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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to _________
Commission file number 1-10639
CONNER PERIPHERALS, INC.
[Exact name of registrant as specified in its charter]
DELAWARE 94-2968210
(State of incorporation) (I.R.S. Employer
Identification No.)
3081 ZANKER ROAD
SAN JOSE, CALIFORNIA 95134
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 456-4500
Securities registered pursuant to Section 12(b) of the Act-
Title of class and name of each exchange on which registered:
Common Stock, $.001 par value- New York Stock Exchange
6-1/2% Convertible Subordinated Debentures due 2002- New York Stock Exchange
6-3/4% Convertible Subordinated Debentures due 2001- New York Stock Exchange
Rights to Purchase Series A Participating Preferred Stock-
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate value of voting stock held by nonaffiliates of the
Registrant was approximately $538,080,000 as of March 7, 1995 based upon the
closing sales price on the New York Stock Exchange reported for such date.
Shares of Common Stock held by each executive officer and director and by each
person who owns 5% or more of the outstanding Common Stock have been excluded in
that such persons may, under certain circumstances, be deemed to be affiliates.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes. As of March 7, 1995, 52,495,602 shares of
Common Stock were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year ended
December 31, 1994 are incorporated by reference in Parts II and IV of this Form
10-K. Portions of the definitive proxy statement for the Annual Meeting of
Stockholders to be held April 25, 1995 are incorporated by reference in Part III
herein.
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PART I
ITEM 1. BUSINESS
Conner Peripherals, Inc. ("Conner" or the "Company") was incorporated in
California in June 1985 and was reincorporated in Delaware in September 1992.
The Company's principal executive offices are located at 3081 Zanker Road, San
Jose, California 95134, and its telephone number is (408) 456-4500.
General
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Conner operates in one industry segment by designing, building and
selling information storage solutions products, including a large selection of
hard disk drives, tape drives, storage management software and integrated
storage systems for a wide range of computer applications.
In June 1992, the Company began the process of repositioning itself from
being solely a manufacturer of hard disk drives to becoming a leading
supplier of total storage solutions for the computer industry. In December 1992,
Conner completed the acquisition of Archive Corporation ("Archive") by means of
a merger. The acquisition of Archive established Conner's position in the tape
drive, software and storage systems markets, thereby supporting its strategy of
being a leader in information storage solutions and storage and data protection
products. During 1993, the Company took action to reduce excess manufacturing
capacity to a level more consistent with sustainable demand, to streamline
operations as well as administrative processes to reduce the Company's cost
structure and to further integrate and reduce selling, general and
administration and research and development activities of both disk and tape
drive operations. As a result, the Company recorded certain charges to Unusual
Items in 1993 (see Note 4 to the consolidated financial statements). During
1994, the Company qualified to ship certain 3.5-inch disk media manufactured in
Milpitas, California to certain third parties. This technically advanced media
has a high oersted rating and low glide height specification. Shipments will
commence during the first quarter of 1995 to these certain third parties. In
January 1994, the Company's then wholly-owned subsidiary, Arcada Software, Inc.,
("Arcada") acquired Quest Development Corporation for cash and issued shares to
a minority interest party representing approximately a 22% minority ownership
interest in Arcada. This acquisition was instrumental in implementing a total
storage solutions strategy. Arcada is engaged in developing, producing and
marketing software products for data storage management.
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Demand for all of the Company's products is driven by several distinct
market trends. First, the shift from centralized computing based on mainframes
and minicomputers to networks and client-server architectures has resulted in an
increased demand for compact, high capacity, high-performance storage devices
and systems for use in networks of personal computers and workstations. Second,
the increasing complexity of personal computer and application software
operating systems, such as Windows, OS/2, as well as the software applications
designed to support them, has resulted in the demand for greater storage
capacity in individual computers. Third, the substantial storage requirements
necessary to store high resolution images, sound and video data applications is
adding significantly to the amount of storage required on personal computer
systems, both in business and home environments.
As the amount of data stored on individual computers increases, the need
for efficient and reliable data protection also increases. This need is causing
an increase in the demand for tape drives and the complex software which manages
the transfer of data from disk drives to tape drives on a network and on
individual computer systems.
The Company's products are sold to original equipment manufacturers
("OEMs"), distributors, value-added resellers ("VARs"), retailers and direct to
end-user customers in the U.S. and abroad through a variety of channels.
DISK DRIVES
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Disk drives address the escalating requirements of high performance
microcomputers and workstations for greater storage capacity, faster access
time, lower power consumption and smaller size at increasingly lower costs
through the use of advanced technologies. These requirements are met through
the use of advanced technologies which have additionally allowed the Company to
manufacture the products at increasingly lower costs.
In a disk drive, one or more rigid disks are attached to a spin motor
assembly which rotates the disks at a constant speed within a sealed,
contamination-free enclosure. Typically, both surfaces of each disk are coated
with a thin layer of magnetic material. Magnetic heads record and retrieve data
from discrete magnetic domains located on pre-formatted concentric tracks in the
magnetic layers of the rotating disks. An actuator positions the head over the
proper track upon instructions from the drive's electronic circuitry. Most disk
drives are "intelligent" disk drives, which incorporate an embedded controller
to manage communications with the computer.
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Disk Drive Design
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During the last five years, the Company has pioneered a variety of disk
drive innovations, many of which have achieved broad acceptance in the disk
drive industry in general. The Company was the first to utilize an architecture
employing a high microcode content, resulting in significant flexibility and
improved reliability in its drives. In addition, the Company was among the
earliest to introduce drives using a high-performance voice coil actuator and
on-board electronic diagnostics. As a result of various proprietary design
innovations, the Company's disk drives achieve high performance with low power
consumption. Finally, the Company was the first to introduce drives in a low-
profile one inch package. Many of these innovations are protected by patent
rights belonging to the Company.
The Company believes that its disk drive designs have certain important
performance characteristics. The benefits to the user include (1) fast access
time; (2) low heat dissipation; (3) quiet operation; (4) low power consumption;
and, (5) extended product life. Fast access is a performance requirement for
systems incorporating 64-bit and 32-bit microprocessors, such as Intel
Corporation's ("Intel") Pentium and 80486 and Motorola's 68000 family of
microprocessors. Low heat dissipation is an important determinant of a disk
drive's reliability because heat may contribute to component failure. Low heat
dissipation also allows the possibility of eliminating or reducing the size of
cooling fans in computers and thus increases the potential for quieter computer
system operation. Low power consumption is also a critical factor in all
portable computing applications because these computers use battery power
supplies and disk drives are a large power consumer in such systems.
Consequently, low power consumption in disk drives reduces the need for a
computer to consume a large amount of power in its operation. Although the
Company's products continue to perform well in a variety of these performance
characteristics, product offerings of the Company's competitors also incorporate
many of these design features and achieve comparable performance criteria.
The benefits of its disk drive designs also include reduced parts count,
higher reliability and the built-in ability for self-testing. These benefits
may result in the possibility of lower aggregate component costs and reduced
requirements for expensive disk drive test equipment, when compared to
conventional disk drive designs.
Disk Drive Products
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The Company's disk drive products include 2.5-inch and 3.5-inch disk
drives which offer storage capacities ranging from 210 megabytes to over 4
gigabytes of formatted capacity. The Company's products include the following
product families:
Filepro Series: The Filepro Series products include one and two-disk,
low-profile (one-inch high) 3.5-inch hard disk drives, in capacities of 210,
420, 425, 540, 850 and 1275 megabytes. The Filepro Series is designed to offer
the entry level PC user a combination of high capacity, performance, reliability
and low price.
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Filepro Advantage Series: The Filepro Advantage Series of 3.5-inch disk
drives offers low cost storage for value systems, including networked and
desktop PCs used for advanced applications, databases and multimedia. The
Filepro Advantage Series is available in capacities of 540, 850 and 1275
megabytes.
Filepro Performance Series: The Filepro Performance Series drives are
available with approximately 1, 2 and 4 gigabytes of capacity and feature seek
times as fast as 8.5 milliseconds and data transfer rates of up to 20 megabytes
per second. These disk drives are primarily used in multi-user environments
including advanced workstation and network systems.
Filepro Notebook Series: The Filepro Notebook Series of 2.5-inch disk
drives provide capacities from 350 to 420 megabytes and address the needs of
mobile users of portable PCs and notebook computers, with low power, light
weight and a high degree of shock resistance.
TAPE DRIVES
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Tape drives are peripheral hardware devices which enable low cost storage
or data protection of large volumes of data through use of tape stored on small
cartridges used singly or in the case of Digital Audio Tape ("DAT"), in multiple
autoloader applications.
Tape Drive Products
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Computer systems of all types increasingly need dedicated backup storage
peripherals that combine high capacity, exceptional performance, low cost and
reliability. Conner's full line of minicartridge, DAT and data cartridge tape
products meet the needs of the entry, value, performance and portable markets to
complement Conner's line of disk drive products.
Minicartridge Tape Drives: Conner's family of low profile minicartridge
tape drives are designed to provide from 250 megabytes to 4 gigabytes of data
protection on a single low cost removable cartridge. The entry level products
incorporate a floppy interface and are designed for desktop PC applications.
New product introductions in 1994 included the 420, 850 and 1700 megabyte models
with a floppy controller interface. The Company's recently introduced 4
gigabyte minicartridge products incorporate SCSI and IDE interfaces and address
the need for higher performance tape solutions at an economical price. All
minicartridge tape drives are sold either as bare drives or bundled solutions
marketed with the brand of Tape Stor. The entry level drives are currently
manufactured for Conner in Japan while the higher performance minicartridge
products are manufactured by Conner in Singapore.
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DAT Drives: High speed, networked computer environments need automatic
data protection and backup in the form of dedicated removable storage
peripherals that combine high capacity, absolute reliability, state-of-the-art
backup performance and low cost per megabyte in a small form factor. The Conner
family of True Computer Grade Digital Audio Tape ("DAT") products provides a
balance of these features, storing up to 8 gigabytes of data on a single 4mm
cartridge. In addition, the Company offers DAT Autoloaders, which enable the
storage of up to 96 gigabytes through an automated loading mechanism which can
handle up to 12 DAT tape cartridges in a single tape drive.
Data Cartridge Drives: Conner Data Cartridge Drives provide high capacity
and field-proven data storage in a 5.25-inch, half-high form factor. These data
cartridge drives are available in internal and external models with capacities
ranging from 250 megabytes to 1.35 gigabytes, and provide high performance data
storage using the industry standard Quarter Inch Cartridge (QIC) format that
guarantees full backward read compatibility with previous generations of drives.
Conner MS System: Conner MS System is a turnkey system, fully tested to
ensure complete comparability featuring high performance tape drives and backup
software. This system includes a tape drive, SCSI controller (only certain
models), SCSI data cable, power cable (for external units), Backup Exec Novell-
certified software and manuals, installation manual, cleaning kit and a tape.
Conner MS systems are backward compatible with previous MaynStream systems and
Tapes.
Conner CS Series: Conner CS Series of mass storage solutions, formerly
Archive ST, is designed for workstation and PC-based Unix environments. The CS
Series includes data cartridge drives with capacities to 525 megabytes and
Conner DAT tape drive kits in capacities ranging from 2 to 8 gigabytes. This
product is tested and certified for compatibility with leading UNIX platforms
including SCO, IBM RISC System/6000, Sun, Hewlett-Packard, Digital Equipment
Corporation and UnixWare, Banyan Vines and NeXTSTEP as well as many others.
SOFTWARE PRODUCTS
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Through its Arcada Holdings, Inc. ("AHI") subsidiary, Conner offers a
variety of data protection and storage management software through Arcada
Software, Inc., a wholly-owned subsidiary of AHI ("Arcada"). Arcada develops
data protection and storage management software products that operate across
multiple desktop and client-server environments, including those of
International Business Machines Corporation, Microsoft, Inc. and Novell, Inc.
Arcada markets its products worldwide under the Backup Exec brand name to OEMs,
systems integrators, VARs, retailers, large corporate users and retail end-
users.
Backup Exec for NetWare: Backup Exec for NetWare delivers sophisticated
client/server based data protection for all servers and workstations on Novell-
based networks, including, DOS, Microsoft Windows, OS/2, Apple Macintosh and
UNIX workstations as well as NetWare 3.x and 4.x servers. Backup Exec was the
first storage software certified by Novell for its new NetWare 4.x network
operating system. Backup Exec is offered in single server, enterprise and
Windows workstation editions.
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Backup Exec for Windows NT: Backup Exec for Windows NT is a 32-bit backup
application created for Microsoft Windows NT which offers a comprehensive data
storage solution for Windows NT single users, workstations and servers operating
in both local and wide area networks.
Arcada Backup for Minicartridge: Arcada Backup for Minicartridge offers
desktop data protection for DOS and Microsoft Windows users. Arcada sells its
product primarily to OEMs and to a lesser extent through the retail and
distribution channels. Currently, Arcada's products support substantially all
minicartridge tape drives.
Storage Exec: Storage Exec offers a single backup solution for mixed
Microsoft Windows NT Server and OS/2 LAN Manager environments by configuring,
scheduling, monitoring and controlling local and remote sites from a central
location. This product supports backup of multiple platforms including
Microsoft Windows NT, OS/2, Microsoft Windows for Workgroups and DOS.
STORAGE SYSTEMS
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Conner Storage Systems integrate hardware and software solutions to allow
consumers to meet the demanding requirements of the current mixed network
environments. The products offered include those products manufactured or
developed by Conner, as well as integrated systems which include components or
products of third parties. Storage Systems products address the network storage
solution marketplace, including disk and RAID subsystems and storage management
software for local area networks and workstation environments. Conner Storage
Systems products are marketed and sold to VARs and distributors for resale to
large corporate users and financial institutions to manage their network storage
and data protection needs.
Storage Systems Products
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From basic single-user needs to complex network storage requirements,
Conner Storage Systems delivers turn-key solutions, coupled with customized
service and support. Conner's Storage Systems products address the needs of
users ranging from entry-level PCs to enterprise-wide network administrators.
Conner RAID Subsystems: Conner RAID Subsystems offer four families of
products which bring a new level of data availability and security, along with
system flexibility and scalability to meet a broad range of user needs within a
PC LAN environment. These products range in capacity from 1 to 25 gigabytes
that are low cost with comparable systems and offer a high level of performance.
Conner StorView Software: Conner StorView Software is a complete remote
workstation-based control and monitoring software application for Conner RAID
Subsystems providing users with a view of Conner RAID devices on the enterprise.
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GENERAL SALES AND DISTRIBUTION
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The Company sells its tape drive, disk drive, software and storage
systems products principally to OEMs through a direct sales force. The Company
focuses its sales efforts on manufacturers of desktop computers and
workstations, as well as manufacturers of portable computers and storage
subsystems such as servers and arrays.
Many of the Company's OEM customers enter into master purchase agreements
with the Company. These agreements do not require the OEMs to purchase minimum
quantities of the Company's products. Product deliveries are scheduled upon the
Company's receipt of purchase orders under the related agreements. Generally,
these purchase agreements also allow customers to reschedule delivery dates and
cancel purchase orders under certain circumstances without significant
penalties.
Sales of the Company's disk drives to Compaq Computer Corporation
("Compaq") accounted for approximately 13% in each of 1994 and 1993 and 15% of
the Company's net sales in 1992. Sales to Peripherals Europe GmbH accounted for
12% of the Company's net sales in 1992. No other customer represented more than
10% of net sales for the three years in the period ended December 31, 1994. The
Company's sales to any single OEM customer are subject to significant
variability from quarter to quarter based on a variety of factors including new
product acceptance, price, end-user demand, product availability and competitive
offerings.
The Company also sells products to non-OEM purchasers, such as
distributors. Such sales represented 26%, 29% and 31% of net sales for the
years in the period ended December 31, 1994, 1993 and 1992, respectively. The
Company's distributors typically enter into non-exclusive agreements for the
distribution of the Company's products within a specified geographic area.
Product deliveries are scheduled upon the Company's receipt of purchase orders.
Certain of these agreements provide the distributors with price protection with
respect to their inventory of drives and also provide limited rights to return
the products. The Company also sells its products through VARs and has expanded
its marketing efforts to address different channels that sell computer systems
through retailers that sell directly to end-users.
The Company's foreign sales are generally made directly or through
international distributors. Sales to foreign customers may be subject to
certain risks, including requirements for the obtaining of export/import
licenses, exposure to tariffs and other trade regulations, currency fluctuations
and repatriation of profits. The Company's foreign sales represented 48%, 54%
and 61% of total net sales for 1994, 1993 and 1992, respectively.
Geographic area information for the three years ended December 31, 1994
set forth in Note 14 "Foreign Operations" of the Company's 1994 Annual Report
for the year ended December 31, 1994 is incorporated herein by reference.
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BACKLOG
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At December 31, 1994, the Company's backlog of orders was approximately
$205 million as compared to a backlog of approximately $486 million at December
31, 1993. Backlog includes only those units for which a customer has specified
delivery within six months.
Demand for the Company's products is cyclical as the industry has
recently experienced alternating periods of severe product shortages and
significant overcapacity. During periods of product shortages, the Company's
backlog has increased significantly and frequently reflects abnormal customer
order patterns, including double ordering, as customers seek to insure the
availability of products to support future production. During periods of
overcapacity, the Company's backlog has declined precipitously as both OEM
customers and distributors seek to reduce their inventories or reduce their
purchase commitments.
The Company's backlog may fluctuate due to certain OEM practices of
submitting single large purchase orders to be shipped over an extended period of
time. Lead times for the release of purchase orders from other customers depend
upon the scheduling practices of the customers, and the Company anticipates that
the rate of new purchase orders will vary significantly from month to month. In
addition, the Company's actual shipments depend on its production capacity and
component availability. Moreover, the pricing of the Company's products as
delivered often depends on the date of delivery as prices may be adjusted
between the time an order is booked into backlog and the time the product is
shipped.
Shipment patterns during a quarter are frequently characterized by a
significantly higher shipment volume in the third month of a quarter than that
experienced in the first two months of the quarter. This pattern often causes
quarterly results to be difficult to predict. During 1994, order lead times were
reduced by certain of the Company's customers. This trend has impacted the
Company's visibility to future orders and accordingly has also affected the
predictability of financial results. As a result, the Company is experiencing
significantly reduced customer order lead times which resulted in lower backlog
as of December 31, 1994. In addition, record tape drive shipments which occurred
in the fourth quarter of 1994 also attributed to the reduced backlog as of
December 31, 1994 when compared to the backlog as of December 31, 1993.
Based on its past experience and knowledge of the disk drive industry,
the Company anticipates that it will experience significant volatility in the
scheduling of present and future orders. For these reasons, the Company's
backlog as of any particular date may not be indicative of the Company's actual
sales for any succeeding fiscal period.
COMPETITION
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The disk drive and tape drive industry is intensely competitive. The
principal competitive factors in the industry are price, early new product
availability, product performance, product quality, storage capacity
and responsiveness to customers demands which increasingly include schedule
predictability.
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The Company believes that it is currently able to compete on the basis of
all of these factors. The Company believes that its reliance on outside
vendors, which is different from some other companies in the industry that have
become more vertically integrated, has given it a competitive advantage both in
establishing strong relationships with vendors and in permitting maximum
flexibility in product design. The Company believes that competition in the OEM
sector of the disk drive industry has become more intense as major disk drive
manufacturers commit greater resources to the timely introduction of new
products.
During 1994, the Company experienced a decline in sales of disk drive
products to major U.S. corporate accounts. The Company has implemented a
program to improve its timely introduction of disk drive products, supporting an
effort to address new design-in opportunities with major OEM customers.
However, there can be no assurance that the Company's efforts to regain its
position with major OEM customers will be successful, or that any such
improvement in sales to such customers will occur in the near term. In
particular, due in part to design cycles, the Company does not expect a
significant increase in penetration of corporate accounts in the first half of
1995. The Company believes that an increase in sales to major OEM customers is
important to the Company's long-term competitive position.
The information storage industry, and the disk drive industry in
particular, are intensely competitive. Recently, the industry has undergone a
period of increased price competition, and the Company expects that the
resulting environment of increased price degradation will continue. This
environment can be expected to place ongoing pressure on the Company's gross
margins and profitability. No assurance can be given as to the Company's
operating results during this period.
The Company primarily competes against independent manufacturers of 2.5-
inch and 3.5-inch disk drives, including companies such as Micropolis
Corporation, Maxtor Corporation, Quantum Corporation, Seagate Technology, Inc.
and Western Digital Corporation. The Company also competes indirectly with disk
drive divisions of larger computer manufacturers such as The Hewlett-Packard
Company, International Business Machines Corporation, Fujitsu, Hitachi and
Toshiba. Should other major OEMs successfully develop disk drive manufacturing
capabilities, the demand for the Company's products could be reduced. The
Company's principal competitors in tape drive products are Colorado Memory
Systems, Inc. (acquired by Hewlett-Packard), Exabyte Corporation, Iomega
Corporation and Rexon, Inc. The primary competitors in software products are
Cheyenne Software, Inc., Colorado Memory Systems, Inc. (acquired by Hewlett-
Packard), and Palindrome Corporation (acquired by Seagate Technology, Inc.). The
primary competitors in the storage systems products are Micropolis Corporation
and Storage Dimensions, Inc.
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MANUFACTURING
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The Company expects that it will continue to purchase a substantial
majority of its component requirements from outside sources. However, from time
to time, the Company may establish limited internal production of certain
components, particularly during periods of supply constraints or when internal
production capability may contribute to new product development efforts. For
example, the Company is currently manufacturing the majority of its media
requirements. In 1994, the Company qualified to ship certain 3.5-inch media to
third-parties commencing in the first quarter of 1995. The Company's disk drive
manufacturing operations consist primarily of final assembly of heads and disks
in a class-10 clean area as well as the formatting and testing of the assembly.
Printed circuit boards are tested before they are assembled with head/disk
assemblies into disk drives. After assembly, each disk drive is operated in a
self-diagnostic mode where actual data transfers take place and various
parameters in the disk drive are tested and adjusted specifically for that disk
drive. The Company's testing procedures may vary depending upon the
requirements of particular OEM customers.
From time-to-time, the Company has experienced production delays due to
contamination related issues, yield shortfalls and other production difficulties
and the Company could experience similar delays in the future. Control and
continuous improvement of process yields by both Conner and its suppliers are
key determinants of manufacturing output, efficiency, product
quality/reliability and overall profitability. Moreover, there can be no
assurance that a defect will not escape identification in the factory and
require costly recall from customer sites.
The Company is currently experiencing certain production difficulties
with respect to certain of its new products, and expects that it will continue
to experience manufacturing problems from time-to-time in the future. A
prolonged inability to increase production yields and efficiencies on its new
disk drive products would significantly impair the Company's profitability and
competitive position.
The Company's business conditions require it to establish high-volume
manufacturing capability in anticipation of market demand. The Company's
ability to establish high-volume, low-cost manufacturing capacity depends in
part on its ability to obtain uninterrupted access to advanced technology
components in required volumes and at competitive prices. At the present time,
certain of these components are available only from single sources, although the
Company maintains ongoing programs to qualify additional sources for such
components where practicable. In particular, the Company has recently
experienced shortages of certain semiconductor and head components, which
shortages have adversely affected the Company's sales and ability to satisfy
customer demand for certain products in recent periods. There can be no
assurance that these supply constraints will not recur.
To reduce its exposure to production delays at times of component
shortage, the Company often seeks to qualify alternative components when
practicable. However, a prolonged interruption, or a reduction in the supply of
one or more key components, could nevertheless occur and would adversely affect
the Company's operating results and customer relationships.
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The Company continues to produce the majority of its disk drives in
Malaysia, Singapore, China and Italy. The Company began to manufacture in the
Peoples's Republic of China through Conner Shenzhen Peripherals Company Ltd., a
joint venture with Shenzhen CPC, in December 1992. Through this venture, Conner
became the first company to establish a disk drive manufacturing facility in the
People's Republic of China and it is anticipated that this manufacturing
operation will continue to increase production volumes during the first half of
1995. The expansion of production in offshore facilities requires tight
inventory and cost controls and employee training. In addition, the transfer of
production of a product to a new facility requires qualification of the facility
by certain of the Company's major OEM customers. Accordingly, such transfers may
have a short-term disruptive effect on the Company's operations. Foreign
manufacturing is also subject to certain risks, including changes of
governmental policies, transportation delays and interruptions and the
imposition of tariffs and import/export controls. There are also risks inherent
in being the first company to manufacture disk drives in the People's Republic
of China. Furthermore, currency exchange fluctuations could increase the cost of
components manufactured abroad.
A significant portion of Conner's tape drive manufacturing is done by one
outside vendor, Matsushita Kotubuki Electronics ("MKE"). Conner also
manufactures and/or assembles some of its own tape drive products in the same
Singapore facility that currently produces its disk drives. Any prolonged
interruption or reduction in supply of tape drives from MKE would adversely
affect the Company's operating results and customer relationships.
RESEARCH AND DEVELOPMENT
------------------------
The Company participates in an industry that is subject to rapid
technological changes, and its ability to remain competitive depends on, among
other things, its ability to maintain a leadership position in technology
innovation. As a result, the Company has devoted and will continue to devote
substantial resources to product development and process engineering efforts.
In 1994, 1993 and 1992 the Company's research and development expenses were
$130,771,000, $137,465,000 and $94,652,000, respectively. The Company's research
and development expenses in the past year reflect the Company's continued
prototype production and testing associated with planned introductions of
several new products and technologies. All of the Company's research and
development costs are expensed as incurred.
The Company's current disk drive research and new product development
efforts are principally directed to the development and prototype production of
new high performance 3.5-inch and 2.5-inch disk drives. Disk drives currently
in development employ more complex designs and a greater number of
technologically advanced components than previous disk drive generations.
Accordingly, it is possible that it will be more difficult to introduce these
disk drives to volume manufacturing than was the case with previous disk drive
generations.
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The Company's disk drive research and new product development is
conducted primarily at its facilities in Longmont, Colorado and San Jose,
California. The Company's process engineering and final product development is
conducted principally at research and product development facilities and at its
facilities in Singapore.
The Company's tape drive research and new product development is
conducted primarily at its Costa Mesa, California facility. In 1994, tape
engineering resources were devoted to the development of several new tape
products including a "wide" minicartridge tape drive capable of 27% more storage
capacity than existing minicartridge tape drives and a SCSI interface
minicartridge tape drive with 2 to 4 megabytes of data storage capacity. The
"wide" and SCSI interface tape drives were both launched in 1994. Also, in 1994,
the Company substantially completed the development of the industry's first
ATAPI (ATA packet interface) IDE minicartridge tape drive, which was launched in
the first quarter of 1995. Development of tape drives to support the newly
announced "Travan" extended length tape cartridges also began in 1994. The
Company also continued devoting engineering resources to achieve cost reductions
in current tape products as well as in development of an arcuate scan technology
tape drive.
The Company's current software research and new product development
efforts are principally directed towards developing data protection management
software for Windows 1995, O/S2 and UNIX operating platforms in addition to
continued efforts in developing new versions of existing products. The Company's
software development is conducted principally at its facility in San Luis
Obispo, California.
PATENTS AND LICENSES
--------------------
The Company has been granted or has acquired 37 United States patents and
has approximately 85 patent applications pending related to disk drive
technology. The Company's issued patents include a patent covering the
Company's microprocessor and microcode based architecture, and a patent covering
the self-testing diagnostic features incorporated in its disk drives. In
addition, the Company has been granted a patent covering its brushless motor
design and a patent covering certain mechanical design features of its low
profile drives, including various design features related to the one-inch high
form factor.
The Company has obtained or applied for a variety of additional patents
relating to other aspects of its drives, including certain features used in
achieving the low power functionalities of its disk drives which are important
for laptop and notebook applications, as well as certain desktop applications.
The Company has also acquired or been granted 90 United States patents, and has
approximately 24 patent applications pending, as part of the Archive acquisition
in December 1992 which relate to tape drive designs or technologies.
In addition to patent protection, the Company relies on the laws of
unfair competition, copyright and trade secrets to protect its proprietary
rights. The Company believes that its technological know-how and abilities,
protectable under these bodies of law, are equally important to its business as
technical innovations are subject to patent protection.
13
<PAGE>
As is typical in the disk drive industry, Conner has from time to time
been notified that it may be infringing certain patents and other intellectual
property rights of others, and the Company is engaged in several patent
infringement lawsuits, both as plaintiff and defendant. Although the Company may
offer licenses in connection with these claims, there can be no assurance that
such claims will not result in litigation in the future regarding patents, mask
works, copyrights, trademarks or trade secrets, or that any licenses or other
rights can be obtained on acceptable terms. See Item 3 "Legal Proceedings."
FACTORS AFFECTING EARNINGS AND STOCK PRICE
------------------------------------------
In the past, the Company's sales and earnings have experienced
significant fluctuations due to precipitous changes in industry demand, product
cycles and pricing pressures. During 1993, the Company experienced substantial
losses as a result of distribution problems in Europe, new product introduction
delays and severe competition across all the Company's product lines. Although
the Company has successfully introduced a range of new disk drive and tape drive
products since then, there can be no assurance that the Company will not again
experience these problems in the future. In addition, there can be no assurance
that the Company will succeed in ramping production of new products in time to
take advantage of customer demand or that the Company will achieve profitable
operations in any given period or fiscal quarter.
During the first quarter of 1995, the Company commenced initial volume
shipments of a significant number of new disk drive products. As is common
during periods of product transition, the Company has experienced certain
difficulties and delays in achieving volume production of certain of these
products, including the Company's new Cayman disk drives. In addition, during
the first quarter of 1995, the Company has experienced a shortfall in production
in the Company's Cabo family of 425/850/1275 megabyte drives due to the
decommitment of shipments by a supplier of components. The Company also believes
that price competition in the market for disk drives with capacities under one
gigabyte has further intensified. The Company's operating results during the
first quarter of 1995 will reflect these factors. There can be no assurance that
these factors may not continue to affect the Company's operating results in
future periods.
Due to the volatility in the Company's business, the Company expects that
its stock price will continue to be subject to significant fluctuations. The
Company's stock price could decline precipitously due to unsubstantiated rumors
or to actual short-term performance that fails to meet analysts' expectations
for sales or net income. Investors in the Company's securities must be willing
to accept the risk of such fluctuations and stock price volatility.
EMPLOYEES
---------
At December 31, 1994, the Company had 10,290 employees, of whom 490 were
in research and development or process development engineering; 390 were in
marketing and sales; 649 were in general administration; and 8,761 were in
operations, with 5,574 in direct labor and the remainder in quality assurance,
test and manufacturing engineering, procurement and material management,
production management and customer service. None of the Company's employees,
except those in Italy, are represented by a labor union. The Company believes
that its relationship with its employees is satisfactory.
14
<PAGE>
ITEM 2. PROPERTIES
----------
Facilities
----------
The following table sets forth information concerning the principal
operating facilities of the Company and approximate square footage as of
February 15, 1995:
<TABLE>
<CAPTION>
Square
Feet
----
<S> <C>
Manufacturing and Distribution:
United States (9 buildings).............. 536,000
Asia (6 buildings)....................... 1,014,000
Europe (2 buildings)..................... 120,000
Administration, Research and Development:
United States (16 buildings)............. 467,000
Asia (1 building)........................ 1,200
Sales and Customer Service:
Sales and customer service offices
(30 buildings in North America,
Asia and Europe)......................... 161,000
</TABLE>
The Company leases most of the operating facilities listed above with the
exception of certain owned facilities located in the United States and Asia. In
addition, certain owned and leased facilities have been vacated and/or
subleased to third parties. Such facilities were vacated as a result of the
Company's restructuring actions taken during 1993. Two owned facilities are
currently held for sale. The square footage of vacated and/or subleased
facilities is approximately 319,000. The Company considers that its
properties are generally in good condition, are well maintained and are
generally suitable and adequate to carry on the Company's business. All
manufacturing facilities operate at utilization levels considered satisfactory
by the Company, other than a manufacturing facility located in Europe which is
not currently utilized. The lease terms for this facility were renegotiated to
coincide with the reduction in utilization as a result of the Company's
restructuring actions taken during 1993.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company and certain of its officers and certain directors are
defendants in a securities class action lawsuit which purports to represent a
class of investors who purchased or otherwise acquired the Company's common
stock between January 1992 and May 1993. Certain officers and directors are also
defendants in a related stockholders derivative suit. The complaints seek
unspecified damages and other relief. The Company intends to defend the actions
vigorously.
15
<PAGE>
In August 1993, the Company was served with a patent infringement
complaint, filed by IBM, alleging that products manufactured by the Company have
infringed certain patents owned by IBM. In addition, the complaint seeks
declaratory relief to the effect that disk drives produced by IBM do not
infringe certain patents held by the Company and seeks to have such patents
declared invalid. The Company answered the complaint, denying all material
allegations and counterclaiming that IBM disk drives infringe certain patents
owned by Conner, including those patents contained in the IBM complaint. The
Company believes that it has meritorious defenses against these allegations,
that it has valid claims against IBM and will defend this action vigorously.
Although the Company has engaged in continuous discussions with IBM toward an
appropriate cross-licensing arrangement, the Company is unable to predict the
outcome of the settlement negotiations, the litigation and the ultimate effect,
if any, on its operations or financial condition. Regardless of the merits of
the respective patent claims, the Company believes that the existence of the IBM
litigation could have an adverse effect on its business. In addition, this
litigation is causing the Company to incur significant costs, including
substantial legal expenses.
In 1992, the Company filed a patent infringement lawsuit against Western
Digital Corporation ("Western Digital") alleging the infringement of five of the
Company's patents by Western Digital. Western Digital has filed a counterclaim
alleging infringement of certain of its patents by the Company. The Company
believes it has valid claims against Western Digital and meritorious defenses to
the claims asserted by Western Digital.
In 1994, the Company was served with a patent litigation claim alleging
that the Company's DC2000 tape drives infringe a patent held by Iomega
Corporation ("Iomega"). This claim was settled by the Company and Iomega during
1994 and had no material effect on the results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not applicable.
16
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
--------------------------------------------------
STOCKHOLDER MATTERS
-------------------
Information regarding the market for the Registrant's common equity and
related stockholder matters is set forth under the heading "Consolidated
Statements of Stockholders' Equity" on page 25 and under the heading "Market
Price of Common Stock" on page 40 of the 1994 Annual Report, which sections are
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
Information regarding selected financial information is set forth under
the headings "Selected Financial Data" and "Summary Quarterly Data- Unaudited"
on page 13 of the 1994 Annual Report, which sections are incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
------------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Information regarding management's discussion and analysis of financial
condition and results of operations is set forth under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 14 through 21 of the 1994 Annual Report, which section is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
Consolidated Financial Statements of the Company at December 31, 1994 and
1993 and for each of the three years in the period ended December 31, 1994 and
the report of independent accountants therein, as well as the Company's
unaudited quarterly financial information for the two-year period ended December
31, 1994 is set forth on pages 22 through 39 and on page 13 of the 1994 Annual
Report, which sections are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
------------------------------------
Not applicable.
17
<PAGE>
PART III
Certain information required by Part III is omitted from this Report on
Form 10-K in that the Company has filed a definitive proxy statement (the "Proxy
Statement") pursuant to Regulation 14A with respect to the Annual Meeting of
Stockholders to be held April 25, 1995 with the Securities and Exchange
Commission and certain information included therein is incorporated herein by
reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information regarding directors of the Company is incorporated by
reference to the information under the caption "Proposal No. 1- Election of
Directors" in the Proxy Statement. The information concerning executive
officers of the Company is incorporated by reference to the information under
the caption "Proposal No. 1- Election of Directors" and under the caption "Other
Information- Executive Officers" in the Proxy Statement. The information
regarding compliance with Section 16(a) of the Securities Exchange Act of 1934
is incorporated by reference to the information under the caption "Other
Information- Compliance with Section 16(a) of the Securities Exchange Act of
1934" in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required by this Item is incorporated by reference to the
information under the caption "Executive Officer Compensation" in the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT
----------
The information required by this Item is incorporated by reference to the
information under the caption "Other Information- Share Ownership by Principal
Stockholders and Management" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by this Item is incorporated by reference to the
information under the captions "Certain Transactions" and "Executive
Compensation- Compensation Committee Interlocks and Insider Participation" in
the Proxy Statement.
18
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
-------------------------------------------------------
FORM 8-K
--------
(a) The financial statements listed in the following index to consolidated
financial statements are filed as part of this Annual Report on Form
10-K.
Page in
1. Financial Statements Annual Report
-------------
Consolidated Balance Sheets at December 31, 1994
and December 31, 1993 22
Consolidated Statements of Operations for the
three years ended December 31, 1994 23
Consolidated Statements of Cash Flows for the
three years ended December 31, 1994 24
Consolidated Statement of Stockholders' Equity
for the three years ended December 31, 1994 25
Notes to Consolidated Financial Statements 26
Report of Independent Accountants 39
2. Financial Statement Schedule
Schedule Description Page
-------- ----------- ----
VIII Valuation and Qualifying Accounts S-1
Report of Independent Accountants on
Financial Statement Schedule S-2
Schedules not listed above have been omitted because they are
inapplicable.
3. Exhibits
Refer to (c) below.
(b) Reports on Form 8-K
No reports on Form 8-K were filed on behalf of Registrant during the
quarter ended December 31, 1994.
19
<PAGE>
(c) Exhibits
2.1(5) Agreement and Plan of Merger between Conner
Peripherals, Inc., a Delaware corporation, and
Conner Peripherals, Inc., a California corporation,
dated July 13, 1992.
2.2(6) Agreement and Plan of Merger between Archive
Corporation, Conner Acquisition Corp. and Conner
Peripherals, Inc. dated November 18, 1992, as
amended.
3.1(5) Certificate of Incorporation of Registrant, as
amended to date.
3.2 Bylaws of Registrant, as amended to date.
3.3(10) Certificate of Designation of Rights Preferences and
Privileges of Series A Participating Preferred Stock
of Registrant.
4.1(2) Form of Indenture relating to Registrant's
6-3/4% Convertible Subordinated Debentures due 2001.
4.2(3) Form of Indenture relating to Registrant's
6-1/2% Convertible Subordinated Debentures due 2002.
4.3(10) Preferred Shares Rights Agreement dated November 29,
1994 between Registrant and The First National Bank
of Boston, Rights Agent.
10.1* Summary of Registrant's Profit Sharing Plan.
10.2(8)* Registrant's 1986 Incentive Stock Plan, together
with forms of agreements thereunder, as amended.
10.3* Registrant's Employee Stock Purchase Plan, as
amended.
10.4(4)* Registrant's 1992 Restricted Stock Plan.
10.5(7)* Stock Option and Restricted Stock Purchase Plan -
1981 and form of option agreement with respect
thereto.
10.6(7)* Incentive Stock Option Plan - 1981 and form of
option agreement with respect thereto.
20
<PAGE>
<TABLE>
<C> <S>
10.7* Registrant's 1995 Director Stock Plan.
10.8(5)* Form of Officer and Director Amended and Restated
Indemnification Agreement.
10.9* Summaries of Registrant's Executive Incentive Plans.
10.10* Form of Change of Control Agreement entered into by
Registrant and Mr. Finis F. Conner.
10.11* Form of Change of Control Agreement entered into by
Registrant and Mr. David T. Mitchell and Mr. P.
Jackson Bell.
10.12* Form of Change of Control and Severence Agreement
entered into by Registrant and Mr. Donald Massaro,
Mr. Kenneth Potashner and Dr. Michael Workman.
10.13* Employment Contract/Termination Agreement between
Registrant and David T. Mitchell and form of
Employment Contract/Termination Agreement between
Registrant and P. Jackson Bell.
10.14(1) Lease Agreement dated August 19, 1988 between
Registrant and Corporate Plaza, Phase I, a
California general partnership, for certain land and
improvements commonly known as Corporate Plaza,
located in San Jose, California.
10.15 Amendments One, Two and Three to Lease Agreement
dated August 19, 1988 between Registrant and
Corporate Plaza, Phase I referenced above.
10.16(1) Lease Agreement dated June 16, 1988 between Conner
Peripherals, Singapore, Ltd. and Newton Investment
Ltd. for the sixth story of 151 Lorong Chuan,
Singapore.
10.17(1) Lease Agreement dated December 8, 1988 between
Conner Peripherals Singapore, Ltd. for the fifth
story of 151 Lorong Chuan, Singapore.
