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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-9
Solicitation/Recommendation Statement Pursuant to
Section 14(d)(4) of the Securities Exchange Act of 1934
READ-RITE CORPORATION
(Name of Subject Company)
READ-RITE CORPORATION
(Name of Person(s) Filing Statement)
Common Stock, $.0001 par value
(Title of Class of Securities)
755246 10 5
(CUSIP Number of Class of Securities)
CYRIL J. YANSOUNI
President and Chief Executive Officer
Read-Rite Corporation
345 Los Coches Street
Milpitas, California 95035
(408) 262-6700
(Name, address and telephone number of person
authorized to receive notice and communications on
behalf of person(s) filing statement)
Copy to:
LARRY W. SONSINI, ESQ.
FRANCIS S. CURRIE, ESQ.
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
(415) 493-9300
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Read-Rite Corporation, a Delaware
corporation (the "Company" or "Read-Rite"), and the address of the principal
executive offices of the Company is 345 Los Coches Street, Milpitas, California
95035. The title and the class of equity securities to which this statement
relates is the common stock, par value $.0001 per share, of the Company (the
"Common Stock" or the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER
This statement relates to announcement of an intention by Applied
Magnetics Corporation, a Delaware corporation ("AMC") to acquire all outstanding
Shares in exchange for 0.679 shares of AMC common stock per Share (the "Proposed
Offer"), upon the terms and subject to the conditions set forth in a
Registration Statement on Form S-4, dated February 24, 1997 (the "Registration
Statement") filed by AMC with the Securities and Exchange Commission (the
"SEC"). According to the Registration Statement, AMC intends, following
consummation of the Proposed Offer to seek to merge the Company with and into
AMC pursuant to applicable law. The Proposed Offer has not been commenced and
cannot be commenced pursuant to the federal securities laws until, among other
things, the Registration Statement is declared effective by the SEC. According
to the Registration Statement, the principal executive offices of AMC are
located at 75 Robin Hill Road, Goleta, California 93117-5400.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the entity
filing this statement, are set forth in Item 1 above.
(b) Certain information regarding contracts, agreements, arrangements
or understandings between the Company and certain of its executive officers,
directors and affiliates is set forth in the Company's Notice of Annual Meeting
of Stockholders and Proxy Statement dated January 15, 1997, relating to its 1997
Annual Meeting of Stockholders (the "Proxy"), under the headings "Compensation
of Directors," "Compensation of Executive Officers," "Board Compensation
Committee Report on Executive Compensation" and "Employment Arrangements." A
copy of each such section of the Proxy Statement is filed as Exhibit 1 to this
statement and is incorporated herein by reference. Except as described herein,
to the knowledge of the Company, as of the date hereof, there are no material
contracts, agreements, arrangements or understandings, or any actual or
potential conflicts of interest between the Company or its affiliates and (i)
the Company, its executive officers, directors or affiliates or (ii) AMC or its
executive officers, directors or affiliates.
Section 145 of Delaware General Corporation Law authorizes a
corporation's Board of Directors to grant indemnity to directors and officers
in terms sufficiently broad to permit such indemnification under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Act of 1933, as amended (the "Act").
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Article X of the Restated Certificate of Incorporation of the Company,
as amended, eliminates to the fullest extent permitted under Delaware law the
personal liability of the directors of the Company to the Company or its
stockholders for monetary damages for certain breaches of fiduciary duty. A copy
of Article X is filed as Exhibit 2 to this statement and is incorporated by
reference herein. Subject to certain limitations, Article VIII of the Bylaws of
the Company also provides for indemnification of officers and directors of the
Company. A copy of Article VIII is filed as Exhibit 3 to this statement and is
incorporated herein by reference.
The Company has entered into indemnity agreements with certain
directors and executive officers. These agreements, among other things,
indemnify the directors and executive officers for certain expenses (including
attorneys' fees), judgments, fines, and settlement payments incurred by such
persons in any action, including any action by or in the right of the Company,
in connection with the good faith performance of their duties as a director or
officer. The indemnification agreements also provide for the advance payment by
the Company of defense expenses incurred by the director or officer; however,
the affected director or officer must undertake to repay such amounts advanced
if it is ultimately determined that such director or officer is not entitled to
be indemnified. A copy of the form of such indemnification agreement is filed as
Exhibit 4 to this statement and is incorporated herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) THE READ-RITE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
COMPANY'S STOCKHOLDERS REJECT THE PROPOSED OFFER, SHOULD IT BE COMMENCED, AND
NOT TENDER THEIR SHARES PURSUANT TO THE PROPOSED OFFER.
At the request of AMC and its bankers, Mr. Cyril J. Yansouni, the
Company's President and Chief Executive Officer, had three meetings with Mr.
Craig Crisman, AMC's Chief Executive Officer, to discuss at a high level AMC's
views of the benefits that might be achieved from a merger pursuant to which
Read-Rite would acquire AMC. These meetings took place in May 1996, on February
16, 1997 and on February 21, 1997. There was no confidential information
exchanged. At the final meeting on February 21, 1997, Mr. Yansouni indicated to
Mr. Crisman that he believed Mr. Crisman's proposal was not in the best
interests of Read-Rite's stockholders but assured Mr. Crisman that he would
relay the substance of the discussions to the Company's Board of Directors
(the "Board") at the Board's next meeting, scheduled for the following
Tuesday, February 25, coincident with the Company's Annual Meeting of
Stockholders.
