Harwood
Phillip J. Salsbury
Other matters voted Upon:
<TABLE>
<CAPTION>
Votes
--------------------------------------------
Affirmative Negative Abstain
---------- --------- -------
<S> <C> <C> <C>
Proposal to amend Company's 23,347,509 2,226,780 188,908
Restated 1982 Stock Option
Plan
Proposal to amend Company's 22,441,261 3,167,469 154,467
1989 Non-employee Director
Stock Option Plan
Proposal to amend the 23,705,692 1,910,643 146,862
Company's Restated Periodic
Purchase Plan
Ratify the appointment of 25,592,385 118,329 52,483
Price Waterhouse LLP as
independent accountants of
the Company for the fiscal
year ending September
28, 1998
</TABLE>
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.2.4 Restated Periodic Purchase Plan, as amended
(incorporated herein by reference to Registrant's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1991).
10.2.5 Restated 1982 Stock Option Plan, as amended
(incorporated herein by reference to Registrant's Form
S-8 Registration Statement (33-6544) filed on July 2,
1993.
10.2.6 1989 Non-Employee Director Stock Option Plan
(incorporated herein by reference to Registrant's Form
S-8 Registration Statement (Registration No. 33- 35838)
filed on July 11, 1990).
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed for the period for which this
report is being filed.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEEQ TECHNOLOGY INCORPORATED
(Registrant)
Dated: May 8, 1998 By:
/s/ Phillip J. Salsbury
------------------------------------
Phillip J. Salsbury
President and Chief Executive Officer
Dated: May 8 , 1998 By:
/s/ Gary R. Fish
------------------------------------
Gary R. Fish
Vice President, Finance, Chief Financial Officer
and Secretary
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<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.2.4 Restated Periodic Purchase Plan, as amended (incorporated herein
by reference to Registrant's Annual Report on Form 10-K for the
fiscal year ended September 30, 1991).
10.2.5 Restated 1982 Stock Option Plan, as amended (incorporated herein
by reference to Registrant's Form S-8 Registration Statement
(33-6544) filed on July 2, 1993.
10.2.6 1989 Non-Employee Director Stock Option Plan (incorporated herein
by reference to Registrant's Form S-8 Registration Statement
(Registration No. 33-35838) filed on July 11, 1990).
27.1 Financial Data Schedule
</TABLE>
(b) No reports on Form 8-K were filed for the period for which this report
is being filed.
<PAGE> 1
SEEQ TECHNOLOGY INCORPORATED
RESTATED PERIODIC PURCHASE PLAN
(As Amended February 15, 1987 and Further Amended
October 25, 1988 and November, 1991 and January 1998)
1. PURPOSE.
(a) The purpose of the Plan is to provide a means by which
employees of SEEQ Technology Incorporated, a Delaware corporation (the
"Company"), and one or more of its Affiliates (as defined in subparagraph 2(a))
designated as participating employers in accordance with subparagraph 3(b) may
be given an opportunity to purchase stock of the Company.
(b) The Company, by means of the Plan, seeks to retain the
services of its employees, to secure and retain the services of new employees,
and to provide incentives for such persons to exert maximum efforts for the
success of the Company.
(c) The Company intends that the rights to purchase stock of the
Company granted under the Plan be considered options issued under an "employee
stock purchase plan," as that term is defined in Section 423(b) of the Internal
Revenue Code (the "Code").
2. DEFINITIONS.
(a) "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company, as those terms are defined in Sections
424(e) and (f), respectively, of the Code.
(b) "Base Compensation" shall mean a participant's wages,
salaries, commissions and other amounts received for personal services rendered
to the Company or an Affiliate as an employee. Base Compensation shall not
include any amounts paid to a participant as a bonus or as overtime payments,
nor shall there be included any similar payments such as Shift Differentials,
Fab Bonuses or Extended Work Week Payments for supervisors, nor any
contributions by the Company or an Affiliate on account of any participant under
any employee benefit plan of the Company or Affiliate.
3. ADMINISTRATION.
(a) The Plan shall be administered by a committee (the
"Committee") of at least two non-employee members of the Board of Directors (the
"Board"). The Committee shall have full authority to administer the Plan,
including the authority to interpret and construe any provision of the Plan and
to adopt such rules and regulations for administering the Plan as it may
<PAGE> 2
deem necessary in order to comply with the requirements of Section 423 of the
Code. Decisions of the Committee shall be final and binding on all parties who
have an interest in the Plan.
(b) The Board shall have the power to designate from time to time
which Affiliates of the Company shall be eligible to adopt the Plan as
participating employers and thereby extend the benefits of the Plan to their
eligible employees.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 13 relating to
adjustments upon changes in stock, the stock that may be sold pursuant to rights
granted under the Plan shall not exceed in the aggregate five hundred twenty
thousand (520,000) shares(1) of the Company's Common Stock. If any right granted
under the Plan shall for any reason terminate without having been exercised, the
stock not purchased under such right shall again become available for sale under
the Plan.
(b) The maximum number of shares for which rights may be granted
to any participant during any Offering shall not exceed 1,000 shares of the
Company's Common Stock.
(c) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
5. GRANT OF RIGHTS; OFFERING.
(a) Stock shall be offered for purchase under the Plan through
the grant of rights in a series of successive offerings (the "Offering") until
such time as (i) the maximum number of shares of stock available for issuance
under the Plan shall have been purchased or (ii) the Plan shall have been sooner
terminated in accordance with paragraph 15.
(b) Each Offering shall be of a duration of six (6) months (the
"Purchase Period") and shall commence on the second day of April or October (the
"Offering Date") and end on the first day of the next succeeding October or
April, respectively (the "Exercise Date") unless otherwise provided by the
Committee prior to the commencement of an Offering. The Board may terminate an
Offering following any Exercise Date and recommence a new Offering at any
subsequent date.
(c) The right to purchase stock under each Offering shall be
granted on the Offering Date and shall be automatically exercised on the
Exercise Date of such Offering.
(d) An employee who participates in the Plan for a particular
Offering shall have the right to purchase the number of shares of stock
purchasable with up to 10% of such employee's Base Compensation during the
Purchase Period beginning with such Offering.
- --------
(1) Includes a 100,000 share increase approved by the stockholders at the
Company's 1998 Annual Meeting. From and after February 1, 1998, not more than
145,487 shares may be issued under the Plan, subject to adjustment under
paragraph 13.
2
<PAGE> 3
6. ELIGIBILITY.
(a) Rights may be granted only to individuals who are, on the
Offering Date, employees of the Company or of any Affiliate which is a
participating employer in the Plan pursuant to subparagraph 3(b). In addition,
no employee of the Company or such Affiliate shall be eligible to be granted
rights under the Plan, unless, on the relevant Offering Date, such employee's
customary employment with the Company or such Affiliate is at least twenty (20)
hours per week and at least five (5) months per calendar year.
(b) A director of the Company or a participating Affiliate shall
not be eligible to be granted rights under the Plan unless such director is also
an employee of the Company or such Affiliate.
(c) No employee shall be eligible for the grant of any rights
under the Plan if, immediately after any such rights are granted, such employee
owns stock possessing 5% or more of the total combined voting power or value of
all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 6(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.
(d) An eligible employee may be granted rights under the Plan
only if such rights, together with any other rights granted such employee under
all "employee stock purchase plans" of the Company and any Affiliates, as
specified by Section 423(b)(8) of the Code, do not permit such employee's rights
to purchase stock of the Company or any Affiliate to accrue at a rate which
exceeds $25,000 of fair market value of such stock (determined at the time such
rights are granted) for each calendar year in which rights are outstanding at
any time.
7. PURCHASE PRICE.
(a) The purchase price of stock acquired pursuant to rights
granted under the Plan shall be not less than the lesser of:
(i) an amount equal to 85% of the fair market value of the
stock on the Offering Date; or
(ii) an amount equal to 85% of the fair market value of the
stock on the Exercise Date, as defined in paragraph 9.
(b) The fair market value of a share of the Common Stock on any
date shall be the closing selling price of such share on such date, as
officially quoted on the principal exchange on which the Common Stock is at the
time traded or, if not traded on any exchange, the mean of the highest bid and
the lowest asked prices (or, if such information is available, the closing
selling price per share) of the Common Stock on such date, as reported on the
Nasdaq system. If there are no sales of Common Stock on such day, then the
closing selling price (or, to the extent applicable, the mean of the highest bid
and lowest asked prices) for the Common
3
<PAGE> 4
Stock on the next preceding day for which there do exist such quotations shall
be determinative of fair market value.
8. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in an Offering
by delivering an agreement to the Company before the Offering Date, in such form
as the Company provides. Each such agreement shall authorize payroll deductions
of up to 10% of such employee's Base Compensation during the Purchase Period.
The maximum number of shares a participant may purchase each offering shall be
limited to 1,000 shares. The payroll deductions made for each participant shall
be credited to an account for such participant under the Plan and shall be
deposited with the general funds of the Company. A participant may not increase
or begin such payroll deductions after the beginning of any Purchase Period;
however he/she may, at any time during the Purchase Period, reduce the rate of
his/her payroll deductions or suspend such deductions in their entirety. A
participant may not make additional payments into his/her account. Once a
participant's accumulated payroll deductions equal the amount necessary to
purchase the maximum number of shares such participant can purchase under the
Offering, such participant's payroll deductions will terminate for the remainder
of the Purchase Period, but his/her purchase rights shall not be exercised until
the Exercise Date for such Purchase Period.
(b) If a participant stops his/her payroll deduction the
participant has the option to
(i) withdraw all funds in his/her payroll account; or
(ii) have the funds held for purchase of shares at the next
Exercise Date.
A participant's withdrawal from an Offering will have no affect
upon such participant's eligibility to participate in any other Offerings under
the Plan.
(c) Rights granted to a participant pursuant to any Offering
under the Plan shall terminate immediately upon his/her cessation of Employee
status, and all payroll deductions under the Plan collected from the participant
during the Purchase Period in which such cessation of Employee status occurs
shall be promptly refunded. However, should the participant die or become
permanently disabled while in Employee status, then the participant or the
person or persons to whom the rights of the deceased participant under the Plan
are transferred by will or by the laws of descent and distribution (the
"successor") shall have the election to (i) withdraw all the funds in the
participant's payroll account at the time of his/her cessation of Employee
status or (ii) have such funds held for purchase of shares at the next Exercise
Date. In no event, however, shall any further payroll deductions be added to the
participant's account following his/her cessation of Employee status.
(d) A participant shall be deemed to continue in Employee status
for so long as he/she remains in the employ of the Company or one or more of its
Affiliates. A participant shall be deemed to be permanently disabled if he/she
is unable, by reason of any medically
4
<PAGE> 5
determinable physical or mental impairment expected to result in death or to be
of continuous duration of at least twelve (12) months, to engage in any
substantial gainful employment.
(e) Rights granted under the Plan shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable, during the lifetime of the person to whom such rights are granted,
only by such person.
9. EXERCISE.
(a) On each Exercise Date, each participant's accumulated payroll
deductions will be automatically applied to the purchase of whole shares of
Common Stock of the Company, up to the maximum number of shares permitted
pursuant to subparagraph 4(b), at the purchase price stated in subparagraph
7(a). No fractional shares shall be issued upon the exercise of rights granted
under the Plan. The amount, if any, of accumulated payroll deductions remaining
in any participant's account after the purchase of shares which is less than the
amount required to purchase one share of Common Stock on the Exercise Date of
the Purchase Period shall be held in each such participant's account for the
purchase of shares under the next Offering under the Plan. However, if (i) there
is no further Offering provided for under the Plan or (ii) such participant
withdraws from the next Offering (as provided in subparagraph 8(b)) or is no
longer eligible to be granted rights under the Plan (as provided in paragraph
6), then such remaining amount shall be distributed to such participant as soon
as practical after the Exercise Date, without interest. The amount, if any, of
accumulated payroll deductions remaining in any participant's account after the
purchase of the maximum number of shares purchasable for such Offering under
subparagraph 4(b) shall be distributed in full to such participant as soon as
practical after the Exercise Date, without interest.
(b) The Company may require any participant, or his/her
successor, as a condition of exercising any rights granted under the Plan, to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the rights for such person's own account and for
investment, and not with any present intention of selling or otherwise
distributing the stock. The requirement of providing written assurances, and any
assurances given pursuant to the requirement, shall be inoperative if (i) the
issuance of the shares upon the exercise of the rights has been registered under
a then currently effective registration statement under the Securities Act of
1933, as amended (the "Securities Act"), and qualified under all applicable
state securities laws, if required, or (ii) a determination is made by counsel
for the Company that such written assurances are not required in the
circumstances under the then applicable federal and state securities laws.
10. COVENANTS OF THE COMPANY.
(a) During the term purchase rights remain outstanding under the
Plan, the Company shall keep available the number of shares of Common Stock
required to satisfy such rights.
(b) The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be
required to issue and sell
5
<PAGE> 6
shares of stock upon exercise of the rights granted under the Plan; provided,
however, that this undertaking shall not require the Company to register or
qualify under the Securities Act or any state securities law either the Plan,
any rights granted under the Plan, or any stock issued or issuable pursuant to
any such rights. If the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise of
such rights unless and until such authority is obtained.
11. USE OF PROCEEDS FROM STOCK.
All cash proceeds from the sale of stock pursuant to rights
granted under the Plan shall constitute general funds of the Company.
12. RIGHTS AS A SHAREHOLDER.
Neither a participant nor his or her successor shall be deemed to
be the holder of, or to have any of the rights of a holder with respect to, any
shares subject to such rights unless and until certificates representing such
shares shall have been issued.
13. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange or
shares, change in corporate structure or otherwise), the Committee shall make
appropriate adjustments to the aggregate number of shares issuable under the
Plan, the maximum number of shares that may be purchased during an Offering, the
maximum number of shares for which any one participant may be granted purchase
rights under the Plan during an Offering, the maximum number of shares for which
any one officer or director may be granted purchase rights over the term of the
Plan, the maximum number of shares for which purchase rights may in the
aggregate be granted to all officers and directors, and the number of shares and
price per share of stock subject to outstanding rights.
(b) In the event of any of the following shareholder-approved
transactions (a "Corporate Transaction"): (1) a dissolution or liquidation of
the Company; (2) a merger a consolidation in which the Company is not the
surviving corporation, other than a transaction the principal purpose of which
is to change the State of the Company's incorporation; (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
Common Stock outstanding immediately prior to the merger are converted by virtue
of the merger into other property, whether in the form of securities, cash or
otherwise; or (4) any other capital reorganization in which more than 50% of the
shares of the Company entitled to vote are transferred to different holders,
then every right outstanding hereunder shall automatically be exercised
immediately prior to such Corporate Transaction by applying all sums collected
from participants pursuant to their payroll deductions in effect for such rights
to the purchase of whole shares of Common Stock, subject, however, to the
applicable limitations of subparagraph 4(b).
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<PAGE> 7
14. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the
Plan. The approval of the Company's stockholders to any such amendment will be
obtained to the extent required by applicable law.
It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible employees
with the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to employee stock
purchase plans and/or to bring the Plan and/or rights granted under it into
compliance therewith.
(b) Rights and obligations under any rights granted before
amendment of the Plan shall not be altered or impaired by any amendment of the
Plan, except with the consent of the person to whom such rights were granted.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the first business day in
October, 2007. No rights may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any rights granted while the
Plan is in effect shall not be altered or impaired by suspension or termination
of the Plan, except with the consent of the person to whom such rights were
granted.
16. EFFECTIVE DATE OF PLAN.
The Plan as restated became effective upon adoption by the Board
in November 1986 and was approved by the requisite vote of the Company's
shareholders in February 1987. The Plan was subsequently amended by the Board on
October 25, 1988, and such amendment was approved by the stockholders at their
Annual Meeting held in January 1989. The Plan was amended by the Board in
November 1991 to increase the number of shares issuable thereunder by 200,000
shares and such amendment was approved by the stockholders at their 1992 Annual
Meeting. The Plan was amended by the Board in January 1998 to increase the
number of shares issuable thereunder by 100,000 shares, extend the term and
delete certain obsolete share limitations. The 1998 amendment was approved by
the Company's stockholders at the 1998 Annual Meeting. Subject to the foregoing
limitations, the Board may grant purchase rights under the Plan at any time
after the date of approval of the increase and before the date fixed herein for
termination of the Plan.