</TABLE>
21
<PAGE>
<TABLE>
<C> <S>
10.18(3) Amendment to Lease Agreements dated June 16, 1988
and December 8, 1988 between Conner Peripherals,
Singapore, Ltd. and Newton Investment Ltd. for the
sixth and fifth stories, respectively, of 151 Lorong
Chuan, Singapore, dated October 23, 1991. See
Exhibits 10.16 and 10.17 listed above.
10.19(9) Sixth Amendment dated December 22, 1993 ("Sixth
Amendment") to Note Purchase Agreement among
Registrant and Principal Mutual Life Insurance
Company, Northwestern National Life Insurance
Company, Northern Life Insurance Company, The North
Atlantic Life Insurance Company of America and
Ministers Life - a Mutual Life Insurance Company
dated June 1, 1989 ("Note Purchase Agreement").
Exhibit A to the Sixth Amendment is a copy of the
Amended and Restated Note Purchase Agreement which
includes all amendments and agreements entered into
to date with respect to the Note Purchase Agreement.
10.20(9) Fifth Amendment dated December 22, 1993 ("Fifth
Amendment") to the Note Agreement dated as of March
29, 1991 ("Note Agreement") among Registrant and the
Purchasers listed in such agreement relating to the
Registrant's Series A and Series B Senior Notes.
Exhibit A to the Fifth Amendment is a copy of the
Amended and Restated Note Agreement which includes
all amendments and agreements entered into to date
with respect to the Note Agreement.
10.21 Sixth Amendment dated October 31, 1994 to the Note
Agreement dated as of March 29, 1991 among
Registrant and the Purchasers listed in such
agreement relating to the Registrant's Series A and
Series B Senior Notes.
10.22(5) Lease Agreement to supersede the Lease Agreement
that is dated August 1, 1989, on August 1, 1992 for
Building 1 at 2400 Trade Centre Drive, Longmont, CO.
10.23(5) Stock Purchase Agreement between Compaq Computer
Corporation and Registrant dated July 28, 1992.
10.24(8) Lease Agreement dated March 21, 1992 between Newton
Investment Ltd. and Conner Peripherals Pte. Ltd. for
the third story of 151 Lorong Chuan, Singapore.
</TABLE>
22
<PAGE>
<TABLE>
<C> <S>
10.25(9) Sublease Agreement between the Registrant and
General Signal Corporation for the property located
at 195 South Milpitas Boulevard, Milpitas,
California, dated February 20, 1993.
10.26(9) Credit Agreement dated December 23, 1993 among
Registrant and Bank of America National Trust and
Savings Association, as Agent, and the other
financial institutions which are parties thereto.
10.27 First Amendment dated October 19, 1994 to Credit
Agreement dated December 23, 1993 among Registrant
Bank of America National Trust and Savings
Association, as Agent, and the other financial
institutions which are parties thereto.
10.28 Second Amendment dated November 16, 1994 to Credit
Agreement dated December 23, 1993 among Registrant
Bank of America National Trust and Savings
Association, as Agent, and the other financial
institutions which are parties thereto.
11.1 Statement regarding computation of Registrant's
earnings per share.
13.1 1994 Annual Report to Stockholders.
21.1 Subsidiaries of Registrant.
23.1 Consent of Independent Accountants.
24.1 Power of Attorney (see pages 25 and 26).
27.0 Article 5 of Regulation S-X - Financial Data
Schedule
</TABLE>
______________________
23
<PAGE>
(1) Incorporated by reference to exhibit filed with Registration Statement No.
33-26831.
(2) Incorporated by reference to exhibit filed with Registrant's Report on Form
10-K for the fiscal year ended December 31, 1990.
(3) Incorporated by reference to exhibit filed with Registrant's Report on Form
10-K for the fiscal year ended December 31, 1991.
(4) Incorporated by reference to exhibit filed with Registrant's Registration
Statement No. 33-46886.
(5) Incorporated by reference to exhibit filed with Registrant's Form 8-B filed
with the Securities and Exchange Commission on September 9, 1992.
(6) Incorporated by reference to exhibit filed with the Tender Offer Statement
on Schedule 14D-1, as amended, of Conner Acquisition Corporation and Conner
Peripherals, Inc., filed with the Securities and Exchange Commission on
November 24, 1992.
(7) Incorporated by reference to exhibit filed with Registrant's Registration
Statement No. 33-56878.
(8) Incorporated by reference to exhibit filed with Registrant's Report on Form
10-K for the fiscal year ended December 31, 1992.
(9) Incorporated by reference to exhibit filed with Registrant's Report on Form
10-K for the fiscal year ended December 31, 1993.
(10) Incorporated by reference to exhibit filed with Registrant's Registration
Statement on Form 8-A filed with the Securities and Exchange Commission on
November 30, 1994.
___________________________
* Denotes a management contract or compensatory plan or arrangement.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CONNER PERIPHERALS, INC.
By:/s/ P. Jackson Bell
--------------------------------------
P. Jackson Bell, Executive Vice President
and Chief Financial Officer
Dated: March 24, 1995
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints P. Jackson Bell and Finis F. Conner and each of
them, his or her attorneys-in-fact, each with full power of substitution, for
him or her in any and all capacities, to sign on behalf of the undersigned any
amendments to this Report on Form 10-K and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, and each of the undersigned does hereby ratify and confirm
all that each of said attorneys-in-fact, or his substitute or substitutes, may
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Finis F. Conner Chairman of the Board March 24, 1995
------------------------- of Directors and Chief
(Finis F. Conner) Executive Officer
Principal Executive
Officer
/s/ David T. Mitchell President, Chief March 24, 1995
------------------------- Operating Officer and Director
(David T. Mitchell)
</TABLE>
25
<PAGE>
<TABLE>
<S> <C> <C>
/s/ P. Jackson Bell Executive Vice President March 24, 1995
------------------------- and Chief Financial Officer
(P. Jackson Bell)
(Principal Financial and
Accounting Officer)
/s/ William S. Anderson Director March 24, 1995
-------------------------
(William S. Anderson)
/s/ Mark Rossi Director March 24, 1995
-------------------------
(Mark Rossi)
/s/ Linda Wertheimer Hart Director March 24, 1995
-------------------------
(Linda Wertheimer Hart)
/s/ L. Paul Bremer Director March 24, 1995
-------------------------
(L. Paul Bremer)
/s/ W. Howard Lester Director March 24, 1995
-------------------------
(W. Howard Lester)
/s/ R. Elton White Director March 24, 1995
------------------
(R. Elton White)
</TABLE>
26
<PAGE>
CONNER PERIPHERALS, INC.
1994 ANNUAL REPORT ON FORM 10-K
Index to Financial Statement Schedule
<TABLE>
<CAPTION>
Schedule Description Page
----------- ----------- -----
<S> <C> <C>
VIII Valuation and Qualifying Accounts S-1
Report of Independent Accountants on
Financial Statement Schedule S-2
</TABLE>
27
<PAGE>
CONNER PERIPHERALS, INC.
SCHEDULE VIII- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged Charged to Balance
Beginning of to Costs Other at End
Description Period and Expenses Accounts /1/ Deductions /2/ of Period
-------------- ------ ------------ ------------ -------------- ---------
<S> <C> <C> <C> <C> <C>
1992:
Allowance for accounts
receivable $10,054,000 $19,339,000 $4,299,000 $ -- $33,692,000
1993:
Allowance for accounts
receivable $33,692,000 $ 9,749,000 $ -- $ (4,011,000) $39,430,000
1994:
Allowance for accounts $39,430,000 $ 2,273,000 $ -- $ (10,211,000) $31,492,000
receivable
</TABLE>
____________________________________
/1/ Charged to Other Accounts in 1992 includes reserves relating to Archive
Corporation.
/2/ Accounts written off, net of recoveries.
S - 1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
-------------------------------------
FINANCIAL STATEMENT SCHEDULE
----------------------------
To the Board of Directors
of Conner Peripherals, Inc.
Our audits of the consolidated financial statements referred to in our report
dated January 11, 1995 appearing on page 39 of the 1994 Annual Report to
Stockholders of Conner Peripherals, Inc. (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedule listed in item
14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
San Jose, CA
January 11, 1995
S - 2
<PAGE>
CONNER PERIPHERALS, INC.
1994 Annual Report on Form 10-K
Index to Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
3.2 Bylaws of Registrant, as amended to date.
10.1 Summary of Registrant's Profit Sharing Plan.
10.3 Registrant's Employee Stock Purchase Plan.
10.7 Registrant's 1995 Director Stock Plan.
10.9 Summaries of Registrant's Executive Incentive Plans.
10.10 Form of Change of Control Agreement entered into by Registrant
and Mr. Finis F. Conner.
10.11 Form of Change of Control Agreement entered into by Registrant
and Mr. David T. Mitchell and Mr. P. Jackson Bell.
10.12 Form of Change of Control and Severence Agreement entered
into by Registrant and Mr. Donald Massaro, Mr. Kenneth Potashner
and Dr. Michael Workman.
10.13 Employment Contract/Termination Agreement between Registrant and
David T. Mitchell and form of Employment Contract/Termination
Agreement between Registrant and P. Jackson Bell.
10.15 Amendments One, Two and Three to Lease Agreement dated
August 19, 1988 between Registrant and Corporate Plaza.
10.21 Sixth Amendment dated October 31, 1994 to the Note Agreement
dated as of March 29, 1991 among Registrant and the Purchasers listed
in such agreement relating to the Registrant's Series A and Series B
Senior Notes.
10.27 First Amendment dated October 19, 1994 to Credit Agreement dated
December 23, 1993 among Registrant Bank of America National Trust and
Savings Association, as Agent, and the other financial institutions
which are parties thereto.
</TABLE>
<PAGE>
10.28 Second Amendment dated November 16, 1994 to Credit Agreement dated
December 23, 1993 among Registrant Bank of America National Trust
and Savings Association, as Agent, and the other financial
institutions which are parties thereto.
11.1 Statement regarding computation of Registrant's earnings per share.
13.1 1994 Annual Report to Stockholders.
21.1 Subsidiaries of Registrant.
23.1 Consent of Independent Accountants.
24.1 Power of Attorney (see pages 25 and 26).
27.0 Article 5 of Regulation S-X - Financial Data Schedule
<PAGE>
EXHIBIT 3.2
-----------
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF SECRETARY
The undersigned, Marla Ann Stark, Vice President, General Counsel and
Secretary of Conner Peripherals, Inc. (the "Company"), does hereby certify on
behalf of the Company as of the date here of that:
On January 26, 1994 the Board of Directors of the Company accepted the
decisions of Board members John Squires and Roger Penske not to stand for
re-election to the Board of Directors effective as of the expiration of
their respective terms of office at the Annual Meeting of Stockholders held
April 19, 1994.
In connection with the above mentioned and in accordance with the terms
of the Certificate of Incorporation and the Bylaws of the Company, and upon
motion duly made and seconded, on January 26, 1994 the Board of Directors
unanimously:
RESOLVED: That effective as of the date of the Annual Meeting of
--------
Stockholders, Section 3.2 of the Company's Bylaws is hereby amended to read
in its entirety as follows:
"The authorized number of directors shall be not less than five (5) nor
more than eleven (11). The exact number of directors shall be seven (7)
until changed, within the limits specified above, by a bylaw amending this
Section 3.2, duly adopted by the board of directors or by the stockholders.
The indefinite number of directors may be changed, or a definite number may
be fixed without provision for an indefinite number, by an amendment to
this bylaw duly adopted by the board of directors or by a duly adopted
amendment to the certificate of incorporation.
No reduction of the authorized number of directors shall have the effect
of removing any director before that director's term of office expires."
IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of May,
1994.
CONNER PERIPHERALS, INC.
/s/ Marla Ann Stark
-----------------------------------
Marla Ann Stark, Vice President,
General Counsel and Secretary
<PAGE>
CERTIFICATE OF ASSISTANT SECRETARY
The undersigned, Tor R. Braham, an Assistant Secretary of Conner
Peripherals, Inc. (the "Company"), does hereby certify on behalf of the Company
as of the date hereof that:
On July 19, 1994, the Board of Directors, in accordance with the terms
of the Company's Certificate of Incorporation and the Company's Bylaws,
approved an amendment to Section 3.2 of the Company's Bylaws as follows:
"The authorized number of directors shall be not less than five (5)
nor more than eleven (11). The exact number of directors shall be eight (8)
until changed, within the limits specified above, by a bylaw amending this
Section 3.2, duly adopted by the board of directors or by the stockholders.
The indefinite number of directors may be changed, or a definite number may be
fixed without provision for an indefinite number, by an amendment to this
bylaw duly adopted by the board of directors or by a duly adopted amendment to
the certificate of incorporation.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office
expires."
IN WITNESS WHEREOF, I have hereunto set my hand this 31st day of
August, 1994.
CONNER PERIPHERALS, INC.
/s/ Tor R. Braham
-----------------------------------
Tor R. Braham, Assistant Secretary
<PAGE>
BYLAWS
OF
CONNER PERIPHERALS, INC.
(A DELAWARE CORPORATION)
<PAGE>
BYLAWS OF
CONNER PERIPHERALS, INC.
(a Delaware corporation)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I CORPORATE OFFICES................................... 1
1.1 REGISTERED OFFICE................................... 1
1.2 OTHER OFFICES....................................... 1
ARTICLE II MEETINGS OF STOCKHOLDERS............................ 1
2.1 PLACE OF MEETINGS................................... 1
2.2 ANNUAL MEETING...................................... 1
2.3 SPECIAL MEETING..................................... 2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS.................... 2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND
STOCKHOLDER BUSINESS.............................. 2
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE........ 3
2.7 QUORUM.............................................. 4
2.8 ADJOURNED MEETING; NOTICE........................... 4
2.9 VOTING.............................................. 5
2.10 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT... 5
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A
MEETING........................................... 6
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING
CONSENTS.......................................... 6
2.13 PROXIES............................................. 6
2.14 INSPECTORS OF ELECTION.............................. 7
2.15 ORGANIZATION........................................ 7
2.16 LIST OF STOCKHOLDERS ENTITLED TO VOTE............... 8
ARTICLE III DIRECTORS........................................... 8
3.1 POWERS.............................................. 8
3.2 NUMBER OF DIRECTORS................................. 8
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS............ 9
3.4 RESIGNATION AND VACANCIES........................... 9
3.5 REMOVAL OF DIRECTORS................................ 10
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE............ 10
3.7 FIRST MEETINGS...................................... 11
3.8 REGULAR MEETINGS.................................... 11
3.9 SPECIAL MEETINGS; NOTICE............................ 11
3.10 QUORUM.............................................. 12
3.11 WAIVER OF NOTICE.................................... 12
3.12 ADJOURNMENT......................................... 12
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
3.13 NOTICE OF ADJOURNMENT............................... 12
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING... 12
3.15 FEES AND COMPENSATION OF DIRECTORS.................. 13
3.16 APPROVAL OF LOANS TO OFFICERS....................... 13
3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF
INCORPORATION..................................... 13
3.18 ADVISORY DIRECTORS.................................. 13
ARTICLE IV COMMITTEES.......................................... 14
4.1 COMMITTEES OF DIRECTORS............................. 14
4.2 MEETINGS AND ACTIONS OF COMMITTEES.................. 14
4.3 COMMITTEE MINUTES................................... 15
ARTICLE V OFFICERS............................................ 15
5.1 OFFICERS............................................ 15
5.2 ELECTION OF OFFICERS................................ 15
5.3 SUBORDINATE OFFICERS; ETC........................... 16
5.4 REMOVAL AND RESIGNATION OF OFFICERS................. 16
5.5 VACANCIES IN OFFICES................................ 16
5.6 CHAIRMAN OF THE BOARD............................... 16
5.7 PRESIDENT........................................... 17
5.8 VICE PRESIDENTS..................................... 17
5.9 SECRETARY........................................... 17
5.10 CHIEF FINANCIAL OFFICER............................. 18
5.11 ASSISTANT SECRETARY................................. 18
5.12 ADMINISTRATIVE OFFICERS............................. 18
5.13 AUTHORITY AND DUTIES OF OFFICERS.................... 19
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS.................................. 19
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS........... 19
6.2 INDEMNIFICATION OF OTHERS........................... 19
6.3 INSURANCE........................................... 20
ARTICLE VII RECORDS AND REPORTS................................. 20
7.1 MAINTENANCE AND INSPECTION OF RECORDS............... 20
7.2 INSPECTION BY DIRECTORS............................. 21
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.................... 21
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS...... 21
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE VIII GENERAL MATTERS..................................... 22
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND
VOTING.............................................. 22
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS............. 22
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED.... 22
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES...... 22
8.5 SPECIAL DESIGNATION ON CERTIFICATES................... 24
8.6 LOST CERTIFICATES..................................... 24
8.7 TRANSFER AGENTS AND REGISTRARS........................ 24
8.8 LEGEND CONDITION...................................... 24
8.9 SUBSIDIARY CORPORATIONS............................... 25
8.10 CONSTRUCTION; DEFINITIONS............................. 25
ARTICLE IX AMENDMENTS............................................ 25
ARTICLE X DISSOLUTION........................................... 26
ARTICLE XI CUSTODIAN............................................. 27
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES........... 27
11.2 DUTIES OF CUSTODIAN................................... 27
</TABLE>
-iii-
<PAGE>
BYLAWS
------
OF
--
CONNER PERIPHERALS, INC.
------------------------
(a Delaware corporation)
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
-----------------
The registered office of the corporation shall
be fixed in the certificate of incorporation of the corporation.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of stockholders shall be held at any place within or outside
the State of Delaware designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of stockholders shall be held each year on a date
and at a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the first day
of April in each year at 10:00 a.m. However, if such day falls on a legal
holiday, then the meeting shall be held at the same time and place on the next
succeeding full business day. At the meeting, directors shall be elected, and
any other proper business may be transacted.
<PAGE>
2.3 SPECIAL MEETING
---------------
A special meeting of the stockholders may be called at any time by the
board of directors or by the chairman of the board or by the president.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
All notices of meetings of stockholders shall be sent or otherwise
given in accordance with Section 2.7 of these bylaws not less than ten (10) nor
more than sixty (60) days before the date of the meeting. The notice shall
specify the place, date, and hour of the meeting and (i) in the case of a
special meeting, the general nature of the business to be transacted (no
business other than that specified in the notice may be transacted) or (ii) in
the case of the annual meeting, those matters which the board of directors, at
the time of giving the notice, intends to present for action by the stockholders
(but any proper matter may be presented at the meeting for such action). The
notice of any meeting at which directors are to be elected shall include the
name of any nominee or nominees who, at the time of the notice, the board
intends to present for election.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
---------------------------------------------------------------
To be properly brought before an annual meeting, nominations for the
election of director or other business must be (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the board of
directors, (b) otherwise properly brought before the meeting by or at the
direction of the board of directors, or (c) otherwise properly brought before
the meeting by a stockholder. For such nominations or other business to be
considered properly brought before the meeting by a stockholder such stockholder
must have given timely notice and in proper form of his intent to bring such
business before such meeting. To be timely, such stockholder's notice must be
delivered to or mailed and received by the secretary of the corporation not less
than ninety (90) days prior to the meeting; provided, however, that in the event
that less than one-hundred (100) days notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be so received not later than the close of business on the
tenth day following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made. To be in proper form, a
stockholder's notice to the secretary shall set forth:
(i) the name and address of the stockholder who intends to make the
nominations or propose the business and, as the case may be, of the
person or
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<PAGE>
persons to be nominated or of the business to be proposed;
(ii) a representation that the stockholder is a holder of record of
stock of the corporation entitled to vote at such meeting and, if
applicable, intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other
person or persons) pursuant to which the nomination or nominations are
to be made by the stockholder;
(iv) such other information regarding each nominee or each matter of
business to be proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or
intended to be nominated, or the matter been proposed, or intended to
be proposed by the board of directors; and
(v) If applicable, the consent of each nominee to serve as director of
the corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of any
person or the proposal of any business not made in compliance with the foregoing
procedure.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the stockholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that stockholder by mail or telegraphic or other written communication
to the corporation's principal executive office, or if published at least once
in a newspaper of general circulation in the county where that office is
located. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telegram or other means of
written communication.
-3-
<PAGE>
If any notice addressed to a stockholder at the address of that stockholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the stockholder at that address, then
all future notices or reports shall be deemed to have been duly given without
further mailing if the same shall be available to the stockholder on written
demand of the stockholder at the principal executive office of the corporation
for a period of one (1) year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.7 QUORUM
------
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the certificate of incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then either (i) the chairman of the meeting or (ii) the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting in accordance with Section 2.8 of
these bylaws.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of the statutes or of the certificate of
incorporation, a different vote is required, in which case such express
provision shall govern and control the decision of the question.
If a quorum be initially present, the stockholders may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders required to initially constitute a quorum.
2.8 ADJOURNED MEETING; NOTICE
-------------------------
When a meeting is adjourned to another time and place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have
-4-
<PAGE>
been transacted at the original meeting. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
2.9 VOTING
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.12 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint
owners, and to voting trusts and other voting agreements).
Except as may otherwise be provided in the certificate of incorporation,
each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder. No stockholder will be permitted to cumulate votes at
any election of directors.
2.10 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
-------------------------------------------------
The transactions of any meeting of stockholders, either annual or special,
however called and noticed, and wherever held, shall be as valid as though they
had been taken at a meeting duly held after regular call and notice, if a quorum
be present either in person or by proxy, and if, either before or after the
meeting, each person entitled to vote, who was not present in person or by
proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. The waiver of notice or consent
or approval need not specify either the business to be transacted or the purpose
of any annual or special meeting of stockholders. All such waivers, consents,
and approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by law to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
-5-
<PAGE>
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
The stockholders of the corporation may not take action by written consent
without a meeting. Any such actions must be taken at a duly called annual or
special meeting.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
-----------------------------------------------------------
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat, the board of directors may fix, in advance, a record
date, which shall not be more than sixty (60) days nor less than ten (10) days
before the date of any such meeting, and in such event only stockholders of
record on the date so fixed are entitled to notice and to vote, notwithstanding
any transfer of any shares on the books of the corporation after the record
date.
If the board of directors does not so fix a record date, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting
unless the board of directors fixes a new record date for the adjourned meeting,
but the board of directors shall fix a new record date if the meeting is
adjourned for more than thirty (30) days from the date set for the original
meeting.
The record date for any other purpose shall be as provided in Section 8.1
of these bylaws.
2.13 PROXIES
-------
Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(c) of the General Corporation Law of Delaware.
-6-
<PAGE>
2.14 INSPECTORS OF ELECTION
----------------------
Before any meeting of stockholders, the board of directors may appoint an
inspector or inspectors of election to act at the meeting or its adjournment.
If no inspector of election is so appointed, then the chairman of the meeting
may, and on the request of any stockholder or a stockholder's proxy shall,
appoint an inspector or inspectors of election to act at the meeting. The
number of inspectors shall be either one (1) or three (3). If inspectors are
appointed at a meeting pursuant to the request of one (1) or more stockholders
or proxies, then the holders of a majority of shares or their proxies present at
the meeting shall determine whether one (1) or three (3) inspectors are to be
appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, then the chairman of the meeting may, and upon the request of
any stockholder or a stockholder's proxy shall, appoint a person to fill that
vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting power
of each, the number of shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or
vote with fairness to all stockholders.
2.15 ORGANIZATION
------------
The president, or in the absence of the president, the chairman of the
board, shall call the meeting of the stockholders to order, and shall act as
chairman of the meeting. In the absence of the president, the chairman of the
board, and all of the vice presidents, the stockholders shall appoint a chairman
for such meeting. The chairman of any meeting of stockholders shall determine
the order of business and the procedures at the meeting, including such matters
as the regulation of the manner of voting and the conduct of business. The
secretary of the corporation shall act as secretary of all meetings of the
stockholders, but in
-7-
<PAGE>
the absence of the secretary at any meeting of the stockholders, the presiding
officer may appoint any person to act as secretary of the meeting.
2.16 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. Such list shall
presumptively determine the identity of the stockholders entitled to vote at the
meeting and the number of shares held by each of them.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the General Corporation Law of Delaware and to
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
Each director shall exercise such powers and otherwise perform such duties
in good faith, in the manner such director believes to be in the best interests
of the corporation, and with such care, including reasonable inquiry, as an
ordinarily prudent person in a like position would use under similar
circumstances.
3.2 NUMBER OF DIRECTORS
-------------------
The authorized number of directors shall be not less than five (5) nor more
than eleven (11). The exact number of directors shall be nine (9) until
changed, within the limits specified above, by a bylaw amending this Section
3.2, duly adopted by the board of
-8-
<PAGE>
directors or by the stockholders. The indefinite number of directors may be
changed, or a definite number may be fixed without provision for an indefinite
number, by an amendment to this bylaw duly adopted by the board of directors or
by a duly adopted amendment to the certificate of incorporation.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
----------------------------------------
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Each director, including a director elected or appointed to fill
a vacancy, shall hold office until the expiration of the term for which elected
and until a successor has been elected and qualified.
3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary or the board of directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the board of directors
may elect a successor to take office when the resignation becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote of
the stockholders or by court order may be filled only by the affirmative vote of
a majority of the shares represented and voting at a duly held meeting at which
a quorum is present (which shares voting affirmatively also constitute a
majority of the required quorum). Each director so elected shall hold office
until the next annual meeting of the stockholders and until a successor has been
elected and qualified.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors
-9-
<PAGE>
by the provisions of the certificate of incorporation, vacancies and newly
created directorships of such class or classes or series may be filled by a
majority of the directors elected by such class or classes or series thereof
then in office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten percent (10%) of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 REMOVAL OF DIRECTORS
--------------------
Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
Regular meetings of the board of directors may be held at any place within
or outside the State of Delaware that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board may be held at any place within or outside the State of
Delaware that has been designated in the notice of the meeting or, if not stated
in the notice or if there is no notice, at the principal executive office of the
corporation.
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<PAGE>
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.7 FIRST MEETINGS
--------------
The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.8 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without notice at
such time as shall from time to time be determined by the board of directors.
If any regular meeting day shall fall on a legal holiday, then the meeting shall
be held at the same time and place on the next succeeding full business day.
3.9 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the
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purpose or the place of the meeting, if the meeting is to be held at the
principal executive office of the corporation.
3.10 QUORUM
------
A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except to adjourn as provided in Section 3.12
of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of the
certificate of incorporation and applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.11 WAIVER OF NOTICE
----------------
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the board of directors.
3.12 ADJOURNMENT
-----------
A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting to another time and place.
3.13 NOTICE OF ADJOURNMENT
---------------------
Notice of the time and place of holding an adjourned meeting need not be
given unless the meeting is adjourned for more than twenty-four (24) hours. If
the meeting is adjourned for more than twenty-four (24) hours, then notice of
the time and place of the adjourned meeting shall be given before the adjourned
meeting takes place, in the manner specified in Section 3.9 of these bylaws, to
the directors who were not present at the time of the adjournment.
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Any action required or permitted to be taken by the board of directors may
be taken without a meeting, provided that all members of the board individually
or collectively consent in writing to
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that action. Such action by written consent shall have the same force and
effect as a unanimous vote of the board of directors. Such written consent and
any counterparts thereof shall be filed with the minutes of the proceedings of
the board of directors.
3.15 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.15 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.16 APPROVAL OF LOANS TO OFFICERS
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION
------------------------------------------------------
In the event only one (1) director is required by these bylaws or the
certificate of incorporation, then any reference herein to notices, waivers,
consents, meetings or other actions by a majority or quorum of the directors
shall be deemed to refer to such notice, waiver, etc., by such sole director,
who shall have all the rights and duties and shall be entitled to exercise all
of the powers and shall assume all the responsibilities otherwise herein
described as given to the board of directors.
3.18 ADVISORY DIRECTORS
------------------
The board of directors from time to time may elect one or more persons to
be advisory directors who shall not by such appointment be members of the board
of directors. Advisory directors shall be available from time to time to
perform special assignments specified by the president, to attend meetings of
the board of directors upon invitation and to furnish consultation to the board
of directors. The period during which the title shall be held may be
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prescribed by the board of directors. If no period is prescribed, the title
shall be held at the pleasure of the board of directors.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of one or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. Any committee, to the
extent provided in the resolution of the board, shall have all the authority of
the board, but no such committee shall have the power or authority to (i) amend
the certificate of incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the board of directors as provided in Section 151(a) of the
General Corporation Law of Delaware, fix any of the preferences or rights of
such shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution, or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 MEETINGS AND ACTIONS OF COMMITTEES
----------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.6
(place of meetings; meetings by telephone), Section 3.8 (regular meetings),
Section 3.9 (special meetings; notice), Section 3.10 (quorum), Section 3.11
(waiver of
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notice), Section 3.12 (adjournment), Section 3.13 (notice of adjournment), and
Section 3.14 (board action by written consent without meeting), with such
changes in the context of those bylaws as are necessary to substitute the
committee and its members for the board of directors and its members; provided,
however, that the time of regular meetings of committees may be determined
either by resolution of the board of directors or by resolution of the
committee, that special meetings of committees may also be called by resolution
of the board of directors, and that notice of special meetings of committees
shall also be given to all alternate members, who shall have the right to attend
all meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
4.3 COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The Corporate Officers of the corporation shall be a president, a secretary
and a chief financial officer. The corporation may also have, at the discretion
of the board of directors, a chairman of the board, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and such
other officers as may be appointed in accordance with the provisions of Section
5.3 of these bylaws. Any number of offices may be held by the same person.
In addition to the Corporate Officers of the corporation described above,
there may also be such Administrative Officers of the corporation as may be
designated and appointed from time to time by the president of the corporation
in accordance with the provisions of Section 5.12 of these bylaws.
5.2 ELECTION OF OFFICERS
--------------------
The Corporate Officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board of directors, subject to the rights,
if any, of an officer under any contract of employment.
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5.3 SUBORDINATE OFFICERS; ETC.
--------------------------
The board of directors may appoint, or may empower the president to
appoint, such other Corporate Officers as the business of the corporation may
require, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these bylaws or as the board of
directors may from time to time determine.
The president may from time to time designate and appoint Administrative
Officers of the corporation in accordance with the provisions of Section 5.12 of
these bylaws.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of a Corporate Officer under any contract of
employment, any Corporate Officer may be removed, either with or without cause,
by the board of directors at any regular or special meeting of the board or,
except in case of a Corporate Officer chosen by the board of directors, by any
Corporate Officer upon whom such power of removal may be conferred by the board
of directors.
Any Corporate Officer may resign at any time by giving written notice to
the corporation. Any resignation shall take effect at the date of the receipt
of that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall not
be necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the Corporate
Officer is a party.
Any Administrative Officer designated and appointed by the president may be
removed, either with or without cause, at any time by the president. Any
Administrative Officer may resign at any time by giving written notice to the
president or to the secretary of the corporation.
5.5 VACANCIES IN OFFICES
--------------------
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may
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be prescribed by these bylaws. The chairman of the board shall also be the
chief executive officer of the corporation and shall have the powers and duties
prescribed in Section 5.7 of these bylaws.
5.7 PRESIDENT
---------
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
or she shall preside at all meetings of the stockholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He or she shall have the general powers and duties of management
usually vested in the office of president of a corporation, and shall have such
other powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 VICE PRESIDENTS
---------------
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.
5.9 SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of the board of directors,
committees of directors and stockholders. The minutes shall show the time and
place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and
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their addresses, the number and classes of shares held by each, the number and
date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these bylaws. He or she shall keep the seal of the corporation, if one is
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
-----------------------
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He or she shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his or
her transactions as chief financial officer and of the financial condition of
the corporation, and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or these bylaws.
5.11 ASSISTANT SECRETARY
-------------------
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.12 ADMINISTRATIVE OFFICERS
-----------------------
In addition to the Corporate Officers of the corporation as provided in
Section 5.1 of these bylaws and such subordinate Corporate Officers as may be
appointed in accordance with Section 5.3 of these bylaws, there may also be such
Administrative
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Officers of the corporation as may be designated and appointed from time to time
by the president of the corporation. Administrative Officers shall perform such
duties as form time to time may be determined by the president or the board of
directors in order to assist the Corporate Officers in the furtherance of their
duties. In the performance of such duties, however, such Administrative
Officers shall have limited authority to act on behalf of the corporation as the
board of directors shall establish, including but not limited to limitations on
the dollar amount and on the scope of agreements or commitments that may be made
by such Administrative Officers on behalf of the corporation, which limitations
may not be exceeded by such individuals or altered by the president without
further approval by the board of directors.
5.13 AUTHORITY AND DUTIES OF OFFICERS
--------------------------------
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
--------------------------------------------------
AND OTHER AGENTS
----------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the corporation, (ii) who is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware, to indemnify each
of its employees and agents (other than
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directors and officers) against expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the corporation. For purposes of this Section 6.2, an
"employee" or "agent" of the corporation (other than a director or officer)
includes any person (i) who is or was an employee or agent of the corporation,
(ii) who is or was serving at the request of the corporation as an employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was an employee or agent of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.3 INSURANCE
---------
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS
-------------------------------------
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books and other records of its business and properties.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath
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shall be accompanied by a power of attorney or such other writing that
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation at its registered
office in Delaware or at its principal place of business.
7.2 INSPECTION BY DIRECTORS
-----------------------
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his or her position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
--------------------------------
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority herein
granted may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
7.5 CERTIFICATION AND INSPECTION OF BYLAWS.
--------------------------------------
The original or a copy of these bylaws, as amended or otherwise altered to
date, certified by the secretary, shall be kept at the corporation's principal
executive office and shall be open to inspection by the stockholders of the
corporation, at all reasonable times during office hours.
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ARTICLE VIII
GENERAL MATTERS
---------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
-----------------------------------------------------
For purposes of determining the stockholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) days before any such action. In that case, only
stockholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided by law.
If the board of directors does not so fix a record date, then the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board of directors adopts the
applicable resolution or the sixtieth (60th) day before the date of that action,
whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
-----------------------------------------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
--------------------------------------------------
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES
------------------------------------------------
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or
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all of any or all classes or series of its stock shall be uncertificated shares.
Any such resolution shall not apply to shares represented by a certificate until
such certificate is surrendered to the corporation. Notwithstanding the
adoption of such a resolution by the board of directors, every holder of stock
represented by certificates and upon request every holder of uncertificated
shares shall be entitled to have a certificate signed by, or in the name of the
corporation by, the chairman of the board of directors or the president or a
vice-president, and by the chief financial officer, the secretary or an
assistant secretary of such corporation representing the number of shares
registered in certificate form. Any or all of the signatures on the certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate has
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if he or
she were such officer, transfer agent or registrar at the date of issue.
Certificates for shares shall be of such form and device as the board
of directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of shares
for which it is issued; a statement summary or reference to the rights,
privileges, preferences and restrictions, if any; a statement or summary as to
the redemption or conversion, if any; a statement or summary of liens or
restrictions upon transfer or voting, if any; if the shares by assessable or, if
assessments are collectible by personal action, a plain statement of such facts.
Upon surrender to the secretary or transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
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8.5 SPECIAL DESIGNATION ON CERTIFICATES
-----------------------------------
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.6 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.7 TRANSFER AGENTS AND REGISTRARS
------------------------------
The board of directors may appoint one or more transfer agents or
transfer clerks, and one or more registrars, which shall be an incorporated bank
or trust company -- either domestic or foreign, who shall be appointed at such
times and places as the requirements of the corporation may necessitate and the
board of directors may designate.
8.8 LEGEND CONDITION
----------------
In the event any shares of this corporation are issued pursuant to a
permit or exemption therefrom requiring the imposition of a legend condition the
person or persons issuing or
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transferring said shares shall make sure said legend appears on the certificate
and on the stub relating thereto in the stock record book and shall not be
required to transfer any shares free of such legend unless an amendment to such
permit or a new permit be first issued so authorizing such a deletion.
8.9 SUBSIDIARY CORPORATIONS
-----------------------
Shares of this corporation owned by a subsidiary shall not be entitled
to vote on any matter. A subsidiary for these purposes is defined as a
corporation, the shares of which possessing more than twenty-five percent (25%)
of the total combined voting power of all classes of shares entitled to vote,
are owned directly or indirectly through one or more subsidiaries.
8.10 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the General Corporation Law of Delaware
shall govern the construction of these bylaws. Without limiting the generality
of this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
ARTICLE IX
AMENDMENTS
----------
The original or other bylaws of the corporation may be adopted,
amended or repealed by the stockholders entitled to vote; provided, however,
that the corporation may, in its certificate of incorporation, confer the power
to adopt, amend or repeal bylaws upon the directors. The fact that such power
has been so conferred upon the directors shall not divest the stockholders of
the power, nor limit their power to adopt, amend or repeal bylaws.
Notwithstanding any other provision of these bylaws or any provision
of law which might otherwise permit a lesser vote or no vote, but in addition to
any affirmative vote of the holders of the capital stock required by law or by
these bylaws, the affirmative vote of two-thirds (2/3) of the then-outstanding
shares of the corporation entitled to vote shall be required to alter, amend or
repeal Article II, Section 2.11 or this Article IX hereof or any provision
thereof, or to add or amend any other bylaw in order to change or nullify the
effect of such provisions, unless such amendment shall be approved by a majority
of the directors of the corporation not affiliated or associated with any person
or entity
-25-
<PAGE>
holding (or which has announced an intent to obtain) 21% or more of the voting
power of the corporation's outstanding capital stock.
Whenever an amendment or new bylaw is adopted, it shall be copied in
the book of bylaws with the original bylaws, in the appropriate place. If any
bylaw is repealed, the fact of repeal with the date of the meeting at which the
repeal was enacted or written consent was filed shall be stated in said book.
ARTICLE X
DISSOLUTION
-----------
If it should be deemed advisable in the judgment of the board of
directors of the corporation that the corporation should be dissolved, the
board, after the adoption of a resolution to that effect by a majority of the
whole board at any meeting called for that purpose, shall cause notice to be
mailed to each stockholder entitled to vote thereon of the adoption of the
resolution and of a meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's
becoming effective in accordance with Section 103 of the General Corporation Law
of Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution
consent in writing, either in person or by duly authorized attorney, to a
dissolution, no meeting of directors or stockholders shall be necessary. The
consent shall be filed and shall become effective in accordance with Section 103
of the General Corporation Law of Delaware. Upon such consent becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the corporation shall be dissolved. If the consent is signed by an
attorney, then the original power of attorney or a photocopy thereof shall be
attached to and filed with the consent. The consent filed with the Secretary of
State shall have attached to it the affidavit of the secretary or some other
officer of the corporation stating that the consent has been signed by or on
behalf of all the stockholders entitled to vote on a dissolution; in addition,
there shall be attached to the consent a
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<PAGE>
certification by the secretary or some other officer of the corporation setting
forth the names and residences of the directors and officers of the corporation.
ARTICLE XI
CUSTODIAN
---------
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
-------------------------------------------
The Court of Chancery, upon application of any stockholder, may appoint one
or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors;
(ii) the business of the corporation is suffering or is threatened
with irreparable injury because the directors are so divided respecting the
management of the affairs of the corporation that the required vote for action
by the board of directors cannot be obtained and the stockholders are unable to
terminate this division; or
(iii) the corporation has abandoned its business and has failed
within a reasonable time to take steps to dissolve, liquidate or distribute its
assets.
11.2 DUTIES OF CUSTODIAN
-------------------
The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the General Corporation Law of Delaware.
-27-
<PAGE>
CERTIFICATE OF ADOPTION OF BYLAWS
OF
CONNER PERIPHERALS, INC.
Adoption by Incorporator
------------------------
The undersigned person appointed in the certificate of incorporation to act
as the Incorporator of Conner Peripherals, Inc. hereby adopts the foregoing
bylaws, comprising twenty-eight (28) pages, as the bylaws of the corporation.
Executed this 24th day of June 1992.
/s/ Paul E. Hurdlow
--------------------------------
Paul E. Hurdlow
Incorporator
Certificate by Secretary of Adoption by Incorporator
----------------------------------------------------
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of Conner Peripherals, Inc. and that the foregoing bylaws,
comprising twenty-eight (28) pages, were adopted as the bylaws of the
corporation on June 24, 1992, by the person appointed in the certificate of
incorporation to act as the Incorporator of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal this 24th day of June 1992.
/s/ Larry Sonsini
--------------------------------
Larry Sonsini
Secretary
<PAGE>
EXHIBIT 10.1
------------
<PAGE>
Exhibit 10.1
CONNER PERIPHERALS, INC.