On Monday, February 24, 1997, AMC issued a press release announcing
AMC's intent to commence a solicitation of the Company's stockholders to remove
the Read-Rite Board, describing the Proposed Offer, and including a letter to
Mr. Yansouni describing the Proposed Offer and requesting a response from the
Company. AMC simultaneously delivered such letter to Mr. Yansouni.
On the same day, Mr. Yansouni convened a special meeting of the Board
to review AMC's letter and press release. The Company's legal and financial
advisors also attended this meeting. Mr. Yansouni read the letter to the Board.
At the Board's request, the Company issued a press release stating that the
Board was reviewing the Proposed Offer pursuant to its fiduciary
responsibilities.
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On Tuesday, February 25, 1997, the Board met with the Company's legal
and financial advisors following the Company's Annual Stockholders Meeting.
Wilson Sonsini Goodrich and Rosati ("WSGR"), counsel to the Company, reviewed
with the Board its fiduciary responsibilities in the context of the Proposed
Offer and its obligations under the federal securities laws. At this meeting,
Mr. Yansouni discussed with the Board his meetings with Mr. Crisman of AMC. The
Board determined to retain Goldman Sachs & Co. ("Goldman Sachs") to serve as
financial advisor to the Company and assist the Board in considering and
analyzing the Proposed Offer, and determined to reconvene a meeting on Friday,
February 28, 1997, for the purpose of reviewing AMC's proposal. The Board
requested that at such meeting management review the Company's current business
strategies and prospects, Goldman Sachs prepare a financial analysis of the
Proposed Offer, and WSGR review with the Board potential measures in
response to the Proposed Offer, including the possible implementation of a
Stockholders Rights Plan.
At the February 28, 1997 meeting, management reviewed again with the
Board the Company's financial and operating performance to date, the Company's
strategic plan, and the market for the Company's thin film inductive products
and magnetoresistive ("MR") products, including products under development. The
Board next received a presentation from Goldman Sachs concerning the Proposed
Offer in which Goldman Sachs gave its opinion that the Proposed Offer is
inadequate. The Board concluded that, based on the considerations set forth
below, remaining an independent company offers the best opportunity for
Read-Rite's stockholders and also its employees and customers to capitalize on
Read-Rite's market leadership, technology and future prospects, and the Board
unanimously voted to reject the Proposed Offer. On March 3, 1997, the Company
issued a press release announcing the Board's rejection of the Proposed Offer. A
copy of this press release is filed as Exhibit 5 to this statement. In addition,
the Company's financial and legal advisors made presentations to the Board
regarding the possible implementation of a Stockholders Rights Plan.
On March 3, 1997, the Board held an additional meeting to consider
implementation of a Stockholders Rights Plan in view of the Proposed Offer and
the current takeover environment. After additional discussion with the Company's
financial and legal advisors, and among themselves, the Board determined that
the implementation of a Stockholders Rights Plan would be in the best interests
of the Company and its stockholders, unanimously approved a Stockholders Rights
Plan previously circulated to the Board, and instructed management to implement
the Plan. On March 4, 1997, the Company issued a press release announcing the
implementation of the Stockholder Rights Plan. A copy of this press release is
filed as Exhibit 6 to this statement.
(b) In reaching the conclusions referred to in Item 4(a), the Board of
Directors took into account numerous factors, including but not limited to the
following:
(i) The Board's familiarity with the business, financial
condition, prospects and current business strategy of the Company, the
nature of the business in which the Company operates and
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the Board's belief that the Proposed Offer does not reflect the
long-term values inherent in the Company. In this regard, the Board
particularly considered the following:
-- The Company's position as the world's leading independent
supplier of magnetic recording heads for rigid disk drives,
the Company's financial condition and current conditions in
the business in which the Company operates.
-- The opinion of the Company's management as to the Company's
prospects for future growth and profitability based on its
view as to the Company's long-term strategic plan, the various
strategic initiatives which have been implemented and
investments that have been made over the past several years,
including in particular management's opinion that the computer
disk drive market is poised to rapidly transition from
inductive head technology to MR head technology and
management's opinion that the Company is well-positioned in
the MR market.
(ii) The Board's review of publicly available information
concerning the strategy, business, operations, earnings and financial
condition of AMC both on a historical and prospective basis and the
historical market prices of AMC common stock.
(iii) The Board's concerns about the long-term value and
prospects for appreciation of the common stock of the combined company
that would be formed if the Proposed Offer were consummated.
(iv) The response of the financial markets to the Proposed
Offer, including the approximately 31% decline in the price of AMC's
common stock from February 21, 1997, the trading date immediately
preceding announcement of the Proposed Offer, to February 28, 1997, the
date of the Board's decision to reject the Proposed Offer. In this
regard, the Board noted that the Proposed Offer represented an
approximately 13% discount from the closing price of the Company's
Common Stock on the day preceding the Board's rejection of the Proposed
Offer.