7
<PAGE> 1
SEEQ TECHNOLOGY INCORPORATED
RESTATED 1982 STOCK OPTION PLAN
(Amended and Restated through January 13, 2008)
I. PURPOSE OF THE PLAN
This Restated l982 Stock Option Plan (the "Plan") is intended to
promote the interests of SEEQ Technology Incorporated, a Delaware corporation
("Company"), by providing a method whereby (i) employees (including officers and
employee members of the Board) of the Company and its parent or subsidiary
corporations who are primarily responsible for the management, growth and
financial success of the Company and its parent or subsidiary corporations and
(ii) consultants or other independent contractors (other than non-employee
members of the Board) who perform valuable services for the Company and its
parent or subsidiary corporations may be offered incentives and rewards which
will encourage them to acquire a proprietary interest, or otherwise increase
their proprietary interest, in the Company and continue to render services to
the Company or its parent or subsidiary corporations.
II. ADMINISTRATION OF THE PLAN
The Plan shall be administered in accordance with the following
standards:
(a) The Company's Board of Directors (the "Board") shall appoint
a committee ("Committee") consisting of not less than two (2) Board members to
administer the Plan, including (without limitation) the power to grant options
under the Plan, the power to accelerate the exercisability of granted options
and the power to administer the option surrender provisions of the Plan. This
committee shall function as the "Primary Committee" under the Plan and shall
have sole and exclusive authority to grant stock options to officers of the
Company. No Board member shall be eligible to serve on the Primary Committee if
such individual has, within the twelve (12)-month period immediately preceding
the date he or she is to be appointed to the Primary Committee, received an
option grant under this Plan or an option grant or stock issuance under any
other stock option, stock appreciation, stock bonus or other stock plan of the
Company (or any parent or subsidiary corporation), other than the SEEQ
Technology Incorporated 1989 Nonemployee Director Stock Option Plan.
(b) Administration of the Plan with respect to the officers of
the Company and all other individuals eligible to participate in the Plan may,
at the Board's discretion, be vested in the Primary Committee or in a secondary
committee of two or more Board members appointed by the Board, or the Board may
retain the power to administer the Plan with respect to all individuals. Should
a secondary committee be appointed, the membership may include Board members who
are employees of the Company eligible to receive option grants under this Plan
or option grants or stock issuances under any other stock option, stock
appreciation, stock bonus or other stock plan of the Company (or any parent or
subsidiary corporation).
<PAGE> 2
(c) Members of the Primary Committee or any secondary committee
shall serve for such term as the Board may determine and shall be subject to
removal by the Board at any time.
(d) The term "Plan Administrator" as used from time to time in
this plan document shall mean the particular entity, whether the Primary
Committee or any secondary committee, which is authorized to administer the
option grant and option surrender provisions of the Plan with respect to one or
more classes of eligible individuals, to the extent such entity is carrying out
its administrative functions under the Plan with respect to those individuals.
(e) The Plan Administrator shall have full power and authority
(subject to the express provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for the proper administration of the plan
functions within the scope of its administrative authority and to make any and
all determinations with respect to those functions which it may deem necessary
or advisable. All decisions of the Plan Administrator within the scope of its
administrative authority under the Plan shall be final and binding on all
parties who have an interest in any outstanding option granted pursuant to such
authority.
III. ELIGIBILITY FOR OPTION GRANTS
(a) The persons who shall be eligible to receive options pursuant
to the Plan are those employees (including officers) and consultants or other
independent contractors (other than non-employee members of the Board) of the
Company or its parent or subsidiary corporations who render services which tend
to contribute materially to the success of the Company or its parent or
subsidiary corporations or which may reasonably be anticipated to contribute
materially to the future success of the Company or its parent or subsidiary
corporations.
(b) Non-employee members of the Board shall not be eligible to
participate in the Plan or in any other stock bonus, stock purchase, stock
option or other stock plan of the Company or its parent or subsidiary
corporations other than the SEEQ Technology Incorporated 1989 Nonemployee
Director Stock Option Plan.
(c) The Plan Administrator shall have the sole and exclusive
authority, within the scope of its administrative functions under the Plan, to
select the eligible individuals who are to receive option grants under the Plan
and to determine the number of shares to be covered by each such option grant,
the status of the granted option as either an incentive stock option ("Incentive
Option") which satisfies the requirements of Section 422 of the Internal Revenue
Code or a non-statutory option not intended to meet such requirements, the time
or times at which such option is to become exercisable and the maximum term for
which the option is to remain outstanding.
(d) For purposes of this Plan, the following provisions shall be
applicable in determining the parent and subsidiary corporations of the Company:
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<PAGE> 3
(i) Any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company shall be considered to be a parent
corporation of the Company, provided each such corporation in the unbroken chain
(other than the Company) owns, at the time of the determination, stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
(ii) Each corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company shall be considered to
be a subsidiary of the Company, provided each such corporation (other than the
last corporation) in the unbroken chain owns, at the time of determination,
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
IV. STOCK SUBJECT TO THE PLAN
(a) The stock issuable under the Plan shall be shares of the
Company's authorized but unissued or reacquired common stock ("Common Stock").
The aggregate number of shares of Common Stock issuable over the term of the
Plan shall not exceed 8,760,000 shares and not more than 6,171,481 shares shall
be issued under the Plan after January 15, 1998. However, the number of shares
issued under the Plan is subject to adjustment from time to time in accordance
with paragraph IV(b) of the Plan. Should an option terminate for any reason
prior to exercise or surrender in full (including options cancelled in
accordance with the cancellation-regrant provisions of Article VIII of the
Plan), the shares subject to the portion of the option not so exercised or
surrendered shall be available for subsequent option grants under this Plan.
Shares subject to any option or portion thereof surrendered or cancelled in
accordance with Article IX of the Plan and all share issuances under the Plan,
whether or not the shares are subsequently repurchased by the Company pursuant
to its repurchase rights under the Plan, shall reduce on a share-for-share basis
the number of shares of Common Stock available for subsequent option grants
under the Plan. In addition, should the exercise price of an outstanding option
under the Plan be paid with shares of Common Stock or should shares of Common
Stock otherwise issuable under the Plan be withheld by the Company in
satisfaction of the withholding taxes incurred in connection with the exercise
of an outstanding option under the Plan, then the number of shares of Common
Stock available for issuance under the Plan shall not be reduced by the gross
number of shares for which the option is exercised, but by the net number of
shares of Common Stock actually issued to the option holder.
(b) In the event any change is made to the Common Stock issuable
under the Plan by reason of any stock dividend, stock split, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding shares of the Common Stock as a class without the Company's receipt
of consideration, appropriate adjustments shall be made to (i) the aggregate
number and/or class of securities issuable under the Plan, (ii) the maximum
number of shares issuable per participant under the Plan after December 31, 1993
and (iii) the number and/or class of shares and the price per share of the
securities subject to each outstanding option in order to prevent the dilution
or enlargement of benefits thereunder. The adjustments determined by the Primary
Committee shall be final, binding and conclusive.
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<PAGE> 4
(c) No one person participating in the Plan may receive options
for more than 2,500,000 shares of the Common Stock over the term of the Plan,
exclusive of options granted prior to December 31, 1993.
V. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall be authorized by
action of the Plan Administrator and may, at the discretion of the Plan
Administrator, be either Incentive Options or non-statutory options. Individuals
who are not employees of the Company or its parent or subsidiary corporations
may only be granted non-statutory options. Each granted option shall be
evidenced by one or more instruments in such form as the Plan Administrator
shall from time to time approve; provided, however, that each such instrument
shall comply with the terms and conditions specified below. Each instrument
evidencing an Incentive Option shall, in addition, be subject to the applicable
provisions of Article VI.
1. Option Price.
a. The option price per share shall be fixed by the Plan
Administrator, but in no event shall the option price per share be less than
eighty-five percent (85%) of the fair market value per share of Common Stock on
the grant date.
b. If any individual to whom an option is to be granted pursuant
to the provisions of the Plan is on the date of grant the owner of stock (as
determined under Section 424(d) of the Internal Revenue Code) possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or any one of its parent or subsidiary corporations (such person to be
herein referred to as a 10% Stockholder, then the option price per share shall
not be less than one hundred ten percent (110%) of the fair market value per
share of Common Stock on the grant date.
c. The option price shall become immediately due upon exercise of
the option and shall, subject to the provisions of Article X, be payable in one
of the alternative forms specified below:
(i) full payment in cash or check payable to the Company's
order; or
(ii) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Company's earnings for
financial reporting purposes and valued at fair market value on the Exercise
Date (as such term is defined below) equal to the option price; or
(iii) full payment through a special sale and remittance
procedure pursuant to which the optionee is to provide irrevocable written
instructions (I) to a designated brokerage firm to effect the immediate sale of
the purchased shares and remit to the Company, out of the sale proceeds
available on the settlement date, an amount sufficient to cover the aggregate
option price payable for the purchased shares plus all applicable Federal and
state income and employment taxes required to be withheld by the Company by
reason of such
4
<PAGE> 5
purchase and (II) to the Company to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the sale
transaction; or
(iv) any combination of the foregoing so long as the total
payment equals the aggregate option price for the purchased shares.