PROFIT SHARING PLAN
1. Purposes of the Plan. The Conner Peripherals, Inc. Profit Sharing Plan
--------------------
(the "Plan") is a quarterly cash profit sharing plan that is intended to provide
eligible employees with an opportunity to share in the Company's financial
success. The Plan is intended to recognize the important contribution employees
make to the overall success of the Company.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Actual Awards" means amounts payable to Eligible Employees
-------------
under the Plan with respect to a Plan Quarter. Actual Awards shall range from
zero percent (0%) to two hundred percent (200%) of Target Awards based upon the
Company's actual performance measured against Performance Targets.
(b) "Board" means the Board of Directors of Conner Peripherals,
-----
Inc., or its Committee.
(c) "Committee" means the Compensation Committee of the Board.
---------
(d) "Company" means Conner Peripherals, Inc., a Delaware
-------
corporation, and any Designated Subsidiary of the Company.
(e) "Designated Subsidiary" means any entity that is directly or
---------------------
indirectly controlled by the Company, or any entity in which the Company has a
significant equity interest, which has been designated by the Board as eligible
to participate in the Plan.
(f) "Eligible Earnings" means an Eligible Employee's base pay,
-----------------
including vacation and holiday pay, paid during the applicable Plan Quarter.
(g) "Eligible Employees" means all regular, full-time employees of
------------------
the Company as of the last day of the first month of the applicable Plan
Quarter, provided the employee remains continuously employed as a regular, full-
time employee throughout such Plan Quarter. Employees participating in other
approved incentive compensation or commission plans of the Company shall not be
considered "Eligible Employees" for purposes of the Plan.
(h) "Performance Targets" means corporate or business unit
-------------------
performance objectives established annually by the Board for each Plan Year.
Such performance objectives shall be based on the Company's operating income and
revenue, or on such other objectives as the Board may establish.
(i) "Plan Quarter" means the four (4) fiscal quarters of a Plan
------------
Year.
1
<PAGE>
(j) "Plan Year" means the Company's fiscal year.
---------
(k) "Target Awards" means (i) in the case of Eligible Employees
-------------
who are designated by the Company as non-exempt, five percent (5%) of Eligible
Earnings, and (ii) in the case of all other Eligible Employees, ten percent
(10%) of Eligible Earnings.
3. Participation. All Eligible Employees shall participate in the Plan.
-------------
4. Administration. The Board shall administer the Plan and shall have
--------------
full power and authority to construe, interpret and administer the Plan. The
Board's decision shall be final, conclusive and binding upon all persons. The
Board may delegate general Plan administrative authority to designated employees
of the Company.
5. Procedure. At the beginning of each Plan Year, the Board shall
---------
establish Performance Targets for such Plan Year. Eligible Employees shall earn
Actual Awards based upon the Company's attainment of the Performance Targets for
each of the Plan Quarters during such Plan Year. The Board shall also establish
minimum performance levels for the Plan Year of not less than seventy-five
percent (75%) of the Company's business plan. Such minimum levels must be
achieved before Actual Awards will be earned.
6. Payment. Payment of Actual Awards to all Eligible Employees shall
-------
occur within thirty (30) days of the close of the Plan Quarter for which the
distribution is being made, subject to applicable withholding.
7. Amendment and Termination of Plan. The Board may amend or terminate
---------------------------------
the Plan from time to time in such respects as the Board may deem as desirable.
The adoption and operation of the Plan is discretionary on the part of the
Board, and the Company is under no obligation to maintain, fund or other
otherwise provide for the continuation of benefits under the Plan. This Plan is
not an employee benefit plan within the meaning of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and the Company has no duties
or obligations pursuant to ERISA with respect to the Plan.
8. Employment Status. This Plan does not constitute a contract of
-----------------
employment or impose on Eligible Employees or the Company any obligation to
retain Eligible Employees as employees, to change the status of an Eligible
Employee's employment as an employee at will, or to change the policies of the
Company regarding termination of employment.
2
<PAGE>
EXHIBIT 10.3
------------
<PAGE>
EXHIBIT 10.3
CONNER PERIPHERALS, INC.
EMPLOYEE STOCK PURCHASE PLAN
(AS AMENDED THROUGH JULY 1994)
The following constitute the provisions of the Employee Stock Purchase Plan
of Conner Peripherals, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-------
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
------
(c) "Common Stock" shall mean the Common Stock, $0.001 par value, of
--------------
the Company.
(d) "Company" shall mean Conner Peripherals, Inc., a Delaware
---------
corporation.
(e) "Compensation" shall mean all regular straight time gross
--------------
earnings, exclusive of payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses, commissions or other compensation.
Effective beginning with the Plan offering period that commences on or about
April 30, 1994 and thereafter, "Compensation" shall mean all regular straight
time gross earnings and commissions, exclusive of payments for overtime, shift
premium, incentive compensation, incentive payments, bonuses, or other
compensation.
(f) "Continuous Status as an Employee" shall mean the absence of any
----------------------------------
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of a leave of absence
agreed to in writing by the Company, provided that such leave is for a period of
not more than 90 days or reemployment upon the expiration of such leave is
guaranteed by contract or statute.
<PAGE>
(g) "Designated Subsidiaries" shall mean the Subsidiaries which have
-------------------------
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(h) "Employee" shall mean any person, including an officer, who is
----------
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
(i) "Exercise Date" shall mean the last day of each offering period of
---------------
the Plan.
(j) "Offering Date" shall mean the first day of each offering period
---------------
of the Plan.
(k) "Plan" shall mean this Employee Stock Purchase Plan.
------
(l) "Subsidiary" shall mean a corporation, domestic or foreign, of
------------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
3. Eligibility.
-----------
(a) Any person who is an Employee as of the Offering Date of a given
offering period shall be eligible to participate in such offering period under
the Plan, subject to the requirements of paragraph 5(a) and the limitations
imposed by Section 423(b) of the Code.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 425(d) of the Code) would own stock and/or
hold outstanding options to purchase stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or of any subsidiary of the Company, or (ii) which permits his rights to
purchase stock under all employee stock purchase plans (described in Section 423
of the Code) of the Company and its subsidiaries to accrue at a rate which
exceeds Twenty-Five Thousand Dollars ($25,000) of fair market value of such
stock (determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
-2-
<PAGE>
4. Offering Periods. Effective October 5, 1993, the Plan shall be
----------------
implemented by offering periods of approximately six months in duration,
commencing on the first trading day following the last day of the preceding
offering period and ending on the last Friday in April or October, as the case
may be, that is not the end of a payroll period. Offering periods shall
continue thereafter until the Plan is terminated in accordance with paragraph 19
hereof. The Board of Directors of the Company shall have the power to change
the duration of offering periods with respect to future offerings without
shareholder approval if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first offering period to be affected.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deduction on the form
provided by the Company and filing it with the Company's payroll office prior to
the applicable Offering Date, unless a later time for filing the subscription
agreement is set by the Board for all eligible Employees with respect to a given
offering.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Offering Date and shall end on the Exercise Date of the
offering to which such authorization is applicable, unless sooner terminated by
the participant as provided in paragraph 10.
6. Payroll Deductions.
------------------
(a) At the time a participant files his subscription agreement, he
shall elect to have payroll deductions made on each payday during the offering
period in an amount not exceeding fifteen percent (15%) of Compensation received
on each payday during the offering period, and the aggregate of such payroll
deductions during the offering period shall not exceed fifteen percent (15%) of
a participant's aggregate Compensation during said offering period.
(b) All payroll deductions made by a participant shall be credited to
his account under the Plan. A participant may not make any additional payments
into such account.
(c) A participant may discontinue his participation in the Plan as
provided in paragraph 10, or may lower, but not increase, the rate of his
payroll deductions during the offering period by completing or filing with the
Company a new authorization for payroll deduction. The change in rate shall be
effective
-3-
<PAGE>
fifteen (15) days following the Company's receipt of the new authorization.
(d) A participant's subscription agreement shall remain in effect for
successive Offering Periods unless revised as provided herein or terminated as
provided in paragraph 10.
7. Grant of Option.
---------------
(a) On the Offering Date of each offering period, each eligible
Employee participating in the Plan shall be granted an option to purchase (at
the per share option price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions to be
accumulated during such offering period (not to exceed an amount equal to
fifteen percent (15%) of the participant's Compensation during the applicable
offering period) by eighty-five percent (85%) of the lower of the fair market
value of a share of the Company's Common Stock on the Offering Date or the
Exercise Date, subject to the limitations set forth in Section 3(b) and 12
hereof. Fair market value of a share of the Company's Common Stock shall be
determined as provided in Section 7(b) herein.
(b) The option price per share of the shares offered in a given
offering period shall be the lower of: (i) 85% of the fair market value of a
share of the Common Stock of the Company on the Offering Date; or (ii) 85% of
the fair market value of a share of the Common Stock of the Company on the
Exercise Date. The fair market value of the Company's Common Stock on a given
date shall be determined by the Board in its discretion; provided, however, that
where there is a public market for the Common Stock, the fair market value per
Share shall be the mean of the bid and asked prices of the Common Stock for such
date, as reported in the Wall Street Journal (or, if not so reported, as
otherwise reported by the National Association of Securities Dealers Automated
Quotation (NASDAQ) System) or, in the event the Common Stock is listed on a
stock exchange, the fair market value per Share shall be the closing price on
such exchange on such date, as reported in the Wall Street Journal.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in paragraph 10, his option for the purchase of shares will be
exercised automatically on the Exercise Date of the offering period, and the
maximum number of full shares subject to option will be purchased for him at the
applicable option price with the accumulated payroll deductions in his account.
The shares purchased upon exercise of an option hereunder shall be deemed to be
transferred to the participant on the Exercise Date. During his lifetime, a
participant's option to purchase shares hereunder is exercisable only by him.
-4-
<PAGE>
9. Delivery. As promptly as practicable after the Exercise Date of each
--------
offering period, the Company shall arrange the delivery to each participant, as
appropriate, of a certificate representing the shares purchased upon exercise of
his option. Any cash remaining to the credit of a participant's account under
the Plan after a purchase by him of shares at the termination of each offering
period, or which is insufficient to purchase a full share of Common Stock of the
Company, shall be returned to said participant.
10. Withdrawal; Termination of Employment.
-------------------------------------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his account under the Plan at any time prior to the
Exercise Date of the offering period by giving written notice to the Company.
All of the participant's payroll deductions credited to his account will be paid
to him promptly after receipt of his notice of withdrawal and his option for the
current period will be automatically terminated, and no further payroll
deductions for the purchase of shares will be made during the offering period.
(b) Upon termination of the participant's Continuous Status as an
Employee prior to the Exercise Date of the offering period for any reason,
including retirement or death, the payroll deductions credited to his account
will be returned to him or, in the case of his death, to the person or persons
entitled thereto under paragraph 14, and his option will be automatically
terminated.
(c) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week during the
offering period in which the employee is a participant, he will be deemed to
have elected to withdraw from the Plan and the payroll deductions credited to
his account will be returned to him and his option terminated.
(d) A participant's withdrawal from an offering will not have any
effect upon his eligibility to participate in a succeeding offering or in any
similar plan which may hereafter be adopted by the Company.
11. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
12. Stock.
-----
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be 4,500,000 shares,
subject to adjustment upon changes in capital-
-5-
<PAGE>
ization of the Company as provided in paragraph 18. If the total number of
shares which would otherwise be subject to options granted pursuant to Section
7(a) hereof on the Offering Date or Exercise Date of an offering period exceeds
the number of shares then available under the Plan (after deduction of all
shares for which options have been exercised or are then outstanding), the
Company shall make a pro rata allocation of the shares remaining available for
option grant in as uniform a manner as shall be practicable and as it shall
determine to be equitable. In such event, the Company shall give written notice
of such reduction of the number of shares subject to the option to each Employee
affected thereby and shall similarly reduce the rate of payroll deductions, if
necessary.
(b) The participant will have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his spouse.
13. Administration. The Plan shall be administered by the Board of the
--------------
Company or a committee of members of the Board appointed by the Board. The
administration, interpretation or application of the Plan by the Board or its
committee shall be final, conclusive and binding upon all participants. Members
of the Board who are eligible Employees are permitted to participate in the
Plan, provided that:
(a) Members of the Board who are eligible to participate in the Plan
may not vote on any matter affecting the administration of the Plan or the grant
of any option pursuant to the Plan.
(b) If a Committee is established to administer the Plan, no member of
the Board who is eligible to participate in the Plan may be a member of the
Committee.
14. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of the
offering period but prior to delivery to him of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to the Exercise Date of the offering period.
-6-
<PAGE>
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in paragraph 14 hereof) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds in accordance with paragraph 10.
16. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees
promptly following the Exercise Date, which statements will set forth the
amounts of payroll deductions, the per share purchase price, the number of
shares purchased and the remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization. Subject to any required
------------------------------------------
action by the shareholders of the Company, the number of shares of Common Stock
covered by each option under the Plan which has not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but have not yet been placed under option (collectively, the
"Reserves"), as well as the price per share of Common Stock covered by each
option under the Plan which has not yet been exercised, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to
-7-
<PAGE>
have been "effected without receipt of consideration". Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the Company, the
offering period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each option under the
Plan shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation.
In the event that such successor corporation does not agree to assume the option
or substitute an equivalent option, the Board shall in lieu of such assumption
or substitution, provide for the participant to have the right to exercise the
option as to all of the optioned stock, including shares as to which the option
would not otherwise be exercisable. If the Board makes an option fully
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Board shall notify the participant that the option shall be
fully exercisable for a period of thirty (30) days from the date of such notice,
and the option will terminate upon the expiration of such period.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of shares of its outstanding Common Stock, and
in the event of the Company being consolidated with or merged into any other
corporation.
19. Amendment or Termination. The Board of Directors of the Company may
------------------------
at any time terminate or amend the Plan. Except as provided in paragraph 18, no
such termination can affect options previously granted, nor may an amendment
make any change in any option theretofore granted which adversely affects the
rights of any participant, nor may an amendment be made without prior approval
of the shareholders of the Company (obtained in the manner described in
paragraph 21) if such amendment would:
(a) Increase the number of shares that may be issued under the Plan;
-8-
<PAGE>
(b) Permit payroll deductions at a rate in excess of fifteen percent
(15%) of the participant's Compensation;
(c) Change the designation of the employees (or class of employees)
eligible for participation in the Plan; or
(d) If the Company has a class of equity securities registered under
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") at the time of such amendment, materially increase the benefits which may
accrue to participants under the Plan.
If any amendment requiring shareholder approval under this paragraph 19 of
the Plan is made subsequent to the first registration of any class of equity
securities by the Company under Section 12 of the Exchange Act, such shareholder
approval shall be solicited as described in paragraph 21 of the Plan.
20. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. Shareholder Approval.
--------------------
(a) Continuance of the Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months before or after the date
the Plan is adopted. If such shareholder approval is obtained at a duly held
shareholders' meeting, it must be obtained by the affirmative vote of the
holders of a majority of the outstanding shares of the Company, or if such
shareholder approval is obtained by written consent, it must be obtained by the
unanimous written consent of all shareholders of the Company; provided, however,
that approval at a meeting or by written consent may be obtained by a lesser
degree of shareholder approval if the Board determines, in its discretion after
consultation with the Company's legal counsel, that such a lesser degree of
shareholder approval will comply with all applicable laws and will not adversely
affect the qualification of the Plan under Section 423 of the Code.
(b) If and in the event that the Company registers any class of equity
securities pursuant to Section 12 of the Exchange Act, any required approval of
the shareholders of the Company obtained after such registration shall be
solicited substantially in accordance with Section 14(a) of the Exchange Act and
the rules and regulations promulgated thereunder.
-9-
<PAGE>
(c) If any required approval by the shareholders of the Plan itself or
of any amendment thereto is solicited at any time otherwise than in the manner
described in paragraph 21(b) hereof, then the Company shall, at or prior to the
first annual meeting of shareholders held subsequent to the later of (1) the
first registration of any class of equity securities of the Company under
Section 12 of the Exchange Act or (2) the granting of an option hereunder to an
officer or director after such registration, do the following:
(i) furnish in writing to the holders entitled to vote for the
Plan substantially the same information which would be required (if proxies to
be voted with respect to approval or disapproval of the Plan or amendment were
then being solicited) by the rules and regulations in effect under Section 14(a)
of the Exchange Act at the time such information is furnished; and
(ii) file with, or mail for filing to, the Securities and Exchange
Commission four copies of the written information referred to in subsection (i)
hereof not later than the date on which such information is first sent or given
to shareholders.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in paragraph 21. It shall continue in
effect for a term of twenty (20) years unless sooner terminated under paragraph
19.
-10-
<PAGE>
EXHIBIT 10.7
------------
<PAGE>
EXHIBIT 10.7
CONNER PERIPHERALS, INC.
1995 DIRECTOR STOCK PLAN
1. Purposes of the Plan. The purposes of this 1995 Director Stock Plan
--------------------
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" means the Common Stock of the Company.
------------
(d) "Company" means Conner Peripherals, Inc., a Delaware corporation.
-------
(e) "Continuous Status as a Director" means the absence of any
-------------------------------
interruption or termination of service as a Director.
(f) "Director" means a member of the Board.
--------
(g) "Employee" means any person, including officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(i) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, the Fair Market Value of a Share shall be
the closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in Common Stock) on the date of grant, as reported in
The Wall Street Journal or such other source as the Board deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not
on the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, the Fair Market Value of a Share
shall be the mean between the high bid and low asked prices
<PAGE>
for the Common Stock on the day of determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the Board.
(j) "Option" means a stock option granted pursuant to the Plan.
------
(k) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(l) "Optionee" means an Outside Director who receives an Option.
--------
(m) "Outside Director" means a Director who is not an Employee.
----------------
(n) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 1995 Director Stock Plan.
----
(p) "Purchaser" means an Outside Director who purchases Restricted
---------
Stock.
(q) "Restricted Stock" means Shares granted to and purchased by
----------------
Outside Directors in accordance with Section 5(c) of the Plan.
(r) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act
----------
or any successor to Rule 16b-3, as interpreted by the Securities and Exchange
Commission.
(s) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 11 of the Plan.
(t) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be sold under the
Plan is 300,000 (the "Pool"). The Shares may be authorized, but unissued, or
reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). If Shares are forfeited to the Company pursuant to a Restricted
Stock agreement, such Shares shall be returned to the Plan and shall become
available for reissuance under the Plan, unless the Plan shall have been
terminated. However, such Shares shall not return to the Plan if the persons to
whom they were originally issued receive the benefits of ownership of such
Shares
-2-
<PAGE>
(other than voting), as such concept is interpreted from time to time by the
Securities and Exchange Commission in the context of Rule 16b-3.
4. Eligibility. Options and Restricted Stock awards may be granted only
-----------
to Outside Directors. All Options and Restricted Stock awards shall be
automatically granted in accordance with the terms set forth in Section 5
hereof. The Plan shall not confer upon any Optionee or Purchaser any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which the Director
or the Company may have to terminate his or her directorship at any time.
5. Administration and Grants under the Plan.
----------------------------------------
(a) Procedure for Grants. The provisions set forth in this Section 5
--------------------
shall not be amended more than once every six months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder. All grants of Options and Restricted Stock to
Outside Directors under this Plan shall be automatic and nondiscretionary and
shall be made strictly in accordance with the following provisions:
(b) Option Grants.
-------------
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors; provided, however, that nothing
in this Plan shall be construed to prevent an Outside Director from declining to
receive an Option under this Plan.
(ii) Upon the effective date of this Plan, each person who is then
an Outside Director shall be automatically granted an Option to purchase 14,000
Shares (as adjusted in accordance with Section 11). Each Outside Director who
first becomes an Outside Director after the effective date of this Plan (other
than a person who was previously a Director) shall be automatically granted an
Option to purchase 30,000 Shares (as adjusted in accordance with Section 11) on
the date on which such person becomes an Outside Director.
(iii) On the first day of each fiscal year of the Company occurring
after the effective date of this Plan, each Outside Director shall be
automatically granted an Option to purchase 10,000 Shares (as adjusted in
accordance with Section 11) (a "Subsequent Option"), provided that at the date
of grant of each Subsequent Option such person is an Outside Director; and
provided further, that sufficient shares are available under the Plan for the
grant of such Subsequent Option.
(iv) The terms of an Option granted hereunder shall be as follows:
(1) the term of the Option shall be five (5) years;
-3-
<PAGE>
(2) the exercise price per share of Common Stock shall be
100% of the Fair Market Value on the date of grant of the Option;
(3) Options granted hereunder shall become exercisable in
installments cumulatively with respect to 1/36 of the Shares subject to the
Option (or 1/36 of the Shares subject to the Option as increased or
decreased as provided in Section 11 hereof) on the first day of each month
following the date of the grant;
(v) Options shall be evidenced by written Option agreements in
such form as the Board shall approve.
(c) Restricted Stock Awards.
-----------------------
(i) No person shall have any discretion to select which Outside
Directors shall receive Restricted Stock awards or to determine the number of
Shares to be covered by Restricted Stock awarded to Outside Directors; provided,
however, that nothing in this Plan shall be construed to prevent an Outside
Director from declining to receive a Restricted Stock award under this Plan.
(ii) Each Outside Director shall automatically receive a
Restricted Stock award of 5,000 Shares of Common Stock (as adjusted in
accordance with Section 11) on the later of the effective date of this Plan or
the date on which such person first becomes an Outside Director (other than a
person who previously was a Director).
(iii) On the first day of each fiscal year of the Company occurring
after the effective date of this Plan, each Outside Director shall automatically
receive a Restricted Stock award of 1,000 Shares (as adjusted in accordance with
Section 11) (a "Subsequent Restricted Stock Award"), provided that on the date
of grant of each Subsequent Restricted Stock Award such person is an Outside
Director; and provided further that sufficient shares are available under the
Plan for the grant of such Subsequent Restricted Stock Award.
(iv) The terms of a Restricted Stock award granted hereunder shall
be as follows:
(1) the purchase price shall be $.001 per Share (the par
value of the Company's Common Stock);
(2) Restricted Stock shall vest as to 33% of the aggregate
number of Shares awarded on the first anniversary of the award date, as to an
additional 33% of the aggregate number of Shares awarded on the second
anniversary of the award date, and as to the remaining 34% of the aggregate
number of Shares awarded on the third anniversary of the award date; provided
that, if an Outside Director's Continuous Status as a Director terminates as the
result of the Director's death or total and permanent disability (as defined in
Section 22(c)(3) of the Code), the Director's Restricted Stock shall become
fully vested as of the date of death or termination as the result of disability.
-4-
<PAGE>
6. Term of Plan. The Plan shall become effective upon the later to occur
------------
of its adoption by the Board or its approval by the shareholders of the Company
as described in Section 16 of the Plan. It shall continue in effect for a term
of ten (10) years unless sooner terminated under Section 12 of the Plan.
7. Form of Consideration. The consideration to be paid for the Shares to
---------------------
be issued upon exercise of an Option or upon purchase of Restricted Stock,
including the method of payment, shall consist of cash or check and, in the case
of Options only, (i) other shares which (x) in the case of Shares acquired upon
exercise of an Option, have been owned by the Optionee for more than six (6)
months on the date of surrender, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised, (ii) delivery of a properly executed exercise notice
together with such other documentation as the Company and the broker, if
applicable, shall require to effect an exercise of an Option and delivery to the
Company of the sale or loan proceeds required to pay the exercise price, or
(iii) any combination of the foregoing methods of payment.
8. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
5(b) hereof.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 11 of
the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Rule 16b-3. Options granted to Outside Directors must comply with
----------
the applicable provisions of Rule 16b-3 and shall contain such additional
conditions or restrictions as may be required thereunder to qualify Plan
transactions, and other transactions by Outside Directors that otherwise could
be matched with Plan transactions, for the maximum exemption from Section 16 of
the Exchange Act.
-5-
<PAGE>
(c) Termination of Continuous Status as a Director. In the event an
----------------------------------------------
Optionee's Continuous Status as a Director terminates for any reason, including
by reason of the Optionee's death or total and permanent disability (as defined
in Section 22(e)(3) of the Code), the Optionee (or, in the case of death, the
Optionee's estate or the person who acquired the right to exercise the Option)
may exercise his or her Option, but only within twelve (12) months following the
date of such termination, and only to the extent that the Optionee was entitled
to exercise it on the date of such termination (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of such termination, and to the
extent that the Optionee does not exercise such Option (to the extent otherwise
so entitled) within the time specified herein, the Option shall terminate.
9. Restricted Stock.
----------------
(a) Procedure for Purchase. Following an award of Restricted Stock to
----------------------
an Outside Director in accordance with Section 5(c), the Board shall notify the
offeree in writing of the terms, conditions and restrictions relating to the
offer, and the offeree shall have ninety (90) days within which such person must
accept such offer. The offer shall be accepted by execution of a Restricted
Stock purchase agreement in such form as the Board shall approve.
(b) Rights as a Stockholder. Until the issuance (as evidenced by the
-----------------------
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing Restricted Stock, no
right to vote or to receive dividends or any other rights as a stockholder shall
exist with respect to purchased Shares. A share certificate for the number of
shares of Restricted Stock purchased shall be issued to the Purchaser as soon as
practicable after purchase of the Restricted Stock. No adjustment will be made
for a dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 11 of the Plan.
(c) Termination of Continuous Status as a Director. In the event a
----------------------------------------------
Purchaser's Continuous Status as a Director terminates (other than by reason of
the Purchaser's death or total and permanent disability (as defined in Section
22(e)(3) of the Code)), Restricted Stock shall be forfeited by the Purchaser
without any consideration therefor.
(d) Shares Available Under the Plan. Except as otherwise provided in
-------------------------------
Section 3 hereof, a purchase of Restricted Stock as provided hereunder shall
result in a decrease in the number of Shares that thereafter shall be available
under the Plan, by the number of Shares of Restricted Stock purchased.
(e) Rule 16b-3. Restricted Stock awards to Outside Directors must
----------
comply with the applicable provisions of Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
Plan transactions, and other transactions by Outside Directors that could be
matched with Plan transactions, for the maximum exemption from Section 16 of the
Exchange Act with respect to Plan transactions.
-6-
<PAGE>
10. Non-Transferability of Options and Restricted Stock Awards. Options
----------------------------------------------------------
and Restricted Stock awards may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution. Options may be exercised, during the lifetime of the
Optionee, only by the Optionee.
11. Adjustments Upon Changes in Capitalization, Dissolution, Merger, Asset
----------------------------------------------------------------------
Sale or Change of Control.
-------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of Shares covered by each outstanding
Option and Restricted Stock award, the number of Shares which have been
authorized for issuance under the Plan but as to which no Options or Restricted
Stock awards have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option or repurchase or forfeiture of
Restricted Stock, as well as the price per Share covered by each such
outstanding Option, as applicable, and the number of Shares issuable pursuant to
the automatic grant provisions of Section 5 hereof shall be proportionately
adjusted for any increase or decrease in the number of issued Shares resulting
from a stock split, spin off, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other increase or decrease in
the number of issued Shares effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of Shares subject to an Option or
Restricted Stock award.
(b) Dissolution or Liquidation. In the case of Options or Restricted
--------------------------
Stock awarded to Outside Directors pursuant to Sections 5(b) and 5(c),
respectively, in the event of a proposed dissolution or liquidation of the
Company, such Options and Restricted Stock shall become fully vested and, in the
case of Options, fully exercisable, including as to Shares as to which it would
not otherwise be exercisable. To the extent an Option or Restricted Stock award
remains unexercised at the time of the dissolution or liquidation, the Option or
Restricted Stock award shall terminate.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, then, subject to Section 11(d) below, (i) each outstanding
Option shall become fully vested and exercisable, including as to Shares as to
which it would not otherwise be exercisable, and (ii) Restricted Stock shall
become fully vested. If an Option becomes fully vested in the event of a merger
or sale of assets, the Board shall notify the Optionee that the Option shall be
fully exercisable for a period of thirty (30) days from the date of such notice,
and the Option shall terminate upon the expiration of such period.
(d) Certain Business Combinations. In the event it is determined by
-----------------------------
the Board, upon receipt of a written opinion of the Company's independent public
accountants, that the enforcement of Section 11(c) hereof, which provides for
the acceleration of vesting of Options and Restricted Stock, would preclude
accounting for any proposed business combination of the Company as a pooling of
-7-
<PAGE>
interests, and the Board otherwise desires to approve such a proposed business
transaction which requires as a condition to the closing of such transaction
that it be accounted for as a pooling of interests, then such Section shall be
null and void. In the event that Section 11(c) is thereby rendered null and
void, then outstanding Options and Restricted Stock shall be assumed or an
equivalent option or restricted stock award shall be substituted by the
successor corporation or a Parent or Subsidiary of the successor corporation.
12. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. Except as set forth in Section 5, the
-------------------------
Board may at any time amend, alter, suspend, or discontinue the Plan, but no
amendment, alteration, suspension, or discontinuation shall be made which would
impair the rights of any Optionee or Purchaser under any grant theretofore made,
without his or her consent. In addition, to the extent necessary and desirable
to comply with Rule 16b-3 (or any other applicable law or regulation), the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options or Restricted Stock already
granted and such Options and Restricted Stock shall remain in full force and
effect as if this Plan had not been amended or terminated.
13. Time of Granting Options or Restricted Stock Awards. The date of
---------------------------------------------------
grant of an Option or Restricted Stock award shall, for all purposes, be the
date determined in accordance with Sections 5(b) and (c) hereof, respectively.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to a Restricted Stock award or the exercise of an Option unless such
award or exercise and the issuance and delivery of such Shares pursuant thereto
shall comply with all relevant provisions of law, including, without limitation,
the Securities Act of 1933, as amended, the Exchange Act, the rules and
regulations promulgated thereunder, state securities laws, and the requirements
of any stock exchange upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the purchase of Restricted Stock or exercise of an
Option, the Company may require the Purchaser or the person exercising such
Option to represent and warrant at the time of any such purchase or exercise
that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares, if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
-8-
<PAGE>
15. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
16. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company at its April 25, 1995 meeting of
shareholders. Such shareholder approval shall be obtained in the degree and
manner required under applicable state and federal law.
-9-
<PAGE>
EXHIBIT 10.9
------------
<PAGE>
Exhibit 10.9
PERFORMANCE-BASED EXECUTIVE COMPENSATION PLAN:
SUMMARY PLAN SPECIFICATIONS
CONNER PERIPHERALS, INC.
OBJECTIVES
The Plan is designed to meet these key objectives:
. Provide an objective structure and process for setting goals, evaluating
performance, and making pay decisions.
. Provide a leveraged financial incentive to meet corporate goals, business
unit goals, individual goals, and to help attract and retain key employees.
. Enhance alignment between employees, Company success, and shareholder
interests.
ADMINISTRATION
The Compensation Committee of the Board of Directors (herein referred to as the
Committee) will be responsible for administering the Plan and will delegate
specific administrative tasks to corporate staff, as appropriate.
ELIGIBILITY
All Vice Presidents and above are eligible to participate in the Plan. The CEO/
Chairman recommends participants and their participation levels at the start of
the performance period to the Committee for approval. Sales commission-eligible
positions will not participate in the Plan.
AWARD OPPORTUNITY
Annual award opportunity (target as percent of base salary) is based on an
executive's assigned participation level. The proposed target award opportunity
ranges from 50 percent to 100 percent. Actual awards will vary above or below
target levels depending upon performance against objectives and may range as
high as 280 percent of target awards.
The incentive award opportunity will be determined based on corporate and
individual performance for non-OBRA participants. OBRA participants' incentive
award opportunity will be determined based on corporate performance.
(Refer to the matrices in attachment.)
-1-
<PAGE>
AWARD DETERMINATION/PERFORMANCE MEASURES
The Committee will assess performance based on measures that reflect the
Company's annual business plan. At the corporate and business unit levels,
measures relate directly to value creation, focusing on profitability, growth,
and asset utilization. At the individual level, line-of-sight measures to
support these overall corporate and business unit goals will be used.
. Corporate Level
- Operating Income (pretax - from normal ongoing operations)
- Net Sales
At the corporate level, net sales and pretax operating income from normal
ongoing operations are the primary performance measures and will be
evaluated "interdependently" on a performance matrix. Asset utilization
measures, such as return on assets, asset turns, and inventory turns, may
be used as a modifier in determining award levels in future years.
. Individual Level (examples of individual goals)
- Expense Control/Asset Management
- Quality/Reliability
- Service/Quality
- Time-to-Market/Technology
- Value/Cost
At the individual level, individual goals will be set as part of a
performance management system. Goals include both quantitative and
qualitative criteria.
PERFORMANCE PERIOD AND AWARD FREQUENCY
Awards will be earned and paid based on the following schedule:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
QUARTERLY SEMIANNUAL
PERFORMANCE PERFORMANCE ANNUAL PERFORMANCE
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Executive Officers -- Up to 40% of 100% of annual
annual target target award
award (net of
(OBRA participants) 6-month award)
--------------------------------------------------------------------------------
Other Participants 20% of annual -- 20% of annual
target award target award
--------------------------------------------------------------------------------
</TABLE>
-2-
<PAGE>
PLAN FUNDING
Aggregate awards under the Plan will be equal to the "sum of required payments"
to individual participants according to the performance/award schedule
recommended by the CEO/Chairman and approved by the Committee at the beginning
of each year.
THRESHOLD PERFORMANCE
Minimum performance levels (e.g., 75 percent of the Company's annual business
plan), as approved by the Committee, must be achieved before awards will be
earned.
Participants are not entitled to any award under the Plan if minimum corporate
and business unit performance objectives are not achieved. However, the
Committee, in its sole discretion and pursuant to circumstances it deems
relevant, may reward outstanding individual performers for their contribution to
the organization for the Plan year.
TIMING AND FORM OF AWARD PAYMENT
Payment of awards will occur as soon as practical following the relevant
performance period, generally within sixty (60) days following the end of the
Plan year and thirty (30) days following the end of each quarter or semiannual
performance period.
One hundred percent of awards will be paid in cash. The payment of awards is
subject to normal tax withholding requirements.
OUTSTANDING ACHIEVEMENT AWARDS
As a separate component to the Plan, a special bonus fund will be available,
subject to Committee approval, to reward a small number of outstanding
performers (eligible or noneligible Plan participants) for their contribution to
the organization for the year. This fund will be equal to 15 percent of the
total (target) incentive pool established for the Plan year. The discretionary
bonus pool will be accrued for as a G&A expense. The CEO/ Chairman will
recommend special awards to the Committee for approval. Decisions relative to
the distribution of this fund will be made following the fiscal year at the same
time other year-end awards are determined. If appropriate, the CEO/Chairman and
Committee may elect not to disburse any of the discretionary bonus pool.
-3-
<PAGE>
ATTACHMENT 1
ANNUAL AND MAXIMUM INCENTIVE OPPORTUNITY: NON OBRA PARTICIPANTS
(EXPRESSED AS A PERCENT OF ANNUAL BASE SALARY BY LEVEL)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------- --------------------------------------
TOTAL ANNUAL TARGET AWARDS TOTAL ANNUAL MAXIMUM AWARDS
-------------------------------------------- ---------------------------------------
LEVEL TOTAL CORPORATE INDIVIDUAL TOTAL CORPORATE INDIVIDUAL
---------------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
I 100% 80% 20% 255% 225% 30%
II 90% 70% 20% 225% 195% 30%
III 80% 60% 20% 200% 170% 30%
IV 70% 50% 20% 170% 140% 30%
V 65% 45% 20% 155% 125% 30%
VI 55% 35% 20% 130% 100% 30%
VII 50% 30% 20% 115% 85% 30%
---------------------------------------------------------------------------------------------------
</TABLE>
AWARD RANGE
<TABLE>
<CAPTION>
=================================================
CORPORATE INDIVIDUAL
-------------------------------------------------
<S> <C>
0%-280% of target 0%-150% of target
-------------------------------------------------
</TABLE>
ANNUAL AND MAXIMUM INCENTIVE OPPORTUNITY: OBRA PARTICIPANTS*
(EXPRESSED AS A PERCENT OF ANNUAL BASE SALARY BY LEVEL)
================================================================================
<TABLE>
<CAPTION>
----------------------------- --------------------------------
TOTAL ANNUAL TARGET AWARDS TOTAL ANNUAL MAXIMUM AWARD
----------------------------- --------------------------------
LEVEL CORPORATE CORPORATE
---------------------------------------- --------------------------------
<S> <C> <C>
I 100% 280%
II 90% 250%
III 80% 225%
IV 70% 195%
V 65% 180%
</TABLE>
--------------------------------------------------------------------------------
* OBRA executives will be identified at the beginning of each year.
AWARD RANGE
======================
CORPORATE
----------------------
0%-280% of target
----------------------
The maximum amount that any Plan participant is eligible to receive under the
Plan is $2,500,000 in a Plan year.
<PAGE>
ATTACHMENT 2
1995 CORPORATE PERFORMANCE/AWARD SCHEDULE (ANNUAL)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
==============================================================
125% $___M 200% 220% 240% 260% 280%
--------------------------------------------------------------
$___M 150% 160% 170% 180% 200%
--------------------------------------------------------------
OPERATING 100% $___M 100% 100% 100% 100% 100%
INCOME
--------------------------------------------------------------
$___M 80% 85% 95% 95% 95%
--------------------------------------------------------------
75% $___M 75% 80% 85% 855 85%
==============================================================
$___B $___B $___B $___B $___B
75% 100% 115%
NET SALES
</TABLE>
<PAGE>
DISCRETIONARY EXECUTIVE COMPENSATION
FOR OBRA PARTICIPANTS
CONNER PERIPHERALS, INC.
ADMINISTRATION
The Compensation Committee of the Board of Directors (herein referred to as the
Committee) may, at its sole discretion, grant awards to OBRA participants for
individual performance and will delegate specific administrative tasks to
corporate staff, as appropriate.
The administration of this award is intended to operate independent of the
Performance-Based Executive Compensation Plan and will not meet the requirements
for performance-based pay under Internal Revenue Code (IRC) Section 162(m) which
limits the tax deduction for non-performance-based compensation paid to certain
executives.
ELIGIBILITY
Executives who may be classified as "covered employees" under IRC Section 162(m)
for the performance year will be eligible to receive supplemental awards.
Eligible executives (OBRA participants) will be designated at the beginning of
each year.
AWARD DETERMINATION
The Committee, in its sole discretion and pursuant to circumstances it deems
relevant, may award a discretionary amount to individuals for their contribution
to the organization. The CEO/Chairman will recommend individual awards to the
Committee for approval.
It is the Company's intention that executive compensation be administered in a
manner that is sensitive to the deductibility of compensation for the Company
under IRC Section 162(m) while preserving the Company's overall compensation
philosophy. If in any year, an executive's non-performance-based pay would
exceed the IRC Section 162(m) limit, the Committee, in its sole discretion, may:
. Limit the award to an amount which is deductible,
. Defer the payment of the award to a year in which the executive's non-
performance based pay does not exceed the limit, or
. Pay the entire award and lose the Company's tax deduction on the amount
exceeding the limit.
TIMING AND FORM OF AWARD
Payment of awards will be made as soon as practical following the applicable
performance period. One hundred percent of awards will be paid in cash. The
award payment is subject to normal tax withholding requirements.
<PAGE>
EXHIBIT 10.10
-------------
<PAGE>
EXHIBIT 10.10
CONNER PERIPHERALS, INC.
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (the "Agreement") is made and entered into by
and between Finis F. Conner (the "Employee") and Conner Peripherals, Inc., a
Delaware corporation (the "Company"), effective as of October 18, 1994.
R E C I T A L S
A. It is expected that the Company from time to time will consider the
possibility of an acquisition by another company or other change of control.
The Board of Directors of the Company (the "Board") recognizes that such
consideration can be a distraction to the Employee and can cause the Employee to
consider alternative employment opportunities. The Board has determined that it
is in the best interests of the Company and its stockholders to assure that the
Company will have the continued dedication and objectivity of the Employee,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company.
B. The Board believes that it is in the best interests of the Company and its
stockholders to provide the Employee with an incentive to continue his
employment and to motivate the Employee to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.
C. The Board believes that it is imperative to provide the Employee with
certain benefits upon a Change of Control which provides the Employee with
enhanced financial security and provides incentive and encouragement to the
Employee to remain with the Company notwithstanding the possibility of a Change
of Control.
D. Certain capitalized terms used in the Agreement are defined in Section 4
below.
The parties hereto agree as follows:
1. TERM OF AGREEMENT. This Agreement shall terminate upon the date that all
obligations of the parties hereto with respect to this Agreement have been
satisfied.
2. AT-WILL EMPLOYMENT. The Company and the Employee acknowledge that the
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason,
including (without limitation) any termination prior to a Change of Control, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
available in accordance with the Company's established employee plans and
practice or pursuant to other agreements with the Company.