(v) The opinion of Goldman Sachs, the Company's financial
advisor, after reviewing with the Board many of the factors referred to
herein and other financial criteria used in assessing an offer, that
the Proposed Offer is inadequate.
The Proposed Offer is conditioned upon, among other things, the
acquisition of Shares pursuant to the Proposed Offer and the proposed merger
following the Proposed Offer having been approved pursuant to Section 203 of the
Delaware General Corporation Law ("Section 203") or AMC being satisfied in its
sole discretion that Section 203 is otherwise inapplicable to the acquisition of
Shares pursuant to the Proposed Offer and the proposed merger. In light of the
Board's decision discussed above, the Board has determined to take no action
which would render Section 203 so inapplicable.
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In view of the wide variety of factors considered in connection with
its evaluation of the Proposed Offer, the Board did not find it practicable to,
and did not, quantify or otherwise attempt to assign relative weights to the
specific factors considered in reaching its respective determinations.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
(a) Pursuant to a Letter Agreement dated as of February 24, 1997 (the
"Letter Agreement"), the Company has retained Goldman Sachs as financial
advisor with respect to the Proposed Offer. Pursuant to the Letter Agreement
the Company has agreed to pay Goldman Sachs $375,000 at the commencement of its
services and $375,000 upon initiation of a tender offer, exchange offer or
consent solicitation regarding acquisition of the Company. In addition, the
Company has agreed that, in the event that any party initiates a tender offer,
exchange offer or consent solicitation regarding the acquisition of the Company
and certain specified transactions concerning the Company are not consummated
prior to the consummation, final withdrawal or other termination thereof, the
Company will pay, or cause to be paid, to Goldman Sachs, a fee of $5,000,000.
If the Company offers Goldman Sachs the opportunity to be the lead underwriter
or agent on a public offering or private placement of securities of the Company
and such offering or placement is concluded on or before February 24, 1998,
then up to $2,500,000 of the fees payable by the Company in connection with
such offering or placement will be credited towards certain fees payable by the
Company pursuant to the Letter Agreement. In addition, during Goldman Sachs'
engagement, or in some cases, within the one year period thereafter, if the
Company engages in a merger or similar transaction with a third party,
initiates a recapitalization, in one or a series of transactions transfers a
significant portion of its assets, is subject to a change in control, or
otherwise enters into one or more similar transactions, the Company has agreed
to pay Goldman Sachs a percentage fee calculated with respect to the value of
such transaction to the extent that such transaction is related to, in response
to, or entered into as a result of the Proposed Offer.
Pursuant to the Letter Agreement, if the Company becomes the subject
of, or is threatened with, a contested proxy or consent solicitation by AMC or
any other party, Goldman Sachs will act as the Company's exclusive financial
advisor with regard to such proxy solicitation. No additional fee will be paid
to Goldman Sachs in connection therewith.
The Company has also agreed to reimburse Goldman Sachs periodically
for their reasonable out-of-pocket expenses, including the fees and
disbursements of their attorneys, plus any sales, use or similar taxes
(including additions to such taxes, if any) arising in connection with any
matter referred to in the Letter Agreement. In addition, the Company has agreed
to indemnify Goldman Sachs against certain liabilities, including liabilities
under the federal securities laws.
The Letter Agreement may be terminated at any time by either party
thereto, with or without cause, effective upon receipt of written notice by the
non-terminating party.
The Company also has retained Kekst and Company as public relations
advisors in connection with the Proposed Offer and has retained Georgeson &
Company Inc. to assist the Company in connection with communications with
stockholders and to provide other services in connection with the Proposed
Offer. The Company will pay these advisors reasonable and customary fees for
their services, reimburse them for their reasonable expenses and provide
customary indemnities.
Except as described above, neither the Company nor any person acting on
its behalf has retained any other person to make solicitations or
recommendations to security holders on its behalf concerning the Proposed Offer.
ITEM 6. PRESENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) To the Company's knowledge, no transaction in the Shares has been
effected during the past 60 days by the Company or any executive officer,
director, affiliate or subsidiary of the Company.
(b) To the Company's knowledge, none of the Company's executive
officers, directors, affiliates and subsidiaries presently intends to exchange
Shares which are held of record or beneficially owned by them pursuant to the
Proposed Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) No negotiation is underway or is being undertaken by the Company in
response to the Proposed Offer which relates to or would result in (1) an
extraordinary transaction, such as a merger or reorganization, involving the
Company or any of its subsidiaries; (2) a purchase, sale or transfer of a
material amount of assets by the Company or any of its subsidiaries; (3) a
tender offer for or other acquisition of securities by or of the Company; or (4)
any material change in the present capitalization or dividend policy of the
Company.
Notwithstanding the foregoing, the Board may in the future engage in
negotiations in response to the Proposed Offer that could have one of the
effects specified in the preceding paragraph and it has determined that
disclosure with respect to the parties to, and the possible terms of, any
transactions or proposals of the type referred to in the preceding paragraph
might jeopardize any discussions or negotiations that the Company may conduct.