For purposes of this subparagraph c, the Exercise Date shall be the
date on which written notice of the option exercise is delivered to the Company.
Except to the extent the sale and remittance procedure is utilized in connection
with the option exercise, payment of the option price for the purchased shares
must accompany such exercise notice.
d. The fair market value of a share of Common Stock on any relevant
date under subparagraph a, b or c above (and for all other valuation purposes
under the Plan) shall be determined in accordance with the following provisions:
(i) If the Common Stock is not at the time listed or admitted to
trading on any stock exchange but is traded in the over-the-counter market, the
fair market value shall be the mean between the highest bid and lowest asked
prices (or, if such information is available, the closing selling price) of the
Common Stock on the date in question in the over-the-counter market, as such
prices are reported by the National Association of Securities Dealers through
its Nasdaq National Market System or any successor system. If there are no
reported bid and asked prices (or closing selling price) on the date in
question, then the mean between the highest bid price and lowest asked price (or
the closing selling price) on the last preceding date for which such quotations
exist shall be determinative of fair market value.
(ii) If the Common Stock is at the time listed or admitted to
trading on any stock exchange, then the fair market value shall be the closing
selling price per share of Common Stock on the date in question on the stock
exchange determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted on such exchange. If there is
no reported sale of Common Stock on such exchange on the date in question, then
the fair market value shall be the closing selling price of the Common Stock on
the exchange on the last preceding date for which such quotation exists.
2. Term and Exercise of Options. Each option granted under the Plan
shall be exercisable at such time or times, during such period, and for such
number of shares as shall be determined by the Plan Administrator and set forth
in the instrument evidencing such option. However, no option granted under this
Plan shall have a term in excess of ten (10) years from the grant date. No
option or stock appreciation right outstanding under the Plan shall be
assignable or transferable by the optionee other than a transfer of the option
by will or by the laws of descent and distribution following the optionee's
death, and during the optionee's lifetime the option and all stock appreciation
rights pertaining to such option shall be exercisable only by the optionee.
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3. Effect of Termination of Employment.
a. Should an optionee cease Service with the Company for any reason
(including death or permanent disability as defined in Section 22(e)(3) of the
Internal Revenue Code) while the holder of one or more outstanding options
granted to such optionee under the Plan, then such option or options shall in no
event remain exercisable for more than a twenty-four (24) month period (or such
shorter period as is determined by the Plan Administrator and set forth in the
option agreement) following the date of such cessation of Service, but under no
circumstances shall any such option be exercisable after the specified
expiration date of the option term. Each such option shall, during such
twenty-four (24) month or shorter period, be exercisable only to the extent of
the number of shares (if any) for which the option is exercisable on the date of
such cessation of Service. Upon the expiration of such twenty-four (24) month or
shorter period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be exercisable.
b. Any option granted to an optionee under the Plan and exercisable
in whole or in part on the date of the optionee's death may be subsequently
exercised, but only to the extent of the number of shares (if any) for which the
option is exercisable on the date of the optionee's cessation of Service (less
any option shares which the Optionee may have purchased prior to death), by the
personal representative of the optionee's estate or by the person or persons to
whom the option is transferred pursuant to the optionee's will or in accordance
with the laws of descent and distribution, provided and only if such exercise
occurs prior to the earlier of (i) the expiration of the eighteen-(18) month
period following the death of the optionee or (ii) the specified expiration date
of the option term. Upon the occurrence of the earlier event, the option shall
terminate and cease to be exercisable.
c. If (i) the optionee's Service is terminated for cause (including,
but not limited to, any act of dishonesty, willful misconduct, fraud or
embezzlement or any unauthorized disclosure or use of confidential information
or trade secrets) or (ii) the optionee makes or attempts to make any
unauthorized use or disclosure of confidential information or trade secrets of
the Company or its parent or subsidiary corporations, then in any such event all
outstanding options granted the optionee under the Plan shall immediately
terminate and cease to be exercisable.
d. Notwithstanding subparagraphs a and b above, the Plan
Administrator shall have complete discretion, exercisable either at the time the
option is granted or at the time during which the option remains outstanding, to
extend the period of time for which the option is to remain exercisable
following the optionee's cessation of Service from the twenty-four (24) month or
such shorter period previously established by the Plan Administrator and set
forth in the option agreement to such greater period of time as the Plan
Administrator shall deem appropriate; provided, however, that no option shall be
exercisable after the specified expiration date of the option term and that such
discretion shall not be available where the optionee has been terminated for
cause. The Plan Administrator shall have similar discretion, except with respect
to optionees terminated for cause, to establish as a provision applicable to the
exercise of one or more options granted under the Plan that during the period of
exercisability following
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cessation of Service (as provided in subparagraph V.3.a or V.3.b above), the
option may be exercised not only with respect to the number of shares for which
it is exercisable at the time of the optionee's cessation of Service but also
with respect to one or more installments of purchasable shares for which the
option otherwise would have become exercisable had such cessation of Service not
occurred.
e. For purposes of the foregoing provisions of this Paragraph V.3,
the optionee shall be deemed to be an Employee of the Company for so long as the
optionee remains in the employ of the Company or one or more parent or
subsidiary corporations. For purposes of the foregoing provisions of this
Paragraph V.3, optionee shall be deemed to be in Service if optionee is an
Employee, independent consultant or Board member of the Company, its parent or
subsidiary.
4. Stockholder Rights. An option holder shall have none of the
rights of a stockholder with respect to any shares covered by the option until
such individual shall have exercised the option, paid the option price and been
issued a stock certificate for the purchased shares.
5. Repurchase Price. The shares of Common Stock acquired upon the
exercise of options granted under the Plan may be subject to one or more
repurchase rights of the Company in accordance with the following provisions:
(a) The Company (or its assigns) shall have the right,
exercisable upon the optionee's cessation of Service, to repurchase at the
original option price any or all of the unvested shares of Common Stock
previously acquired by the optionee upon the exercise of such option(s). Any
such repurchase right shall be exercisable by the Company (or its assigns) upon
such terms and conditions (including the establishment of the appropriate
vesting schedule and other provisions of the expiration of such right in one or
more installments) as the Plan Administrator may specify in the instrument
evidencing such right.
(b) The Plan Administrator effecting the option grants shall also
have full power and authority to provide for the automatic termination of the
Company's outstanding repurchase rights, in whole or in part, and thereby vest
the optionees in one or more of the shares purchased or purchasable under the
granted options, upon the occurrence of any Corporate Transaction specified in
Article VII or any Change in Control specified in Article IX.
VI. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to
all Incentive Options granted under the Plan. Options which are specifically
designated as "non-statutory" or "non-statutory" options when issued under the
Plan shall not be subject to such terms and conditions:
(a) Option Price. The option price per share of the Common Stock
subject to an Incentive Option shall in no event be less than one hundred
percent (100%) of the fair market value per share of Common Stock on the grant
date.
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<PAGE> 8
(b) Dollar Limitation. The aggregate fair market value
(determined as of the respective date or dates of grant) of the Common Stock for
which one or more options to any Employee under this Plan (or any other option
plan of the Company or its parent or subsidiary corporations) may for the first
time become exercisable as an Incentive Option during any one calendar year
shall not exceed the sum of $100,000. To the extent the Employee holds two or
more such options which become exercisable for the first time in the same
calendar year, the foregoing limitation on the exercisability thereof as
Incentive Options shall be applied on the basis of the order in which such
options are granted.
(c) Maximum Term. If the individual to whom the Incentive Option
is granted is a 10% Stockholder (as defined in subparagraph V.1.b above) on the
date of the option grant, then the option shall not have a term in excess of
five years from the grant date, and the exercise price may not be less than 110%
of fair market value.