<PAGE>
3. CHANGE OF CONTROL BENEFITS.
(a) Change of Control. Employee shall be entitled to receive from the
Company Severance Benefits as provided in this Section 3 if there is a Change of
Control that occurs while Employee is employed by the Company, regardless of
whether Employee's employment relationship with the Company continues following
such Change of Control.
(b) Change of Control Payment. In the event of a Change of Control that
occurs while Employee is employed by the Company, Employee shall receive from
the Company a cash payment in an amount equal to three hundred percent (300%) of
the Employee's Annual Compensation.
(c) Continued Employee Benefits. In the event of a Change of Control that
occurs while Employee is employed by the Company, Employee shall receive one
hundred percent (100%) Company-paid health, dental and life insurance coverage
at the same level of coverage as was provided to such employee immediately prior
to the Change of Control (the "Company-Paid Coverage"), without regard to
whether the Employee continues in the employ of the Company. If such coverage
included the Employee's dependents immediately prior to the Change of Control,
such dependents shall also be covered at Company expense. Company-Paid Coverage
shall continue until the earlier of (i) three years from the date of the Change
of Control, or (ii) the date that the Employee and his dependents become covered
under another employer's group health, dental or life insurance plans that
provide Employee and his dependents with comparable benefits and levels of
coverage. For purposes of Title X of the Consolidated Budget Reconciliation Act
of 1985 ("Cobra"), the date of the "qualifying event" for Employee and his
dependents shall be the date upon which the Company-Paid Coverage terminates.
(d) Option and Restricted Stock Accelerated Vesting. In the event of a
Change of Control that occurs while Employee is employed by the Company, the
unvested portion of any stock option or restricted stock held by the Employee
shall automatically be accelerated in full so as to become completely vested;
provided, however, that if such vesting acceleration would cause a contemplated
Change of Control transaction that was intended to be accounted for as a
"pooling-of-interests" transaction to become ineligible for such accounting
treatment under generally accepted accounting principles, as determined by the
Company's independent public accountants (the "Accountants") prior to the Change
of Control, Employee's stock options and restricted stock shall not have their
vesting so accelerated.
(e) Extension of Post-Termination Exercise Period of Nonstatutory Stock
Options. In the event of a Change of Control that occurs while Employee is
employed by the Company, the nonstatutory stock options held by Employee shall
thereafter be exercisable for a period of three months following Employee's
termination of employment or consulting relationship with the Company.
-2-
<PAGE>
(f) Golden Parachute Excise Tax Gross-Up. In the event that the severance
and other benefits provided for in this Agreement or otherwise payable to the
Employee constitute "Parachute Payments" within the meaning of Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code") and will be subject
to the excise tax imposed by Section 4999 of the Code, then the Employee shall
receive (i) a payment from the Company sufficient to pay such excise tax, and
(ii) an additional payment from the Company sufficient to pay the excise tax and
federal and state income taxes arising from the payments made by the Company to
Employee pursuant to this sentence. Unless the Company and the Employee
otherwise agree in writing, the determination of Employee's excise tax liability
and the amount required to be paid under this Section 3 shall be made in writing
by the Accountants. In the event that the excise tax incurred by Employee is
determined by the Internal Revenue Service to be greater or lesser than the
amount so determined by the Accountants, the Company and Employee agree to
promptly make such additional payment, including interest and any tax penalties,
to the other party as the Accountants reasonably determine is appropriate to
ensure that the net economic effect to Employee under this Section 3(f), on an
after-tax basis, is as if the Code Section 4999 excise tax did not apply to
Employee. For purposes of making the calculations required by this Section
3(f), the Accountants may make reasonable assumptions and approximations
concerning applicable taxes and may rely on interpretations of the Code for
which there is a "substantial authority" tax reporting position. The Company
and the Employee shall furnish to the Accountants such information and documents
as the Accountants may reasonably request in order to make a determination under
this Section. The Company shall bear all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section 3(f).
(g) Timing of Severance Payments. The severance payments and initial
gross-up payment to which Employee is entitled hereunder shall be paid by the
Company to the Employee (or to the Employee's successors in interest, pursuant
to Section 6(b)) in cash and in full, not later than thirty (30) calendar days
following the date of the Change of Control.
4. ATTORNEY FEES, COSTS AND EXPENSES. The Company shall promptly reimburse
Employee, on a monthly basis, for the reasonable attorney fees, costs and
expenses incurred by the Employee in connection with any action brought by
Employee to enforce his rights hereunder. In the event Employee is not the
prevailing party, determined without regard to whether or not the action results
in a final judgment, Employee shall repay such reimbursements.
5. DEFINITION OF TERMS. The following terms referred to in this Agreement
shall have the following meanings:
(a) Annual Compensation. "Annual Compensation" means an amount equal to
(i) Employee's Company salary for the twelve months preceding the Change of
Control, and (ii) Employee's maximum target bonus for the year in which the
Change of Control occurs.
(b) Change of Control. "Change of Control" means the occurrence of any of
the following events:
-3-
<PAGE>
(i) Any "Person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended) is or becomes the
"BENEFICIAL OWNER" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 50% or more of the total
voting power represented by the Company's then outstanding voting securities; or
(ii) A change in the composition of the Board occurring within a two-
year period, as a result of which fewer than a majority of the directors are
Incumbent Directors. "Incumbent Directors" shall mean directors who either (A)
are directors of the Company as of the date hereof, or (B) are elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or nomination
(but shall not include an individual whose election or nomination is in
connection with an actual or threatened proxy contest relating to the election
of directors to the Company); or
(iii) The stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
the Company's assets.
6. SUCCESSORS.
(a) Company's Successors. Any successor to the Company (whether direct or
indirect and whether by purchase, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company's business and/or assets
shall assume the obligations under this Agreement and agree expressly to perform
the obligations under this Agreement in the same manner and to the same extent
as the Company would be required to perform such obligations in the absence of a
succession. For all purposes under this Agreement, the term "Company" shall
include any successor to the Company's business and/or assets which executes and
delivers the assumption agreement described in this Section 6(a) or which
becomes bound by the terms of this Agreement by operation of law.
(b) Employee's Successors. The terms of this Agreement and all rights of
the Employee hereunder shall inure to the benefit of, and be enforceable by, the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
7. NOTICE. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of the Employee, mailed
notices shall be
-4-
<PAGE>
addressed to him at the home address which he most recently communicated to the
Company in writing. In the case of the Company, mailed notices shall be
addressed to its corporate headquarters, and all notices shall be directed to
the attention of its Secretary.
8. MISCELLANEOUS PROVISIONS.
(a) No Duty to Mitigate. The Employee shall not be required to mitigate
the amount of any payment contemplated by this Agreement, nor shall any such
payment be reduced by any earnings that the Employee may receive from any other
source.
(b) Waiver. No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the Employee and by an authorized officer of the Company (other
than the Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
(c) Whole Agreement. No agreements, representations or understandings
(whether oral or written and whether express or implied) which are not expressly
set forth in this Agreement have been made or entered into by either party with
respect to the subject matter hereof.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California as applied to agreements entered into and performed within California
solely by residents of that state.
(e) Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect.
(f) Withholding. All payments made pursuant to this Agreement will be
subject to withholding of applicable income and employment taxes.
(g) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together will constitute one
and the same instrument.
-5-
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the date set forth
above.
COMPANY CONNER PERIPHERALS, INC.
____________________________________________
Signature
____________________________________________
Please print name
__________________________
Please print title
EMPLOYEE ____________________________________________
Finis F. Conner
-6-
<PAGE>
EXHIBIT 10.11
-------------
<PAGE>
EXHIBIT 10.11
CONNER PERIPHERALS, INC.
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (the "Agreement") is made and entered into by
and between ____________________ (the "Employee") and Conner Peripherals, Inc.,
a Delaware corporation (the "Company"), effective as of October 18, 1994.
R E C I T A L S
A. It is expected that the Company from time to time will consider the
possibility of an acquisition by another company or other change of control.
The Board of Directors of the Company (the "Board") recognizes that such
consideration can be a distraction to the Employee and can cause the Employee to
consider alternative employment opportunities. The Board has determined that it
is in the best interests of the Company and its stockholders to assure that the
Company will have the continued dedication and objectivity of the Employee,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company.
B. The Board believes that it is in the best interests of the Company and its
stockholders to provide the Employee with an incentive to continue his
employment and to motivate the Employee to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.
C. The Board believes that it is imperative to provide the Employee with
certain benefits upon a Change of Control which provides the Employee with
enhanced financial security and provides incentive and encouragement to the
Employee to remain with the Company notwithstanding the possibility of a Change
of Control.
D. Certain capitalized terms used in the Agreement are defined in Section 4
below.
The parties hereto agree as follows:
1. TERM OF AGREEMENT. This Agreement shall terminate upon the date that all
obligations of the parties hereto with respect to this Agreement have been
satisfied.
2. AT-WILL EMPLOYMENT. The Company and the Employee acknowledge that the
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason,
including (without limitation) any termination prior to a Change of Control, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
available in accordance with the Company's established employee plans and
practices or pursuant to other agreements with the Company.
<PAGE>
3. CHANGE OF CONTROL BENEFITS.
(a) Change of Control. Employee shall be entitled to receive from the
Company Severance Benefits as provided in this Section 3 if there is a Change of
Control that occurs while Employee is employed by the Company, regardless of
whether Employee's employment relationship with the Company continues following
such Change of Control.
(b) Change of Control Payment. In the event of a Change of Control that
occurs while Employee is employed by the Company, Employee shall receive from
the Company a cash payment in an amount equal to two hundred percent (200%) of
the Employee's Annual Compensation.
(c) Continued Employee Benefits. In the event of a Change of Control that
occurs while Employee is employed by the Company, Employee shall receive one
hundred percent (100%) Company-paid health, dental and life insurance coverage
at the same level of coverage as was provided to such employee immediately prior
to the Change of Control (the "Company-Paid Coverage"), without regard to
whether the Employee continues in the employ of the Company. If such coverage
included the Employee's dependents immediately prior to the Change of Control,
such dependents shall also be covered at Company expense. Company-Paid Coverage
shall continue until the earlier of (i) two years from the date of the Change of
Control, or (ii) the date that the Employee and his dependents become covered
under another employer's group health, dental or life insurance plans that
provide Employee and his dependents with comparable benefits and levels of
coverage. For purposes of Title X of the Consolidated Budget Reconciliation Act
of 1985 ("Cobra"), the date of the "qualifying event" for Employee and his
dependents shall be the date upon which the Company-Paid Coverage terminates.
(d) Option and Restricted Stock Accelerated Vesting. In the event of a
Change of Control that occurs while Employee is employed by the Company, the
unvested portion of any stock option or restricted stock held by the Employee
shall automatically be accelerated in full so as to become completely vested;
provided, however, that if such vesting acceleration would cause a contemplated
Change of Control transaction that was intended to be accounted for as a
"pooling-of-interests" transaction to become ineligible for such accounting
treatment under generally accepted accounting principles, as determined by the
Company's independent public accountants (the "Accountants") prior to the Change
of Control, Employee's stock options and restricted stock shall not have their
vesting so accelerated.
(e) Extension of Post-Termination Exercise Period of Nonstatutory Stock
Options. In the event of a Change of Control that occurs while Employee is
employed by the Company, the nonstatutory stock options held by Employee shall
thereafter be exercisable for a period of three months following Employee's
termination of employment or consulting relationship with the Company.
-2-
<PAGE>
(f) Golden Parachute Excise Tax Gross-Up. In the event that the severance
and other benefits provided for in this Agreement or otherwise payable to the
Employee constitute "Parachute Payments" within the meaning of Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code") and will be subject
to the excise tax imposed by Section 4999 of the Code, then the Employee shall
receive (i) a payment from the Company sufficient to pay such excise tax, and
(ii) an additional payment from the Company sufficient to pay the excise tax and
federal and state income taxes arising from the payments made by the Company to
Employee pursuant to this sentence. Unless the Company and the Employee
otherwise agree in writing, the determination of Employee's excise tax liability
and the amount required to be paid under this Section 3 shall be made in writing
by the Accountants. In the event that the excise tax incurred by Employee is
determined by the Internal Revenue Service to be greater or lesser than the
amount so determined by the Accountants, the Company and Employee agree to
promptly make such additional payment, including interest and any tax penalties,
to the other party as the Accountants reasonably determine is appropriate to
ensure that the net economic effect to Employee under this Section 3(f), on an
after-tax basis, is as if the Code Section 4999 excise tax did not apply to
Employee. For purposes of making the calculations required by this Section
3(f), the Accountants may make reasonable assumptions and approximations
concerning applicable taxes and may rely on interpretations of the Code for
which there is a "substantial authority" tax reporting position. The Company
and the Employee shall furnish to the Accountants such information and documents
as the Accountants may reasonably request in order to make a determination under
this Section. The Company shall bear all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section 3(f).
(g) Timing of Severance Payments. The severance payments and initial
gross-up payment to which Employee is entitled hereunder shall be paid by the
Company to the Employee (or to the Employee's successors in interest, pursuant
to Section 6(b)) in cash and in full, not later than thirty (30) calendar days
following the date of the Change of Control.
4. ATTORNEY FEES, COSTS AND EXPENSES. The Company shall promptly reimburse
Employee, on a monthly basis, for the reasonable attorney fees, costs and
expenses incurred by the Employee in connection with any action brought by
Employee to enforce his rights hereunder. In the event Employee is not the
prevailing party, determined without regard to whether or not the action results
in a final judgment, Employee shall repay such reimbursements.
5. DEFINITION OF TERMS. The following terms referred to in this Agreement
shall have the following meanings:
(a) Annual Compensation. "Annual Compensation" means an amount equal to
(i) Employee's Company salary for the twelve months preceding the Change of
Control, and (ii) Employee's maximum target bonus for the year in which the
Change of Control occurs.
(b) Change of Control. "Change of Control" means the occurrence of any of
the following events:
-3-
<PAGE>
(i) Any "Person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended) is or becomes the "Beneficial
Owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing 50% or more of the total voting power
represented by the Company's then outstanding voting securities; or
(ii) A change in the composition of the Board occurring within a two-
year period, as a result of which fewer than a majority of the directors are
Incumbent Directors. "Incumbent Directors" shall mean directors who either (A)
are directors of the Company as of the date hereof, or (B) are elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or nomination
(but shall not include an individual whose election or nomination is in
connection with an actual or threatened proxy contest relating to the election
of directors to the Company); or
(iii) The stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least fifty percent (50%) of the total voting power represented by
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or substantially all the
Company's assets.
6. SUCCESSORS.
(a) Company's Successors. Any successor to the Company (whether direct or
indirect and whether by purchase, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company's business and/or assets
shall assume the obligations under this Agreement and agree expressly to perform
the obligations under this Agreement in the same manner and to the same extent
as the Company would be required to perform such obligations in the absence of a
succession. For all purposes under this Agreement, the term "Company" shall
include any successor to the Company's business and/or assets which executes and
delivers the assumption agreement described in this Section 6(a) or which
becomes bound by the terms of this Agreement by operation of law.
(b) Employee's Successors. The terms of this Agreement and all rights of
the Employee hereunder shall inure to the benefit of, and be enforceable by, the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
7. NOTICE. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of the Employee, mailed
notices shall be addressed to him at the home address which he most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be
-4-
<PAGE>
addressed to its corporate headquarters, and all notices shall be directed to
the attention of its Secretary.
8. MISCELLANEOUS PROVISIONS.
(a) No Duty to Mitigate. The Employee shall not be required to mitigate
the amount of any payment contemplated by this Agreement, nor shall any such
payment be reduced by any earnings that the Employee may receive from any other
source.
(b) Waiver. No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the Employee and by an authorized officer of the Company (other
than the Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
(c) Whole Agreement. No agreements, representations or understandings
(whether oral or written and whether express or implied) which are not expressly
set forth in this Agreement have been made or entered into by either party with
respect to the subject matter hereof.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California as applied to agreements entered into and performed within California
solely by residents of that state.
(e) Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect.
(f) Withholding. All payments made pursuant to this Agreement will be
subject to withholding of applicable income and employment taxes.
(g) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together will constitute one
and the same instrument.
-5-
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the date set forth
above.
COMPANY CONNER PERIPHERALS, INC.
___________________________________
Signature
___________________________________
Please print name
______________________
Please print title
EMPLOYEE ___________________________________
-6-
<PAGE>
EXHIBIT 10.12
-------------
<PAGE>
EXHIBIT 10.12
CONNER PERIPHERALS, INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
This Change of Control Severance Agreement (the "Agreement") is made and
entered into by and between _____________________ (the "Employee") and Conner
Peripherals, Inc., a Delaware corporation (the "Company"), effective as of
____________________________________.
R E C I T A L S
A. It is expected that the Company from time to time will consider the
possibility of an acquisition by another company or other change of control. The
Board of Directors of the Company (the "Board") recognizes that such
consideration can be a distraction to the Employee and can cause the Employee to
consider alternative employment opportunities. The Board has determined that it
is in the best interests of the Company and its stockholders to assure that the
Company will have the continued dedication and objectivity of the Employee,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company.
B. The Board believes that it is in the best interests of the Company and its
stockholders to provide the Employee with an incentive to continue his
employment and to motivate the Employee to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.
C. The Board believes that it is imperative to provide the Employee with
certain severance benefits upon Employee's termination of employment following a
Change of Control which provides the Employee with enhanced financial security
and provides incentive and encouragement to the Employee to remain with the
Company notwithstanding the possibility of a Change of Control.
D. Certain capitalized terms used in the Agreement are defined in Section 4
below.
The parties hereto agree as follows:
1. TERM OF AGREEMENT. This Agreement shall terminate upon the date that all
obligations of the parties hereto with respect to this Agreement have been
satisfied.
2. AT-WILL EMPLOYMENT. The Company and the Employee acknowledge that the
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason,
including (without limitation) any termination prior to a Change of Control, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
available in accordance with the Company's established employee plans and
practices or pursuant to other agreements with the Company.
<PAGE>
3. SEVERANCE BENEFITS.
(a) Termination Following A Change of Control. If the Employee's
employment terminates at any time within twenty-four (24) months following a
Change of Control, then, subject to Section 4, the Employee shall be entitled to
receive the following severance benefits:
(i) Involuntary Termination. If the Employee's employment is
terminated as a result of Involuntary Termination other than for Cause, then the
Employee shall receive the following severance benefits from the Company:
(1) Severance Payment. A cash payment in an amount equal to one
hundred percent (100%) of the Employee's Annual Compensation;
(2) Continued Employee Benefits. One hundred percent (100%)
Company-paid health, dental and life insurance coverage at the same level of
coverage as was provided to such employee immediately prior to the Change of
Control (the "Company-Paid Coverage"). If such coverage included the Employee's
dependents immediately prior to the Change of Control, such dependents shall
also be covered at Company expense. Company-Paid Coverage shall continue until
the earlier of (i) one year from the date of termination or (ii) the date that
the Employee and his dependents become covered under another employer's group
health, dental or life insurance plans that provide Employee and his dependents
with comparable benefits and levels of coverage. For purposes of Title X of the
Consolidated Budget Reconciliation Act of 1985 ("Cobra"), the date of the
"qualifying event" for Employee and his dependents shall be the date upon which
the Company-Paid Coverage terminates.
(3) Option and Restricted Stock Accelerated Vesting. Fifty
percent (50%) of the unvested portion of any stock option or restricted stock
held by the Employee shall automatically be accelerated in full so as to become
completely vested; provided, however, that if such potential vesting
acceleration would cause a contemplated Change of Control transaction that was
intended to be accounted for as a "pooling-of-interests" transaction to become
ineligible for such accounting treatment under generally accepted accounting
principles, as determined by the Company's independent public accountants (the
"ACCOUNTANTS") prior to the Change of Control, Employee's stock options and
restricted stock shall not have their vesting so accelerated.
(4) Extension of Post-Termination Exercise Period of Nonstatutory
Stock Options. The nonstatutory stock options held by Employee shall become
exercisable for a period of three months following Employee's termination of
employment or consulting relationship with the Company.
(b) Timing of Severance Payments. Any severance payment to which Employee
is entitled under Section 4(a)(1) shall be paid by the Company to the Employee
(or to the Employee's successors in interest, pursuant to Section 7(b)) in cash
and in full, not later than thirty (30) calendar days following the Termination
Date.
-2-
<PAGE>
(c) Voluntary Resignation; Termination For Cause. If the Employee's
employment terminates by reason of the Employee's voluntary resignation (and is
not an Involuntary Termination), or if the Employee is terminated for Cause,
then the Employee shall not be entitled to receive severance or other benefits
except for those (if any) as may then be established under the Company's then
existing severance and benefits plans and practices or pursuant to other
agreements with the Company.
(d) Disability; Death. If the Company terminates the Employee's employment
as a result of the Employee's Disability, or such Employee's employment is
terminated due to the death of the Employee, then the Employee shall not be
entitled to receive severance or other benefits except for those (if any) as may
then be established under the Company's then existing severance and benefits
plans and practices or pursuant to other agreements with the Company.
(e) Termination Apart from Change of Control. In the event the Employee's
employment is terminated for any reason, either prior to the occurrence of a
Change of Control or after the twenty-four (24)-month period following a Change
of Control, then the Employee shall be entitled to receive severance and any
other benefits only as may then be established under the Company's existing
severance and benefits plans and practices or pursuant to other agreements with
the Company.
4. ATTORNEY FEES, COSTS AND EXPENSES. The Company shall promptly reimburse
Employee, on a monthly basis, for the reasonable attorney fees, costs and
expenses incurred by the Employee in connection with any action brought by
Employee to enforce his rights hereunder. In the event Employee is not the
prevailing party, determined without regard to whether or not the action results
in a final judgment, Employee shall repay such reimbursements.
5. LIMITATION ON PAYMENTS. In the event that the severance and other benefits
provided for in this Agreement or otherwise payable to the Employee (i)
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this
Section 5, would be subject to the excise tax imposed by Section 4999 of the
Code, then the Employee's severance benefits under Section 3(a)(i) shall be
either
(a) delivered in full, or
(b) delivered as to such lesser extent which would result in no portion of
such severance benefits being subject to excise tax under Section 4999
of the Code,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the excise tax imposed by Section 4999, results
in the receipt by the Employee on an after-tax basis, of the greatest amount of
severance benefits, notwithstanding that all or some portion of such severance
benefits may be taxable under Section 4999 of the Code. Unless the Company and
the Employee otherwise agree in writing, any determination required under this
Section 5 shall be made in writing by the Company's independent public
accountants immediately prior to Change of Control
-3-
<PAGE>
(the "Accountants"), whose determination shall be conclusive and binding upon
the Employee and the Company for all purposes. For purposes of making the
calculations required by this Section 5, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the application of Sections
280G and 4999 of the Code. The Company and the Employee shall furnish to the
Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this Section. The Company shall
bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this Section 5.
6. DEFINITION OF TERMS. The following terms referred to in this Agreement
shall have the following meanings:
(a) Annual Compensation. "Annual Compensation" means an amount equal to
(i) Employee's Company salary for the twelve months preceding the Change of
Control, and (ii) Employee's maximum target bonus for the year in which the
Change of Control occurs.
(b) Cause. "Cause" shall mean (i) any act of personal dishonesty taken by
the Employee in connection with his responsibilities as an employee and intended
to result in substantial personal enrichment of the Employee, (ii) the
conviction of a felony, (iii) a willful act by the Employee which constitutes
gross misconduct and which is injurious to the Company, and (iv) following
delivery to the Employee of a written demand for performance from the Company
which describes the basis for the Company's belief that the Employee has not
substantially performed his duties, continued violations by the Employee of the
Employee's obligations to the Company which are demonstrably willful and
deliberate on the Employee's part.
(c) Change of Control. "Change of Control" means the occurrence of any of
the following events:
(i) Any "PERSON" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended) is or becomes the "Beneficial
Owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing 50% or more of the total voting power
represented by the Company's then outstanding voting securities; or
(ii) A change in the composition of the Board occurring within a two-
year period, as a result of which fewer than a majority of the directors are
Incumbent Directors. "Incumbent Directors" shall mean directors who either (A)
are directors of the Company as of the date hereof, or (B) are elected, or
nominated for election, to the Board with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or nomination
(but shall not include an individual whose election or nomination is in
connection with an actual or threatened proxy contest relating to the election
of directors to the Company); or
(iii) The stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than a merger or consolidation
which would result
-4-
<PAGE>
in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets.
(d) Disability. "Disability" shall mean that the Employee has been unable
to perform his Company duties as the result of his incapacity due to physical or
mental illness, and such inability, at least 26 weeks after its commencement, is
determined to be total and permanent by a physician selected by the Company or
its insurers and acceptable to the Employee or the Employee's legal
representative (such Agreement as to acceptability not to be unreasonably
withheld). Termination resulting from Disability may only be effected after at
least 30 days' written notice by the Company of its intention to terminate the
Employee's employment. In the event that the Employee resumes the performance
of substantially all of his duties hereunder before the termination of his
employment becomes effective, the notice of intent to terminate shall
automatically be deemed to have been revoked.
(e) Involuntary Termination. "Involuntary Termination" shall mean (i)
without the Employee's express written consent, the significant reduction of the
Employee's duties, authority or responsibilities, relative to the Employee's
duties, authority or responsibilities as in effect immediately prior to such
reduction, or the assignment to Employee of such reduced duties, authority or
responsibilities; (ii) without the Employee's express written consent, a
substantial reduction, without good business reasons, of the facilities and
perquisites (including office space and location) available to the Employee
immediately prior to such reduction; (iii) a reduction by the Company in the
base salary of the Employee as in effect immediately prior to such reduction;
(iv) a material reduction by the Company in the kind or level of employee
benefits, including bonuses, to which the Employee was entitled immediately
prior to such reduction with the result that the Employee's overall benefits
package is significantly reduced; (v) the relocation of the Employee to a
facility or a location more than thirty (30) miles from the Employee's then
present location, without the Employee's express written consent; (vi) any
purported termination of the Employee by the Company which is not effected for
Disability or for Cause, or any purported termination for which the grounds
relied upon are not valid; (vii) the failure of the Company to obtain the
assumption of this agreement by any successors contemplated in Section 7(a)
below; or (viii) any act or set of facts or circumstances which would, under
California case law or statute constitute a constructive termination of the
Employee.
(f) Termination Date. "Termination Date" shall mean (i) if this Agreement
is terminated by the Company for Disability, thirty (30) days after notice of
termination is given to the Employee (provided that the Employee shall not have
returned to the performance of the Employee's duties on a full-time basis during
such thirty (30)-day period), (ii) if the Employee's employment is terminated by
the Company for any other reason, the date on which a notice of termination is
given, provided that if within thirty (30) days after the Company gives the
Employee notice of termination, the Employee notifies the Company that a dispute
exists concerning the termination or the benefits
-5-
<PAGE>
due pursuant to this Agreement, then the Termination Date shall be the date on
which such dispute is finally determined, either by mutual written agreement of
the parties, or a by final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected), or (iii) if the Agreement is terminated by the Employee, the
date on which the Employee delivers the notice of termination to the Company.
7. SUCCESSORS.
(a) Company's Successors. Any successor to the Company (whether direct or
indirect and whether by purchase, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company's business and/or assets
shall assume the obligations under this Agreement and agree expressly to perform
the obligations under this Agreement in the same manner and to the same extent
as the Company would be required to perform such obligations in the absence of a
succession. For all purposes under this Agreement, the term "Company" shall
include any successor to the Company's business and/or assets which executes and
delivers the assumption agreement described in this Section 7(a) or which
becomes bound by the terms of this Agreement by operation of law.
(b) Employee's Successors. The terms of this Agreement and all rights of
the Employee hereunder shall inure to the benefit of, and be enforceable by, the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
8. NOTICE.
(a) General. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of the Employee, mailed
notices shall be addressed to him at the home address which he most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of its Secretary.
(b) Notice of Termination. Any termination by the Company for Cause or by
the Employee as a result of a voluntary resignation or an Involuntary
Termination shall be communicated by a notice of termination to the other party
hereto given in accordance with Section 8(a) of this Agreement. Such notice
shall indicate the specific termination provision in this Agreement relied upon,
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination under the provision so indicated, and shall
specify the termination date (which shall be not more than 30 days after the
giving of such notice). The failure by the Employee to include in the notice
any fact or circumstance which contributes to a showing of Involuntary
Termination shall not waive any right of the Employee hereunder or preclude the
Employee from asserting such fact or circumstance in enforcing his rights
hereunder.
-6-
<PAGE>
9. MISCELLANEOUS PROVISIONS.
(a) No Duty to Mitigate. The Employee shall not be required to mitigate
the amount of any payment contemplated by this Agreement, nor shall any such
payment be reduced by any earnings that the Employee may receive from any other
source.
(b) Waiver. No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the Employee and by an authorized officer of the Company (other
than the Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
(c) Whole Agreement. No agreements, representations or understandings
(whether oral or written and whether express or implied) which are not expressly
set forth in this Agreement have been made or entered into by either party with
respect to the subject matter hereof.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California as applied to agreements entered into and performed within California
solely by residents of that state.
(e) Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect.
(f) Withholding. All payments made pursuant to this Agreement will be
subject to withholding of applicable income and employment taxes.
(g) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together will constitute one
and the same instrument.
-7-
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the date set forth
above.
COMPANY CONNER PERIPHERALS, INC.
__________________________________
Signature
__________________________________
Please print name
______________________
Please print title
EMPLOYEE __________________________________
Signature
-8-
<PAGE>
EXHIBIT 10.13
-------------
<PAGE>
Exhibit 10.13
[CONNER PERIPHERALS, INC. LETTERHEAD]
September 3, 1992
Mr. Tom Mitchell
P.O. Box 3154
Jackson Hole, Wyoming 83001
Dear Tom,
This is to confirm the agreement for your employment as the President and Chief
Operating Officer of Conner Peripherals, Inc. (the "Company"). In this position
you agree to devote your full business time, attention and energies to the best
of your ability. You will assume the responsibilities and obligations of the
position of President and Chief Operating Officer, subject to your reporting to
and serving at the direction of the Chief Executive Officer and Board of
Directors of the Company.
1. Employment Term. You and the Company acknowledge that your employment
---------------
is at will, as defined under applicable law. If your employment terminates for
any reason you shall not be entitled to any payments, benefits, damages, or
compensation other than as set forth below, or as may otherwise be available in
accordance with the Company's established employee plans and policies applicable
to you for your position at the time of termination.
The effective commencement date of your employment with the Company shall
be October 1, 1992.
2. Salary and Bonus. You shall be paid, semi-monthly, a salary at an
----------------
annual rate of $400,000 per year. In addition, you shall be entitled to
participate in the Company's executive profit sharing and bonus arrangements as
may be approved, from time to time, by the Board of Directors of the Company.
3. Equity Incentive.
----------------
(a) Restricted Stock: You will be awarded 150,000 shares of the
----------------
Company's Common Stock under the Company's 1992 Restricted Stock Plan (the
"Restricted Stock"), as promptly as practicable after the date of your first day
of employment. Under this Plan, the Restricted Stock will be sold to you at a
nominal price of $0.01 per share. Under this Plan, the Restricted Stock will be
forfeited (i.e., repurchased), at your cost, back to the Company in the event of
termination of your employment for any reason, voluntary or involuntary;
subject, however, to the Restricted Stock vesting free of this forfeiture
restriction based on your continued employment at the following rate: 15% of the
Restricted Stock on the third anniversary date of your employment, 30% of the
Restricted Stock on the fifth anniversary of your employment, and 55% of the
Restricted Stock on the seventh anniversary date of your employment.
<PAGE>
(b) Stock Option: You will receive an option grant for 350,000
------------
shares of the Company's Common Stock (the "Stock Option") under the Company's
Stock Option Plan. The actual date of grant will be as promptly as practicable
after the date of your first day of employment. The exercise price of the Option
will be the closing price of the Common Stock on the last trading day
immediately prior to the grant date. The Stock Option is exercisable based upon
continued employment at the rate of 6/48ths of the shares six months from the
date of grant and then 1/48th of the shares for each full month of continued
employment thereafter. The Stock Option shall be fully exercisable after four
years of continued employment from the date of grant, but as long as you are
employed by the Company, you shall have up to 10 years from the date of grant to
exercise the Option.
(c) Agreements: The Restricted Stock and the Stock Option shall be
----------
evidenced by and subject to the appropriate agreements adopted by the Company
for such awards, which agreements shall be executed by you and the Company as
promptly as practicable. Your rights under the Restricted Stock and Stock
Option shall be subject to such agreements and Stock Plans.
4. Benefits. During the term of employment, you will be entitled to
--------
participate in the Company's benefits programs as are in effect, from time to
time, and applicable to your position in the Company. Your rights under the
benefit plans shall be determined under the provisions of those plans.
During the term of your employment, you shall be authorized to incur
necessary and reasonable travel, entertainment and other business expenses in
connection with your duties. The Company shall reimburse you for such expenses
upon presentation of an itemized account and appropriate supporting
documentation, all in accordance with the Company's generally applicable
policies.
5. Termination.
-----------
(a) Termination: If your employment with the Company terminates for
-----------
any reason, other than as described in subparagraphs (b) and (c) below, you
shall be entitled to receive a severance payment (the "Severance Payment") from
the Company for a period of 12 months maximum. The Severance Payment will be
equal to your then current annual salary. However, you shall not be entitled to
any Severance Payment if your employment is terminated for "cause." For purposes
of this agreement, "cause" shall mean (i) a willful failure by you to
substantially perform your duties hereunder, other than a failure resulting from
your complete or partial incapacity due to physical or mental illness or
impairment, (ii) a willful act by you which constitutes gross misconduct and
which is injurious to the Company, (iii) a willful breach by you of a material
provision of this agreement or (iv) a material and willful violation of a
federal or state law or regulation applicable to the business of the Company.
No act, or failure to act, by you shall be considered "willful" unless committed
without good faith and without a reasonable belief that the act or omission was
in the Company's best interests.
-2-
<PAGE>
(b) Change of Control: If within one year of a "Change of Control"
------------------
(i) your position or employment is involuntarily terminated, or (ii) your
duties, responsibilities or compensation are materially reduced, you shall be
entitled to receive a Severance Payment from the Company in an amount to two
times the Severance Payment defined in subparagraph (a) above. For this purpose,
the term "Change of Control" of the Company means (i) the acquisition by any
person or persons of 50% or more of the total voting power represented by the
Company's then outstanding voting securities or (ii) a transaction that involves
the sale of all or substantially all of the assets of the Company or the merger
of the Company with or into another corporation involving a 50% or more change
in the ownership of the total voting power represented by the Company's then
outstanding voting securities or (iii) a change in the composition of the Board
of Directors of the Company as a result of which fewer than a majority of the
incumbent directors are directors who either (A) had been directors of the
Company 24 months prior to such change or (B) were elected or nominated for
election to the Board of the Company with the affirmative vote of at least a
majority of the directors who had been directors of the Company 24 months prior
to such change and who were still in office at the time of election or
nomination.
(c) Voluntary Resignation: If you voluntarily resign or terminate your
---------------------
employment, then you shall not be entitled to any Severance Payment or other
benefits. The Company shall have no obligation to provide any compensation or
benefits on account of your death, or for periods following your death.
(d) Severance: Any Severance Payment to which you have become entitled
---------
hereunder will be subject to applicable tax withholding and will be paid semi-
monthly in accordance with the Company's normal payroll. The Severance Payment
shall be in lieu of any further payment to you. Notwithstanding the foregoing,
the Severance Payment will not reduce or offset any benefits you may be entitled
to under the specific terms of any Company benefit plans during the Severance
Payment period.
6. Miscellaneous.
-------------
(a) Entire Agreement: Other than under the Company's Stock Option and
----------------
Restricted Stock Plans and Agreements, no agreements, representations, or
understandings, whether oral or written or whether express or implied, which are
not expressly set forth in this letter have been made or entered into by you or
the Company with respect to the subject matter of your employment.
(b) Waiver:No provision of this letter shall be modified, waived or
------
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by an authorized officer of the Company (other than you).
(c) Other: Upon your employment, you will execute the Company's
-----
standard Proprietary andConfidential Information Agreement.
-3-
<PAGE>
This Agreement shall be governed by the laws of the State of California. This
Agreement shall be binding upon the Company and its successors and assigns.
Sincerely,
CONNER PERIPHERALS, INC.
/s/ FINIS F. CONNER
Finis F. Conner
Chairman and Chief Executive Officer
Agreed and accepted as of the date first above written.
/s/ TOM MITCHELL
-----------------------------------------------
Tom Mitchell
-4-
<PAGE>
[CONNER PERIPHERALS, INC. LETTERHEAD]
September 4, 1992
Mr. Tom Mitchell
P.O. Box 3154
Jackson Hole, Wyoming 83001
Dear Tom:
As an addendum to my offer letter to you dated September 3, 1992, this will
confirm that:
1. The salary of $400,000 is consistent with the current employee's
compensation plan (although profit sharing would add to this
substantially).
2. I agree to cover all moving, living, and transportation expenses
during your transition period.
3. You would be elected to the Board of Directors as promptly as
practicable after the date of you first day of employment. (Currently
available Board positions are filled but an expansion will be required
and will take place no later than the annual shareholders meeting in
April 1993.)
Sincerely,
/s/ Finis F. Conner
Finis F. Conner
Chairman and Chief Executive Officer
Agreed and accepted as of the date first above written.
/s/ D. T. Mitchell
Tom Mitchell
FC/lmb
<PAGE>
[CONNER PERIPHERALS, INC. LETTERHEAD]
August 19, 1993
Mr. P. Jackson Bell
325 Rivercrest Drive
Fort Worth, TX 76107
Dear Jack:
On behalf of the management of Conner, I am pleased to extend you an offer of
employment with Conner as Executive Vice President/Chief Financial Officer
reporting to Mr. Finis Conner, Chairman/Chief Executive Officer. Your
effective date of employment, should you accept our offer, will be as agreed
upon between Finis and yourself.
. Your base compensation will be $29,166.67 per month paid biweekly. In
addition, you will participate in the Company's Executive Incentive Plan.
This plan is based upon the Company's profit performance and individual's
contributions. The plan payout as a percent of base salary is 0%-155%,
targeted at 70% of base salary.
. In addition, a one-time hire bonus of $50,000.00 will be provided as part
of the hire/acceptance package. This bonus will be provided after one
month of employment and would be refundable to the Company, on a pro-rated
basis, should you be terminated for cause within the first twelve (12)
months of your employment.
. In your position with Conner you will be a candidate for participation in
the Company's Incentive Stock Option Plan. As an option candidate, a grant
for 125,000 shares of incentive stock will be presented to the Board of
Directors after commencement of your employment. Such grants become 25%
vested after twelve (12) months of continuous service after date of hire
and continue to vest at the rate of 25% per year thereafter during
continuous employment. You must exercise your new-hire option grant within
ten (10) years of your hire date. Additionally, Conner will provide 25,000
shares of Conner restricted stock. Such restricted options will vest 15%
on the third anniversary date of the stock award grant, an additional 30%
shall vest on the fifth anniversary date and the remaining 55% shall vest
on the seventh anniversary of the award date.
<PAGE>
Mr. P. Jackson Bell
Page 2
. Conner agrees to pay for the physical relocation of your personal
belongings from Fort Worth, Texas to the Bay Area. Attached is a copy of
our Relocation Policy for you to review. Additionally, the Company will:
1. Pay cost of rental for maximum of twelve (12) months, not to
exceed $4,000.00 monthly while selling your Fort Worth residence.
2. Assist you in the cost of the sale or loss incurred between the
appraised value and actual sale price of your home up to a
maximum of $200,000.00.
. Conner offers an extensive benefit package which includes an Employee Stock
Purchase Plan, 401K, life insurance for yourself, spouse and dependents,
executive medical, dental, short term disability, long term disability, and
vision care. The attached brochures describe these briefly; additional
information will be provided upon your acceptance.
TERMINATION AGREEMENT: In the event Conner Peripherals terminates your
employment for any reason other than cause, the Company will pay you one (1)
year salary plus benefits.
The enclosed employment application sets forth certain terms and conditions of
your employment. The terms and conditions set forth in that application as well
as those set forth in this letter represent the sole agreement between you and
Conner regarding your employment. No promises, understandings, or
representations regarding any terms or conditions of your employment not
expressed in this letter or the employment application are part of your
employment agreement with the Company.