Accordingly, the Board has instructed management not to
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disclose the possible terms of any such transactions or proposals, or the
parties thereto, unless and until an agreement in principle relating thereto has
been reached or, upon the advice of counsel, as may otherwise be required by
law.
(b) At the direction of the Board, the Company declared a dividend
distribution of one Right for each outstanding share of Common Stock, to
stockholders of record on March 17, 1997, pursuant to the Stockholder Rights
Agreement between the Company and ChaseMellon Shareholder Services, L.L.C. as
Rights Agent, dated March 3, 1997 (the "Rights Plan"). A summary of the Rights
Plan is filed as Exhibit 7 to this statement and is incorporated herein by
reference.
Other than as set forth above, there is no transaction, board
resolution, agreement in principle or signed contract in response to the tender
offer, which relates to or would result in (1) an extraordinary transaction,
such as a merger or reorganization, involving the Company or any of its
subsidiaries; (2) a purchase, sale or transfer of a material amount of assets by
the Company or any of its subsidiaries; (3) a tender offer for or other
acquisition of securities by or of the Company; or (4) any material change in
the present capitalization or dividend policy of the Company.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
On or about February 25, 1997, the Company and certain of the
individuals who serve on its Board were named as defendants in two lawsuits
filed in the Delaware Chancery Court. The two suits were brought by individuals
who claim to be stockholders of the Company. Each suit seeks to be certified as
a class action on behalf of all of the Company's stockholders. The suits, which
are similar in substance, allege that the Company and the named individuals
violated certain fiduciary duties to the Company's stockholders in connection
with the Company's response to the Proposed Offer. The complaints seek various
forms of relief, including injunctive relief and unspecified monetary damages.
The Company has reviewed the allegations and claims contained in the complaints
and believes that they are without merit. The Company and the named individuals
intend to vigorously defend against these claims. Copies of the two complaints
relating to the two lawsuits are filed as Exhibit 8 and Exhibit 9.
respectively, to this statement.
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ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
Exhibit 1 The "Compensation of Directors," "Compensation of
Executive Officers," "Board Compensation Committee
Report on Executive Compensation" and "Employment
Arrangements" sections of the Proxy
Exhibit 2 Article X of the Company's Restated Certificate of
Incorporation
Exhibit 3 Article VIII of the Company's Bylaws
Exhibit 4 Form of Indemnification Agreement
Exhibit 5 Press Release of the Company dated March 3, 1997
Exhibit 6 Press Release of the Company dated March 4, 1997
Exhibit 7 Summary of Stockholders Rights Plan
Exhibit 8 Complaint of Janet Cohen against the Company and certain
of its directors, filed on or about February 25, 1997.
Exhibit 9 Complaint of Great Neck Capital Appreciation L.P.
against the Company and certain of its directors, filed
on or about February 25, 1997.
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SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief,
the undersigned certifies that the information set forth in this statement is
true, complete and correct.
Dated: March 10, 1997 READ-RITE CORPORATION
By: /s/ Cyril J. Yansouni
--------------------------------------
Cyril J. Yansouni
President and Chief Executive Officer
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EXHIBIT 1
COMPENSATION OF DIRECTORS
Each nonemployee director of the Company receives a fee of $2,000 per
quarter, plus $1,000 for each board meeting attended and $500 for each board
committee meeting attended. Nonemployee directors also participate in the
Company's 1991 Director Option Plan (the "Director Plan"). Under the Director
Plan, each new nonemployee director is automatically granted a nonstatutory
option to purchase 6,000 shares of Common Stock on the date upon which he or she
first becomes a director. Thereafter, on July 1 of each year, each nonemployee
director automatically receives a nonstatutory option to purchase 6,000 shares
of the Company's Common Stock. Options granted under the Director Plan generally
have a term of ten years unless terminated sooner after termination of the
optionee's status as a director or otherwise pursuant to the Director Plan. The
exercise price of each option granted under the Director Plan is equal to the
fair market value of the Common Stock on the date of grant. Options granted
under the Director Plan prior to December 1995 generally vest over three years
(25% after one year, 25% after two years, and 50% after three years); effective
December 1995, the Board of Directors extended vesting of future grants under
the Director Plan to four years (25% on each of the first four anniversaries of
the grant date). Effective July 1, 1996, Messrs. Almon, Hackworth and Linvill
were each granted options to purchase 6,000 shares of Common Stock under the
Director Plan at an exercise price of $14.38 per share. Effective July 16, 1996,
the date of Mr. O'Rourke's appointment to the Board of Directors, Mr. O'Rourke
was granted an option to purchase 6,000 shares of Common Stock under the
Director Plan at an exercise price of $12.00 per share.