Except as modified by the preceding provisions of this Article
VI, all the terms and conditions of the Plan shall be applicable to the
Incentive Options granted hereunder.
VII. CORPORATE TRANSACT1ON
(a) In the event of one or more of the following transactions to
which the Company is a party ("Corporate Transaction"):
(i) a merger or acquisition in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company; or
(iii) any reverse merger in which the Company is the
surviving entity,
then each option outstanding under the Plan shall
automatically become exercisable, during the five (5) business day period
immediately prior to the specified effective date for the Corporate Transaction,
with respect to the full number of shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of such shares. However,
an outstanding option under the Plan shall not be so accelerated if and to the
extent: (i) such option is, in connection with the Corporate Transaction, either
to be assumed by the successor corporation or parent thereof or be replaced with
a comparable option to purchase shares of the capital stock of the successor
corporation or parent thereof or (ii) the acceleration of such option would,
when added to the present value of certain other payments in the nature of
compensation 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 Section 280G(b) of the Internal Revenue Code. In
addition, outstanding repurchase rights under the Plan will 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,
when added to the present value of certain other payments in the nature of
compensation which
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<PAGE> 9
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 Section 280G(b) of the Internal Revenue Code. The existence of any
such excess parachute payment shall be determined by the Plan Administrator in
the exercise of its reasonable business judgment and on the basis of tax counsel
provided the Company. Upon the consummation of the Corporate Transaction, all
outstanding options under the Plan shall, to the extent not previously exercised
or assumed by the successor corporation or its parent corporation, terminate and
cease to be exercisable.
(b) Each outstanding option which is assumed in connection with
the Corporate Transaction or is otherwise to continue in effect shall be
appropriately adjusted, immediately after such Corporate Transaction, to apply
and pertain to the number and class of securities which would have been
issuable, in consummation of such Corporate Transaction, to an actual holder of
the same number of shares of Common Stock as are subject to such option
immediately prior to such Corporate Transaction. Appropriate adjustments shall
also be made to the option price payable per share, provided the aggregate
option price payable for such securities shall remain the same. In addition, the
class and number of securities available for issuance under the Plan following
the consummation of the Corporate Transaction shall be appropriately adjusted.
(c) In connection with any Corporate Transaction, the
exercisability of an incentive stock option under the Federal tax laws of any
accelerated option shall be subject to the applicable dollar limitation of
paragraph VI(c)(i).
(d) The grant of options under this Plan shall in no way affect
the right of the Company to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merger, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
VIII. CANCELLATION AND NEW GRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution therefor new options under the Plan covering the same or different
numbers of shares of Common Stock but having an option price per share not less
than (i) eighty-five percent (85%) of the fair market value per share of Common
Stock on the new grant date, or (ii) one hundred percent (100%) of such fair
market value if the new option is to be an Incentive Option or (iii) one hundred
ten percent (110%) of fair market value in the case of a 10% Stockholder.
IX. SURRENDER OF OPTIONS FOR CASH OR STOCK
(a) One or more option holders may, upon such terms and
conditions as the Plan Administrator may establish at the time of the option
grant or at any time thereafter, be granted the right to surrender all or part
of an unexercised option in exchange for a distribution equal in amount to the
excess of (i) the fair market value (on the option surrender date) of the
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<PAGE> 10
number of shares in which the optionee is at the time vested under the
surrendered option (or surrendered portion) over (ii) the aggregate option price
payable for such shares. No surrender of an option, however, shall be effective
unless it is approved by the Plan Administrator granting such right. If the
surrender is so approved, then the distribution to which the option holder shall
accordingly become entitled under this Article IX may be made in shares of
Common Stock valued at fair market value at date of surrender, in cash, or
partly in shares and partly in cash, as the Plan Administrator granting such
right shall in its sole discretion deem appropriate.
(b) If the surrender of the option is not approved by the Plan
Administrator granting such right, then the option holder shall retain whatever
rights the option holder had under the surrendered option (or surrendered
portion thereof) on the date of surrender and may exercise such rights at any
time prior to the later of (i) the expiration of the 5 business-day period
following receipt of the rejection notice or (ii) the last day on which the
option is otherwise exercisable in accordance with the terms of the instrument
evidencing such option, but in no event may such rights be exercised at any time
after ten (10) years from the date of the option grant.
(c) Special limited stock appreciation rights may be granted by the
Plan Administrator in tandem with one or more option grants made under the Plan.
The grant and exercise of such rights shall be subject to the following terms
and conditions:
Pre-September 1, 1992 Grants. Limited rights may be granted prior
to September 1, 1992 to one or more officers or directors of the Company
subject to the short-swing profit restrictions of Section 16 (b) of the
Securities Exchange Act of 1934 ("Section 16 Insider"). Such limited rights
shall be exercisable as follows:
a. Upon the occurrence of a Change in Control at a time when one
or more classes of the Company's equity securities are registered under
Section 12(g) of the Exchange Act, each Section 16 Insider who holds such a
limited right in tandem with one or more of his/her outstanding options
under the Plan may surrender those options, to the extent such options (I)
have been outstanding with such limited rights for at least six (6) months
and (II) are at the time exercisable for one or more shares. In exchange
for each option so surrendered, the Section 16 Insider shall receive an
Appreciation Distribution from the Company in an amount equal to the excess
of (i) the Change in Control Price of the number of shares for which the
surrendered option (or surrendered portion) is at the time exercisable over
(ii) the aggregate option price payable for such shares.
b. Neither the approval of the Plan Administrator granting the
limited right nor the consent of the Board shall be required in connection
with the exercise of such right, and the Appreciation Distribution shall be
made entirely in cash.
c. For purposes of such Appreciation Distribution, the following
definitions shall be in effect:
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Change-in-Control: the occurrence of any of the following transactions:
(i) the acquisition by 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, of twenty-five percent (25%) or more of
the Company's outstanding Common Stock pursuant to a tender or exchange offer
which the Board does not recommend the stockholders to accept, (ii) the
acquisition by 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, of fifty percent (50%) or more of the Company's
outstanding Common Stock in a single transaction or in a series of related
transactions (other than a Corporate Transaction), or (iii) a change in the
composition of the Board such that the individuals elected to the Board at the
last meeting of the stockholders 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.
Chance in Control Price: the greater of (a) the fair market value per
share of Common Stock on the date of the option surrender, as determined in
accordance with the normal valuation provisions of the Plan, or (b) the highest
reported price per share paid in acquiring ownership of the twenty-five percent
(25%) or greater interest in the Company's outstanding Common Stock in
connection with the Change in Control. However, if the surrendered option is an
Incentive Option, then the Change in Control Price per share of the Common Stock
subject to the surrendered option shall not exceed the value per share
determined under clause (a).
Post-August 31, 1992 Grants. One or more Section 16 Insiders may, in
the discretion of the Plan Administrator, be granted limited stock appreciation
rights on or after September 1, 1992 in tandem with the option grants made to
such individuals under the Plan. Any limited right so granted shall become
exercisable as follows:
a. Upon the occurrence of a Hostile Take-Over at a time when one or
more classes of the Company's equity securities are registered under Section
12(g) of the Exchange Act, each outstanding option held by the Section 16(b)
Insider with such a limited right in effect for at least six (6) months shall
automatically be cancelled, to the extent such option is at the time exercisable
for fully-vested shares of Common Stock. The Section 16(b) Insider shall in
return be entitled to a cash distribution from the Company in an amount equal to
the excess of (I) the Take-Over Price of the shares of Common Stock which are at
the time vested under the cancelled option (or cancelled portion) over (II) the
aggregate exercise price payable for such vested shares. The balance of the
option (if any) shall continue in full force and effect in accordance with the
instrument evidencing such grant.
b. The cash distribution payable upon such cancellation shall be made
within five (5) days following the consummation of the Hostile Take-Over.
Neither the approval of the Plan Administrator nor the consent of the Board
shall be required in connection with such option cancellation and cash
distribution.
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c. For purposes of such option cancellation and cash
distribution, the following definitions shall be in effect:
A Hostile Take-Over shall be deemed to occur in the event
(i) any 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) directly or indirectly acquires
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange
Act) of twenty-five percent (25%) or more of Company's outstanding
Common Stock pursuant to a tender or exchange offer made directly to the
Company's stockholders which the Board does not recommend such
stockholders to accept and (ii) more than fifty percent (50%) of the
securities so acquired in such tender or exchange offer are accepted
from holders other than Company officers and directors participating in
this Plan or the 1989 Nonemployee Director Stock Option Plan.