In accepting employment with Conner, you will be required to sign a Proprietary
Information Agreement acknowledging your agreement and acceptance to maintain
strictest confidence with respect to Conner confidential information and to
refrain from the disclosure of any proprietary information, or trade secrets of
your former employer(s). It is also understood and agreed that in consideration
of your employment you will devote your best efforts and full time attention to
the business of the Company.
In compliance with federal immigration law, you will be required to provide
documentary evidence of your identity and eligibility for employment in the
United States. Such documentation MUST be provided within three (3) business
----
days of your date of hire.
Jack, we look forward to your acceptance of our offer and believe that you will
be an invaluable addition to Conner. Upon receipt and review of this letter,
please have no reservation in calling me with respect to any aspect of this
offer or other questions you may have.
<PAGE>
Mr. P. Jackson Bell
Page 3
Please sign the attached copy of the employment offer and return to my attention
along with the employment application as an expression of your acceptance of the
above offer of employment. This offer is open until Friday, August 20,1993.
Sincerely,
/s/ Harvey V. Kroll
Harvey V. Kroll
Senior Vice President
HVK/dlb
Atchmt.
ACCEPTED BY: /s/ P. Jackson Bell DATE: 8/19/93
-------------------------- -------------
<PAGE>
EXHIBIT 10.15
-------------
<PAGE>
Exhibit 10.15
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE dated this 2nd day of December, 1988 is made
by and between CORPORATE PLAZA, PHASE 1, a California general partnership
("Landlord") and CONNER PERIPHERALS, a California corporation ("Tenant").
R E C I T A L S
A. Tenant currently leases from Landlord approximately one hundred eighty
thousand (180,000) square feet of space located at 3061 and 3081 Zanker Road,
San Jose, California ("Premises") pursuant to that certain lease dated August
19, 1988 ("Lease"). The Premises consist of two (2) separate buildings, one
consisting of approximately sixty-four thousand (64,000) square feet ("Building
1") and the other consisting of approximately one hundred sixteen (116,000)
square feet ("Building 2").
B. Pursuant to the Lease Landlord's Prime Contractor, as defined in
Exhibit C of the lease, was to be responsible for constructing certain
improvements to the interior of Building 1 ("Building 1 Interior Improvements").
C. Landlord and Tenant have agreed to allow Tenant's Prime Contractor, as
defined in Exhibit C to the Lease, to construct the Building 1 Interior
Improvements.
NOW, THEREFORE, the parties hereto agree to amend the Lease as follows:
1. Exhibits C, C-3 (including Exhibits C-3.1 and C-3.2) and C-4 are hereby
deleted in their entirety and replaced with the Exhibit C, C-3 and C-4 attached
hereto.
2. All other terms, covenants and conditions of the Lease shall remain in
full force and effect except as specifically modified herein.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
set forth below their signatures.
Landlord: Tenant
CORPORATE PLAZA, PHASE 1, a CONNER PERIPHERALS, a
California general partnership California corporation
By: McCandless Development Corpo-
ration, a California corporation
By:______________________________ By:_____________________________
Birk S. McCandless, (Signature)
President
________________________________
(Printed Name)
________________________________
(Title)
_________________________________ ________________________________
(Date) (Date)
-2-
<PAGE>
EXHIBIT C
GENERAL CONDITIONS REGARDING
BUILDING IMPROVEMENTS
Landlord and Tenant agree that the following terms are hereby added to the
Lease:
1. Definitions: As used herein and in the Lease, the following terms
-----------
shall have the following meanings:
A. Shell Improvements: Tenant acknowledges having reviewed the
------------------
drawings listed in Exhibit C-1 and the improvements constructed or to be the
constructed in accordance therewith, and Tenant hereby approves thereof and
acknowledges that some improvements depicted on the plans have not actually been
constructed.
Landlord specifically agrees to complete, install, or repair at
its cost and expense, (independent of the Interior Improvement Allowance
provided below) those items set forth in Exhibit C-2 attached hereto in the
manner described therein. Landlord shall have no obligation to construct
improvements other than those in place upon execution of the Lease and the
improvements described in Exhibit C-2 ("Shell Improvements"). In the event the
City of San Jose requires additional improvements or changes to the Shell
Improvements to obtain a building permit to construct the Interior Improvements
(as specified below) all costs associated therewith shall be paid from the
Interior Improvement Allowance or directly by Tenant.
B. Interior Improvements: The term "Interior Improvements" shall
---------------------
mean those improvements to be constructed in Building 1 in accordance with
Exhibit C-3 ("Building 1 Interior Improvements") and those improvements to be
constructed in Building 2 in accordance with Exhibit C-4 ("Building 2 Interior
Improvements"). The responsibilities for the construction thereof are more
specifically described in Exhibits C-3 and C-4 attached hereto.
C. Interior Improvement Costs: The term "Interior Improvement
--------------------------
Costs" shall mean the following: (i) the total amount due pursuant to the
general construction contract entered into by Tenant for the construction of the
Building 1 Interior Improvements, (ii) the total amount due pursuant to the
general construction contract entered into by Tenant for Building 2 to construct
the Building 2 Interior Improvements; (iii) the cost of all governmental
approvals required as a condition to the Interior Improvements (including all
construction taxes imposed by the City of San Jose) in connection with the
issuance of a building permit for the Interior Improvements, even if based in
part on the value of the Shell Improvements; (iv) all utility connection or use
fees; (v) fees or architects or engineers for services rendered in connection
with the design and construction of the Interior Improvements. The parties
acknowledge that the City of San Jose imposes certain taxes as a condition to
the issuance of building permits in certain circumstances, including the
"Building and Structure Construction Tax" imposed by Chapter 4.46 of the City of
San Jose Municipal Code (the "BSC Tax") and the "Commercial-
-3-
<PAGE>
Residential-Mobile Home Park Building Tax" imposed by Chapter 4.47 of the City
of San Jose Municipal Code (the "CRM Tax"). The parties further acknowledge
that the rate for these two taxes is higher for a structure designed or intended
to be used for "commercial purposes" than for a structure designed or intended
to be used for "industrial purposes". Landlord has paid a BSC Tax for the shell
of the Building based upon the rate imposed for buildings intended to be used
for "industrial purposes". However, the parties acknowledge and agree that (i)
an additional BSC Tax will be due for the shell of the building and an
additional BSC Tax shall be due upon the issuance of a building permit for all
Interior Improvements, if the City of San Jose determines that the Building is
intended for "industrial purposes", (ii) a BSC Tax, and a CRM Tax based on the
value of the Interior Improvements, and an additional BSC Tax and a CRM Tax
based on the value of the shell will be due if the City of San Jose determines
that the Building is intended for "commercial purposes," and (iii) any of such
taxes that must be paid in order to obtain building permits for the Interior
Improvements shall be "Interior Improvement Costs."
D. Landlord's Interior Improvement Allowance: The term "Interior
------------------------------------------
Improvement Allowance" shall mean the maximum amount Landlord is required to
spend toward the payment of the Interior Improvement Costs, which amount is
equal to the product obtained by multiplying (i) Twenty-Five and 00/100 Dollars
($25.00) per square foot by (ii) one hundred eighty thousand (180,000) square
feet, for a total of Four Million Five Hundred Thousand Dollars ($4,500,000).
The Interior Improvement Allowance shall be allocated to each Building as
follows:
Building 1 - 64,000 square feet: $1,600,000.
----------
"Building 1 Interior Improvements Allowance"
Building 2 - 116,000 square feet: $2,900,000.
----------
"Building 2 Interior Improvements Allowance"
The portion of the Interior Improvement Allowance allocated to
each Building must be expended only in the Building to which such portion is
allocated.
E. Prime Contractor: The term "Tenant's Prime Contractor" shall
----------------
mean such general contractor as is selected by Tenant for the Interior
Improvements.
2. Ownership of the Interior Improvements: Except as otherwise provided
---------------------------------------
in the Lease, all of the Interior Improvements which are constructed with funds
of Landlord (including out of the Interior Improvement Allowance) shall become
the property of Landlord upon installation and shall not be removed or altered
by Tenant. Any part of the Interior Improvements which are constructed by
Landlord with funds of Tenant shall become the property of Tenant upon
installation and Tenant shall have the right to the extent permitted by
applicable tax laws, to depreciate and claim and collect investment tax credits
in such improvements; provided, however, that (i) Tenant shall not remove or
alter such improvements during the term of the
-4-
<PAGE>
Lease; (ii) such improvements shall be surrendered to Landlord, and title to
such improvements shall vest in Landlord, at the expiration or earlier
termination of the Lease Term; and (iii) in no event shall Landlord have any
obligation to pay Tenant for the cost or value of such improvements.
3. Under no circumstances shall Tenant be entitled to receive any
interest or credit on the Interior Improvement Allowance (or any portion thereof
remaining from time to time). The Interior Improvement Allowance shall only be
used for the payment of costs incurred in installing the Interior Improvements.
Tenant shall be entitled to no rent reduction, credit, rebate or other
consideration at any time in the event the Interior Improvement Allowance
remains unused for any reason whatsoever.
-5-
<PAGE>
BUILDING 1
INTERIOR IMPROVEMENTS
AGREEMENT
EXHIBIT C-3 BUILDING 1
--------------------------------------------------------------------------------
Tenant shall cause the Interior Improvements for Building 1 ("Building 1
Interior Improvements") to be constructed by Tenant's Prime Contractor. Tenant
shall also hire the architect and all other consultants necessary to construct
the Building 1 Interior Improvements.
Landlord shall have the right to reasonably approve Tenant's Prime
Contractor, primarily based on the financial strength and ability to perform the
work required. Landlord shall also have the right to reasonably approve the
plans and specifications for the Building 1 Interior Improvements (and changes
thereto).
1. Timing:
------
Prior to the date construction of the Building 1 Interior Improvements
commences Tenant shall notify Landlord of its intention to commence
construction, shall submit plans and specifications, and notify Landlord of the
name and other reasonable information regarding Tenant's Prime Contractor.
Landlord shall respond within 10 days approving the same or stating specific
reasons for denial.
2. Building 1 Interior Improvement Allowance:
------------------------------------------
A. The Building 1 Interior Improvement Allowance totaling
$1,600,000 ($25.00/SF) shall be funded jointly to Tenant and Tenant's Prime
Contractor as construction proceeds ("Funding"). The amount of Building 1
Interior Improvement Allowance Landlord is obligated to fund at any time is
Limited to the square footage improved at such time. For example, if
construction commences for less than the full building only a prorata portion of
the Building 1 Interior Improvement Allowance will be funded by Landlord based
on the number of square feet to be improved (i.e., if 32,000 square feet is
improved, a maximum of $800,000 will be funded).
In the event Building 1 is improved in phases and unexpended Interior
Improvement Allowance dollars remain unused upon full initial build-out of
Building 1, Landlord will fund the remaining Allowance to Tenant within (30)
days of completion of the final initial Interior Improvements, as a credit
against any other Interior Improvements paid by Tenant in Building 1.
B. Funding will occur no more often than twice per month and no
sooner than (5) days after receipt of request by Landlord from Tenant. In the
event funding is requested more often than twice per month, an additional fee of
$500.00 will be due from Tenant to Landlord. Funding must be supported by
invoice from Tenant's Prime Contractor and is subject to Landlord's lender
inspecting the job, reviewing, and approving the invoice and work in place. If
Landlord's lender ("Union Bank") does not approve the amount of any requested
funding, Landlord will be obligated to fund only the amount approved by
Landlord's lender. Funding
<PAGE>
will occur only for work-in-place less a 10% retention on all work until 30 days
after filing of the notice of completion or the receipt of a lien free
endorsement reasonably acceptable to Landlord's lender. Landlord and Tenant
agree that Landlord will not be obligated to fund any portion of the Building 1
Interior Improvement Allowance in excess of the amount disbursed by Union Bank
pursuant to that certain Building Loan Agreement between Landlord and Union Bank
dated September 21, 1988 ("BlA") attached hereto as Exhibit D. Tenant agrees to
comply (and Tenant shall ensure that Tenant's Prime Contractor shall comply)
with any and all requirements of Union Bank which are conditions precedent to
the disbursement of funds under the BLA.
C. Subject to the limitations and conditions of the BLA, the
determination of the amount to fund will be based on work in place for general
utility interior improvements which may be of use to a subsequent user of
Building 1 (e.g., non-load bearing permanent partitions; windows, wall and floor
coverings; standard HVAC equipment and wiring; standard electrical distribution
facilities and wiring; standard lighting and utility fixtures or otherwise
approved by Landlord), the cost of which does not exceed the Building 1 Interior
Improvement Allowance.
D. All Interior Improvements not to be paid from the Interior
Improvement Allowance shall be invoiced from Tenant's Prime Contractor directly
to Tenant and shall not be funded by Landlord or Landlord's lender from the
Building 1 Interior Improvement Allowance provided further that Tenant shall be
responsible for the timely payment of all costs for such improvements in excess
of any single installment and in excess of the aggregate amount which shall
become payable by Landlord pursuant to the foregoing provision.
3. Commencement of Rent/Expenses:
------------------------------
The Building 1 Base Rent, Tenant's obligation to pay for all expenses
relating to Building 1 and Tenant's obligation to pay all real property taxes on
the Property shall commence in any event on December 1, 1988 as provided in the
Lease notwithstanding the status of the construction of any or all of the
Building 1 Interior Improvements.
-2-
<PAGE>
BUILDING 2
INTERIOR IMPROVEMENTS
AGREEMENT
EXHIBIT C-4 BUILDING 2
--------------------------------------------------------------------------------
Tenant shall cause the Interior Improvements for Building 2 ("Building 2
Interior Improvements") to be constructed by Tenant's Prime Contractor. Tenant
shall also hire the architect and all other consultants necessary to construct
the Building 2 Interior Improvements.
Landlord shall have the right to reasonably approve Tenant's Prime
Contractor, primarily based on the financial strength and ability to perform the
work required. Landlord shall also have the right to reasonably approve the
plans and specifications (and changes thereto) to ensure the Building 2 Interior
Improvements are similar in quality and nature to the Building 1 Interior
Improvements.
1. Timing:
------
Although the rent commences November 1, 1989 for Building 2, tenant
may cause the Building 2 Interior Improvements to be constructed any time prior
to November 1, 1989 without affecting the rent commencement date. Prior to the
date construction of the Building 2 Interior Improvements commences Tenant shall
notify Landlord of its intention to commence construction, shall submit plans
and specifications, and notify Landlord of the name and other reasonable
information regarding Tenant's Prime Contractor. Landlord shall respond within
10 days approving the same or stating specific reasons for denial.
2. Building 2 Interior Improvement Allowance:
------------------------------------------
A. The Building 2 Interior Improvement Allowance totaling
$2,900,000 ($25.00/SF) shall be funded jointly to Tenant and Tenant's Prime
Contractor as construction proceeds ("Funding"). The amount of Building 2
Interior Improvement Allowance Landlord is obligated to fund at any time is
limited to the square footage improved at such time. For example, if
construction commences for less than the full building only a prorata portion of
the Building 2 Interior Improvement Allowance will be funded by Landlord based
on the number of square feet to be improved (i.e., if 58,000 square feet is
improved, a maximum of $1,450,000 will be funded).
In the event Building 2 is improved in phases and unexpended Interior
Improvement Allowance dollars remain unused upon full initial build-out of
Building 2, Landlord will fund the remaining Allowance to Tenant within (30)
days of completion of the final initial Interior Improvements, as a credit
against any other Interior Improvements paid by Tenant in Building 2.
B. Funding will occur no more often than twice per calendar month
and no sooner than (5) days after Landlord's receipt of Tenant's request. If
Tenant requests a second Funding in any calendar month, an fee of $500.00 will
be due from Tenant to Landlord. Funding must be supported by invoice from
Tenant's Prime Contractor and is subject to
<PAGE>
Landlord's lender inspecting the job, reviewing, and approving the invoice and
work in place. If Landlord's lender ("Union Bank") does not approve the amount
of any requested funding, Landlord will be obligated to fund only the amount
approved by Landlord's lender. Funding will occur only for work-in-place less a
10% retention. The retention will be released on the earlier to occur of (i) 30
days after filing of the notice of completion; or (ii) the receipt of a lien
free endorsement reasonably acceptable to Landlord's lender. Landlord and
Tenant agree that Landlord will not be obligated to fund any portion of the
Building 2 Interior Improvement Allowance in excess of the amount disbursed by
Union Bank pursuant to that certain Building Loan Agreement between Landlord and
Union Bank dated September 21, 1988 attached hereto as Exhibit D ("BLA").
Tenant agrees to comply (and Tenant shall ensure that Tenant's Prime Contractor
shall comply) with any and all requirements of Union Bank which are conditions
precedent to the disbursement of funds under the BLA.
C. Subject to the limitations and conditions of the BLA, the
determination of the amount to fund will be based on work in place for general
utility interior improvements which may be of use to a subsequent user of
Building 2 (e.g., non-load bearing permanent partitions; windows, wall and floor
coverings; standard HVAC equipment and wiring; standard electrical distribution
facilities and wiring; standard lighting and utility fixtures or otherwise
approved by Landlord), the cost of which does not exceed the Building 2 Interior
Improvement Allowance.
D. All Interior Improvements not to be paid from the Interior
Improvement Allowance shall be invoiced from Tenant's Prime Contractor directly
to Tenant and shall not be funded by Landlord or Landlord's lender from the
Building 2 Interior Improvement Allowance provided further that Tenant shall be
responsible for the timely payment of all costs for such improvements in excess
of any single installment and in excess of the aggregate amount which shall
become payable by Landlord pursuant to the foregoing provision.
3. Commencement of Rent/Expenses:
------------------------------
The Building 2 Base Rent shall commence in any event on November 1,
1989 as provided in the Lease notwithstanding the status of the construction of
any or all of the Building 2 Interior Improvements.
In the event Tenant occupies any portion of Building 2 prior to
November 1, 1989, Building 2 Base Rent shall not commence on such earlier date
--------------------
(it shall commence on November 1, 1989 as provided above). However, in such
---------------------------------------------- -------
event, Tenant shall be responsible for a prorata share (based on the number of
-----
square feet occupied) of all other expenses as more particularly set forth in
the Lease.
-2-
<PAGE>
SECOND AMENDMENT TO LEASE
This Second Amendment to Lease ("Second Amendment") is made this 8th day of
June, 1990, by and between CONNER PERIPHERALS, a California corporation
("Tenant"), and FRED N. SAHADI ("Landlord").
RECITALS
A. On August 19, 1988, Landlord's predecessor in interest, Corporate
Plaza, Phase 1, a California general partnership, and Tenant entered into a
certain build-to-suit lease (the "Original Lease") providing for the use and
occupancy by Tenant of certain real property and improvements to be constructed
thereon by Landlord commonly known as 3061 and 3081 Zanker Road, San Jose,
California, as more particularly described in the Original Lease (the
"Property"). The Original Lease has since been amended by that certain First
Amendment to Lease dated December 5, 1988 (collectively, the "Lease"). All
capitalized terms used herein and not otherwise defined herein shall have the
defined meanings ascribed to such terms in the Lease.
B. On May 27, 1989, Landlord and Tenant entered into another build-
to-suit lease ("Original Building 6 Lease") providing for the use and occupancy
by Tenant of certain real property and improvements to be constructed thereon by
Landlord. The original Building 6 Lease has since been amended by that certain
letter agreement dated May 28, 1989 (collectively, the "Building 6 Lease").
C. Concurrently with the execution of the Original Building 6 Lease,
Landlord and Tenant entered into a certain Option to Lease Expansion Space
("Original Option Agreement") whereby Tenant was granted an option to lease
another building ("Building 7") to be constructed by Landlord on a portion of
the land described therein (the "Option"). The Original Option
<PAGE>
Agreement has since been amended by that certain letter agreement dated May 28,
1989 (collectively the "Option Agreement"). On or about June 1, 1990, Tenant
gave, and Landlord received, written notice of its exercise of the Option as
described in the Option Agreement ("Notice"), subject to certain modifications
described in the Notice.
D. Concurrently with the execution of this Second Amendment, Landlord
and Tenant have entered into another build-to-suit lease ("Building 7 Lease")
pursuant to which Landlord agreed to construct, and Tenant agreed to use and
occupy, Building 7.
E. In consideration of Landlord's agreement to incorporate into the
Building 7 Lease the modifications to the terms of the Option Agreement set
forth in the Notice, Tenant has agreed to modify the terms of the Building 6
Lease and the Lease.
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth below, Landlord and Tenant hereby agree to amend the Lease as follows:
1. Term. Section 1.1 of the Lease is hereby
----
deleted in its entirety and the following is substituted in place thereof:
1.1 Term. The initial term of this Lease shall
----
be for thirteen (13) years and six (6) months ("Initial Term")
and shall commence on December 1, 1988 ("Commencement Date")
and shall continue, unless sooner terminated pursuant to the
provisions hereof, until 5:00 P.M. on May 31, 2002
("Expiration Date"), subject to the terms of Section 1.2
below ("Lease Term").
2. Extension of Term. Section 1.2 of the Lease is hereby deleted in its
-----------------
entirety and the following is substituted in place thereof:
1.2 Extension of Term. If Tenant shall not be in default
-----------------
hereunder at the end of the Initial Term or at the time Tenant
-2-
<PAGE>
exercises its options to extend the Lease Term as provided
below, Tenant shall have the options (each an "Extension
Option" or collectively, the "Extension Options") to extend
the Initial Term for two (2) consecutive five (5) year terms
(each an "Extension Term" or collectively, the "Extension
Terms"). All terms and conditions of this Lease shall apply
during the Extension Terms, except that Base Rent for the
Extension Terms shall be determined in accordance with Section
3.2 below (and Tenant shall have no further right to extend
the Lease Term beyond the Extension Terms referred to above).
The foregoing Extension Options shall be exercised by written
notice given by Tenant to Landlord not earlier than eighteen
(18) months nor later than twelve (12) months prior to the
expiration of the Initial Term or the first Extension Term, as
the case may be. Time is of the essence.
Upon any Transfer (defined in Section 14.1.A below) or
Affiliate Transfer (defined in Section 14.1.D below) of this
Lease, the Building 6 Lease or the Building 7 Lease, all
unexercised Extension Options hereunder shall become void and
of no further force and effect, unless said Transfer or
Affiliate Transfer is made pursuant to the conditions,
standards and limitations set forth in Section 14.1 of this
Lease.
Tenant shall only be entitled to exercise the Extension
Options if exercised simultaneously with the identical
extension options provided for in the Building 6 Lease and the
Building 7 Lease.
Upon any extension of the Lease Term, as provided in this
Section 1.2, the term "Lease Term" as used herein shall
thereafter include the applicable Extension Term, and the
Expiration Date shall be the expiration date of the applicable
Extension Term, unless sooner terminated.
3. Base Rent Adjustment. Section 3.1.3 of the Lease is hereby deleted in
--------------------
its entirety and the following is substituted in place thereof:
3.1.3 Base Rent Adjustment. For purposes of this Section
--------------------
3.1.3, the aggregate amount of the Building 1 Base Rent and
the Building 2 Base Rent calculated pursuant to Sections 3.1.1
-3-
<PAGE>
and 3.1.2 above shall be referred to as the "Original Base Rent".
Effective as of (i) June 1, 1991, December 1, 1993, June 1, 1996,
December 1, 1998 and June 1, 2001 during the Initial Term, (ii)
December 1, 2003 and June 1, 2006 if the Extension Option for the
First Extension Term is exercised, and (ii) December 1, 2008 and June
1, 2011, if the Extension Option for the second Extension Term is
exercised, Base Rent shall be adjusted as follows:
ADJUSTED = [1 + (.04 x n) ] x ORIGINAL or I* x ORIGINAL
-- -
BASE RENT 12 BASE RENT I BASE RENT
whichever shall be the greater amount, where
n = 31 for the first Base Rent Adjustment, 61 for the second Base
Rent Adjustment, 91 for the third Base Rent Adjustment, 121
for the fourth Base Rent Adjustment, and 151 for the fifth
Base Rent Adjustment during the Initial Term;
n = 181 for the sixth Base Rent Adjustment, and 211 for the
seventh Base Rent Adjustment, if the Extension Option for the
first Extension Term is exercised;
n = 241 for the eighth Base Rent Adjustment, and 271 for the ninth
Base Rent Adjustment, if the Extension Option for the second
Extension Term is exercised;
I = The Consumer Price Index (All Items Seasonally Adjusted, San
Francisco-Oakland) for All Urban Consumers as published by the
Bureau of Labor Statistics of the U.S. Department of Labor for
the month of December, 1988, and
I* = The Consumer Price Index (All Items Seasonally Adjusted, San
Francisco-Oakland) for All Urban Consumers as published by the
Bureau of Labor Statistics of the U.S. Department of Labor for
the most recent month preceding the month in which the
adjustment is effective for which said index shall be
published;
provided, however, that Adjusted Base Rent shall not be
greater than
[I = (.08 n)] x ORIGINAL BASE RENT
-
12
-4-
<PAGE>
4. Option Period Rent. Section 3.2 is hereby deleted in its entirety and
------------------
the following is substituted in place thereof:
3.2 Option Period Rent.
------------------
3.2.1 Determination by Negotiation. If Tenant should
----------------------------
exercise the Extension Options pursuant to Section 1.2 hereof,
rent payable for use and occupancy of Building 1 and Building
2 shall be adjusted to ninety-five percent (95%) of the fair
market rent for Building 1 and Building 2 as of June 1, 2002
or June 1, 2007, as the case may be ("Option Rent"),
determined by negotiation of Landlord and Tenant, provided
that, if within fifteen (15) days following exercise of the
applicable Extension Option, Landlord and Tenant shall not
have reached agreement as to the Option Rent, the Option Rent
shall be determined by appraisal as hereinafter provided. If
Landlord and Tenant shall reach agreement on the Option Rent
within fifteen (15) days following exercise of the applicable
Extension Option, they shall immediately execute an amendment
to this Lease setting forth the Option Rent. In no event shall
the annual Base Rent for either Extension Term be less than
the annual Base Rent which would have been in effect in the
Lease year in which the applicable Extension Term commences.
3.2.2 Determination by Appraisal. If Landlord and
--------------------------
Tenant shall be unable to agree on the Option Rent within
fifteen (15) days following exercise of the applicable
Extension Option, then within ten (10) days thereafter, each
party shall, by notice given to the other party, appoint a
real estate appraiser having at least five (5) years' full-
time commercial appraisal experience in San Jose, California
to determine fair market rent for Building 1 and Building 2
for the applicable Extension Term. If a party does not appoint
an appraiser within ten (10) days after the other party has
given notice of the name of such party's appraiser, the single
appraiser appointed shall be the sole appraiser and shall set
the Option Rent. If two appraisers are appointed by the
parties as hereinabove provided, they shall meet promptly and
attempt to set the fair market rent for the applicable
Extension Term. If they are unable to agree within thirty (30)
days after the second appraiser has been appointed, they shall
attempt to select a third appraiser meeting the qualifications
hereinabove specified within ten (10) days after the last day
the two appraisers are given to set the Option Rent. Each of
the parties shall bear one-half (1/2) the cost of
-5-
<PAGE>
appointing the third appraiser and one-half (1/2) of the third
appraiser's fee. The third appraiser, however selected, shall
be a person who has not previously acted in any capacity for
either Landlord or Tenant. Within thirty (30) days after the
selection of the third appraiser, the majority of the
appraisers shall set the fair market rental value.
In setting the Option Rent, the appraisers shall
consider the use to which Building 1 and Building 2 are
restricted under this Lease and shall not consider the highest
and best use for Building 1 and Building 2 without regard to
the restriction on use of Building 1 and Building 2 contained
in this Lease. In establishing the fair market rental value,
the appraiser or appraisers shall consider all market
conditions having an effect on such value (including, without
limitation, rental rates for comparable space with comparable
tenant improvements and any adjustments to rent based upon
direct costs (operating expenses) and taxes, financing
charges, and/or cost of living or other rental adjustments;
the relative strength of the tenants, and the size, location
and quality of the buildings). Within thirty (30) days after
the selection of the third appraiser, a majority of the
appraisers shall set the Option Rent.
If a majority of the appraisers are unable to set the
Option Rent within said period, the three appraisals shall be
added together and their total divided by three; the resulting
quotient shall be the Option Rent. If, however, the low
appraisal or the high appraisal is more than ten percent (10%)
lower or higher than the middle appraisal, the low appraisal
or the high appraisal or both shall be disregarded. If only
one appraisal is disregarded, the remaining two appraisals
shall be added together and their total divided by two; the
resulting quotient shall be the Option Rent. If both the low
appraisal and the high appraisal are disregarded as
hereinabove provided, the middle appraisal shall be the Option
Rent.
After the Option Rent has been set, the appraisers
shall immediately notify Landlord and Tenant of the amount
thereof. Once Tenant delivers notice of its exercise of the
applicable option to extend the lease Term, Tenant may not
withdraw such exercise and, subject to the terms of Section
1.2 and this Section 3.2, such notice shall operate to extend
the Lease Term.
3.2.3 Determination by Arbitration. If the two
----------------------------
appraiser appointed by Landlord and Tenant pursuant to
-6-
<PAGE>
Section 3.2.2 above are unable to agree on the third
appraiser, either party to this Lease, by giving ten (10)
days' notice to the other party, may apply to the American
Arbitration Association for the purpose of determining the
Option Rent, in which case the parties agree that the decision
of the American Arbitration Association setting the Option
Rent shall be binding.
3.2.4 Adjustment of Option Rent. Option Rent for
-------------------------
each Extension Term shall be adjusted in accordance with
Section 3.1.3 hereof, with "Original Base Rent" being read to
refer to "Option Rent."
5. Effect of Amendment. Except as modified by the terms hereof, the
-------------------
terms and provisions of the Lease shall remain unmodified and continue in full
force and effect. In the event of any conflict between the terms of this Second
Amendment and the terms of the Lease, the terms and provisions of this Second
Amendment shall prevail.
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
as of the date first set forth above.
LANDLORD
/s/ Fred N. Sahadi
-----------------------------------------
FRED N. SAHADI
TENANT:
CONNER PERIPHERALS, a
California corporation
By: /s/ Carl W. Neun
-------------------------------------
CARL W. NEUN
Senior Vice President
And Chief Financial Officer
-7-
<PAGE>
THIRD AMENDMENT TO LEASE
THIS THIRD AMENDMENT TO LEASE (the "Third Amendment") is dated May 18,
1994 for reference purposes only and is made by and between FRED SAHADI
("Landlord"), successor in interest to Corporate Plaza, Phase I, a California
general partnership, and CONNER PERIPHERALS, INC. ("Tenant"), a Delaware
corporation.
RECITALS
A. Tenant currently leases from Landlord property commonly known as
3061 and 3081 Zanker Road, San Jose, California (the "Property") pursuant to
that certain lease dated August 19, 1988 between Corporate Plaza, Phase I, as
landlord, and Tenant (the "Original Lease"), as amended by ** that certain First
Amendment to Lease dated December 2, 1988 ("First Amendment") and that certain
Second Amendment to Lease dated June 8, 1990 ("Second Amendment"). The Original
Lease, as amended by the First Amendment and the Second Amendment, is referred
to herein as "the Lease."
B. The Property consists of a 9.76-acre parcel of land on which there
are situated two separate research and development buildings, one consisting of
approximately sixty-four thousand (64,000) square feet ("Building 1") and the
other consisting of approximately one hundred sixteen thousand (116,000) square
feet ("Building 2") and two auxiliary buildings which house certain mechanical
equipment and contain approximately thirty-nine hundred (3,900) square feet.
C. Landlord and Tenant acknowledge that contemporaneous herewith the
Building 6 Lease and the Building 7 Lease referred to in the Second Amendment
are being terminated and a certain Agreement and Estoppel Certificate of even
date herewith is being delivered by Tenant in favor of Landlord's first mortgage
lender. The parties now desire to further amend the Lease as more particularly
set forth herein.
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED, LANDLORD AND TENANT HEREBY AGREE
THAT THE LEASE IS AMENDED AS HEREINAFTER PROVIDED.
1. Definitions: All capitalized terms that are not otherwise defined
-----------
herein shall have the meanings set forth in the Lease.
2. Building 6 & 7 Lease: The references to the Building 6 Lease and
--------------------
the Building 7 Lease in the second grammatical paragraph of Section 1.2 of the
Lease are deleted. The third grammatical paragraph of Section 1.2 is deleted in
its entirety.
**letter agreement dated August 18, 1988.
<PAGE>
3. Exercise of First Extension Option: Tenant hereby irrevocable
----------------------------------
exercises the first of the two Extension Options provided for in Section 1.2 of
the Lease. Landlord accepts said exercise of the first Extension Option and
waives the requirement that the first Extension Option be exercised not earlier
than eighteen (18) months prior to the expiration of the Initial Term.
4. Deletion of Section 3.1.3: From and after December 1, 1993, Section
-------------------------
3.1.3 of the Lease (including without limitation Sections 3.1.3.1 and 3.1.3.2 of
the Original Lease) shall be null and void and of no further force or effect.
5. Base Rent: The following provisions are added to Section 3.1 of the
---------
Lease:
"3.1.4 Rent Beginning December 1, 1993: Beginning December 1, 1993
-------------------------------
and continuing through November 30, 1996, rent payable by Tenant for use and
occupancy of the Property shall be two hundred twenty-nine thousand four hundred
and 49/100 dollars ($229,400.49) per month."
"3.1.5 Rent Beginning December 1, 1996: Beginning December 1, 1996
-------------------------------
and continuing through May 31, 2002, rent payable by Tenant for use and
occupancy of the Property shall be two hundred twenty-four thousand and 49/100
dollars ($224,000.49) per month."
6. Rent for Extension Terms: Section 3.2 of the Lease is hereby deleted
------------------------
in its entirety and the following substituted in place thereof.
"3.2 Rent For Extension Terms:
------------------------
3.2.1 Rent Beginning June 1, 2002: Beginning June 1, 2002, rent
---------------------------
payable by Tenant for use and occupancy of the Property shall be two hundred
sixteen thousand dollars ($216,000) per month or ninety-five percent (95%) of
the monthly fair market rent for Buildings 1 and 2 as of June 1, 2002
(determined as hereinafter provided), whichever shall be the greater amount.
Said rent shall be adjusted as of December 1, 2004 in accordance with the
provisions of Section 3.2.4 hereof and, as so adjusted, shall continue in effect
through May 31, 2007.
3.2.2 Rent Beginning June 1, 2007: If tenant should exercise the
---------------------------
second Extension Option, beginning June 1, 2007, monthly rent payable by Tenant
for use and occupancy of the Property shall be equal to:
(1) Rent payable for May 2007 x 1.10 or rent payable for May
2007 x I*/I, whichever shall be the greater amount, but in
no event more than rent payable for May 2007 x 1.20, where
I = the Consumer Price Index (All Items Seasonally Adjusted, San
Francisco-Oakland-San Jose) for All Urban Consumers as
published by the U.S. Department of Labor for November 2004
(or the most
2
<PAGE>
recent month preceding November 2004 for which said index shall be published)
and
I*= the Consumer Price Index (All Items Seasonally Adjusted, San
Francisco-Oakland-San Jose) for All Urban Consumers as
published by the U.S. Department of Labor for May 2007 (or
the most recent month preceding June 2007 for which said
index shall be published).
or
(2) ninety-five percent (95%) of the monthly fair market rent
for Buildings 1 and 2 as of June 1, 2007 (determined as
hereinafter provided),
whichever shall be the greater amount.
Said rent shall be adjusted as of December 1, 2009 in accordance with the
provisions of Section 3.2.4 hereof and, as so adjusted, shall continue in effect
through May 31, 2012.
3.2.3 Determination Of Fair Market Rent:
---------------------------------
3.2.3.1 First Extension Term. Landlord shall notify Tenant on
--------------------
or before June 1, 2001 of Landlord's estimate of the monthly fair market rent
for Buildings 1 and 2 as of June 1, 2002. If, within fifteen (15) days after
such notice of Landlord's estimate of the monthly fair market rent for the
Buildings 1 and 2, Landlord and Tenant shall not have reached agreement as to
the monthly fair market rent for the Buildings 1 and 2 as of June 1, 2002, the
monthly fair market rent shall be determined by appraisal or by arbitration as
hereinafter provided.
3.2.3.2 Second Extension Term. If Tenant should exercise the
---------------------
second Extension Option, Landlord shall, within fifteen (15) days after Tenant's
notice of exercise of the second Extension Option, notify Tenant of Landlord's
estimate of the monthly fair market rent for the Buildings 1 and 2 as of June 1,
2007. If, within fifteen (15) days after such notice of Landlord's estimate of
the monthly fair market rent for the Buildings 1 and 2, Landlord and Tenant
shall not have reached agreement as to the monthly fair market rent for the
Buildings 1 and 2 as of June 1, 2007, the monthly fair market rent shall be
determined by appraisal or by arbitration as hereinafter provided.
3.2.3.3 Determination By Appraisal. If Landlord and Tenant
--------------------------
should fail within the period provided to agree on the monthly fair market rent
for Buildings 1 and 2 as of the date specified in Section 3.2.2.1 or the date
specified in Section 3.2.3.2, as the case may be, then within ten (10) days
after the expiration of the applicable period, each party shall, by notice given
to the other party, appoint a real estate appraiser having at least five years'
full time commercial real estate appraisal experience in San Jose, California to
determine monthly
3
<PAGE>
fair market rent for Buildings 1 and 2 as of the applicable date. If a party
does not appoint an appraiser within ten (10) days after the other party has
given notice of the name of such party's appraiser, the single appraiser
appointed shall be the sole appraiser and shall determine the monthly fair
market rent for Buildings 1 and 2 as of the applicable date. If two appraisers
are appointed by the parties as hereinabove provided, they shall meet promptly
and attempt to determine the monthly fair market rent for Buildings 1 and 2 as
of the applicable date. If they fail to agree within thirty (30) days after the
second appraiser has been appointed, they shall attempt to select a third
appraiser meeting the qualifications hereinabove specified within ten (10) days
after the last day the two appraisers are given to determine the monthly fair
market rent for Buildings 1 and 2 as of the applicable date. Each of the
parties shall bear one-half (1/2) the cost of appointing the third appraiser and
one-half (1/2) the third appraiser's fee. The third appraiser, however
selected, shall be a person who has not previously acted in any capacity for
either Landlord or Tenant. Within thirty (30) days after the selection of the
third appraiser, a majority of the appraisers shall determine the monthly fair
market rent for Buildings 1 and 2 as of the applicable date.
In determining the monthly fair market rent for the Buildings 1 and 2,
the appraisers shall consider the uses to which Buildings 1 and 2 is restricted
under this Lease and shall not consider the highest and best use for Buildings 1
and 2 without regard to the restriction on use of Buildings 1 and 2 contained in
this Lease. In determining the monthly fair market rent for Buildings 1 and 2,
the appraiser or appraisers shall consider all market conditions having an
effect on rental value (including, without limitation, rental rates for
comparable space with comparable tenant improvements and any adjustments to rent
based upon direct costs (operating expenses) and taxes, financing charges,
and/or cost of living or other rental adjustments, the relative strength of the
tenants, and the size, location and quality of the buildings).
If a majority of the appraisers should fail, within said thirty (30)
day period, to determine the monthly fair market rent for Buildings 1 and 2 as
of the applicable date, the three appraisals shall be added together and their
total divided by three (3); the resulting quotient shall be deemed to be the
monthly fair market rent for Buildings 1 and 2 as of the applicable date. If,
however, the low appraisal is more than ten percent (10%) lower or the high
appraisal is more than ten percent (10%) higher than the middle appraisal, the
low appraisal or the high appraisal or both shall be disregarded as appropriate.
If only one appraisal is disregarded pursuant to the foregoing provision, the
two remaining appraisals shall be added together and their total divided by two
(2); the resulting quotient shall be the monthly fair market rent for Buildings
1 and 2 as of the applicable date. If both the low appraisal and the high
appraisal are disregarded as hereinabove provided, the middle appraisal shall be
the monthly fair market rent for Buildings 1 and 2 as of the applicable date.
After the monthly fair market rent for Buildings 1 and 2 as of the
applicable date has been determined, the appraisers shall immediately notify
Landlord and Tenant in writing of the amount thereof, and monthly rent for the
Extension Term shall be determined as
4
<PAGE>
provided in Section 3.2.1 or Section 3.2.2 hereof, as appropriate.
Once Tenant gives notice of its exercise of the second Extension
Option, Tenant may not withdraw such exercise and, subject to the provisions of
Section 1.2 hereof, such notice shall operate to extend the Lease Term.