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COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid to the Named Executive
Officers for the Company's last three fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG-TERM
----------------------------------------------------- COMPENSATION
QUARTERLY ------------
VARIABLE STOCK OPTION
COMPENSATION GRANTS
NAME AND PRINCIPAL FISCAL AND ANNUAL OTHER ANNUAL (# OF
POSITION YEAR SALARY BONUS(2) COMPENSATION SHARES)
- ------------------------- ------ -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cyril J. Yansouni........ 1996 $570,000 $ 99,750(3) -- --
Chairman and Chief 1995 500,000 520,000 -- 122,672
Executive Officer 1994 450,000 129,189 -- 139,959
Fred Schwettmann......... 1996 410,000 61,500(3) -- --
President and Chief 1995 360,000 331,200 -- 98,888
Operating Officer 1994 325,000 177,474(4) -- 93,959
Peter G. Bischoff........ 1996 245,000 25,800(3) $200,155(5) --
Executive Vice 1995 245,000 143,080 231,364(5) 50,604
President 1994 220,000 28,873 244,216(5) 69,591
Michael A. Klyszeiko..... 1996 255,000 25,500(3) -- 10,000
Executive Vice 1995 240,000 140,160 -- 45,480
President, Operations 1994 205,000 26,904 -- 59,591
Alan S. Lowe(6).......... 1996 242,000 24,200(3) -- --
Senior Vice President,
Customer Business Units
</TABLE>
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(1) Excludes certain perquisites and other amounts, such as car allowance, which
for any executive officer did not exceed, in the aggregate, the lesser of
$50,000 or 10% of the total annual salary and bonus for such executive
officer. The Company has no restricted stock award programs, stock
appreciation rights or long-term investment plans.
(2) Includes quarterly variable compensation and annual bonus awards earned for
performance in the fiscal year noted even though portions of such amounts
may be payable in subsequent years. Excludes quarterly variable compensation
and annual bonus awards paid in the fiscal year noted but earned in prior
years. Also excludes modified vesting of certain stock options granted to
such officers under the Company's annual bonus program. See "Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values"
below. Under this program, in October 1993, Messrs. Yansouni, Schwettmann,
Bischoff, Klyszeiko and Lowe were granted options to purchase 49,959;
33,959; 19,591; 19,591; and 16,326 shares of Common Stock, respectively, at
the then current fair market value of $9.875 per share. These options were
scheduled to vest in six years, subject to earlier vesting based on Company
and individual performance criteria. Under the Company's fiscal 1995 annual
bonus program, vesting for 28,041; 19,002; 10,669; 10,451; and 9,103 of such
shares, respectively, was modified such that 50% of such options vested as
of October 1, 1995, 25% of such options vested on October 1, 1996, and 25%
of such options will vest on October 1, 1997, provided the employee remains
an employee in good standing through such date. The remaining shares from
the October 1993 grants will vest in October 1999, again, provided the
employee remains an employee in good standing through such date. See "Board
Compensation Committee Report on Executive Compensation -- Annual Bonus
Program."
(3) As further discussed below in "Board Compensation Committee Report on
Executive Compensation -- Quarterly Variable Compensation," executives of
the Company were paid quarterly variable compensation for the first quarter
of fiscal 1996 only. No other quarterly variable compensation or annual
bonuses were earned in fiscal 1996.
(4) Dr. Schwettmann joined the Company as President and Chief Operating Officer
in May 1993. Dr. Schwettmann's bonus amounts in fiscal 1994 reflect
quarterly and annual bonus payments guaranteed as part of Dr. Schwettmann's
hiring package. See "Employment Arrangements" below.
(5) Mr. Bischoff's compensation includes payments pursuant to Mr. Bischoff's
retention agreement dated April 1991, whereby the Company deposited
$1,000,000 into a trust account to be invested at
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Mr. Bischoff's direction. All accrued income from investment of the trust
principal was also paid to Mr. Bischoff at the time of each annual payment.
See "Employment Arrangements."
(6) Mr. Lowe first became an executive officer of the Company in October 1996.
The above table includes compensation for Mr. Lowe for all of fiscal 1996,
including the period during which he was not an executive officer.
OPTIONS GRANTED AND OPTIONS EXERCISED IN THE LAST FISCAL YEAR
The following tables set forth information regarding stock options granted
to and exercised by the Named Executive Officers during the last fiscal year, as
well as options held by such officers as of September 29, 1996, the last day of
the Company's 1996 fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUES AT ASSUMED
ANNUAL RATES
OF STOCK PRICE
INDIVIDUAL GRANTS(1) APPRECIATION (THROUGH
------------------------------------------------- EXPIRATION DATE)(2)
% OF TOTAL EXERCISE ---------------------
OPTION OPTIONS PRICE EXPIRATION 5% 10%
NAME GRANTS GRANTED ($/SH) DATE PER YEAR PER YEAR
- ----------------------------- ------ ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Michael A. Klyszeiko......... 10,000(3) .8% $20.13 4-16-06 $127,179 $322,652
</TABLE>
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(1) These options were granted under the Company's 1995 Stock Plan (the "1995
Plan") at an exercise price equal to the fair market value of the Company's
Common Stock on the date of grant. The 1995 Plan provides that in the event
of a merger of the Company with or into another corporation or a sale of
substantially all of the assets of the Company, each option shall be assumed
or an equivalent option substituted by the successor corporation. If the
successor corporation refuses to assume or substitute for the options under
the 1995 Plan, the optionee shall have the right to exercise the option as
to all shares (including shares for which the option would not otherwise be
exercisable) for a period of 15 days from the date the optionee receives
notice thereof from the administrator.