The Take-Over Price per share shall be deemed to be equal
to the greater of (i) the fair market value per share on the option
cancellation date, as determined pursuant to the normal valuation
provisions of the Plan, or (ii) the highest reported price per share
paid in effecting such Hostile Take-Over. However, if the cancelled
option is an Incentive Option, then the Take-Over Price per share of the
Common Stock subject to the cancelled option shall not exceed the value
per share determined under clause (i).
X. LOANS OR GUARANTEES OF LOANS
The Plan Administrator may assist any optionee (including any
officer or director) in the exercise of one or more options granted by such Plan
Administrator to such optionee under the Plan by (a) authorizing the extension
of a loan to such optionee from the Company, (b) permitting the optionee to pay
the option price for the purchased Common Stock in installments over a period of
years or (c) authorizing a guarantee by the Company of a third-party loan to the
optionee. The terms of any loan, installment method of payment or guarantee
(including the interest rate and terms of repayment) will be established by the
Plan Administrator in its sole discretion. Loans, installment payments and
guarantees may be granted without security or collateral (other than to
optionees who are consultants or independent contractors, in which event the
loan must be adequately secured by collateral other than the purchased shares),
but the maximum credit available to the optionee shall not exceed the sum of (i)
the aggregate option price payable for the purchased shares (less the par value
of those shares), plus (ii) any Federal and State income and employment tax
liability incurred by the optionee in connection with the exercise of the
option.
XI. SPECIAL TAX WITHHOLDING ELECTION
The Plan Administrator may, in its discretion and in accordance
with the provisions of this Article XI and such supplemental rules as the Plan
Administrator may from time to time adopt, provide any or all holders of the
non-statutory options granted by such Plan Administrator under the Plan with the
right to use shares of the Common Stock in satisfaction of the Federal and State
income and employment tax withholding liability incurred by such holders
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<PAGE> 13
in connection with the exercise of their options (the "Withholding Taxes"). Such
right may be provided to any such option holder in either or both of the
following formats:
1. Stock Withholding: The holder of the non-statutory option may be
provided with the election to have the Company withhold, from the shares of
Common Stock otherwise issuable upon the exercise of such non-statutory option,
a portion of such shares with an aggregate fair market value equal to the
designated percentage (up to 100% as specified by the option holder) of the
applicable Withholding Taxes.
Any such stock withholding election shall 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 and employment tax liability incurred by the
option holder in connection with the exercise of the option is determined
(the "Tax Determination Date").
(ii) The election shall be irrevocable.
(iii) The election shall be subject to the approval of the Plan
Administrator, and none of the shares of Common Stock for which the option
is exercised shall be withheld in satisfaction of the Withholding Taxes
incurred in connection with such exercise except to the extent the Plan
Administrator approves the election.
(iv) The shares of Common Stock withheld pursuant to the election
shall be valued at fair market value on the Tax Determination Date in
accordance with the valuation procedures of the Plan.
(v) In no event may the number of shares requested to be withheld
exceed in value the dollar amount of Withholding Taxes incurred by the
option holder in connection with the exercise of the nonqualified option.
If the stock withholding election is to be made by a Section 16
Insider, then the following limitations, in addition to the preceding
provisions of this Article XI, shall also be applicable:
(i) The election shall not become effective at any time prior to
the expiration of the six (6)-month period measured from the later of the
grant date of the non-statutory option to which such election pertains or
the actual grant date of the stock withholding election, and no shares
shall accordingly be withheld in connection with any Tax Determination Date
which occurs before the expiration of such six (6)-month period.
(ii) The election must be effected in accordance with either of
the following guidelines:
- The election must be made six (6) months or more prior to the
Tax Determination Date, or
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- The exercise of such election and the exercise of the
non-statutory option to which it relates must occur concurrently within
a quarterly "window" period. Quarterly window periods shall begin on the
third (3rd) business day following the date of public release of each
quarterly or annual summary statement of the Company's sales and
earnings and end on the earlier of the twelfth (12th) business day
following such release date or the Tax Determination Date.
(iii) The six (6)-month period specified in clauses (i)
and (ii) shall not be applicable in the event of the option holder's
death or disability.
2. Stock Delivery: The Plan Administrator may, in its discretion,
provide the holder of the non-statutory option with the election to deliver, at
the time the non-statutory option is exercised, one or more shares of Common
Stock already held by such individual with an aggregate fair market value equal
to the designated percentage (up to 100% as specified by the option holder) of
the Withholding Taxes incurred by such individual in connection with such option
exercise.
Any such stock delivery election shall 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 and employment tax liability
incurred by the option holder in connection with the exercise of the option
is determined (the "Tax Determination Date").
(ii) The election shall be irrevocable.
(iii) The election shall be subject to the approval of the
Plan Administrator, and none of the delivered shares of Common Stock shall
be accepted in satisfaction of the Withholding Taxes incurred in connection
with the option exercise except to the extent the election is approved by
the Plan Administrator.
(iv) The shares of Common Stock delivered in satisfaction of
such Withholding Taxes shall be valued at fair market value on the Tax
Determination Date in accordance with the valuation procedures of the Plan.
(v) In no event may the number of delivered shares exceed in
value the dollar amount of Withholding Taxes incurred by the option holder
in connection with the exercise of the non-statutory option.
Any stock delivery election made by an individual who is at the
time a Section 16 Insider shall not be subject to any of the special limitations
which would otherwise be applicable to such individual in connection with the
exercise of the stock withholding election specified above.
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XII. AMENDMENT OF THE PLAN
The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects whatsoever; provided,
however, that no such amendment or modification shall, without the consent of
the holders, adversely affect rights and obligations with respect to options at
the time outstanding under the Plan. In addition, the Board shall not, without
the approval of the Company's stockholders, (i) increase the maximum number of
shares issuable under the Plan, except for permissible adjustments under
paragraph IV(b), or (ii) materially modify the eligibility requirements for the
grant of options under the Plan.
XIII. EFFECTIVE DATE AND TERM OF PLAN
(a) The restated Plan was adopted by the Board in August 1987,
and approved by the Company's stockholders in February 1988, as a consolidation
of the Company's 1982 Incentive Stock Option Plan and 1982 Supplemental Stock
Option Plan. The Plan supersedes those two plans and serves as their successor.
The Plan was restated in October 1988, and amended in November 1990, November
1991, February 1995, and February 1996, to increase the number of shares
issuable under the Plan by 750,000, 1,000,000, 1,400,000 1,000,000 and 1,400,000
shares, respectively. The October 1988 restatement, November 1990, November
1991, December 1993 and February 1996 amendments were approved by the Company's
stockholders in February 1989, February l991, February l992, February 1994 and
March 1996, respectively. The Plan was restated on January 13, 1998 to increase
the number of shares issuable thereunder, to extend the term of the Plan and to
delete obsolete provisions and the restatement was approved by the stockholders
on March 10, 1998.
(b) The Plan Administrator may, within the scope of its
administrative functions under the Plan, grant stock options and stock
appreciation rights under the Plan at any time after the date the Plan was
initially adopted and prior to the date the Plan is to terminate in accordance
with paragraph (e) below.
(c) The Plan was restated by the Board effective July 30, 1992 to
bring the Plan in compliance with the applicable requirements of revised SEC
Rule 16b-3, as amended May 1, 1991, under the Securities Exchange Act of 1934.
Such restatement shall apply only to options granted under the Plan from and
after the July 30, 1992 effective date. Each option (together with any related
stock appreciation rights) issued and outstanding under the Plan immediately
prior to such effective date shall continue to be governed by the terms and
conditions of the Plan (and the instrument evidencing such option) as in effect
on the date such option was previously granted, and nothing in the July 30, 1992
restatement shall be deemed to affect or otherwise modify the rights or
obligations of the holders of such options with respect to the acquisition of
shares thereunder or the exercise of their outstanding stock appreciation
rights.
(d) The sale and remittance procedure authorized for the exercise
of outstanding options shall be available for all options granted under the Plan
from and after July 30, 1992 and for all non-statutory options exercised under
the Plan on or after May 1, 1991. The Primary Committee may also allow such
procedure to be utilized in connection with one or more disqualifying
dispositions of incentive stock option shares effected on or after May 1, l991.