3.2.3.4 Determination By Arbitration: If the two appraisers appointed
----------------------------
by Landlord and Tenant pursuant to Section 3.2.3.3 hereof should fail to agree
on the third appraiser within the allotted time, either party to this Lease may,
by demand upon the other party in the manner specified in Section 16.3 hereof
for giving notices hereunder, require that the monthly fair market rent for
Buildings 1 and 2 as of the applicable date be determined by arbitration in San
Francisco, California in accordance with the commercial arbitration rules of the
American Arbitration Association, in which case the parties agree that the
decision of the arbitrators setting the monthly fair market rent for Buildings 1
and 2 as of the applicable date shall be binding and conclusive upon the
parties. After the monthly fair market rent for Buildings 1 and 2 as of the
applicable date has been so determined, rent for the Extension Term shall be
determined as provided in Section 3.2.1 or Section 3.2.2, as appropriate.
3.2.4 Rent Adjustment: Rent payable under the Lease for use and
---------------
occupancy of the Property during the Extension Terms shall be adjusted as of
December 1, 2004 (the "First Adjustment Date") and, if Tenant should exercise
the second Extension Option, as of December 1, 2009 (the "Second Adjustment
Date") in accordance with the following formula:
Adjusted Rent = Rent x 1.10 or Rent x I*/I,
whichever shall be the greater amount, where
Rent = rent payable immediately prior to the adjustment;
I = the Consumer Price Index (All Items Seasonally Adjusted, San
Francisco-Oakland-San Jose) for All Urban Consumers as
published by the U.S. Department of Labor for May 2002 in
the case of the First Adjustment Date and May 2007 in the
case of the Second Adjustment Date; and
I*= the Consumer Price Index (All Items Seasonally Adjusted, San
Francisco-Oakland-San Jose) for All Urban Consumers as
published by the U.S. Department of Labor for the most
recent month preceding the month in which the adjustment is
effective for which said index shall be published; provided,
however, that Adjusted Rent shall not be greater than
Rent x 1.20.
5
<PAGE>
3.2.4.1 Provisional Adjustment: Until such time as the index
----------------------
required for any adjustment of rent (or determination of rent pursuant to
Section 3.2.2 hereof) has been published, rent shall be adjusted (or determined)
provisionally using Landlord's estimate of the required index. In the event the
provisionally adjusted (or determined) rent is greater than the rent determined
by the required index as actually published, Tenant shall be entitled to a
credit against rent next falling due hereunder in the amount by which payments
actually paid by Tenant, if any, on account or rent as provisionally adjusted
(or determined) exceed the rent actually due hereunder. In the event the
provisionally adjusted (or determined) rent is less than the rent determined by
the required index as actually published, Tenant shall pay to Landlord within
fifteen (15) days after receipt of Landlord's statement thereof, the amount by
which the rent theretofore payable hereunder exceeds the provisionally adjusted
(or determined) rent actually paid by Tenant on account thereof.
3.2.4.2 Change of Index: If the Consumer Price Index should be
---------------
modified or discontinued during the Lease term, the most nearly comparable
official price index of the United States Government (as determined by Landlord
in Landlord's reasonable discretion) shall be used for computing rent
adjustments hereunder and determining rent pursuant to Section 3.2.2 hereof."
7. Use. The first sentence of Section 4.1 of the Lease is amended to
---
read:
"Tenant may use the Property throughout the term of this Lease for
office, research and development, manufacturing, marketing and other related
legal uses and for no other purpose."
8. Trade Fixtures and Leasehold Improvements. The following sentence is
-----------------------------------------
added to Section 5.2 of the Lease following the last sentence thereof:
"In the event that Tenant makes such request and Landlord has been
provided with the plans and specifications and all other reasonably relevant
information regarding such alteration, Landlord shall inform Tenant within
thirty (30) days after receipt of such information whether or not Landlord will
require the removal of the alteration in question."
The parties acknowledge that certain alterations have been made by the
Tenant without the Landlord's consent, which Tenant represents are shown by
cross-hatching on Exhibit A hereto (which so-marked alterations are referred to
---------
herein as the "Unapproved Alterations"). Landlord hereby approves the
Unapproved Alterations, but Landlord hereby notifies Tenant that Landlord will
require that the Unapproved Alterations be removed upon the expiration of the
Lease Term. Notwithstanding the foregoing, nothing contained in this paragraph
shall limit or otherwise modify Tenant's obligations under the Original Lease.
Contemporaneously herewith, Tenant has delivered to Landlord all building
permits in Tenant's possession for the Unapproved Alterations; provided,
however, that to the extent Tenant has not obtained building permits for the
Unapproved Alterations, Tenant shall make application to the
6
<PAGE>
appropriate governmental authority for such permits and shall, at its sole cost
and expense, take all action necessary to obtain such permits within one hundred
twenty (120) days of the date hereof.
9. Earthquake Insurance: The second sentence of Section 9.2 of the Lease
--------------------
is amended to read:
"The cost (or portion thereof as described below) of all Landlord's
Insurance, plus any charges for deferred payment of premiums and the amount of
any deductible incurred upon any covered loss, shall be Reimbursable Expenses to
be paid by Tenant to Landlord as provided in Section 16.26 hereof; provided,
however, that earthquake insurance shall not be required and the cost of
earthquake insurance shall not be a Reimbursable Expense to the extent that such
cost exceeds a commercially reasonable rate, unless an institutional Lender
holding a loan that is secured by a first deed of trust or mortgage encumbering
all or any part of the Property requires that earthquake insurance be
maintained, and it is the general policy of such Lender to require that
earthquake insurance be maintained on substantially similar properties
encumbered by such Lender in the same or comparable seismic zones as the
Property in California, then in that event earthquake insurance shall be
required and the cost thereof shall be a Reimbursable Expense or in the event
that Tenant elects to carry the earthquake insurance directly, Tenant shall pay
the entire cost thereof even if it exceeds a commercially reasonable rate."
Notwithstanding the foregoing, Tenant agrees that so long as the
Lender that holds the loan secured by a first deed of trust against the Property
as of the execution and delivery of this Third Amendment requires that
earthquake insurance be maintained on the Property, Tenant is required to
provide such insurance (if available) and the cost thereof (if available) is a
Reimbursable Expense.
10. Damage to Property. The following provision is added to Article XI of
------------------
the Lease:
"11.4 Option to terminate in Event of Uninsured Loss: Tenant shall
----------------------------------------------
have the option, which must be exercised, if at all, by written notice to
Landlord and any lender encumbering the Property within thirty (30) days after
the date of any casualty loss described in this Section 11.4, to terminate this
Lease if: (i) the improvements which are part of the Property are damaged by any
of the perils specified below in this Section 11.4 and the cost to restore such
improvements to their condition immediately prior to such damage exceeds seven
and one-half percent (7 l/2%) of the full replacement cost of all improvements
within the Property, including Tenant 's Leasehold Improvements, and (ii) the
insurance proceeds, if any, made available to Tenant to restore the damage to
the Property, exclusive of Leasehold Improvements, pursuant to Articles IX and
XI of the Lease plus any deductible amounts under such policies are not
sufficient to pay substantially all such costs of restoration; and (iii) any
insufficiency of insurance proceeds, if any, under clause (ii) above is not
caused by a default by Tenant of any of its obligations pursuant to Article IX
of this Lease. The perils which are the subject of the preceding sentence are
as shown in the attached Schedule 1, paragraphs 1, 2 and 3; provided,
7
<PAGE>
however, that the perils shown on paragraphs 4 and 5 of Schedule 1 shall also be
subject to the preceding sentence if and to the extent that Tenant is not
required, pursuant to the Lease, as amended hereby, to carry flood or earthquake
insurance, respectively, or the cost of flood or earthquake insurance,
respectively, is not a Reimbursable Expense pursuant to Article IX of the Lease,
as amended hereby. Notwithstanding the foregoing, Tenant may not terminate this
Lease pursuant to this Section 11.4 if (i) any of the conditions in the clauses
(i) through (iii) above do not exist or (ii) Landlord (or any Lender which shall
have the right but not the obligation so to do) agrees in writing to pay the
reasonable amount, as estimated by a recognized construction estimator selected
by Tenant, by which restoration costs, less any available insurance proceeds,
exceed the seven and one-half percent (7 1/2%) threshold amount referenced first
above in this Section. Any such amount paid by Landlord or Lender shall be
deposited prior to the commencement of any construction in an account mutually
acceptable to Landlord, Lender and Tenant and shall be disbursed during the
course of any reconstruction work pursuant to normal construction lending
practices."
11. Assignment and Subletting: Section 14.1 of the Lease is amended as
-------------------------
follows:
A. The third sentence of paragraph A is amended to read:
"Any transfer which may be approved by Landlord shall not be effective
until Tenant has paid all such costs and fees to Landlord and delivered to
Landlord an executed counterpart of the document evidencing the Transfer which
(i) is in form approved by Landlord, (ii) contains the same terms and conditions
as stated in Tenant's notice given to Landlord pursuant to paragraph B below,
and (iii) in the case of an assignment of the Lease, contains the agreement of
the proposed transferee to assume all obligations of Tenant arising after the
effective date of such Transfer, described in this sentence, under or with
respect to the Lease and to remain jointly and severally liable therefor with
Tenant."
B. The words, "fair market value," are substituted for "book value"
in the last sentence of subparagraph (2) of paragraph c.
C. The first sentence of paragraph D is amended to read:
"Tenant may, without Landlord's prior written consent, (i) assign or
otherwise transfer its interest in this Lease or in the Property to, (ii) sublet
all or any part of the Property to or allow it to be sublet, occupied or used by
or (iii) transfer any right appurtenant to this Lease or the Property to (a) any
affiliate of Tenant, (b) a successor corporation related to Tenant by merger,
consolidation, reorganization or government action or (c) a purchaser of
substantially all of the assets of Tenant, any such transfer being referred to
herein as an "Affiliate Transfer."
12. No Barriers: During the term of the Lease, at any time that Tenant is
-----------
an occupant of the Property and also the owner or occupant of any part of the
property bounded by North
8
<PAGE>
First Street and Montague Expressway sharing a common boundary with the Property
("Parcel 2"), the following shall apply:
A. Tenant shall have the right to remove all or any part of the
existing chain link fence along the common boundary between the Property and
Parcel 2 as of the date of this Third Amendment to provide unimpeded vehicular
and pedestrian access between the Property and Parcel 2.
B. Tenant shall have the right to install private underground
utility lines connecting Building 1 and/or Building 2 to buildings constructed
on Parcel 2 to provide telecommunications connections between improvements on
both parcels. If Tenant does install such underground lines, it shall do so at
its sole cost and in compliance with all laws, shall repair all damage to the
Property caused by such installation, and upon the expiration or earlier
termination of the Term shall pull all wires from such lines and properly close
or "cap" such lines in accordance with customary practice incident to the
abandonment of underground utility lines.
C. The rights granted to Tenant in this paragraph 12 are contractual
and are not intended, nor shall they be deemed, to create any easement express
or implied in favor of Tenant, the Property or Parcel 2.
13. Termination of Rights to Additional Parking Area. Contemporaneous
------------------------------------------------
with the execution of this Third Amendment, Landlord is conveying to Tenant
Parcel 2 together with the Additional Parking Area, whereupon (i) Landlord shall
have no further right, title or interest in the Additional Parking Area, (ii)
Section 2.3, the last sentence of Section 4.2 and the parenthetical phrase in
line 4 of Section 12.2 of the Lease shall be deleted in their entirety, and
(iii) all of Tenant's rights in the Additional Parking Area pursuant to the
Lease or pursuant to the parking easement agreement referenced in Section 2.3 of
the Lease, shall terminate. Tenant acknowledges that the parking that will
remain as part of the Property after said conveyance will be adequate for
Tenant's needs and will meet all requirements under the Lease between Landlord
and Tenant. Landlord also agrees that Tenant shall have the right at any time
upon not less than thirty (30) days prior notice to Landlord to pave and stripe
for parking that portion of the southwest corner of the Property that is
presently unpaved, provided that such paving and striping shall be done at
Tenant's sole cost and expense, shall be done in accordance with all applicable
governmental regulations and requirements of the Lease for the construction of
alterations and shall be consistent in design and quality to the other parking
areas on the Property.
14. Approvals by Landlord. Landlord shall not unreasonably withhold
---------------------
Landlord's approval of or consent to those matters which require Landlord's
approval set forth in the following provisions of the Lease: (i) approval of
outside storage areas provided for in Section 4.5; (ii) approval of Signs as
provided in Section 4.6; (iii) approval of HVAC maintenance contractors and
window washing contractor, and approval of repair or replacement work, all as
provided for in Section 6.1; (iv) approval of outside trash enclosure areas, as
9
<PAGE>
provided in Section 7.1; (v) approval of the deductible under any of Landlord's
Insurance, as provided in Section 9.2.
15. Status of Lease. Tenant and Landlord each agree that as of execution
---------------
and delivery of this Third Amendment there are no uncured defaults on the part
of either Landlord or Tenant under the Lease, as amended by this Third
Amendment. Notwithstanding the foregoing, the parties acknowledge that (i)
nothing herein shall be deemed to modify Tenant's obligation to carry earthquake
insurance to the extent required by the Lease, as amended hereby, and Landlord
is not hereby waiving any obligation Tenant may have to carry earthquake
insurance and (ii) a dispute exists between them as to responsibility for
payment of certain late charges and interest related to Real Property Taxes paid
in connection with the fiscal year 1990-91 (the "Late Charge Dispute").
Tenant's position is described in that certain letter dated July 30, 1993 to
Landlord, and Landlord denies that Landlord owes any amount to Tenant for the
matters stated in that letter. The parties reserve their respective rights and
defenses with respect to the Late Charge Dispute. However, Tenant agrees as
follows with respect to the Late Charge Dispute: (i) any liability that Landlord
may have pursuant to such claim by Tenant shall be restricted to the payment of
damages only and shall be a personal obligation of Fred Sahadi; and (ii) no
transferee of the interest of Fred Sahadi in all or any part of the Property
(including any Lender) shall have any liability for such matter, and Tenant
acknowledges that it has no claim or right on account thereof to exercise any
rights or remedies under the Lease, as amended hereby (including, without
limitation, any rights of offset or recoupment), and (iii) any determination
adverse to Fred Sahadi concerning the Late Charge Dispute shall in no way affect
Tenant's obligations under the Lease as amended by this Third Amendment.
Nothing contained in this paragraph 15 shall be deemed an admission of liability
on behalf of Fred Sahadi who denies liability and reserves all rights and
defenses concerning such claim against him by Tenant.
10
<PAGE>
16. Effect of Third Amendment. In the event of any conflict or
-------------------------
inconsistency between this Third Amendment and the Lease, the terms of this
Third Amendment shall prevail. Except as modified by this Third Amendment, the
Lease shall continue in full force and effect in accordance with its terms. The
term "Lease," as used in the Lease, shall mean and refer to the Lease, as
amended by this Third Amendment.
Landlord:
---------
/s/ FRED SAHADI
---------------
FRED SAHADI
Tenant:
-------
CONNER PERIPHERALS, INC.,
a Delaware corporation
By: /s/ MARLA ANN STARK
-------------------
Helen Sahadi hereby consents
to the above.
/s/ HELEN SAHADI
--------------------------------
Helen Sahadi
11
<PAGE>
SCHEDULE 1
1. Nuclear reaction or nuclear radiation or radioactive contamination;
provided that such exclusion shall not inlude radioactive contamination,
including resultant radiation damage from a material used or stored or from
processes conducted on the Premises, if at the time of such loss there is
neither a nuclear reactor capable of sustaining nuclear fission in a self-
supporting chain reaction nor any new or used nuclear fuel on the Premises.
2. (a) Hostile or warlike action in time of peace or war, including action in
hindering, combating or defending against an actual impending or expected
attack.
(b) Any weapon of war employing atomic fission or radioactive force whether
in time of peace or war.
(c) Insurrection, rebellion, revolution, civil war, usurped power, or
action taken by governmental authority in hindering, combating or defending
against such an occurrence; seizure or destruction under quarantine or custom
regulations; confiscation by order of any government or public authority, or
risks of contraband or illegal transportation of trade.
3. Any fraudulent or dishonest act or acts committed alone or in collusion
with others:
(a) by any proprietor, partner, director, trustee, officer or employee of
the Landlord; or
(b) by any proprietor, partner, director, trustee, or officer of any
proprietorship, partnership, corporation or association (other than a common
carrier) engaged by the landlord to render any service or perform any act in
connection with the Property.
Notwithstanding anything to the contrary contained in this paragraph 3, this
paragraph 3 shall not apply in any way to any acts or omissions of Tenant (or
any partner, director, trustee, officer or employee of the Tenant), whether or
not committed in collusion with or under the engagement of Landlord, nor shall
it in any way limit, diminish or modify the insurance coverage or proceeds which
would otherwise be available to Tenant or Lender.
4. Flood water, waves, tide or tidal water, the release of water, the rising,
overflowing or breaking of boundaries of natural or man-made bodies of water, or
the spray from any of the foregoing, except for any resulting damage by fire or
explosion;
5. Any natural or man-made earth movement including, but not limited to
earthquake, landslide, or subsidence, except for any resulting damage by fire,
explosion or sprinkler leakage.
12
<PAGE>
[Attached are maps of the floor plans for the first and second floors of
Buildings 4 and 5.]
13
<PAGE>
EXHIBIT 10.21
-------------
<PAGE>
EXHIBIT 10.21
CONNER PERIPHERALS, INC.
Note Agreement dated as of March 29, 1991
$80,000,000 Series A Senior Notes Due March 30, 1996
$25,000,000 Series B Senior Notes Due March 30, 1998
SIXTH AMENDMENT TO NOTE AGREEMENT
Dated as of October 31, 1994
1. Reference is made to those certain separate note agreements
(collectively, the "Note Agreements") dated as of March 29, 1991, between each
of the persons listed as "Purchasers" on Annex 1 thereto and Conner Peripherals,
Inc. (the "Company"), executed in connection with the issuance by the Company of
its 8.84% Series A Senior Notes due March 30, 1996, and its 9.08% Series B
Senior Notes due March 30, 1998 (the "Notes"), as amended and restated by that
certain Fifth Amendment to Note Agreement, dated as of December 22, 1993. All
capitalized terms not defined herein have the meanings specified in the Note
Agreements.
2. The parties hereto agree that paragraph 6M of the Note Agreements is
amended to read in full as follows:
6M. SUBORDINATED DEBT. The Company will not, and will not permit any
Restricted Subsidiary to, make any payment or redemption of Subordinated
Debt, other than mandatory prepayments or mandatory redemptions scheduled
at the time of issuance of such Subordinated Debt, or otherwise purchase or
acquire any Subordinated Debt, directly or indirectly, or give any notice
that irrevocably binds it to take any such action, unless:
(i) no Default or Event of Default shall exist immediately prior
to, or immediately after, the consummation of any such action or the
giving of such notice, whichever shall first occur, and the Company
has delivered a certificate to such effect to each holder of Notes
prior to, but not more than 30 days prior to, taking such action or
giving such notice, whichever shall first occur, together with a brief
description of such action or the action contemplated by such notice;
and
(ii) at the time it shall become irrevocably bound to take such
action, or the time it shall take such action, whichever shall first
occur, one of the following conditions shall be satisfied:
(a) the Company or such Restricted Subsidiary, as the
case may be, could incur Senior Debt in an amount equal to the
amount of Subordinated Debt to be so prepaid, redeemed or
otherwise purchased or acquired;
(b) the Subordinated Debt to be so prepaid, redeemed or
otherwise purchased or acquired is convertible into a number of
shares of capital stock of the Company having a Fair Market Value
at the time that the Company or such Restricted Subsidiary
becomes obligated to take such action which is at least 25% in
excess of the principal amount of such Subordinated Debt; or
(c) the Subordinated Debt to be so prepaid, redeemed or
otherwise purchased or acquired is convertible into a number of
shares of capital stock of the Company having a Fair Market Value
at the time that the Company or such Restricted Subsidiary
becomes obligated to take such action which is a least 15% in
excess of the principal amount of such Subordinated Debt, and the
Company has entered into a firm commitment underwriting agreement
with one or more underwriters, which agreement contains terms and
conditions no less favorable to the Company than those generally
included in comparable agreements for similarly situated issuers
at such time (as determined by the Company in its reasonable
judgment), and pursuant to which such underwriters have agreed to
purchase capital stock of the Company for an amount sufficient to
prepay, redeem or otherwise purchase or acquire all or any part
of such Subordinated Debt that is not so converted into such
capital stock prior to such prepayment, redemption, purchase or
acquisition;
<PAGE>
CONNER PERIPHERALS, INC.
SIXTH AMENDMENT TO NOTE AGREEMENT
OCTOBER 31, 1994
provided that no such action shall be taken and no such notice given during
the period beginning on October 3, 1993 and ending on the Determination
Date occurring nearest to March 31, 1995, inclusive.
Nothing set forth in this paragraph 2 shall prevent the Company or
any Restricted Subsidiary from purchasing or acquiring any Subordinated
Debt in privately negotiated transactions or in open-market transactions
if:
(1) the price paid is less than par plus accrued interest;
(2) no Default or Event of Default shall exist immediately prior
to, or immediately after, such purchase or acquisition; and
(3) the aggregate amount of purchases or acquisitions shall
not exceed an amount equal to $50 million.
3. The parties hereto agree that paragraph 6O of the Note Agreements
is amended to read in full as follows:
6O. RESTRICTED PAYMENTS. The Company shall not make any
Restricted Payments during the period beginning on October 3, 1993 and
ending on the Determination Date occurring nearest to March 31, 1995,
inclusive, provided that the foregoing prohibition shall not apply to
(i) repurchases of Subordinated Debt to the extent permitted
by paragraph 6M hereof, and
(ii) repurchases by the Company of rights to purchase the
common stock of the Company, which rights were issued in connection
with that certain Stockholders Rights Plan adopted by the Company on
October 18, 1994 as in effect as initially adopted by the Company (a
certified copy of the form of which to be adopted has been delivered
to the holders of the Notes), so long as the aggregate amount of such
repurchases does not exceed $1 million.
4. The Company warrants and represents that
(a) immediately prior to the effectiveness of this Amendment, and
immediately after the effectiveness of this Amendment, no Default or Event
of Default has occurred and is continuing,
(b) all consents, notices, approvals, waivers, and other actions by
other holders of Debt of the Company or any Subsidiary that are necessary
in connection with the subject matter of this Amendment have been obtained,
and
(c) attached hereto is a true and correct copy of the Stockholders
Rights Plan Agreement in the form to be initially adopted by the Company.
5. Each reference in each Note Agreement to the "Agreement," this
"Agreement," "hereunder," and "hereof" shall mean such Note Agreement as amended
hereby. This Amendment shall bind and inure to the benefit of the respective
successors and permitted assigns of the parties to Note Agreement (including,
without limitation, any Permitted Transferee).
6. No other term or provision of the Note Agreements or the Notes, or
right or remedy consequent thereon, shall be amended, waived or affected by this
Amendment. This Amendment constitutes the final written expression of all of
the terms hereof and is a complete and exclusive statement of those terms.
7. This Amendment shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the law of the State of New
York.
2
<PAGE>
CONNER PERIPHERALS, INC.
SIXTH AMENDMENT TO NOTE AGREEMENT
OCTOBER 31, 1994
8. Two or more duplicate originals hereof may be signed by the parties
hereto, each of which shall be an original but all of which together shall
constitute one and the same instrument. This Amendment may be executed in one
or more counterparts and each set of counterparts that, collectively, show
execution by each party hereto shall constitute one duplicate original.
9. This Amendment shall take effect upon date (the "Effective Date")on
which each of the following conditions shall be satisfied (but this Amendment
shall be of no force or effect if such date is not on or prior to November 30,
1994);
(a) Evidence of execution of this Amendment shall have been provided
by each of the holders of Notes constituting the Required Holders and the
Company, by delivering an original of, or original signature page to, this
Amendment showing manual execution of this Amendment by an authorized
officer or authorized officers of such person by facsimile transmission or
by overnight courier, addressed to Hebb & Gitlin, One State Street,
Hartford, CT 06103, Telecopier Number (203) 278-8968, Attn: Thomas J. Love,
Jr.;
(b) The Company shall have paid any statement for reasonable fees and
disbursements of Hebb & Gitlin, the special counsel to the holders of the
Notes, presented on or prior to the Effective Date, incurred in connection
with the preparation and execution hereof; and
(c) All warranties and representations made herein by the Company
shall be true on the Effective Date.
[Remainder of page intentionally blank. Next page is signature page.]
3
<PAGE>
CONNER PERIPHERALS, INC.
SIXTH AMENDMENT TO NOTE AGREEMENT
OCTOBER 31, 1994
CONNER PERIPHERALS, INC.
By /s/ P. Jackson Bell
-----------------------------------
Name: P. Jackson Bell
Title: Executive Vice President and
Chief Financial Officer
By /s/ James A. Taylor
-----------------------------------
Name: James A. Taylor
Title: Vice President and Treasurer
[Signature page to Sixth Amendment dated as of October 31, 1994, to Note
Agreement dated as of March 29, 1991 of Conner Peripherals, Inc.]
<PAGE>
CONNER PERIPHERALS, INC.
SIXTH AMENDMENT TO NOTE AGREEMENT
OCTOBER 31, 1994
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By: /s/ Raymond G. Kennedy
----------------------------------
Name: Raymond G. Kennedy
Title: Second Vice President
[Signature page to Sixth Amendment dated as of October 31, 1994, to Note
Agreement dated as of March 29, 1991 of Conner Peripherals, Inc.]
<PAGE>
CONNER PERIPHERALS, INC.
SIXTH AMENDMENT TO NOTE AGREEMENT
OCTOBER 31, 1994
CIG & CO.
C/O CIGNA INVESTMENTS, INC.
By: /s/ Edward Lewis
----------------------------------
Name: Edward Lewis
Title: Partner
[Signature page to Sixth Amendment dated as of October 31, 1994, to Note
Agreement dated as of March 29, 1991 of Conner Peripherals, Inc.]
<PAGE>
CONNER PERIPHERALS, INC.
SIXTH AMENDMENT TO NOTE AGREEMENT
OCTOBER 31, 1994
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
By: /s/ Donald D. Brattebo
-----------------------------------
Name: Donald D. Brattebo
Title: Second Vice President - Securities Investment
By: /s/ Christopher J. Henderson
-----------------------------------
Name: Christopher J. Henderson
Title: Counsel
[Signature page to Sixth Amendment dated as of October 31, 1994, to Note
Agreement dated as of March 29, 1991 of Conner Peripherals, Inc.]
<PAGE>
CONNER PERIPHERALS, INC.
SIXTH AMENDMENT TO NOTE AGREEMENT
OCTOBER 31, 1994
GENERAL AMERICAN LIFE INSURANCE COMPANY
By:__________________________________
Name:
Title:
[Signature page to Sixth Amendment dated as of October 31, 1994, to Note
Agreement dated as of March 29, 1991 of Conner Peripherals, Inc.]
<PAGE>
EXHIBIT 10.27
-------------
<PAGE>
EXHIBIT 10.27
FIRST AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as of
---------
October 19, 1994, is entered into by and among CONNER PERIPHERALS, INC., a
Delaware corporation (the "Company"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS
-------
ASSOCIATION, as agent for itself and the Banks (the "Agent"), and the several
-----
financial institutions party to the Credit Agreement (collectively, the
"Banks").
-----
RECITALS
--------
A. The Company, the Banks and the Agent are parties to a Credit Agreement
dated as of December 23, 1993 (the "Credit Agreement") pursuant to which the
----------------
Agent and the Banks have extended certain credit facilities to the Company.
B. The Company has requested that the Banks agree to a certain amendment
of the Credit Agreement.
C. The Banks are willing to amend the Credit Agreement, subject to the
terms and conditions of this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms used
-------------
herein shall have the meanings, if any, assigned to them in the Credit
Agreement.
2. Amendment to Credit Agreement. Section 7.8(b) of the Credit Agreement
-----------------------------
shall be amended and restated in its entirety so as to read as follows:
"(b) The Company shall not, and shall not permit any of its
Subsidiaries to, make any payment of principal or redemption of
Subordinated Debt, other than mandatory prepayments or mandatory
redemptions scheduled at the time of issuance of such Subordinated Debt, or
otherwise purchase or acquire any Subordinated Debt, directly or
indirectly, or give any notice that irrevocably binds it to take any such
action; provided, however, that as long as no Default or Event of Default
-------- -------
shall exist immediately prior to, or immediately after, the consummation of
any such action, (i) the Company may refinance Subordinated Debt by issuing
additional Subordinated Debt (the terms, conditions and provisions of which
shall be approved by the Majority Banks in writing in advance) in an amount
equal to or exceeding the amount required to redeem any Subordinated Debt,
<PAGE>
and (ii) the Company or any Subsidiary may purchase or acquire Subordinated
Debt for cash in privately negotiated or open-market transactions,
provided, that (A) the aggregate cash payable by the Company or its
--------
Subsidiary in connection with any such purchase or acquisition shall be
equal to or less than the stated par amount of the Subordinated Debt being
purchased or acquired, plus accrued interest thereon pursuant to the terms
of such Subordinated Debt, and (B) the aggregate cash payable by the
Company and its Subsidiaries in connection with all such purchases and
acquisitions occurring on or after September 1, 1994 shall not exceed
$50,000,000. Purchases and acquisitions of Subordinated Debt by the Company
made in accordance with this Section 7.8(b) shall not constitute Restricted
Payments for purposes of Section 7.8(a)."
3. Representations and Warranties. The Company hereby represents and
------------------------------
warrants to the Agent and the Banks as follows:
(a) No Default or Event of Default has occurred and is continuing.
(b) The execution, delivery and performance by the Company of this
Amendment have been duly authorized by all necessary corporate and other action
and do not and will not require any registration with, consent or approval of,
notice to or action by, any Person (including any Governmental Authority) in
order to be effective and enforceable. The Credit Agreement as amended by this
Agreement constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, without defense,
counterclaim or offset.
(c) All representations and warranties of the Company contained in the
Credit Agreement are true and correct.
(d) The Company is entering into this Amendment on the basis of its
own investigation and for its own reasons, without reliance upon the Agent and
the Banks or any other Person.
4. Effective Date. This Amendment will become effective as of October 19,
--------------
1994 (the "Effective Date"), provided that each of the following conditions
-------------- --------
precedent is satisfied:
(a) The Agent has received from the Company and the Majority Banks a
duly executed original (or, if elected by the Agent, an executed facsimile copy)
of this Amendment.
(b) The Agent has received from the Company a copy of a resolution
passed by the board of directors of the Company, certified by the Secretary or
an Assistant Secretary of the
2
<PAGE>
Company as being in full force and effect on the date hereof, authorizing the
execution, delivery and performance of this Amendment.
5. Reservation of Rights. The Company acknowledges and agrees that the
---------------------
execution and delivery by the Agent and the Banks of this Amendment shall not be
deemed to create a course of dealing or otherwise obligate the Agent or the
Banks to forbear or execute similar amendments under the same or similar
circumstances in the future.
6. Miscellaneous.
-------------
(a) Except as herein expressly amended, all terms, covenants and
provisions of the Credit Agreement are and shall remain in full force and effect
and all references therein to such Credit Agreement shall henceforth refer to
the Credit Agreement as amended by this Amendment. This Amendment shall be
deemed incorporated into, and a part of, the Credit Agreement.
(b) This Amendment shall be binding upon and inure to the benefit of
the parties hereto and thereto and their respective successors and assigns. No
third party beneficiaries are intended in connection with this Amendment.
(c) This Amendment shall be governed by and construed in accordance
with the law of the State of California.
(d) This Amendment may be executed in any number of counterparts, each
of which shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument. Each of the parties hereto
understands and agrees that this document (and any other document required
herein) may be delivered by any party thereto either in the form of an executed
original or an executed original sent by facsimile transmission to be followed
promptly by mailing of a hard copy original, and that receipt by the Agent of a
facsimile transmitted document purportedly bearing the signature of a Bank or
the Company shall bind such Bank or the Company, respectively, with the same
force and effect as the delivery of a hard copy original. Any failure by the
Agent to receive the hard copy executed original of such document shall not
diminish the binding effect of receipt of the facsimile transmitted executed
original of such document of the party whose hard copy page was not received by
the Agent.
(e) This Amendment, together with the Credit Agreement, contains the
entire and exclusive agreement of the parties hereto with reference to the
matters discussed herein and therein. This Amendment supersedes all prior
drafts and communications with respect thereto. This Amendment may not be
amended except in accordance with the provisions of Section 10.1 of the Credit
Agreement.
3
<PAGE>
(f) If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions of this Amendment or the
Credit Agreement, respectively.
(g) The Company covenants to pay to or reimburse the Agent and the
Banks, upon demand, for all costs and expenses (including allocated costs of in-
house counsel) incurred in connection with the development, preparation,
negotiation, execution and delivery of this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment as of the date first above written.
CONNER PERIPHERALS, INC.
By: /s/ P. Jackson Bell
--------------------------
Title: Executive Vice
President & Chief
Financial Officer
By: /s/ James A. Taylor
--------------------------
Title: Vice President &
Treasurer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
By: /s/ Wendy M. Young
-------------------------
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a
Bank
By: /s/ Kevin McMahon
-------------------------
Title: Vice President
4
<PAGE>
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ SC Lindenauer
-------------------------
Title: Vice President
BARCLAYS BANK PLC
By: /s/ Douglas Butler
-------------------------
Title: Associate Director
5
<PAGE>
EXHIBIT 10.28
-------------
<PAGE>
EXHIBIT 10.28
SECOND AMENDMENT TO CREDIT AGREEMENT
------------------------------------
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as of
---------
November 16, 1994, is entered into by and among CONNER PERIPHERALS, INC. (the
"Company"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent for
-------
itself and the Banks (the "Agent"), and the several financial institutions party
-----
to the Credit Agreement (collectively, the "Banks").
-----
RECITALS
--------
A. The Company, the Banks and the Agent are parties to a Credit Agreement
dated as of December 23, 1993, as amended by a First Amendment to Credit
Agreement dated as of October 19, 1994 (as so amended, the "Credit Agreement"),
----------------
pursuant to which the Agent and the Banks have extended certain credit
facilities to the Company.
B. The Company has requested that the Banks agree to a certain amendment
of the Credit Agreement.
C. The Banks are willing to amend the Credit Agreement, subject to the
terms and conditions of this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms used
-------------
herein shall have the meanings, if any, assigned to them in the Credit
Agreement.
2. Amendment to Credit Agreement. Subsection 7.8(a) of the Credit
-----------------------------
Agreement shall be amended by adding the following clause at the end thereof:
"and (v) the Company may declare and pay a dividend on each share of its
common stock, consisting of one right to purchase one one-hundredth of a
share of the Company's Series A Participating Preferred Stock, and redeem
such rights, all in connection with the Stockholder Rights Plan adopted by
the Company."
3. Representations and Warranties. The Company hereby represents and
------------------------------
warrants to the Agent and the Banks as follows:
(a) No Default or Event of Default has occurred and is continuing.
(b) The execution, delivery and performance by the Company of this
Amendment have been duly authorized by all
<PAGE>
necessary corporate and other action and do not and will not require any
registration with, consent or approval of, notice to or action by, any Person
(including any Governmental Authority) in order to be effective and enforceable.
The Credit Agreement as amended by this Amendment constitutes the legal, valid
and binding obligations of the Company, enforceable against it in accordance
with its respective terms, without defense, counterclaim or offset.
(c) All representations and warranties of the Company contained in
the Credit Agreement are true and correct.
(d) The Company is entering into this Amendment on the basis of its
own investigation and for its own reasons, without reliance upon the Agent and
the Banks or any other Person.
4. Effective Date. This Amendment will become effective as of November
--------------
___, 1994 (the "Effective Date"), provided that each of the following conditions
-------------- --------
precedent is satisfied:
(a) The Agent has received from the Company and each of the Majority
Banks a duly executed original (or, if elected by the Agent, an executed
facsimile copy) of this Amendment.
(b) The Agent has received from the Company a copy of a resolution
passed by the board of directors of such corporation, certified by the Secretary
or an Assistant Secretary of the Company as being in full force and effect on
the date hereof, authorizing the execution, delivery and performance of this
Amendment.
5. Reservation of Rights. The Company acknowledges and agrees that the
---------------------
execution and delivery by the Agent and the Banks of this Amendment shall not be
deemed to create a course of dealing or otherwise obligate the Agent or the
Banks to forbear or execute similar amendments under the same or similar
circumstances in the future.
6. Miscellaneous.
-------------
(a) Except as herein expressly amended, all terms, covenants and
provisions of the Credit Agreement are and shall remain in full force and effect
and all references therein to such Credit Agreement shall henceforth refer to
the Credit Agreement as amended by this Amendment. This Amendment shall be
deemed incorporated into, and a part of, the Credit Agreement.
(b) This Amendment shall be binding upon and inure to the benefit of
the parties hereto and thereto and their respective successors and assigns. No
third party beneficiaries are intended in connection with this Amendment.
2
<PAGE>
(c) This Amendment shall be governed by and construed in accordance
with the law of the State of California.
(d) This Amendment may be executed in any number of counterparts,
each of which shall be deemed an original, but all such counterparts together
shall constitute but one and the same instrument. Each of the parties hereto
understands and agrees that this document (and any other document required
herein) may be delivered by any party thereto either in the form of an executed
original or an executed original sent by facsimile transmission to be followed
promptly by mailing of a hard copy original, and that receipt by the Agent of a
facsimile transmitted document purportedly bearing the signature of a Bank or
the Company shall bind such Bank or the Company, respectively, with the same
force and effect as the delivery of a hard copy original. Any failure by the
Agent to receive the hard copy executed original of such document shall not
diminish the binding effect of receipt of the facsimile transmitted executed
original of such document of the party whose hard copy page was not received by
the Agent.
(e) This Amendment, together with the Credit Agreement, contains the
entire and exclusive agreement of the parties hereto with reference to the
matters discussed herein and therein. This Amendment supersedes all prior
drafts and communications with respect thereto. This Amendment may not be
amended except in accordance with the provisions of Section 10.01 of the Credit
Agreement.
(f) If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions of this Amendment or the
Credit Agreement, respectively.
(g) The Company covenants to pay to or reimburse the Agent and the
Banks, upon demand, for all costs and expenses (including allocated costs of in-
house counsel) incurred in connection with the development, preparation,
negotiation, execution and delivery of this Amendment, including without
limitation appraisal, audit, search and filing fees incurred in connection
therewith.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment as of the date first above written.
CONNER PERIPHERALS, INC.
By: /s/ P. Jackson Bell
--------------------------
Title: Executive Vice
President & Chief
Financial Officer
By: /s/ James A. Taylor
--------------------------
Title: Vice President &
Treasurer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
By: /s/ Wendy M. Young
-------------------------
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a
Bank
By: /s/ Kevin McMahon
-------------------------
Title: Vice President
4
<PAGE>
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ E. M. Praul
-------------------------
Title: Director
BARCLAYS BANK PLC
By: /s/ Douglas Butler
-------------------------
Title: Associate Director
5
<PAGE>
EXHIBIT 11.1
------------
<PAGE>
EXHIBIT 11.1
CONNER PERIPHERALS, INC.