(2) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and are not an estimate or projection
of future prices for the Company's Common Stock.
(3) Options vest over four years (25% on each of the first four anniversaries of
the grant date).
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED VALUE OF
OPTIONS UNEXERCISED OPTIONS
SHARES AT FISCAL YEAR END AT FISCAL YEAR END(1)
ACQUIRED ON VALUE ------------------ ---------------------
NAME EXERCISE REALIZED VESTED UNVESTED VESTED UNVESTED
- --------------------------------- ----------- ---------- ------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Cyril J. Yansouni................ 100,000 $1,704,170 658,298 203,610 $7,443,756 $355,159
Fred Schwettmann................. -- -- 109,501 185,846 146,006 269,519
Peter G. Bischoff................ -- -- 129,054 98,641 73,093 165,908
Michael A. Klyszeiko............. -- -- 61,976 96,095 98,743 149,008
Alan S. Lowe..................... 14,552 281,300 51,750 77,224 35,000 134,757
</TABLE>
- ---------------
(1) Represents the difference between the exercise price of the options and the
closing price of the Company's Common Stock on September 29, 1996 of $15.38
per share.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") presently consists of Messrs.
Linvill, Almon, Hackworth and O'Rourke, none of whom is an employee of the
Company. As part of its duties, the Committee reviews compensation levels of
executive officers, evaluates management performance and
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administers the Company's Amended and Restated 1987 Stock Option Plan (the "1987
Plan"), 1995 Plan and Employee Stock Purchase Plan (the "Purchase Plan"). The
Committee is assisted by the Company's Human Resources personnel, and by a
compensation consulting firm which supplies the Committee statistical data and
other executive compensation information to permit the Committee to compare the
Company's compensation policies against compensation levels nationwide and
against programs of other companies of similar size in the Company's industry
and geographic area.
The Company's executive compensation programs are designed to attract and
retain executives who will contribute to the Company's long-term success, to
reward executives for achieving the Company's short- and long-term strategic
goals, to link executive compensation and stockholder interests through Company
performance-based and equity-based plans, and to recognize individual
contributions to Company performance.
Compensation for the Company's executive officers consists of four
principal elements: base salary, quarterly variable compensation, annual bonus
and stock options. The combination and relative weighting of these elements
reflects the Committee's belief that executive compensation should be closely
tied to the Company's profitability.
Base Salary. Executive officer salaries are initially determined by
evaluating the responsibilities of the position held and the experience and
performance of the individual, with reference to the competitive marketplace for
executive talent, including a comparison to base salaries for comparable
positions based on statistical data provided by the Company's compensation
consultant. Executive officer base salaries are targeted towards the 50th
percentile established by such data in order to place a greater emphasis on
Company performance-based components of the compensation package. The Committee
reviews executive salaries annually and adjusts them as appropriate to reflect
changes in market conditions and individual performance and responsibilities.
Mr. Yansouni's base compensation was increased from $500,000 in fiscal 1995 to
$570,000 for fiscal 1996. Mr. Yansouni's base salary has not been changed for
fiscal 1997.
Quarterly Variable Compensation. The Company's quarterly variable
compensation program acknowledges both Company and individual performance and is
intended to bring base salary plus quarterly variable compensation up to
approximately the 75th percentile established by reference to the statistical
data referenced above when all Company profitability and individual performance
objectives are met.
Under the quarterly program, each executive officer is eligible to receive
quarterly variable compensation equal to a percentage of that officer's base
salary determined by the Committee. At the beginning of the fiscal year, the
Committee sets quarterly Company "profit after tax" ("PAT") goals for the year.
No awards may be made under the program unless the Company is profitable. If the
Company is profitable, quarterly award eligibility begins to accrue once the
Company achieves 90% of the applicable quarterly PAT target, and increases on a
straight-line basis to full eligibility at 100% of the applicable quarterly PAT
target (e.g., at 95.5% of the applicable target, award eligibility is 55% of the
executive's maximum percentage for the quarter). Once eligibility is established
based on Company performance, 80% of that eligibility is paid, with the balance
of 20% payable based on individual performance considerations. Quarterly awards
for both the Chief Executive Officer and the President are based solely on
Company performance.
Quarterly variable compensation eligibility for fiscal 1996 ranged from
25%-40% of the respective base salaries of the participating officers except the
Company's Chief Executive Officer and President, whose percentages were 70% and
60%, respectively. In all cases, the percentages represent the maximum amount
payable for the year under this program to the executive if all four quarterly
awards are paid in full. Mr. Yansouni's quarterly variable eligibility was not
changed in fiscal 1996. Based on the PAT goals set by the Committee for fiscal
1996, quarterly awards were paid only for the first quarter of fiscal 1996.
For fiscal 1997, variable compensation eligibility again ranges from
25%-40% of the respective base salaries of the participating officers, except
for the Company's Chief Executive Officer and President, whose percentages
remain at 70% and 60%, respectively.