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<PAGE> 16
(e) Unless sooner terminated in accordance with Article VII, the
Plan shall terminate upon the earlier of (i) January 12, 2008 or (ii) the date
on which all shares available for issuance under the restated Plan shall have
been issued or cancelled pursuant to the exercise, surrender or cancellation of
the options granted hereunder. If the date of termination is determined under
clause (i) above, then any options outstanding on such date (together with any
stock appreciation rights pertaining to such options) shall not be affected by
the termination of the Plan and shall continue to have force and effect in
accordance with the provisions of the instruments evidencing such options (or
related stock appreciation rights).
(f) Options may be granted under this Plan to purchase shares of
Common Stock in excess of the number of shares then available for issuance under
the Plan, provided (i) an amendment to increase the maximum number of shares
issuable under the Plan is adopted by the Board prior to the initial grant of
any such option and is thereafter submitted to the Company's stockholders for
approval and (ii) each option so granted is not to become exercisable, in whole
or in part, at any time prior to the obtaining of such stockholder approval.
XIV. USE OF PROCEEDS
Any cash proceeds received by the Company from the sale of shares
pursuant to options granted under the Plan shall be used for general corporate
purposes.
XV. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option
hereunder, and the issuance of Common Stock upon the exercise or surrender of
any such option shall be subject to the Company's procurement of all approvals
and permits required by regulatory authorities having jurisdiction over the
Plan, the options granted under it and the Common Stock issued pursuant to it.
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<PAGE> 1
SEEQ TECHNOLOGY INCORPORATED
1989 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
(As Amended January 13, 1998)
ARTICLE I
GENERAL PROVISIONS
PURPOSES OF THE PLAN
This 1989 Nonemployee Director Stock Option Plan (the "Plan") is
intended to promote the interests of SEEQ Technology Incorporated, a Delaware
corporation (the "Corporation"), by offering nonemployee members of the Board of
Directors the opportunity to participate in a special stock option program
designed to provide them with significant incentives to remain in the service of
the Corporation.
ELIGIBILITY
A. Each nonemployee member of the Corporation's Board of Directors (the
"Board") shall be eligible to receive automatic option grants pursuant to the
provisions of Article II below.
B. Except for the automatic option grants to be made pursuant to the
provisions of Article II below, nonemployee Board members shall not be eligible
to receive any additional option grants or stock issuances under this Plan or
any other stock plan of the Corporation or its Parent or Subsidiary
corporations.
STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of the
Corporation's common stock ("Common Stock"). Such shares may be made available
from authorized but unissued shares of Common Stock or shares of Common Stock
reacquired by the Corporation. The aggregate number of issuable shares shall not
exceed 300,000 shares, subject to adjustment from time to time in accordance
with subparagraph D below.
B. Should an option expire or terminate for any reason prior to
exercise in full, the shares subject to the portion of the option not so
exercised shall be available for subsequent option grants under this Plan. In
the event that shares issued under the Plan are reacquired by the Company
pursuant to any forfeiture provision, or right of repurchase , such shares shall
again be available for subsequent option grants under the Plan. Shares subject
to any option canceled in accordance with the automatic cancellation provisions
of the Plan and all share issuances under the Plan shall reduce on a
share-for-share basis the number of shares of
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Common Stock available for subsequent option grants under the Plan. In addition,
should the exercise price of any outstanding option under the Plan be paid
through the delivery of existing shares of Common Stock, the number of shares of
Common Stock available for subsequent option grants under the Plan shall not be
reduced by the gross number of shares of Common Stock for which the option is
exercised, but by the net number of shares actually issued to the option holder.
C. Should the total number of shares at the time available for grant
under the Plan not be sufficient for the automatic grants to be made at that
particular time to the nonemployee Board members, then the available shares
shall be allocated proportionately among all the automatic grants to be made at
that time.
D. In the event any change is made to the Common Stock issuable under
the Plan by reason of any stock split, stock dividend, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without receipt of consideration, then appropriate adjustments will be
made to (i) the aggregate number and/or class of shares of Common Stock
available for issuance under the 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 in order to prevent the dilution or
enlargement of benefits thereunder.
VALUATION
For purposes of establishing the option price and for all other
valuation purposes under the Plan, the Fair Market Value per share of the Common
Stock on any relevant date shall be determined in accordance with the following
rules:
A. If the Common Stock is not at the time listed or admitted to trading
on any national securities exchange but is traded on the Nasdaq National Market,
then the fair market value shall be the closing selling price per share of
Common Stock on the date in question, as such price is reported by the National
Association of Securities Dealers, Inc. on the Nasdaq National Market. If there
is no reported closing selling price for the Common Stock on the date in
question, then the closing selling price on the last preceding date for which
such quotation exists shall be determinative of fair market value.
B. If the Common Stock is at the time listed or admitted to trading on
any national securities exchange, then the fair market value shall 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. If there is no reported sale of
Common Stock on such exchange on the date in question, then the fair market
value shall be the closing selling price on the exchange on the last preceding
date for which such quotation exists.
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PARENT AND SUBSIDIARY CORPORATIONS
A. A corporation shall be deemed to be a Parent of the Corporation if
it is one of the corporations (other than the Corporation) in an unbroken chain
of corporations ending with the Corporation, provided each such corporation
(other than the Corporation) owns, at the time of determination, stock
possessing fifty (50) percent or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
B. A corporation shall be deemed to be a Subsidiary of the Corporation
if it is one of the corporations (other than the Corporation) in an unbroken
chain of corporations beginning with the Corporation, provided each such
corporation (other than the last corporation in the unbroken chain) owns, at the
time of determination, stock possessing fifty (50) percent or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain. For purposes of the Corporate Transaction provisions of the Plan,
the term "Subsidiary" shall also include any partnership, joint venture or other
business entity of which the Corporation owns, directly or indirectly through
another subsidiary corporation, more than a fifty percent (50%) interest in
voting power, capital or profits.
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ARTICLE II
AUTOMATIC GRANT PROGRAM
GRANT DATES
A. Each individual who was serving as a nonemployee member of the Board
on November 8, 1989 was automatically awarded, on such date, a nonstatutory
option to purchase 20,000 shares of Common Stock. Commencing with the 1991
Annual Meeting and continuing in effect for each subsequent Annual Meeting of
the Corporation's stockholders, each individual who is at the time reelected as
a nonemployee member of the Board shall receive an additional grant under the
Plan for 10,000 shares. An individual who is first elected or appointed as a
nonemployee Board member at any time after the 1990 Annual Meeting shall receive
his/her initial automatic grant for 20,000 shares at the time of his/her initial
election or appointment to the Board and shall be eligible for subsequent 10,000
share grants commencing with the second Annual Meeting following the date of
his/her initial election or appointment as a nonemployee Board member.
B. In no event shall any nonemployee Board member be eligible to
receive an initial 20,000-share option grant or any 10,000-share annual option
grants under the Plan if such individual has been appointed or elected to the
Board pursuant to any contractual or other right or arrangement.
TERMS AND CONDITIONS OF GRANT
Each option granted in accordance with the automatic grant provisions
of this Article II shall be evidenced by an instrument in the form of the
prototype non-statutory stock option agreement and restricted stock purchase
agreement attached to the Plan as Exhibits A and B. Accordingly, each such
automatic grant shall be subject to the following terms and conditions:
1. Option Price.
The option price per share shall be one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the automatic grant date.
2. Term and Exercisability of Options.
(a) Each option granted on or after March 10, 1998 under the
initial automatic grant shall become exercisable in twenty-four (24) equal
monthly installments from the date of the Annual Stockholder Meeting at which it
is granted. Each option granted on or after March 10, 1998 under the annual
automatic grant shall become exercisable in twelve (12) equal monthly
installments from the date of the Annual Stockholders Meeting at which it is
granted. The option shall thereafter remain so exercisable until the expiration
or sooner termination of the option term.
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(b) Upon the non-employee Board member's cessation of Board
service for reason of death or permanent disability, all of the automatic
options granted shall become fully exercisable. For all relevant purposes under
this Article II, disability shall mean the optionee's inability, by reason of
any physical or mental injury or illness expected to result in death or to be of
continuous duration of twelve (12) consecutive months or more, to perform
his/her normal and usual duties as a Board member.
(c) Each granted option shall have a maximum term of ten
(10) years measured from the automatic grant date.