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Twelve months ended December 31,
---------------------------------
1994 1993 1992
--------- ---------- ---------
<S> <C> <C> <C>
Primary:
Weighted average shares outstanding 51,604 49,339 53,983
Net effect of dilutive
common stock equivalents 649 -- 1,259
-------- --------- --------
Total 52,253 49,339 55,242
-------- --------- --------
Net income/(loss) $109,687 $(445,314) $121,072
======== ========= ========
Earnings/(loss) per share $ 2.10 $ (9.03) $ 2.19
======== ========= ========
Fully diluted:
Weighted average shares outstanding 51,604 49,339 53,983
Net effect of dilutive
common stock equivalents 648 -- 1,349
Assumed conversion of
Subordinated Convertible Debentures 22,306 -- 19,391
-------- --------- --------
Total 74,558 49,339 74,723
-------- --------- --------
Net income/(loss) $109,687 $(445,314) $121,072
Add Subordinated Convertible
Debenture interest, net of income taxes 22,391 -- 20,376
-------- --------- --------
Total $132,078 $(445,314) $141,448
======== ========= ========
Earnings/(loss) per share $ 1.77 $ (9.03) $ 1.89
======== ========= ========
</TABLE>
<PAGE>
EXHIBIT 13.1
------------
<PAGE>
Financial Contents
--------------------------------------------------------------------------------
Selected Financial Data Thirteen
Management's Discussion and Analysis of Financial Condition
and Results of Operations Fourteen
Consolidated Balance Sheets Twenty Two
Consolidated Statements of Operations Twenty Three
Consolidated Statements of Cash Flows Twenty Four
Consolidated Statements of Stockholders' Equity Twenty Five
Notes to Consolidated Financial Statements Twenty Six
Report of Independent Accountants Thirty Nine
Report of Management Forty
--------------------------------------------------------------------------------
<PAGE>
Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993 1992 1991 1990
------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales $2,365,152 $2,151,672 $2,238,423 $1,598,984 $1,337,593
Gross profit $ 468,649 $ 237,954 $ 458,464 $ 316,257 $ 328,211
Income/(loss) from operations/1/ $ 166,564 $ (446,430) $ 153,530 $ 130,211 $ 172,732
Net income/(loss) $ 109,687 $ (445,314) $ 121,072 $ 92,492 $ 130,052
Net income/(loss) per share:
Primary $ 2.10 $ (9.03) $ 2.19 $ 1.57 $ 2.51
Fully diluted $ 1.77 $ (9.03) $ 1.89 $ 1.54 $ 2.41
Total assets $1,461,429 $1,464,051 $1,904,707 $1,334,538 $ 880,468
Long-term debt, less current portion $ 627,059 $ 660,606 $ 704,845 $ 367,916 $ 36,731
</TABLE>
Summary Quarterly Data--Unaudited
<TABLE>
<CAPTION>
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
Quarter Ended 1994 1994 1994 1994 1993 1993 1993 1993
------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $591,611 $559,504 $650,079 $563,958 $574,449 $ 528,358 $490,575 $558,290
Gross profit $ 97,426 $101,181 $142,227 $127,815 $ 87,872 $ 20,981 $ 38,581 $ 90,520
Income/(loss) from operations/2/ $ 42,546 $ 21,735 $ 57,400 $ 44,883 $ 15,510 $(381,608) $(51,765) $(28,567)
Net income/(loss) $ 44,183 $ 10,230 $ 31,470 $ 23,804 $ 8,455 $(372,400) $(58,825) $(22,544)
Net income/(loss) per share:
Primary $ 0.84 $ 0.20 $ 0.60 $ 0.46 $ 0.17 $ (7.54) $ (1.19) $ (0.46)
Fully diluted $ 0.66 $ 0.20 $ 0.50 $ 0.40 $ 0.17 $ (7.54) $ (1.19) $ (0.46)
</TABLE>
/1/ Income/(loss) from operations includes unusual charges (credits) of
$(33,019,000), $378,702,000 and $57,611,000 in 1994, 1993 and 1992,
respectively (see Note 4 to consolidated financial statements).
/2/ Income/(loss) from operations includes unusual charges (credits) of
$(33,019,000), $330,019,000, $12,300,000 and $36,383,000 for the quarters
ended December 31, 1994, September 30, 1993, June 30, 1993 and March 31,
1993, respectively (see Note 4 to consolidated financial statements).
------
Thirteen
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following table sets forth items in the Company's Consolidated Statements
of Operations for each of the last three years ended December 31, 1994, as a
percent of net sales.
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993 1992
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 80.2 88.9 79.5
-------------------------------
Gross profit 19.8 11.1 20.5
-------------------------------
Selling, general and administrative 8.0 8.7 6.8
Research and development 5.5 6.4 4.2
Amortization of goodwill and other
intangibles 0.7 1.0 --
Unusual items (1.4) 15.7 2.6
-------------------------------
Income/(loss) from operations 7.0 (20.7) 6.9
Other income/(expense), net (0.5) (1.2) 0.1
-------------------------------
Income/(loss) before income taxes 6.5 (21.9) 7.0
Benefit/(provision) for income taxes (1.9) 1.2 (1.6)
-------------------------------
Net income 4.6% (20.7)% 5.4%
===============================
</TABLE>
Overview
The Company returned to profitability in 1994 with net income of $109.7
million. This represents a significant turnaround as compared with the net
loss reported in 1993 of $445.3 million. The Company believes that the
significant improvement in operating results was due in part to the actions
taken at the end of 1993 to lower its cost structure, improve the efficiency and
effectiveness of new product launch operations, re-align its manufacturing
capacity with demand and improve asset utilization. The Company believes that
these actions have generally been successful and have contributed to its
improvement in operating results in 1994. Results of operations for 1994 also
include a gain of $22.3 million ($13.2 million net of taxes) on the sale of
Read-Rite Corporation common stock and a net credit to operating income of $33
million ($32.7 million net of taxes) as discussed below under "Other Income and
Unusual Items."
The net loss of $445.3 million reported in 1993 was due primarily to two
principal causes. First, the margin the Company earned on sales of products,
primarily disk drives, came under tremendous pressure during 1993 and fell to
11.1% from 20.5% in 1992. The Company believes this deterioration of margins
resulted from pricing pressures caused by a combination of: (1) industry-wide
overcapacity and a rapid shift in customer demand toward drives with
capacities greater than 200 megabytes, and (2) cost pressures caused by aging
inventories with higher unit costs. The second, and more significant cause,
was the impairment of goodwill and other intangibles and the Company's
decision to take various restructuring actions designed to put the Company on
a more competitive footing and return it to profitability. The combination of
these actions resulted in charges to income in 1993 of $378.7 million.
As a result of changing business conditions and modifications of some of its
operating plans, the results of fiscal 1994 include as part of pretax income
the reversal of $38 million in restructuring reserves established during
1993. This amount and the unusual charges taken in 1993 are described in more
detail below under "Gross Profit and Unusual Items."
Acquisitions
During 1994, the Company's then wholly-owned subsidiary, Arcada Software,
Inc. ("Arcada") acquired Quest Development Corporation ("Quest") for $8.5
million in cash and issuance of shares representing approximately 22%
ownership interest in Arcada. Arcada is engaged in developing, producing and
marketing software products for data storage management. The effect of the
acquisition of Quest was not material to the Company's financial condition or
results of operations with the exception of the write-off of in-process
research and development of $5 million included in "Unusual Items."
During 1994, the Company increased its ownership interest in its joint
venture, Conner Shenzhen Peripherals Company
------
Fourteen
<PAGE>
Ltd., located in Shenzhen, People's Republic of China, from 60% to 90% for $7
million of which $5 million was paid during 1994. During 1993, the Company
purchased for $16 million the remaining 49% minority interest owned by Olivetti,
S.p.A. in Conner Peripherals Europe, S.p.A. ("CPE"), the Company's majority-
owned subsidiary located in Italy. In connection with the acquisition, Olivetti
committed to purchase certain minimum quantities of the Company's products,
subject to certain conditions, for a period of three years. These acquisitions
had no material impact to the Company's financial condition or results of
operations.
In December 1992, the Company acquired all of the outstanding stock of
Archive Corporation ("Archive"), a manufacturer and supplier of tape back-up
and data storage products, for approximately $306 million, including debt
assumed. Operations of Archive subsequent to the acquisition date through
December 31, 1992, were not material and were not included in the Company's
consolidated results of operations in 1992 except for the write-off of
in-process research and development as described under "Unusual Items."
Operations of Archive have been included in the Company's consolidated
results of operations since the beginning of 1993.
Sales
The Company's net sales totaled $2.4 billion in 1994 compared with $2.2
billion in 1993 and 1992. The increase in 1994 net sales over 1993 was
primarily due to an increase in unit shipments of disk drives and a more
favorable product mix towards the Company's newer, higher capacity disk
drives, offset to some extent by lower average unit prices. Unit volume ship
ments of disk drives increased approximately 15% in 1994, primarily on the
strength of demand for the Company's Filepro 210 and 420 megabyte disk
drives. Average unit prices declined as the average price per megabyte of
disk drive capacity continued to decline throughout the industry. The
Company's average price per megabyte of disk drive capacity declined to $0.41
in 1994 from $0.81 in 1993. However, in 1994 the decline in average unit
prices stabilized to more normal levels, reversing the trend of severe price
erosion experienced in 1993.
Net sales from tape products increased modestly in 1994 as compared to 1993
as a significant increase in unit volume shipments was substantially offset
by changes in product mix, the phase-out of certain older products, as well
as lower average unit prices due to competitive pricing pressures experienced
within the tape drive industry.
The Company's net sales of $2.2 billion in 1993 were approximately equal with
1992. Net sales in 1993, however, included the operations of Archive. As
such, the increase in 1993 net sales resulting from the acquisition of
Archive was largely offset by a decline in net sales of disk drives due to a
decline in unit volume shipments and a substantial decline in average unit
selling prices as compared to 1992. The decline in unit volume shipments was
due to a disruption in sales resulting from the termination of the Company's
exclusive distribution relationship with its European master distributor and
disruptions in sales associated with the timing of certain new product
introductions. The Company believes that severe price erosion was experienced
throughout the disk drive industry during 1993.
In 1992, the Company's net sales of disk drives of $2.2 billion represented a
40% increase over 1991. The annual growth in net sales of disk drives was
driven by a 62% increase in unit volume shipments and an improved product
mix, offset somewhat by a decrease in average unit selling prices.
In 1994, international sales accounted for approximately 48% of total sales
compared to 54% in 1993 and 61% in 1992. The decrease in the international
sales mix in 1994 was primarily due to a 7% decline in sales of Disk products
into the European market, offset slightly by higher sales of Tape products in
Europe and Asia, while domestic sales increased across each of the Company's
product lines a combined 23%. The decrease in disk drive sales to the
European market generally occurred during the first half of 1994 as the
Company's European sales force was reorganized and demand for certain of the
Company's newer products exceeded supply.
Sales to distributors in 1994 were approximately 26% of total sales compared
to 29% and 31% in 1993 and 1992, respectively. In 1994, sales to OEM
customers increased 11% for Disk and 35% for Tape while growth in total sales
to distributors
------
Fifteen
<PAGE>
remained flat. Certain of the Company's products were on allocation during the
first half of 1994 which had a negative impact on distributor sales.
The decrease in international and distributor sales in 1993 as compared to
1992 was due to the impact on the mix of sales from the acquisition of Archive.
Sales to Compaq Computer represented 13% of net sales in 1994 and 1993 as
compared with 15% in 1992. One other customer accounted for more than 10% of
net sales in 1992, with 12%. In 1994 and 1993, no other customer accounted
for 10% or more of net sales.
As is common in the microcomputer industry, the Company's shipment patterns
during a quarter are frequently characterized by a significantly higher
shipment volume in the third month of the quarter than that experienced in
the first two months of the quarter. This pattern often causes quarterly
results to be difficult to predict. Furthermore, order lead times have been
reduced by certain of the Company's customers. This trend has impacted the
Company's visibility to future orders and accordingly has also affected the
predictability of financial results.
The demand for the Company's products depends principally on demand for high-
performance microcomputers manufactured by its customers. A slowdown in demand
for such computers, reduction in demand from significant OEM customers, or
continued price erosion may have an exaggerated effect on the demand for the
Company's products and/or profitability in any given period. In addition, the
Company has seen an increase in manufacturing capacity and inventory levels in
the disk drive industry during 1994. These characteristics have generally
resulted in periods of severe price erosion. Accordingly, periods of severe
price declines may be expected to occur in the future.
Gross Profit
The Company's gross margin increased to 19.8% of net sales in 1994 from 11.1%
in 1993. The higher gross margin in 1994 represents the return to an
historically normal gross margin level from the unusually low gross margin
achieved in 1993 and reflects the increase in unit shipment volumes of higher
capacity, lower cost disk drive products introduced in the fourth quarter of
1993, particularly the Filepro 210 and 420 megabyte disk drives. The higher
margins received on these products were slightly offset by lower gross
margins on tape drive products resulting primarily from changes in product
mix, delays in the launch of certain new products and higher provisions for
inventory end-of-life charges. Additionally, the Company's gross margin was
negatively impacted in the fourth quarter ended December 31, 1994, as a
result of minor delays in new product introductions and returns of certain
older Disk and Tape products from a major customer.
In 1993, the Company's gross margin decreased to 11.1% of net sales from
20.5% in 1992. The lower gross margin was due to a significant decline in
average unit selling prices of disk drives, lower shipments into the
distribution channel and special inventory-related charges included in cost
of sales, offset partially by lower average unit production costs and the
inclusion in 1993 of sales of Archive's tape products which carry higher gross
margins. The price declines experienced were driven by overcapacity in the
disk drive industry, particularly for disk drives with capacities under 200
megabytes. During 1993, the Company recorded as cost of sales special charges
totaling $40.3 million resulting from the Company's decisions to accelerate
the end-of-life of certain products.
The Company has launched several new disk drive products during the fourth
quarter of 1994 and anticipates the launch of several more during 1995. The
failure of the Company to successfully launch or achieve required production
volumes at anticipated costs for one or more of the new products could have a
material adverse effect on the Company's revenues and profitability. Minor
delays in the launch of certain of the Company's disk drive products in the
fourth quarter of 1994 did have a negative impact on the Company's quarterly
and annual results of ongoing operations. The Company believes that it has
overcome the delays experienced in most of its new product introductions and
has successfully launched those products during the fourth quarter of 1994.
However, there can be no assurance that the launch of new products in future
periods will be successful or that the Company will not experience production
problems, low yields or other difficulties with respect to recently
introduced products.
------
Sixteen
<PAGE>
The computer storage industry has historically been cyclical and is
characterized by periods of severe product shortages, followed by periods of
significant overcapacity. During such periods of overcapacity, the prices of
storage products have declined rapidly, resulting in significant declines in
gross margin for industry participants. The Company expects that such
cyclicality and fluctuations in business conditions will recur in the future.
Additionally, the Company anticipates that pricing pressures may result as
the disk drive industry continues to migrate rapidly toward higher storage
capacities. Further, competition in the tape drive industry continues to be
aggressive, placing pressure on pricing and gross margins of tape drive
products.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses increased to $189.2
million in 1994 from $186.3 million in 1993 and $152.7 million in 1992. These
expenses represented 8.0%, 8.7% and 6.8% of net sales in 1994, 1993 and 1992,
respectively. SG&A expenses decreased as a percentage of net sales in 1994
due primarily from lower employee headcount resulting from restructuring
actions taken in the second half of 1993 and lower provisions for bad debt.
In absolute dollars, these cost savings were offset by higher profit sharing
and legal expenses and higher SG&A expenses resulting from the acquisition of
Quest.
The increase in SG&A in absolute dollars and as a percentage of net sales in
1993 as compared to 1992 was primarily due to the acquisition of Archive,
which was consolidated with the Company's disk drive operations commencing in
the first quarter of 1993, and to a lesser extent, higher advertising and
legal costs. The increase in SG&A expenses was partially offset by lower profit
sharing and provisions for bad debt.
SG&A expenses are expected to increase in 1995 to support anticipated revenue
growth but should decrease modestly as a percentage of net sales.
Research and Development
The Company's investment in research and development ("R&D") was $130.8
million in 1994, $137.5 million in 1993 and $94.7 million in 1992,
representing 5.5%, 6.4% and 4.2% of net sales, respectively. R&D expenses
decreased in 1994 as compared to 1993 in absolute dollars and as a percentage
of net sales due to restructuring actions taken in the second half of 1993
and cost savings realized from the implementation of a more efficient product
launch process. Lower costs resulting from these actions were partially
offset by higher R&D expenses from the acquisition of Quest and an increase
in product development activity to support the launch of new Disk and Tape
products.
The year-over-year increase in R&D expenses in absolute dollars and as a
percentage of net sales in 1993 as compared to 1992 is primarily a result of
the inclusion of the Archive tape operations in 1993 and the acceleration of
new product introductions concurrent with the Company's decision to end-of-
life certain older products.
Due to the timing of new R&D programs and the release of new products to
production, the level of R&D spending may vary from year to year in absolute
dollars and as a percentage of sales.
As product life cycles have shortened and the need to rapidly introduce new
products has become essential, the Company has increased its focus on new
product launch activities. The Company believes this investment has
significantly improved the efficiency and effectiveness of its new product
launch operations. During 1995, this emphasis is planned to continue and R&D
expenditures are expected to increase modestly in absolute dollars in support
of new product introductions. The level of R&D spending reflects management's
belief that such spending is essential in order for the Company to regularly
and predictably introduce new products and remain competitive.
Amortization of Goodwill and Other Intangibles
Amortization of goodwill and other intangibles decreased to $15.1 million in
1994 from $22.2 in 1993. This reduction results primarily from the charge
taken in the third quarter of 1993 for the write-down of goodwill and other
intangibles related to the acquisition of Archive. These special charges are
more fully described under Unusual Items. The reduction in amortization from
this action was partially offset by the amortization of goodwill and other
intangibles acquired upon the acquisition
-------
Seventeen
<PAGE>
of Quest in the first quarter of 1994. Goodwill and other intangibles are being
amortized over their remaining estimated useful lives ranging from 2 to 8 years.
Unusual Items
In the fourth quarter of 1994, the Company recorded $33 million as a net
pretax credit to income for two unusual items. As discussed below, the
Company recorded an unusual credit of $38 million for the reduction of
restructuring reserves established during 1993. This credit was partially
offset by a $5 million unusual charge taken to write-off in-process research
and development associated with the acquisition of Quest.
During 1993, the Company recorded special charges totaling $378.7 million, of
which $40.3 million was charged to cost of sales and $338.4 was charged to
unusual items. The $40.3 million charge to cost of sales reflected the cost
of the Company's actions to accelerate the end-of-life of certain disk drive
products. The $338.4 million charge included a write-down of goodwill and
other intangibles of $213 million, restructuring charges of $106.4 million
for the reduction of excess manufacturing capacity and the streamlining of
operations and a charge of $19 million for certain contingencies.
The write-down of intangible assets totaling $213 million consisted of $180
million for the remaining unamortized balance of goodwill related to the
Archive acquisition and $33 million of identified intangibles. The Company
believes that the write-down of these assets was necessitated by the
emergence during 1993 of fundamental changes in the storage business,
primarily the increase in competition and the standardization of technologies
in the tape drive industry, which caused the value of these assets to be
permanently impaired.
The restructuring charges totaling $106.4 million resulted from the Company's
decision to reduce excess manufacturing capacity to a level more consistent
with sustainable demand, to streamline operations as well as administrative
processes to reduce the Company's cost structure and to further integrate and
reduce SG&A and R&D activities of both the disk and tape drive operations. As
part of this restructuring, the Company had decided to close certain of its
manufacturing operations.
In the fourth quarter of 1994, the Company lowered its estimate of the total
cost of restructuring and recorded an adjustment to its restructuring
reserves thereby increasing operating income by $38 million. This reduction
resulted from the modification of the Company's operating plans, primarily
the decision to cancel the closure of certain manufacturing operations due to
changing business conditions. These changing business conditions primarily
pertain to the improvement in local economies, the reduction in manufacturing
cost benefits achieved by shifting production to other locations and certain
other strategic benefits realized by maintaining a local presence.
As of December 31, 1994, the Company has executed all of its restructuring
actions. As a result, approximately 780 employees from manufacturing,
research and development, sales and marketing and administrative departments
have been terminated and facilities have been reduced by approximately
360,000 square feet. The Company's annual savings from operations resulting from
these actions was to reduce salaries and benefits by approximately $32 million,
depreciation expense by approximately $7 million and rental expense by
approximately $2 million.
The following table sets forth the Company's restructuring reserves as of
December 31, 1993 and 1994:
<TABLE>
<CAPTION>
Restructuring Reserves
Severances Excess Equipment
and benefits facilities and other Total
--------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
1993 restructuring charges $22,403 $ 28,511 $ 55,543 $106,457
Cash charges (7,077) (623) (1,723) (9,423)
Non-cash charges -- -- (30,654) (30,654)
------------------------------------------------
Reserve balances,
December 31, 1993 15,326 27,888 23,166 66,380
Cash charges (3,824) (2,126) (7,793) (13,743)
Non-cash charges -- (240) (6,829) (7,069)
Adjustments (9,482) (21,595) (6,942) (38,019)
------------------------------------------------
Reserve balances,
December 31, 1994 $ 2,020 $ 3,927 $ 1,602 $ 7,549
================================================
</TABLE>
------
Eighteen
<PAGE>
The Company expects that substantially all of the remaining employee
termination payments will be paid during 1995. Lease rental obligations
included in excess facilities are net of approximately $2.1 million of
estimated sublease income expected to be derived from the subleasing of the
effected facilities. These obligations will be paid through the year 2018 or
sooner to the extent the Company is able to negotiate a lease settlement or
otherwise dispose of the properties. Write-offs of assets and payments against
other reserves at December 31, 1994, are expected to be substantially
completed by the end of 1996.
In December 1992, in connection with the acquisition of Archive, the Company
recorded an unusual charge of $57.6 million representing the fair value of
acquired R&D projects in-process at the date of the acquisition.
Interest Expense and Other Income, Net
Interest expense decreased to $47.2 million in 1994 from $51.2 million in
1993. This decrease was due to lower debt balances resulting from principal
payments made during 1994.
Interest expense increased to $51.2 million in 1993 from $46.9 million in
1992. The increase in interest expense in 1993 resulted from a full year's
interest expense recorded on the Company's $345 million, 6.5% subordinated
debentures issued in March of 1992.
Other income/expense reflects the net of, principally, interest income,
realized gains on sale of investments, foreign exchange gains and losses and
minority interest associated with certain of the Company's subsidiaries. In
1994, this resulted in net other income of $35.2 million compared to $26.7
million in 1993 and $49.1 million in 1992. Net other income increased in 1994
compared to 1993 due to a gain of $22.3 million recorded in the fourth
quarter of 1994 on the sale of Read-Rite Corporation ("Read-Rite") common stock
which was acquired upon the merger of Read-Rite and Sunward Technology, Inc.
("Sunward"). The Company acquired the shares of Sunward in 1992 in connection
with the licensing of certain patents. This gain was partially offset by lower
interest income from lower invested funds and an increase in foreign exchange
losses.
Net other income in 1993 decreased as compared to 1992 primarily as a result
of a nonrecurring gain of $22.5 million recorded in 1992 for the sale of the
Company's then existing equity interest in Read-Rite, and lower interest
income resulting from lower invested funds and declining interest rates. The
decrease was partially offset by royalty income.
Taxes
The Company's effective tax rate was a provision of 29% in 1994, a benefit of
5.4% in 1993 and a provision of 22.3% in 1992. In 1994, the effective tax
rate was lower than the federal statutory rate of 35% due primarily to
differences between United States and foreign tax rates and the impact of
reversing in 1994 certain restructuring reserves as described under "Unusual
Items." No tax benefit was recorded in 1993 on the establishment of certain
restructuring reserves that were anticipated to be utilized in foreign
jurisdictions where a benefit would not have been realized. Accordingly, no
provision was recorded in 1994 upon the reversal of such reserves. The Company
expects that its effective income tax rate will increase to the 33% range in
fiscal 1995 depending on the mix of income received from foreign and domestic
operations.
In 1993, the Company recorded an income tax benefit at the effective rate of
5.4%. The low effective tax rate in 1993 was primarily due to the impact of
goodwill and intangible asset amortization and write-offs during 1993 which
were not deductible for income tax purposes. In addition, a significant
amount of the Company's losses were generated by operations in foreign tax
jurisdictions where the Company enjoys tax holidays or where losses can only
be carried forward.
During 1993, the U.S. federal statutory tax rate increased from 34% to 35%.
The effect of the increase in the tax rate was not material to the Company's
financial position or results of operations.
The Company enjoys tax holidays in Singapore and China with respect to disk
drive operations which expire in 1997 and 1995, respectively, subject to
certain extensions and post-holiday benefits. In addition, the Company has
applied for a
------
Nineteen
<PAGE>
Singapore tax holiday through June 1997, relating to the manufacture of tape
drives and has applied for a five-year extension of the tax holiday in Malaysia
with respect to the manufacture of disk drives which expired in December 1994.
The Company provides for United States taxes on that portion of income from
these jurisdictions that is not considered to be indefinitely reinvested.
In December 1994, the IRS completed its review of the Company's federal
income tax returns for 1989 and 1990 and issued a deficiency notice for $43
million in additional taxes. This assessment results primarily from
adjustments proposed by the IRS to the allocation of income between the
Company and its foreign manufacturing subsidiaries. The Company believes it
has meritorious defenses to the proposed adjustments and will contest this
assessment vigorously. Upon final resolution, the deficiency payment, if any,
will include assessed interest. Management believes that the ultimate
resolution of this matter will not have a material adverse impact on the
Company's financial position or results of operations.
Liquidity and Capital Resources
At December 31, 1994, the Company's principal sources of liquidity consisted
of $443.2 million in cash and short-term investments and a combined $100
million revolving credit facility with several financial institutions which
is subject to the continued maintenance of certain financial covenants. At
December 31, 1994, the Company had no borrowings under this credit facility. As
of this date, the Company had outstanding letters of credit and guarantees of
approximately $58 million.
Cash generated from operating activities was approximately $55.5 million in
1994 compared to $20.2 million in 1993 and $269.8 million in 1992. Cash
generated from operations increased in 1994 primarily as a result of the
substantial increase in net earnings offset by non-cash items and changes in
other working capital, particularly inventory to support an increase in new
products available for the disk drive market. The decrease in cash generated
from operating activities in 1993 as compared to 1992 was primarily due to
the Company's net loss of $445.3 million, offset to some extent by an
increase in adjustments for non-cash items, including non-cash charges for
unusual items totaling $230.4 million.
The Company's capital expenditures during 1994 were $95 million compared to
$102 million in 1993 and $70 million in 1992. Capital expenditures in 1994 and
1993 reflect increased spending on manufacturing assets, in particular, the
expansion of the Company's disk media manufacturing facility in California
and the purchase in 1994 of land adjacent to the Company's headquarters in
San Jose, California. The disk media facility expansion has been completed
and the Company currently expects that capital expenditures in 1995 will be
slightly lower than the 1994 and 1993 spending levels.
Other significant cash flows in 1994 included $8.5 million used in the
acquisition of Quest and normal debt repayments totaling $42.2 million. In
1993, the Company paid $16 million to purchase the remaining 49% minority
interest in Conner Peripherals Europe S.p.A. held by the Company's joint
venture partner. In December 1992, total cash used in connection with the
acquisition of Archive was approximately $288 million, net of cash acquired,
including cash used to retire Archive debt of approximately $14 million and
$90 million in 1993 and 1992, respectively.
The Company believes that current capital resources and cash generated from
operating activities will be sufficient to meet its liquidity and capital
expenditure requirements for the foreseeable future.
Foreign Currency Risks
The Company's cash flows are substantially U.S. dollar denominated. However,
the Company is exposed to certain foreign currency fluctuations, primarily
Japanese Yen, British Pound Sterling, Malaysian Ringgit, Italian Lira and
Singapore Dollars. To hedge against these currency exposures incurred in the
ordinary course of business, the Company enters into foreign currency forward
contracts and purchases foreign currency option contracts for periods and
amounts consistent
------
Twenty
<PAGE>
with the amounts and timing of its anticipated operating cash flow requirements
and vendor purchase commitments. Gains and losses on these foreign currency
contracts and options are deferred and offset by gains and losses on the
underlying hedged transactions. As of December 31, 1994, deferred gains and
losses on these financial instruments were not material and gains and losses
from hedging transactions have not had a material effect on the results of
operations of the Company to date.
The counterparties to these contracts consist of international financial
institutions. By policy, the Company monitors the credit ratings and capital
and surplus of its counterparties. Though the Company attempts to hedge
significant foreign currency exposure, no assurance can be given that
exchange rate movements will not have a material adverse impact on the
Company's results of operations. At December 31, 1994, the Company had
outstanding foreign currency forward contracts and foreign currency option
contracts aggregating approximately $60.9 million and $22.9 million,
respectively. These contracts mature at various periods through April 1995
and are consistent with the amounts and timing of the underlying anticipated
cash flow requirements and purchase commitments.
Litigation
The Company and certain of its officers and directors are defendants in a
securities class action lawsuit which purports to represent a class of
investors who purchased or otherwise acquired the Company's common stock
between January 1992 and May 1993. Certain officers and directors are also
defendants in a related stockholders derivative suit. The complaints seek
unspecified damages and other relief. The Company intends to defend the
actions vigorously.
In August 1993, the Company was served with a patent infringement complaint,
filed by IBM, alleging that products manufactured by the Company have
infringed certain patents owned by IBM. In addition, the complaint seeks
declaratory relief to the effect that disk drives produced by IBM do not
infringe certain patents held by the Company and seeks to have such patents
declared invalid. The Company answered the complaint, denying all material
allegations and counterclaiming that IBM disk drives infringe certain patents
owned by Conner, including those patents contained in the IBM complaint. The
Company believes that it has meritorious defenses against these allegations,
that it has valid claims against IBM and will defend this action vigorously.
Although the Company has engaged in continuous discussions with IBM toward an
appropriate cross-licensing arrangement, the Company is unable to predict the
outcome of the settlement negotiations, the litigation and the ultimate effect,
if any, on its operations or financial condition. Regardless of the merits of
the respective patent claims, the Company believes that the existence of the IBM
litigation could have an adverse effect on its business. In addition, this
litigation is causing the Company to incur significant costs, including
substantial legal expenses.
In 1992, the Company filed a patent infringement lawsuit against Western
Digital Corporation ("Western Digital") alleging the infringement of five of
the Company's patents by Western Digital. Western Digital has filed a
counterclaim alleging infringement of certain of its patents by the Company.
The Company believes it has valid claims against Western Digital and
meritorious defenses to the claims asserted by Western Digital.
In 1994, the Company was served with a patent litigation claim alleging that
the Company's DC2000 tape drives infringe a patent held by Iomega Corporation
("Iomega"). This claim was settled by the Company and Iomega during 1994 and
had no material effect on the results of operations.
------
Twenty One
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, 1994 1993
--------------------------------------------------------------------------------
(in thousands, except par value and share data)
<S> <C> <C>
Assets
Current assets:
Cash, cash equivalents and short-term investments $ 443,239 $ 517,547
Accounts receivable, net of reserves and allowances
of $31,492 in 1994 and $39,430 in 1993 307,454 333,416
Inventory 255,880 173,860
Deferred income taxes 51,950 54,944
Other 111,187 87,348
---------------------
Total current assets 1,169,710 1,167,115
Property, plant and equipment, net 237,066 231,337
Goodwill and other intangibles, net 39,255 42,944
Other 15,398 22,655
---------------------
$1,461,429 $1,464,051
=====================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 139,559 $ 229,721
Accrued expenses 190,372 217,060
Current portion of long-term debt 34,922 43,112
---------------------
Total current liabilities 364,853 489,893
Long-term debt, less current portion 627,059 660,606
Deferred income taxes 129,668 98,162
Other 1,525 4,009
Minority interest 1,648 2,530
Commitments and contingencies (Notes 9 and 15)
Stockholders' equity:
Preferred stock, $0.001 par value; 20,000,000 shares
authorized, none outstanding -- --
Common stock and paid-in capital in excess of
$0.001 par value; 100,000,000 shares authorized,
52,460,734 and 50,565,083 shares issued and
outstanding 260,592 242,454
Retained earnings/(accumulated deficit) 76,084 (33,603)
---------------------
Total stockholders' equity 336,676 208,851
---------------------
$1,461,429 $1,464,051
=====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
------
Twenty Two
<PAGE>
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993 1992
------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Net sales $2,365,152 $2,151,672 $2,238,423
Cost of sales 1,896,503 1,913,718 1,779,959
--------------------------------------
Gross profit 468,649 237,954 458,464
--------------------------------------
Selling, general and administrative 189,237 186,269 152,671
Research and development 130,771 137,465 94,652
Amortization of goodwill and other intangibles 15,096 22,248 --
Unusual items (33,019) 338,402 57,611
--------------------------------------
Total operating expenses 302,085 684,384 304,934
--------------------------------------
Income/(loss) from operations 166,564 (446,430) 153,530
Interest expense (47,237) (51,213) (46,866)
Other income, net 35,224 26,667 49,056
--------------------------------------
Income/(loss) before income taxes 154,551 (470,976) 155,720
Provision/(benefit) for income taxes 44,864 (25,662) 34,648
--------------------------------------
Net income/(loss) $ 109,687 $ (445,314) $ 121,072
======================================
Net income/(loss) per share:
Primary $ 2.10 $ (9.03) $ 2.19
======================================
Fully diluted $ 1.77 $ (9.03) $ 1.89
======================================
Weighted average shares:
Primary 52,253 49,339 55,242
======================================
Fully diluted 74,558 49,339 74,723
======================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
------
Twenty Three
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31, (in thousands) 1994 1993 1992
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ 109,687 $ (445,314) $ 121,072
Adjustments to reconcile net income/(loss)
to net cash provided by operating activities:
Depreciation and amortization 91,681 104,747 77,463
Non-cash unusual items (33,019) 230,417 57,611
Deferred income taxes 29,728 (32,745) (13,067)
Gain on sale of Read-Rite Corporation common stock (22,294) -- (22,540)
Loss on asset dispositions 4,569 11,468 5,595
Minority interest and other (3,366) 720 9,330
Changes in assets and liabilities, net of effect of acquired businesses:
Accounts receivable, net 25,962 67,712 (132,401)
Inventory (82,020) 91,135 39,362
Other current assets (5,175) (19,006) (19,193)
Other non-current assets 7,486 (20,907) (18,108)
Accounts payable and accrued expenses (67,776) 31,994 164,654
---------------------------------------
Total cash provided by operating activities 55,463 20,221 269,778
Cash flows from investing activities:
Capital expenditures (95,011) (102,111) (69,744)
Purchases of short-term investments -- (1,429,492) (1,013,148)
Sales and maturities of short-term investments -- 1,464,986 795,839
Purchases of investments held to maturity (313,501) -- --
Purchases of investments available for sale (344,511) -- --
Maturity of investments held to maturity 394,675 -- --
Sale of investments available for sale 342,532 -- --
Purchase of minority interest (5,000) (16,000) --
Acquisition of acquired businesses, net of cash acquired (8,500) -- (181,537)
Acquisition of technology rights -- (2,078) (28,061)
Proceeds from sale of Read-Rite Corporation common stock 3,630 -- 39,189
--------------------------------------
Total cash used in investing activities (25,686) (84,695) (457,462)
Cash flows from financing activities:
Proceeds from other borrowings 500 2,782 345,672
Repayments of long-term debt (42,237) (10,990) (24,752)
Repayments of Archive Corporation long-term debt -- (13,713) (90,239)
Issuance of common stock 16,847 24,909 17,322
Repurchase of common stock -- -- (241,505)
Contribution by minority stockholder -- -- 8,000
--------------------------------------
Total cash provided by (used in) financing activities (24,890) 2,988 14,498
Net increase/(decrease) in cash and cash equivalents 4,887 (61,486) (173,186)
Cash and cash equivalents at beginning of the year 197,499 258,985 432,171
--------------------------------------
Cash and cash equivalents at end of the year 202,386 197,499 258,985
Short-term investments 240,853 320,048 355,542
--------------------------------------
Total cash, cash equivalents and short-term investments $ 443,239 $ 517,547 $ 614,527
======================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
------
Twenty Four
<PAGE>
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock
--------------------------
Par Value Retained
and Paid-in Earnings Total
Capital in (Accumulated Stockholders'
Shares Excess of Par Deficit) Equity
-----------------------------------------------------------------------------------------------------------------------------------
(in thousands, except share data)
<S> <C> <C> <C> <C>
Balance at December 31, 1991 58,089,297 $ 422,186 $ 290,639 $ 712,825
Issuance of common stock under various
employee stock plans 1,866,677 31,008 -- 31,008
Repurchase of common stock, at cost (11,638,802) (241,505) -- (241,505)
Income tax benefit of disqualifying dispositions
of employee stock -- 2,636 -- 2,636
Net income -- -- 121,072 121,072
--------------------------------------------------------
Balance at December 31, 1992 48,317,172 214,325 411,711 626,036
Issuance of common stock under various
employee stock plans 2,247,911 24,909 -- 24,909
Income tax benefit of disqualifying dispositions
of employee stock -- 3,220 -- 3,220
Net loss -- -- (445,314) (445,314)
--------------------------------------------------------
Balance at December 31, 1993 50,565,083 242,454 (33,603) 208,851
Issuance of common stock under various
employee stock plans 1,895,651 16,847 -- 16,847
Income tax benefit of disqualifying dispositions
of employee stock -- 1,291 -- 1,291
Net income -- -- 109,687 109,687
--------------------------------------------------------
Balance at December 31, 1994 52,460,734 $ 260,592 $ 76,084 $ 336,676
========================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
------
Twenty Five
<PAGE>
Notes to Consolidated Financial Statements
Note 1 The Company
------
Conner Peripherals, Inc. ("Company") was incorporated in California in June
1985, and reincorporated in Delaware in September 1992. The Company sells,
designs and builds a comprehensive line of information storage solutions
products, including disk drives, tape drives, storage management software and
storage systems for a wide range of computer applications.
During each of 1994 and 1993, sales to one customer accounted for
approximately 13% of net sales. During 1992, sales to two customers
accounted for approximately 15% and 12% of net sales.
The Company's fiscal year ends on the Saturday nearest to December 31.
Results of operations for the years ended in 1994 and 1993 include 52 weeks.
Results of operations for the year ended 1992 includes 53 weeks. The Company
reports quarterly results on thirteen-week quarterly periods, each ending on
the Saturday closest to month-end. For purposes of presentation, the Company
has indicated its accounting year as ending on December 31 or the month-end
for interim quarterly periods.
Summary of Significant Accounting Policies
Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of Conner Peripherals, Inc. and its
majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Revenue Recognition: Revenue from product sales to customers is recognized
upon shipment. Revenue from sales to certain distributors is subject to
agreements allowing certain rights of return and price protection on unsold
merchandise held by those distributors. Accordingly, reserves for estimated
future returns, exchanges and credits for marketing and other sales
incentives are also provided upon shipment.
Warranty Expense: The Company provides for the estimated cost which may be
incurred under its various product warranties upon product shipment.
Cash, Cash Equivalents and Short-Term Investments: The Company considers all
highly liquid debt instruments with an original maturity of three months or
less to be cash equivalents. Short-term investments consist primarily of
certificates of deposit, bankers acceptances, preferred stock, corporate
debt, municipal debt and U.S. Government agency debt securities. These
investments generally mature within 12 months and prior to 1994 were carried at
cost, which approximated market.
Effective at the beginning of 1994, the Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" (FAS 115), which requires the Company to
classify debt and equity securities into one of three categories; held to
maturity, trading or available for sale. The Company's investments are
classified as held to maturity and available for sale as of December 31,
1994. Investment securities classified as held to maturity are measured at
amortized cost based on the Company's positive intent to hold such securities
to maturity. Investment securities classified as available for sale are
measured at market value and net unrealized gains and losses are recorded as
a separate component of stockholders' equity until realized. Any gains or
losses on sales of investments are computed on specific identification. As of
December 31, 1994, net unrealized gains and losses on investments available
for sale were not material. The cumulative effect of adopting FAS 115 was not
material to the Company's financial position or results of operations.
Inventory: Inventories are stated at the lower of cost or market, cost being
determined on a first-in, first-out basis.
Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Equipment and furniture are depreciated using the straight-line method
based upon the estimated useful lives of the related assets which range from
eighteen months to 5 years. Leasehold improvements are amortized using the
straight-line method based upon the shorter of the estimated useful lives or the
lease term of the respective assets. Buildings
------
Twenty Six
<PAGE>
are depreciated using the straight-line method over the estimated useful life of
25 to 30 years.
Land and buildings held for sale, which are no longer used in the Company's
operations or held for future expansion, are stated at the lower of cost or
estimated fair value.
Goodwill and Other Intangibles: Goodwill and other intangibles, which include
patents and acquired technology, are being amortized over their estimated
useful lives ranging from 2 to 10 years. The Company evaluates the
recoverability of intangible assets based on future discounted cash flows.
Charges for impairment of intangible assets are recorded to the extent
unamortized book value of such assets exceed the related future discounted cash
flows.
Income Taxes: The Company accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." See Note 7 for additional information regarding the Company's
accounting for income taxes.
Net Income (Loss) Per Share: Primary net income per share is computed using
the weighted average number of common and dilutive common equivalent shares
outstanding. Common equivalent shares consist of stock options (using the
treasury stock method). Fully diluted net income per share is computed using
the weighted average number of common and dilutive common equivalent shares
outstanding and assuming the conversion, if dilutive, of all outstanding
convertible subordinated debentures from the date of issuance for all periods
in which they remained outstanding. For purposes of the fully diluted
computation, net income is adjusted by the after-tax interest expense
applicable to the convertible subordinated debentures. Primary and fully
diluted net loss per share is computed using the weighted average number of
common shares outstanding.