Annual Bonus. The Company's annual bonus program also acknowledges Company
and individual performance. In contrast to the quarterly program, however,
awards under the annual program can be paid
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only if the Company exceeds for the year the sum of the quarterly PAT targets
(the "Annual PAT Target") set by the Committee. The annual program is intended
to bring the executives' total compensation (base salary, quarterly variable
compensation and annual bonus) above the 90th percentile established by
reference to the statistical data discussed above when all Company profitability
and individual performance criteria are met.
For fiscal 1996, each executive's target base annual bonus eligibility
("ABE") under the annual program was a percentage of the sum of the executive's
base salary plus maximum quarterly variable compensation ("Total Compensation").
Under the 1996 program, annual bonus eligibility would have accrued if and to
the extent Company performance for the fiscal year exceeded the Annual PAT
Target, however, the Company did not meet the PAT goal for fiscal 1996. This
accrual calculation would have been on a straight-line basis to the extent the
Company's performance exceeded the Annual PAT Target, subject to a maximum ABE
equal to three times the base ABE in fiscal 1996. If eligibility was
established, actual awards could be adjusted at the Committee's discretion for
individual performance and other Company performance criteria.
For fiscal years 1994, 1995 and 1996, the Committee utilized stock option
grants under the 1987 Plan as the vehicle to award the first two thirds of the
maximum ABE, with the remaining third payable in cash. For fiscal 1996, for
example, each executive officer was granted a number of options which, when
multiplied times the estimated appreciation in the value of the Company's Common
Stock anticipated if the Company met the applicable performance targets, equaled
two-thirds of the maximum ABE for that executive. The stock option grants for
the fiscal 1996 program were made in the fourth quarter of fiscal 1995; the
Company's Chief Executive Officer was granted an option to purchase 42,672
shares under the fiscal 1996 program. All options granted under this program
were granted at the fair market value of the Common Stock on the date of grant
and vest six years from the date of grant. Vesting of all or a portion of such
options would have accelerated, however, if and to the extent the Company had
met or exceeded the applicable financial targets for fiscal 1996. Options so
accelerated would vest 50% at the time of acceleration, 25% one year later, and
25% two years later provided the executive remained employed by the Company
through such dates. The cash portion, if awarded, would have been paid at the
time of the award. Base ABE for fiscal 1996 ranged from 12% to 20% of Total
Compensation for the participating officers except for the Company's Chief
Executive Officer and President, whose percentage was 30%; Mr. Yansouni's ABE
was not changed for fiscal 1996. Because the Company did not meet or exceed the
PAT goal for fiscal 1996, vesting of these options was not accelerated, nor were
any annual cash bonuses awarded. The Committee has modified the annual bonus
program for fiscal 1997. Under the fiscal 1997 program, each executive's base
ABE will be the same percentage of that executive's base salary used for the
quarterly variable compensation program. The annual program will continue to be
based upon the Company exceeding the Annual PAT Target established by the
Committee. Awards under the annual program will, however, be cash only. Awards
will accrue on a straight-line basis to the extent Company performance exceeds
the Annual PAT Target, with the full base ABE payable if the Company exceeds the
Annual PAT Target by 25%, and the maximum annual award of two times ABE payable
if the Company exceeds the Annual PAT Target by 50%. Cash awards, if made, will
be made in full at the time of the award. Base ABE for fiscal 1997 ranges from
25% to 40% of base salaries for the participating officers except for the
Company's Chief Executive Officer and President, whose percentages are 70% and
60%, respectively.
Stock Options. Under the Company's stock option plan, stock options may be
granted to executive officers and other key employees of the Company. Upon
joining the Company, an individual's initial option grant is based on the
individual's responsibilities and position and upon information provided by the
Company's compensation consultant. The size of any annual stock option award is
based primarily on an individual's performance and the individual's
responsibilities and position with the Company, as well as on the individual's
present outstanding vested and unvested options. Options are designed to align
the interests of executive officers with those of the Company's stockholders.
All stock options granted to the Company's executive officers are granted with
an exercise price equal to the fair market value of the Company's Common Stock
on the date of grant and generally vest over three years. In November 1995, the
Committee determined, however, to extend vesting on future grants to four years
(25% on each of the first four anniversaries of the grant date). Vesting is
designed to encourage the creation of stockholder value over the long term since
no
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benefit is realized from the stock option grant unless the price of the Common
Stock rises over a number of years. Mr. Yansouni was granted no stock options in
fiscal 1996.
Other elements of executive compensation include participation in a
Company-wide medical and insurance benefits plan, and the ability to defer
compensation pursuant to a 401(k) plan. The Company presently makes matching
contributions for all participants in the 401(k) plan in the form of shares of
the Company's Common Stock. The amount of the contribution is $1.50 in Common
Stock for each $1.00 the employee contributes to his or her 401(k) account,
subject to a maximum Company match equal to the lesser of (i) $1,500 in Common
Stock or (ii) 100 shares of Common Stock per employee per year.
Mr. Yansouni receives no other material compensation or benefits not
provided to all executive officers.
The Committee has considered the potential impact of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
thereunder (the "Section"). The Section disallows a tax deduction for any
publicly-held corporation for individual compensation exceeding $1 million in
any taxable year for any of the Named Executive Officers, unless such
compensation is performance-based. The Company's policy is to qualify, to the
extent reasonable, its executive officers' compensation for deductibility under
applicable tax laws. However, the Committee believes that its primary
responsibility is to provide a compensation program that will attract, retain
and reward the executive talent necessary to the Company's success.