3. Exercise of Option.
Upon exercise of the option, the option price for the purchased shares
shall become immediately payable in one of the alternate forms specified below:
(a) cash or cash equivalents (such as a personal check
payable to the Corporation's order); or
(b) shares of Common Stock held by the optionee for the
requisite period necessary to avoid a charge to the Corporation's reported
earnings and valued at Fair Market Value on the date of exercise; or
(c) full payment through a special sale and remittance
procedure pursuant to which the Optionee is to provide irrevocable written
instructions (i) to a Corporation-designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Corporation, out of the
sale proceeds available on the settlement date, an amount sufficient to cover
the aggregate option price payable for the purchased shares and (ii) to the
Corporation to deliver the certificates for the purchased shares directly to
such brokerage firm in order to complete the sale transaction; or
(d) any combination of the foregoing so long as the total
payment equals the aggregate option price for the purchased shares.
4. Nontransferability.
During the lifetime of the optionee, the option, together with any
stock appreciation right pertaining to such option, shall be exercisable only by
the optionee and shall not be assignable or transferable by the optionee other
than a transfer of the option by will or by the laws of descent and distribution
following the optionee's death.
5. Effect of Termination of Board Membership.
(a) Should an optionee cease to be a member of the Board for
any reason (other than death) prior to the expiration of one or more automatic
grants under this Article II, then each such grant shall remain exercisable, for
any shares of Common Stock for which the option is exercisable or in which the
optionee is vested at the time of cessation of
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Board membership, for a three (3) month period following the date of such
cessation of Board membership.
(b) Should an optionee cease to be a member of the Board by
reason of optionee's death, then any outstanding automatic grant held by the
optionee at the time of death may be subsequently exercised, for any or all of
the option shares, by the personal representative of the optionee's estate or by
the person or persons to whom the option is transferred pursuant to the
optionee's will or in accordance with the laws of descent and distribution. Any
such exercise must, however, occur within twelve (12) months after the date of
the optionee's death.
(c) In no event shall any automatic option grant remain
exercisable after the specified expiration date of the ten (10)-year option
term. Upon the expiration of the applicable exercise period specified in
subparagraphs a and b above or (if earlier) upon the expiration of the ten (10)
year option term, the option shall terminate and cease to be exercisable.
6. Stockholder Rights.
An option holder shall have none of the rights of a stockholder with
respect to any shares covered by the automatic grant until such individual shall
have exercised the option, paid the option price and been issued a stock
certificate for the purchased shares.
CORPORATE TRANSACTION
In the event of one or more of the following transactions ("Corporate
Transaction"):
1. a merger or acquisition in which the Corporation is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State of the Corporation's incorporation;
2. the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation to any entity other than a
Subsidiary of the Corporation; or
3. any reverse merger in which the Corporation is the surviving
entity but in which fifty (50) percent or more of the Corporation's outstanding
voting stock is transferred to holders different from those who held the stock
immediately prior to such merger;
then each automatic option grant at the time outstanding under this
Article II Program and not otherwise at the time fully exercisable shall
automatically accelerate and become immediately exercisable for any or all of
the shares subject to the option, and any unvested shares at that time
outstanding under the Plan or otherwise issuable pursuant to outstanding option
grants under the Plan will immediately vest in full. Immediately following the
consummation of such Corporate Transaction, all outstanding options under this
Article II
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shall terminate and cease to be exercisable, except to the extent assumed by the
successor corporation (or its parent company).
CHANGE IN CONTROL
A. In the event there should occur a Change in Control (as defined
below), then each automatic option grant at the time outstanding under the Plan
and not otherwise at the time fully exercisable shall automatically accelerate
and become fully exercisable for any or all of the shares at the time subject to
such option, and any unvested shares at that time outstanding under the Plan or
otherwise issuable pursuant to outstanding option grants under the Plan will
immediately vest in full.
B. In addition, each option which has been outstanding for at least six
months will be automatically canceled on the tenth business day following the
Change in Control, in exchange for a cash payment from the Corporation equal to
the excess of (i) the fair market value on the date of cancellation of the
shares of Common Stock for which the canceled 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. 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 canceled option is exercisable will be deemed to be
equal to the greater of the Fair Market Value per share on the date of
cancellation or, if applicable, the highest reported price per share paid by the
tender offeror in effecting the Change in Control.
C. A Change in Control shall be deemed to occur should (i) a person or
related group of persons, other than the Corporation or a person that directly
or indirectly controls, is controlled by, or is under common control with the
Corporation, acquire twenty-five percent (25%) or more of the outstanding Common
Stock pursuant to a tender or exchange offer which the Board does not recommend
the stockholders to accept or should (ii) a change in the composition of the
Board occur 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.
RESERVATION OF RIGHTS
The automatic grants in effect under this Article II shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
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ARTICLE III
MISCELLANEOUS PROVISIONS
AMENDMENT OF THE PLAN
The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects whatsoever; provided, however,
that in no event shall any amendments or modifications be made to the Plan which
(i) alter rights and obligations with respect to options at the time outstanding
under the Plan without the optionee's consent, or (ii) require stockholder
approval without obtaining stockholder approval to the extent required by law
for any such amendments.
EFFECTIVE DATE AND TERM OF PLAN
A. The Plan became effective on the date of its adoption by the Board.
The Plan was amended on January 13, 1998 to increase the number of shares
issuable, to simplify the vesting schedules, to extend the term, and to delete
obsolete provisions. The amendment was approved by the stockholders at the 1998
Annual Meeting.
B. The Plan shall terminate upon the earliest to occur of (i) January
12, 2008, (ii) the date on which all shares available for issuance under the
Plan shall have been issued pursuant to the exercise of the automatic grants
made hereunder or (iii) the date on which all outstanding options are cashed out
in connection with the Change in Control provisions of the Plan. If the date of
termination is determined under clause (i) or (ii) above, then any option grants
or unvested shares outstanding on such date shall not be affected by the
termination of the Plan and shall continue to have force and effect in
accordance with the provisions of the instruments evidencing such grants or
issuances.
CASH PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
pursuant to the automatic grants made under the Plan shall be used for general
corporate purposes.
REGULATORY APPROVALS
The implementation of the Plan, the granting of any option hereunder,
and the issuance of Common Stock upon the exercise of any such option shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the options granted
under it and the Common Stock issued pursuant to it.
NO IMPAIRMENT OF RIGHTS
Nothing in this Plan or any automatic grant made pursuant to the Plan
shall be construed or interpreted so as to affect adversely or otherwise impair
the Corporation's right to
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remove any Optionee from service on the Board at any time in accordance with the
provisions of applicable law.
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ARTICLE IV
SPECIAL ONE-TIME OPTION GRANTS
SPECIAL GRANTS
On the date of the 1996 Annual Stockholders Meeting, a special one-time
option grant shall be made to the following nonemployee Board members: an option
grant for 40,000 shares of Common Stock to the Corporation's Chairman of the
Board, Mr. Alan V. Gregory, and an option for 10,000 shares of Common Stock to
the other eligible nonemployee Board member who has not been appointed to the
Board pursuant to any contractual or other right or arrangement, Mr. Charles C.
Harwood. These special one-time grants were approved by the stockholders at the
1996 Annual Meeting.
TERMS AND CONDITIONS OF SPECIAL GRANT
Each option granted in accordance with the provisions of this Article
IV shall be subject to the following terms and conditions and shall be evidenced
by a stock option agreement incorporating such terms and conditions:
1. Option Price.
The option price per share shall be one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the grant date.
2. Term and Exercisability of Options.
(a) Each option shall become exercisable for any or all of
the option shares upon the optionee's completion of six (6) months of Board
service measured from the grant date.
(b) Each option shall have a maximum term of ten (10) years
measured from the grant date.
3. Repurchase Rights.
Any unvested shares of Common Stock purchased upon the exercise of an
Article IV grant shall be subject to repurchase by the Corporation, at the
original option price paid per share, upon the optionee's cessation of Board
membership for any reason other than death or disability prior to his completion
of one (1) year of Board service measured from the grant date.
4. Nontransferability.
During the lifetime of the optionee, the option, together with any
stock appreciation right pertaining to such option, shall be exercisable only by
the optionee and shall
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not be assignable or transferable by the optionee other than a transfer of the
option by will or by the laws of descent and distribution following the
optionee's death.
5. Remaining Terms and Provisions.
All the remaining terms and provisions of the special one-time option
grants to be made pursuant to this Article IV shall be the same as those in
effect for the automatic option grants made pursuant to the Article II Program.
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