Foreign Currency Translation: The Company currently uses the U.S. dollar as
the functional currency of its foreign operations. Gains or losses from
foreign currency translation are included in the determination of net income.
To date, such amounts have been immaterial.
Concentration of Credit Risk: Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist principally
of cash and cash equivalents, short-term investments and trade accounts
receivable. The Company places its cash and cash equivalents and short-term
investments in a variety of financial instruments such as certificates of
deposit, bankers acceptances, preferred stock, corporate debt, municipal debt
and U.S. Government agency debt securities. The Company, by policy, limits
the amount of credit exposure to any one financial institution or commercial
issuer.
The Company sells its products to original equipment manufacturers and
distributors throughout the world. The Company performs ongoing credit
evaluations of its customers' financial condition and, generally, requires no
collateral from its customers. The Company maintains an allowance for
uncollectible accounts receivable based upon the expected collectibility of
all accounts receivable.
Foreign Currency Financial Instruments: To hedge against certain balance
sheet and operating income currency exposures incurred in the ordinary course
of business, the Company enters into foreign currency forward contracts and
purchases foreign currency option contracts for periods and amounts
consistent with the amounts and timing of operating cash flow requirements
and vendor purchase commitments. Gains and losses are deferred and offset by
gains and losses on the underlying hedged exposures. The Company does not
hold or issue financial instruments for trading purposes. The counterparties
to these contracts consist of international financial institutions. The
Company monitors the credit ratings and capital and surplus of its
counterparties.
Presentation: Certain prior year financial statement balances have been
reclassified to conform to the 1994 presentations.
------
Twenty Seven
<PAGE>
Note 2 Short-Term Investments
------
The amortized cost and estimated fair value of securities held to maturity
and available for sale as of December 31, 1994, are as follows:
<TABLE>
<CAPTION>
Gross Gross Gross Estimated
amortized unrealized unrealized fair
cost gains losses value
-----------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Held to maturity:
U.S. Government
and agency bonds $ 27,235 $-- $(155) $ 27,080
State and political
subdivision bonds 66,077 -- (380) 65,697
Corporate debt
securities 64,085 80 (128) 64,037
Other 71,852 5 -- 71,857
--------------------------------------------
229,249 85 (663) 228,671
Available for sale-
Auction preferred stock 94,800 -- -- 94,800
--------------------------------------------
Total debt and
equity securities 324,049 $85 $(663) $323,471
====================================
Less cash
equivalents 83,196
--------
Short-term investments $240,853
========
</TABLE>
The contractual maturities of investments held to maturity and available for
sale are one year or less. The realized gains and losses as of December 31,
1994, had no material impact to the Company's financial position or results of
operations. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
Note 3 Balance Sheet and Statement of Operations Components
------
<TABLE>
<CAPTION>
December 31, 1994 1993
-----------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Inventories:
Purchased components $ 86,970 $ 81,620
Work-in-process 72,692 37,939
Finished goods 96,218 54,301
-----------------------
$255,880 $173,860
=======================
Property plant and equipment:
Building $ 28,394 $ 47,335
Equipment and furniture 345,689 289,517
Leasehold improvements 63,404 60,762
Construction-in-progress 28,257 34,026
-----------------------
465,744 431,640
Less accumulated depreciation
and amortization 256,131 200,303
-----------------------
209,613 231,337
Buildings and improvements
held for sale, net 27,453 --
-----------------------
$237,066 $231,337
=======================
Goodwill and other intangibles:
Goodwill $ 5,073 $ --
Intangibles 70,337 64,003
-----------------------
75,410 64,003
Less accumulated amortization 36,155 21,059
-----------------------
$ 39,255 $ 42,944
=======================
Accrued expenses:
Accrued employee compensation $ 32,997 $ 33,041
Accrued income taxes 41,841 14,298
Accrued warranty costs 45,422 38,299
Accrued restructuring costs 7,549 66,380
Other liabilities 62,563 65,042
-----------------------
$190,372 $217,060
=======================
</TABLE>
------
Twenty Eight
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993 1992
-------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Other income, net:
Interest income $16,193 $17,700 $35,050
Minority interest in joint ventures 2,120 649 (6,457)
Gain on sale of Read-Rite
Corporation common stock 22,294 -- 22,540
Other (5,383) 8,318 (2,077)
------------------------------
$35,224 $26,667 $49,056
==============================
</TABLE>
Note 4 Unusual Items
------
In the fourth quarter of 1994, the Company recorded $33,019,000 as a net
pretax credit to income for two unusual items. As discussed below, the
Company recorded an unusual credit of $38,019,000 for the reduction of
restructuring reserves established during 1993. This credit was partially
offset by a $5,000,000 unusual charge taken to write-off in-process research
and development associated with the acquisition of Quest Development
Corporation.
During 1993, the Company recorded special charges totaling $378,702,000, of
which $40,300,000 was charged to cost of sales and $338,402,000 was charged
to unusual items. The $40,300,000 charge to cost of sales reflected the cost
of the Company's actions to accelerate the end-of-life of certain disk drive
products. The $338,402,000 charge included a write-down of goodwill and other
intangibles of $212,945,000, restructuring charges of $106,457,000 for the
reduction of excess manufacturing capacity and the streamlining of operations
and a charge of $19,000,000 for certain contingencies.
The write-down of intangible assets totaling $212,945,000 consisted of
$180,000,000 for the remaining unamortized balance of goodwill related to the
Archive Corporation acquisition and $32,945,000 of identified intangibles.
The Company believes that the write-down of these assets was necessitated by
the emergence during 1993 of fundamental changes in the storage business,
primarily the increase in competition and the standardization of technologies
in the tape drive industry, which caused the value of these assets to be
permanently impaired.
The restructuring charges totaling $106,457,000 resulted from the Company's
decision to reduce excess manufacturing capacity to a level more consistent
with sustainable demand, to streamline operations as well as administrative
processes to reduce the Company's cost structure and to further integrate and
reduce selling, general and administrative and research and development
activities of both the disk and tape drive operations. As part of this
restructuring, the Company had decided to close certain of its manufacturing
operations.
In the fourth quarter of 1994, the Company lowered its estimate of the total
cost of restructuring and recorded an adjustment to its restructuring
reserves thereby increasing operating income by $38,019,000. This reduction
resulted from the modification of the Company's operating plans, primarily
the decision to cancel the closure of certain manufacturing operations due to
changing business conditions. These changing business conditions primarily
pertain to the improvement in local economies, the reduction in manufacturing
cost benefits achieved by shifting production to other locations and certain
other strategic benefits realized by maintaining a local presence.
------
Twenty Nine
<PAGE>
As of December 31, 1994, the Company has executed all of its restructuring
actions. As a result, approximately 780 employees from manufacturing,
research and development, sales and marketing and administrative departments
have been terminated and facilities have been reduced by approximately
360,000 square feet. The Company's annual savings from operations resulting
from these actions was to reduce salaries and benefits by approximately
$32,000,000, depreciation expense by approximately $7,000,000 and rental
expense by approximately $2,000,000.
The following table sets forth the Company's restructuring reserves as of
December 31, 1993 and 1994:
<TABLE>
<CAPTION>
Restructuring Reserves
---------------------------------------------
Severances Excess Equipment
and benefits facilities and other Total
-------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
1993 restructuring
charges $22,403 $ 28,511 $ 55,543 $106,457
Cash charges (7,077) (623) (1,723) (9,423)
Non-cash charges -- -- (30,654) (30,654)
---------------------------------------------
Reserve balances,
December 31, 1993 15,326 27,888 23,166 66,380
Cash charges (3,824) (2,126) (7,793) (13,743)
Non-cash charges -- (240) (6,829) (7,069)
Adjustments (9,482) (21,595) (6,942) (38,019)
---------------------------------------------
Reserve balances,
December 31, 1994 $ 2,020 $ 3,927 $ 1,602 $ 7,549
=============================================
</TABLE>
The Company expects that substantially all of the remaining employee termination
payments will be paid during 1995. Lease rental obligations included in excess
facilities are net of approximately $2,119,000 of estimated sublease income
expected to be derived from subleasing of the effected facilities. These
obligations will be paid through the year 2018 or sooner to the extent the
Company is able to negotiate a lease settlement or otherwise dispose of the
properties. Write-offs of assets and payments against other reserves at December
31, 1994, are expected to be substantially completed by the end of 1996.
In December 1992, in connection with the acquisition of Archive Corporation,
the Company recorded an unusual charge of $57,611,000 representing the fair
value of acquired research and development projects in-process at the date of
the acquisition.
Note 5 Acquisitions
------
During 1994, the Company's then wholly-owned subsidiary, Arcada Software,
Inc. ("Arcada") acquired Quest Development Corporation ("Quest") for
$8,500,000 in cash and issuance of shares representing approximately 22%
ownership interest in Arcada. Arcada is engaged in developing, producing and
marketing software products for data storage management. The effect of the
acquisition of Quest was not material to the Company's financial condition or
results of operations with the exception of the write-off of in-process
research and development of $5,000,000 included in "Unusual Items" (see Note
4).
During 1994, the Company increased its ownership interest in its joint
venture, Conner Shenzhen Peripherals Company Ltd., located in Shenzhen,
People's Republic of China, from 60% to 90% for $7,000,000 of which
$5,000,000 was paid during 1994. During 1993, the Company purchased for
$16,000,000 the remaining 49% minority interest owned by Olivetti S.p.A in
Conner Peripherals Europe, S.p.A. ("CPE"), the Company's majority-owned
subsidiary located in Italy. In connection with the acquisition, Olivetti
committed to purchase certain minimum quantities of the Company's products,
subject to certain conditions, for a period of three years. These acquisitions
had no material impact to the Company's financial condition or results of
operations.
------
Thirty
<PAGE>
In December 1992, the Company acquired Archive Corporation ("Archive"), a
manufacturer and supplier of tape back-up and data storage products for
$185,000,000 paid in cash, assumption of debt for $104,000,000 (all of which was
repaid during 1993 and 1992) and $17,000,000 for exchange of Archive stock
options and transaction costs. The excess of the purchase price over the fair
market value of the net tangible assets acquired was $303,893,000, of which
$57,611,000 was allocated to in-process research and development, $55,000,000
was allocated to various intangibles and the remaining $191,282,000 was
allocated to goodwill. The in-process research and development of $57,611,000
purchased in connection with the acquisition was expensed in 1992. During the
third quarter of 1993, the Company wrote-off all the unamortized goodwill and
certain other intangibles due to impairment resulting from changes in the
storage business (see Note 4). Operations of Archive have been included in the
Company's consolidated results of operations since the beginning of 1993.
Had the acquisition of Archive occurred as of the beginning of 1992,
unaudited net sales, net income and earnings per share presented on a pro
forma basis for the year ended December 31, 1992 would have been
$2,590,635,000, $157,804,000 and $2.36, respectively. This information was
prepared as if the acquisition had been consummated as of the beginning of 1992
and after giving effect to certain pro forma adjustments. The pro forma
information excludes the effects of the nonrecurring charges of $57,611,000
for in-process research and development (see Note 4). This pro forma
information does not purport to be indicative of what would have occurred had
the acquisition been consummated at the beginning of 1992 or of the results
which may occur in the future.
Note 6 Supplemental Cash Flow Disclosure
------
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993 1992
-------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Cash paid during the year for:
Interest $48,663 $49,896 $ 40,506
Income taxes $ 4,821 $20,187 $ 17,218
Non-cash investing and
financing activities:
Fair market value of
Archive assets acquired,
including goodwill $ -- $ -- $ 306,485
Debt assumed $ -- $ -- $(104,000)
</TABLE>
Note 7 Income Taxes
------
Income (loss) before income taxes includes $156,155,000, $(148,738,000), and
$185,708,000 of income (loss) relating to non-U.S. operations for 1994, 1993
and 1992, respectively.
The provision (benefit) for income taxes includes the following:
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993 1992
------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Current:
Federal $10,669 $ 1,902 $ 24,607
State 1,000 142 5,657
Foreign 3,467 5,039 17,451
------------------------------
15,136 7,083 47,715
------------------------------
Deferred:
Federal 23,097 (27,848) (8,700)
State 6,631 (4,897) (4,367)
------------------------------
29,728 (32,745) (13,067)
------------------------------
Total $44,864 $(25,662) $ 34,648
==============================
</TABLE>
------
Thirty One
<PAGE>
Deferred taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities. Deferred tax liabilities (assets) are comprised of the
following:
<TABLE>
<CAPTION>
December 31, 1994 1993
-------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Inventory valuation $ (14,028) $ (13,552)
Depreciation and amortization (11,465) (9,781)
Accounts receivable reserves (11,435) (15,030)
Accrued expenses and other (33,591) (41,178)
Net operating loss and tax credit
carryforwards (41,764) (69,491)
-----------------------------
(112,283) (149,032)
-----------------------------
Unremitted earnings of foreign
subsidiaries 169,415 138,459
Technology and other intangibles 11,821 13,328
State income taxes 5,375 6,846
-----------------------------
186,611 158,633
-----------------------------
Valuation reserves 3,390 33,617
-----------------------------
Total $ 77,718 $ 43,218
=============================
</TABLE>
A reconciliation of the income tax provision (benefit) computed by applying
the domestic federal statutory rate to pretax income, to the recorded
provision (benefit) for income taxes follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993 1992
----------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Provision (benefit) at
statutory rate 35.0% (35.0)% 34.0%
Differences between United
States and foreign taxes
and limitations on the benefits
of foreign losses (9.9) 12.6 (13.0)
State taxes, net of federal
benefit 3.2 (0.7) 0.6
Goodwill -- 13.7 --
Change in federal valuation
reserve -- 1.9 --
Impact of rate change -- 0.3 --
Other 0.7 1.8 0.7
----------------------------
29.0% (5.4)% 22.3%
============================
</TABLE>
In connection with the Internal Revenue Service ("IRS") examination of the tax
returns of Archive and its subsidiaries, in 1994 the Company filed amended
federal tax returns reporting certain adjustments to income which reduced the
net operating loss carryforwards relating to pre-acquisition operations of
Archive and its subsidiaries by approximately $86,000,000. These adjustments
resulted in a reduction of the pre-acquisition unremitted foreign earnings of
Archive and its subsidiaries by the same amount. Consequently, the
------
Thirty Two
<PAGE>
Company reduced its gross deferred tax assets by approximately $30,000,000 and
made a corresponding reduction to its valuation reserves of approximately
$30,000,000. These adjustments had no impact on the tax provision or the net
deferred tax liabilities of the Company. At December 31, 1994, the Company has
net operating loss carryforwards of approximately $72,000,000 expiring 1997
through 2007, relating to pre-acquisition operations of Archive and its
subsidiaries. These losses may be used to offset future taxable income, subject
to an annual maximum limitation of approximately $12,000,000.
At December 31, 1994, the Company had deferred tax assets of approximately
$9,000,000 relating to post-acquisition net operating loss carryforwards of
Archive and its subsidiaries and foreign tax credit carryforwards which,
subject to certain restrictions, are available to reduce taxes on future
taxable income and expire in 1995 through 2008. At December 31, 1994, the
Company had not provided U.S. federal and state income taxes of approximately
$78,300,000 on cumulative unremitted earnings of its consolidated foreign
subsidiaries which are intended to be indefinitely reinvested.
The Company enjoys a tax holiday in Singapore relating to the manufacture of
disk drives, which expires in 1997, subject to post-holiday benefits. The
Company currently enjoys no tax holiday in Singapore with respect to the
manufacture of tape drives. However, the Company has applied for a Singapore
tax holiday through June 1997, relating to the manufacture of its newly
developed tape drives. The Company's initial tax holiday in Malaysia expired
on December 31, 1994 with respect to the manufacture of disk drives and
related subassemblies. The Company has applied for a five-year extension of
the tax holiday with respect to the manufacture of disk drives in Malaysia.
The Company also enjoys a tax holiday in China through December 1995,
relating to the manufacture of disk drives. The net impact of these tax
holidays was to increase net taxable income by $16,000,000 ($0.21 per share
fully diluted) in 1994, reduce the net loss by approximately $3,000,000
($0.06 per share fully diluted) in 1993 and increase net income by approximately
$27,800,000 ($0.37 per share fully diluted) in 1992.
The IRS is currently reviewing Archive and its subsidiaries' federal income
tax returns for 1985 through 1989. In December 1994, the IRS completed its
review of the Company's federal tax returns for 1989 and 1990 and issued a
deficiency notice for $43,000,000 in additional taxes. This assessment
results primarily from adjustments proposed by the IRS to the allocation of
income between the Company and its foreign manufacturing subsidiaries. The
Company believes it has meritorious defenses to the proposed adjustments and
will contest this assessment. Upon final resolution, the deficiency payment,
if any, will include assessed interest. Management believes that the ultimate
resolution of the ongoing IRS audits and pending assessments will not have a
material adverse impact on the Company's financial position or results of
operations.
Note 8 Long-Term Debt and Lines of Credit
------
<TABLE>
<CAPTION>
December 31, 1994 1993
---------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Convertible subordinated debentures,
6.75%, due 2001, convertible into
7,931,035 shares of common stock $230,000 $230,000
Convertible subordinated debentures,
6.5%, due 2002, convertible into
14,375,000 shares of common stock 345,000 345,000
Senior unsecured notes, 8.84% and
9.08%, due through 1998 73,333 105,000
Senior unsecured note, 12% -- 9,000
Italian Lira debentures and notes,
7% to 7.38%, due through 2000 12,393 13,628
Other borrowings 1,255 1,090
----------------------
661,981 703,718
Less current portion 34,922 43,112
----------------------
$627,059 $660,606
======================
</TABLE>
------
Thirty Three
<PAGE>
During 1993, the Company modified certain terms of the senior unsecured notes.
Under the modified terms, in exchange for revising certain financial covenants,
the Company agreed to increase the interest rates of the notes by half a percent
for periods commencing from October 1, 1993, and ending the earlier of March 31,
1995, or the due dates of the notes.
Based upon quoted market prices, the fair value of the convertible subordinated
debentures was approximately $402,500,000 at December 31, 1994. The estimated
fair value of the Company's remaining long-term debt was $88,573,000 at December
31, 1994. The fair values of debt for which quoted prices were not available has
been determined based upon interest rates available to the Company for the
issuance of debt with similar terms and remaining maturities.
At December 31, 1994, future minimum principal payments on long-term debt and
capitalized lease obligations were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------
(in thousands)
<S> <C>
1995 $ 34,922
1996 34,309
1997 6,993
1998 7,107
1999 2,255
Thereafter 576,395
--------
$661,981
========
</TABLE>
On December 23, 1993, the Company entered into a revolving credit facility
agreement ("Agreement") with a group of banks allowing borrowings of up to
$100,000,000 through December 23, 1995. Borrowings under the revolving credit
facility carry interest at the banks' prime rate or, at the option of the
Company, at an interbank offered rate (as defined in the Agreement). The
Agreement provides for a commitment fee. As of December 31, 1994, the Company
had no borrowings under the revolving credit facility. At December 31, 1994,
the Company had outstanding letters of credit and guarantees of $58,429,000.
The revolving credit facility and senior unsecured notes prohibit the payment
of cash dividends and require the maintenance of various financial covenants.
Without the prior consent of the lenders, the Company is also prohibited from
incurring debt and lease commitments in excess of specified amounts or
entering into acquisition, sale of business, merger or joint venture
agreements in excess of certain amounts. At December 31, 1994, the Company
was in full compliance with all covenants and conditions.
Note 9 Lease Commitments
------
The Company leases certain property, facilities and equipment under
non-cancelable operating leases. The terms of the leases for property,
facilities and equipment expire over the next 25 years with renewal options
in certain instances. In addition, the Company has leased certain equipment
under capitalized leases with outstanding lease obligations of less than one
million dollars as of December 31, 1994. These obligations mature sub-
stantially in 1995 and 1996.
Future minimum lease payments under non-cancelable operating leases as of
December 31, 1994 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------
(in thousands)
<S> <C>
1995 $17,372
1996 11,899
1997 9,445
1998 7,272
1999 6,603
Thereafter 36,895
-------
$89,486
=======
</TABLE>
------
Thirty Four
<PAGE>
Rent expense for all operating leases was approximately $22,767,000 in 1994,
$24,446,000 in 1993 and $15,958,000 in 1992.
Note 10 Employee Benefit Plans
-------
Incentive Stock Plans: In 1986, the Company adopted the 1986 Incentive Stock
Plan ("Plan"). The Plan provides for the issuance of non-transferable stock
options to employees of the Company and non-statutory stock options and stock
purchase rights to directors, employees and consultants of the Company. The
Company has never issued any stock purchase rights. A total of 18,500,000
shares of common stock have been reserved for issuance of options and stock
purchase rights under the Plan. At December 31, 1994, 4,086,125 shares were
available for future grants of options and stock purchase rights.
Stock options are granted at prices of not less than 100% of the fair market
value of the common stock at the time of grant, except that stock options
granted to any employee who owns stock representing more than 10% of total
voting power must have an exercise price of not less than 110% of fair market
value. Options granted under the Plan prior to July 1992 expire five years
after the date of grant and vest over a period of four years. In July 1992,
the Plan was amended to provide an expiration period for subsequent stock
grants to ten years from the date of grant.
On December 29, 1992, upon completion of the acquisition of Archive, the
Company assumed the obligations existing under Archive's Incentive Stock
Option and Restricted Stock Purchase Plans ("Archive Plans"). Effective on
that date, the Company converted existing options to purchase Archive common
stock under the Archive Plans into an equivalent number of options to
purchase the Company's common stock. A total of 1,125,000 shares of the
Company's common stock were reserved for issuance of options of which
1,059,258 were issued upon the conversion. These options expire at various
times through 2002.
The following table summarizes stock option activity under the Plan and
Archive Plans:
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993 1992
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at
beginning of the year 8,529,767 8,592,493 5,510,468
Granted 2,781,277 3,292,099 3,213,825
Conversion of the
Archive Plans -- -- 1,059,258
Exercised ($0.15 per share
to $23.50 per share) (746,332) (1,329,620) (868,619)
Canceled (1,646,116) (2,025,205) (322,439)
----------------------------------------
Options outstanding at
end of the year 8,918,596 8,529,767 8,592,493
========================================
Options exercisable at
end of the year 3,784,502 3,547,071 2,871,736
Range of exercise price
of outstanding options
at end of the year $ 5.19 $ 5.19 $ 5.00
$26.88 $26.88 $26.88
</TABLE>
Restricted Stock Plan: In 1992, the Company's stockholders approved the adoption
of the 1992 Restricted Stock Plan ("Restricted Plan"). A total of 1,000,000
shares of common stock are reserved for issuance under the Restricted Plan. The
aggregate fair value of the shares granted under the Restricted Plan is
considered unearned compensation at the time of grant and compensation is earned
ratably over the vesting period of seven years. Total compensation expense
recognized during 1994, 1993 and 1992 was not material. At December 31, 1994,
379,937 shares had been issued under the Restricted Plan.
Arcada Stock Plan: During 1994, the Board of Directors of the Company's
majority-owned subsidiary, Arcada Holdings, Inc. ("Arcada"), approved a stock
option plan for employees and consultants of Arcada. This plan provides for
the issuance of up to 7,667,186 shares of common stock of Arcada. During
1994, options were granted at prices of $0.08 and $0.09 per
------
Thirty five
<PAGE>
share which represents the fair market value of Arcada common stock at the
date of grant, as determined by Arcada's Board of Directors. Options granted
under this plan expire ten years after the date of grant and vest over a
period of four years. If all options were issued and exercised, they would
dilute the Company's ownership in Arcada from 78% to approximately 64%. As of
December 31, 1994, the number of options outstanding was 5,022,341.
Employee Stock Purchase Plan: In 1988, the Company adopted an Employee Stock
Purchase Plan ("Purchase Plan"). A total of 4,500,000 shares of common stock
are reserved for issuance under the Purchase Plan. Shares may be purchased by
participants at the lower of 85% of the fair market value of the common stock
at the beginning or end of each six-month offering period. Shares are to be
purchased from payroll deductions which are limited to 15% of an employee's
compensation. At December 31, 1994, 3,810,557 shares had been issued under
the Purchase Plan.
Profit Sharing Plan: The Company had a profit sharing plan which provided for
additional compensation to substantially all employees of the Company, with
the exception of certain marketing and sales personnel who were compensated
on a commission basis, Arcada employees and certain non-U.S. employees. Prior
to 1994, the additional compensation was determined on a quarterly basis,
based upon a percentage of the amount of operating profit in excess of a
stipulated return on equity. As a result of operating losses incurred in
1993, the Company did not distribute profit sharing or record charges to income
relating to profit sharing. Charges to income for the profit sharing plan
during 1992 were approximately $14,686,000 which is included in selling,
general and administrative costs.
During 1994, upon certain stockholder approval, the Company adopted new
profit sharing and incentive compensation bonus plans ("Plans") for eligible
employees, with the exception of certain sales-commissioned personnel and
Arcada employees. Additional compensation is earned and paid on a quarterly
or semi-annual basis on the achievement by the Company of revenue and operating
income targets as a percentage of the Company's financial plan established at
the beginning of the fiscal year. Individual performance for those employees
participating in the incentive compensation bonus plans are earned and paid
on a quarterly or semi-annual basis. In addition, certain eligible employees
participating in plans are entitled to receive additional year end bonus
awards based on the achievement by the Company of annual revenue and
operating income targets as a percentage of the Company's financial plan.
Charges to income for the Plans during 1994 were approximately $9,042,000
which is included in selling, general and administrative costs.
401(k) Savings Plan: In 1990, the Company adopted a 401(k) savings plan
("Savings Plan") covering substantially all of its U.S. employees. Under the
Savings Plan, eligible employees may contribute up to 15% of their
compensation to the Savings Plan with the Company matching participants'
contributions up to $250 per employee per year at the rate of 50% of the
employee contribution. Both the participants' and the Company's contributions
are fully vested. To date, the Company's contributions have not been material.
Note 11 Repurchase of Common Stock
-------
As of December 31, 1991, Compaq Computer Corporation ("Compaq") owned
approximately 21% of the outstanding common stock of the Company. In August
1992, the Company repurchased and retired 11,638,802 shares of the Company's
common stock from Compaq, representing substantially all of Compaq's equity
interest in the Company.
------
Thirty Six
<PAGE>
Note 12 Preferred Shares Rights Agreement
-------
On November 29, 1994, the Board of Directors ("Board") adopted a Preferred
Shares Rights Agreement ("Agreement") and pursuant to the Agreement
authorized and declared a dividend of one preferred share purchase right
("Right") for each common share outstanding of the Company on January 10,
1995. The Rights are designed to protect and maximize the value of the
outstanding equity interests in the Company in the event of an unsolicited
attempt by an acquirer to take over the Company, in a manner or terms not
approved by the Board. Each Right becomes exercisable to purchase one-hundredth
of a share of Series A Participating Preferred Stock at an exercise price of
$70.00 and expire on November 29, 2004. The Company may redeem the Rights at a
price of $0.01 per Right.
Note 13 Foreign Currency Exposure and Risk Management
-------
The Company enters into foreign currency forward contracts and purchases
foreign currency option contracts to hedge operating cash flow requirements
and vendor purchase commitments denominated in foreign currency (principally
British Pound Sterling, Singapore Dollars, Italian Lira and Japanese Yen). The
terms of such hedging instruments are not more than three months for all
currencies other than those for Yen which are up to eight months. The purpose of
the Company's foreign currency hedging activities is to protect the Company's
foreign currency assets and liabilities and foreign currency operating cash
flows from adverse changes in exchange rates. As of December 31, 1994, the
realized and deferred gains and losses on option and forward contracts were not
material. At December 31, 1994, the Company had outstanding foreign currency
forward contracts and foreign currency option contracts aggregating
approximately $60,890,000 and $22,870,000, respectively. The contract amounts
approximate the fair value of outstanding contracts and options at December 31,
1994. These contracts mature at various periods through April 1995 and are
consistent with the amounts and timing of the underlying anticipated cash flow
requirements and purchase commitments.
Note 14 Foreign Operations
-------
The Company operates in one industry segment (see Note 1). The following is a
summary of the Company's operations:
<TABLE>
<CAPTION>
Year Ended December 31 1994 1993 1992
-------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Sales to third-party
customers:
United States:
Customers in
United States $ 1,240,099 $ 997,764 $ 867,916
Customers in
Europe & Asia 902,896 859,447 892,506
-----------------------------------------
2,142,995 1,857,211 1,760,422
-----------------------------------------
Asia 142,562 193,257 326,502
Europe 79,595 101,204 151,499
-----------------------------------------
2,365,152 2,151,672 2,238,423
-----------------------------------------
Intercompany
sales between
geographic areas:
United States 239,341 285,250 74,579
Asia 1,787,390 1,426,370 1,388,617
Europe 2,929 98,007 106,037
-----------------------------------------
2,029,660 1,809,627 1,569,233
-----------------------------------------
Consolidation
eliminations (2,029,660) (1,809,627) (1,569,233)
-----------------------------------------
Net sales $ 2,365,152 $ 2,151,672 $ 2,238,423
-----------------------------------------
Operating income:
United States $ 14,000 $ (295,722) $ (3,287)
Asia 110,194 (88,303) 119,348
Europe 42,370 (62,405) 37,469
-----------------------------------------
$ 166,564 $ (446,430) $ 153,530
=========================================
Identifiable assets:
United States $ 666,106 $ 577,962 $ 815,382
Asia 295,359 313,319 404,506
Europe 56,725 55,223 70,292
-----------------------------------------
1,018,190 946,504 1,290,180
General corporate assets 443,239 517,547 614,527
-----------------------------------------
Total assets $ 1,461,429 $ 1,464,051 $ 1,904,707
=========================================
</TABLE>
------
Thirty Seven
<PAGE>
Intercompany sales are accounted for at prices intended to approximate those
that would be charged to unaffiliated customers. At December 31, 1994, 1993
and 1992, foreign liabilities (excluding intercompany balances) were
$143,038,000, $273,288,000 and $280,053,000, respectively.
Note 15 Litigation
-------
The Company and certain of its officers and directors are defendants in a
securities class action lawsuit which purports to represent a class of
investors who purchased or otherwise acquired the Company's common stock
between January 1992 and May 1993. Certain officers and directors are also
defendants in a related stockholders derivative suit. The complaints seek
unspecified damages and other relief. The Company intends to defend the
actions vigorously.
In August 1993, the Company was served with a patent infringement complaint,
filed by IBM, alleging that products manufactured by the Company have
infringed certain patents owned by IBM. In addition, the complaint seeks
declaratory relief to the effect that disk drives produced by IBM do not
infringe certain patents held by the Company and seeks to have such patents
declared invalid. The Company answered the complaint, denying all material
allegations and counterclaiming that IBM disk drives infringe certain patents
owned by Conner, including those patents contained in the IBM complaint. The
Company believes that it has meritorious defenses against these allegations,
that it has valid claims against IBM and will defend this action vigorously.
Although the Company has engaged in continuous discussions with IBM toward an
appropriate cross-licensing arrangement, the Company is unable to predict the
outcome of the settlement negotiations, the litigation and the ultimate
effect, if any, on its operations or financial condition. Regardless of the
merits of the respective patent claims, the Company believes that the
existence of the IBM litigation could have an adverse effect on its business.
In addition, this litigation is causing the Company to incur significant
costs, including substantial legal expenses.
In 1992, the Company filed a patent infringement lawsuit against Western
Digital Corporation ("Western Digital") alleging the infringement of five of
the Company's patents by Western Digital. Western Digital has filed a
counterclaim alleging infringement of certain of its patents by the Company.
The Company believes it has valid claims against Western Digital and
meritorious defenses to the claims asserted by Western Digital.
In 1994, the Company was served with a patent litigation claim alleging that
the Company's DC2000 tape drives infringe a patent held by Iomega Corporation
("Iomega"). This claim was settled by the Company and Iomega during 1994 and
had no material effect on the results of operations.
------
Thirty Eight
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Stockholders of Conner Peripherals, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Conner Peripherals, Inc. and its subsidiaries at December 31, 1994 and 1993, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1994, in conformity with generally accepted
accounting principles. These consolidated financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 15, the Company is a defendant in a lawsuit alleging
infringement of certain patents. The Company is unable to predict the outcome
of the litigation or ultimate effect, if any, on its operations or financial
condition.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
San Jose, California
January 11, 1995
------
Thirty Nine
<PAGE>
Report of Management
Responsibility for the integrity and objectivity of the financial information
presented in this Annual Report rests with Conner management. The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles.
Conner maintains an effective internal control structure. It consists, in part,
of organizational arrangements which clearly define lines of responsibility and
comprehensive systems of review and control procedures. We believe this
structure provides reasonable assurance that transactions are executed in
accordance with management's authorization, that they are appropriately
recorded, in conformity with generally accepted accounting principles and that
they adequately safeguard, verify and maintain accountability of assets. In
order to assure an effective internal control system, we carefully select and
train our employees, develop and disseminate written policies and procedures and
foster an environment conducive to the effective functioning of controls. We
believe that it is essential for the Company to conduct its business affairs in
accordance with the highest ethical standards.
The Audit Committee of the Board of Directors is composed solely of outside
directors, and is responsible for recommending to the Board the independent
accounting firm to be retained for the coming year, subject to stockholder
approval. The Audit Committee meets periodically and privately with the
independent accountants, with our internal auditors, as well as with Conner
management, to review accounting, auditing, internal control structure and
financial reporting matters.
Price Waterhouse LLP, independent accountants, are retained to examine
Conner's financial statements. Their accompanying report is based on an
examination conducted in accordance with generally accepted auditing
standards, including a review of the internal control structure and tests of
accounting procedures and records.
/s/ David T. Mitchell /s/ P. Jackson Bell
David T. Mitchell P. Jackson Bell
President and Chief Operating Executive Vice President and Chief
Officer Financial Officer
Market Price of Common Stock
The Company's common stock is traded on the New York Stock Exchange under the
symbol "CNR." The following table shows the high and low closing sales prices
for the common stock of the Company for the periods indicated, as reported by
the New York Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
1994 High Low
--------------------------------------------------------------------------------
<S> <C> <C>
Quarter ended March 31, 1994 19 3/8 14 3/8
Quarter ended June 30, 1994 16 3/4 11 7/8
Quarter ended September 30, 1994 13 3/8 10 3/8
Quarter ended December 31, 1994 13 9 1/8
<CAPTION>
1993 High Low
--------------------------------------------------------------------------------
<S> <C> <C>
Quarter ended March 31, 1993 24 3/8 13 1/2
Quarter ended June 30, 1993 13 5/8 9 1/4
Quarter ended September 30, 1993 13 9 1/4
Quarter ended December 31, 1993 14 5/8 9 1/4
</TABLE>
The Company has not paid cash dividends on its common stock and does not plan to
pay cash dividends to its stockholders in the near future. The Company presently
intends to retain its earnings to finance further growth of its business. As of
December 31, 1994, the Company had 2,686 stockholders of record.
------
Forty
<PAGE>
Corporate Directory
Executive Officers and Directors
Finis F. Conner
Chairman of the Board of Directors
and Chief Executive Officer
David T. Mitchell
President, Chief Operating Officer
and Director
P. Jackson Bell
Executive Vice President
and Chief Financial Officer
Donald J. Massaro
Executive Vice President of Sales &
Marketing and President of Tape Division
Dr. Michael L. Workman
Senior Vice President of Engineering
and Chief Technical Officer
Kenneth F. Potashner
Executive Vice President and General
Manager of Disk Drive Operations
William S. Anderson/1,2/
Retired Chairman of the Board and Chief Executive Officer
NCR Corporation
Director*
Ambassador L. Paul Bremer, III/2/
Managing Director
Kissinger Associates, Inc.
Director
W. Howard Lester/2/
Chairman of the Board and Chief Executive Officer
Williams-Sonoma, Inc.
Director
Mark S. Rossi/1,2/
Vice President Prudential Venture Capital
Director
Linda Wertheimer Hart/1,2/
Vice Chairman Hart Group, Inc.
Director
R. Elton White/1/
Retired President of AT&T Global
Information Solutions, Inc.
(formerly NCR Corporation)
Director
/1/ Member of the Audit Committee
/2/ Member of the Compensation Committee
* Not standing for re-election in 1995
Legal Counsel
Wilson, Sonsini, Goodrich & Rosati, P.C.
Palo Alto, CA
Independent Accountants
Price Waterhouse LLP
San Jose, CA
Registrar and Transfer Agent
The First National Bank of Boston
Boston, MA
Bank of Boston stockholder services inquiry number 1-800-442-2001.
Form 10-K
A copy of the Company's Form 10-K, filed with the Securities and Exchange
Commission, is available without charge upon written request to the Investor
Relations Department, Conner Peripherals, Inc., 3081 Zanker Road,
San Jose, California 95134-2128.
Annual Meeting
The annual meeting of stockholders of Conner Peripherals, Inc. will be held
at 10:00 a.m. on April 25, 1995, at the Fairmont Hotel at the Fairmont Plaza
located at 170 S. Market Street, San Jose, California 95113. All Conner
stockholders' are encouraged to attend.
For additional copies of this annual report, contact the Investor Relations
Department, Conner Peripherals, Inc., 3081 Zanker Road, San Jose, California
95134-2128.
<PAGE>
EXHIBIT 21.1
------------
<PAGE>
EXHIBIT 21.1
CONNER PERIPHERALS, INC.
Registered Entities
<TABLE>
<CAPTION>
CORPORATIONS REGISTERED OWNER(S)
------------ -------------------
<S> <C>
Conner Peripherals, Inc. (CPI) N/A
Conner Peripherals (U.K.) Limited (CPUK) CPI
Conner Peripherals GmbH (GMBH) CPI
Conner Peripherals Singapore, Ltd. (in Cayman Islands) (CPS) CPI
Conner Peripherals Pte. Ltd. (in Singapore) (CPPL) CPS
Conner Peripherals (Barbados) Ltd. CPPL
Conner Peripherals Malaysia Sdn. Bhd. (CPM) CPPL
Conner Finance Limited (in Cayman Islands) CPM
Conner Peripherals K.K. (KK) CPI
Conner Peripherals Europe S.p.A. (CPE) CPI
Conner Peripherals France S.a.r.l. (CPF) CPI
Conner Peripherals (U.K.) Sales Limited CPI
Conner Peripherals Korea, Ltd. (CPK) CPI
Conner Peripherals (Hong Kong) Limited (CPHK) CPI
Conner Peripherals China Holding Company (CPCHC) CPS/CPHK
Conner Shenzhen Peripherals Co. Ltd. CPCHC/Shenzhen CPC
Conner Technology International Limited CPI
Archive (Singapore) Pte. Ltd. (in Singapore) CPS
Archive Europe Ltd. (AEL) CPI
Archive U.K. Ltd. AEL
Archive France S.a.r.l. CPI
Arcada Holdings, Inc. (AHI) CPI*
Arcada Software, Inc. (ASI) AHI
Arcada Software U.K., Ltd. ASI
BRANCHES
--------
Conner Peripherals Pte. Ltd., Taiwan Branch (CPT) CPPL
</TABLE>
* - Minority interest held by certain individuals.
<PAGE>
EXHIBIT 23.1
------------
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-46886 and 33-56878) of Conner Peripherals, Inc.
of our report dated January 11, 1995, appearing on page 39 of the Annual Report
to Stockholders which is incorporated in this Annual Report on Form 10-K. We
also consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page S-2 of this Form 10-K.
/s/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
San Jose, CA
March 27, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1994 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 202,386
<SECURITIES> 240,853
<RECEIVABLES> 338,946
<ALLOWANCES> 31,492
<INVENTORY> 255,880
<CURRENT-ASSETS> 1,169,710
<PP&E> 493,197
<DEPRECIATION> 256,131
<TOTAL-ASSETS> 1,461,429
<CURRENT-LIABILITIES> 364,853
<BONDS> 627,059
<COMMON> 260,592
0
0
<OTHER-SE> 76,084
<TOTAL-LIABILITY-AND-EQUITY> 1,461,429
<SALES> 2,365,152
<TOTAL-REVENUES> 2,365,152
<CGS> 1,896,503
<TOTAL-COSTS> 1,896,503
<OTHER-EXPENSES> 302,085
<LOSS-PROVISION> 2,273
<INTEREST-EXPENSE> 47,237
<INCOME-PRETAX> 154,551
<INCOME-TAX> 44,864
<INCOME-CONTINUING> 109,687
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 109,687
<EPS-PRIMARY> 2.10
<EPS-DILUTED> 1.77
</TABLE>