Consequently, the Committee recognizes that the loss of a tax deduction could be
necessary in some circumstances.
COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS
JOHN G. LINVILL
WILLIAM J. ALMON
MICHAEL L. HACKWORTH
MATTHEW J. O'ROURKE
EMPLOYMENT ARRANGEMENTS
In April 1991, the Company entered into a retention arrangement with Peter
G. Bischoff, Senior Vice President, Research and Development, pursuant to which
the Company deposited $1,000,000 into an interest bearing account and agreed to
pay to Mr. Bischoff $200,000 of such amount plus all accrued interest on
February 15 of each of 1992 through 1996. In October 1995, the Board of
Directors extended Mr. Bischoff's retention arrangement for four years such that
Mr. Bischoff will receive $200,000 on the last day of February 1997, 1998, 1999
and 2000, provided he remains an employee in good standing of the Company at the
time of each award. In extending this arrangement, however, the Board of
Directors eliminated the trust requirement.
In May 1993, Dr. Fred Schwettmann joined the Company as President and Chief
Operating Officer. As part of Dr. Schwettmann's hiring package, Dr. Schwettmann
received a hiring bonus of $75,000 and an option to purchase 200,000 shares of
the Company's Common Stock. The option was granted at the fair market value of
the Company's Common Stock on the date of grant, vesting as follows: 30,000
shares on the date of grant, 17,500 shares one year later, 42,500 shares two
years later, 60,000 shares three years later, and 50,000 shares four years
later. In addition, the Company guaranteed Dr. Schwettmann's first four
quarterly bonuses, and guaranteed a minimum fiscal 1993 annual bonus of $44,000,
payable 50% on the date of award, 25% one year later and the balance two years
later; these bonuses have been paid.
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EXHIBIT 2
ARTICLE X
To the fullest extent permitted by Delaware General Corporation
Law, a director of this corporation shall not be personally liable to this
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. Neither any amendment nor repeal of this ARTICLE X, nor the
adoption of any provision of this Restated Certificate of Incorporation
inconsistent with this ARTICLE X shall eliminate or reduce the effect of this
ARTICLE X in respect of any matter occurring, or any cause of action, suit or
claim that, but for this ARTICLE X would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
<PAGE> 1
EXHIBIT 3
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
8.1 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 8.1, 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, including, without limitation, any direct
or indirect subsidiary of the corporation, 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.
8.2 Indemnification of Others. The corporation shall have the
power, to the extent and in the manner permitted by the General Corporation Law
of Delaware, to indemnify each of its employees and agents (other than
directors and officers) against expenses (including attorneys' fees), judgments,
fines, settlements, and other amounts actually and reasonable 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 8.2, 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, including, without limitation, any direct or indirect subsidiary of
the corporation, or (iii) who was an employee or agent of a corporation or of
another enterprise at the request of such predecessor corporation.
8.3 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,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of such person's status as such, whether or not the corporation
would have the power to indemnify such person against such liability under the
provisions of the General Corporation Law of Delaware.
<PAGE> 1
Exhibit 4
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made as of this ____
day of _______________, by and between Read-Rite Corporation, a Delaware
corporation (the "Company") and __________________________ ("Indemnitee"), a
director and/or officer of the Company.
WHEREAS, the Company and Indemnitee recognize the increasing difficulty
in obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance; and
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation subjecting officers and directors to expensive
litigation risks at the same time that liability insurance has been severely
limited; and
WHEREAS, Indemnitee does not regard the current protection available as
adequate given the present circumstances, and Indemnitee and other officers
and directors of the Company may not be willing to serve as officers and
directors without adequate protection; and
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve as officers and
directors of the Company and to indemnify its officers and directors so as to
provide them with the maximum protection permitted by law.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) Third Party Proceedings. The Company shall indemnify
Indemnitee if Indemnitee is or was a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and
<PAGE> 2
amounts paid in settlement (if such settlement is approved in advance by the
Company, which approval shall not be unreasonably withheld) actually and
reasonably incurred by Indemnitee in connection with such action, suit or
proceeding if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) Proceedings by or in the Right of the Company. The Company
shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and amounts paid in settlement actually and
reasonably incurred by Indemnitee in connection with the defense or settlement
of such action or suit if Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company and except that no indemnification shall be made in respect of any
claim, issue or matter as to which Indemnitee shall have been adjudged to be
liable to the Company unless and only to the extent that the Court of Chancery
of the State of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
of the State of Delaware or such other court shall deem proper.
(c) Mandatory Payment of Expenses. To the extent that
Indemnitee has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Subsections (a) and (b) of this
Section 1 or the defense of any claim,
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issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.
2. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) Advancement of Expenses. The Company shall advance all
expenses incurred by Indemnitee in connection with the investigation, defense,
settlement or appeal of any civil or criminal action, suit or proceeding
referenced in Section 1(a) or (b) hereof. Indemnitee hereby undertakes to repay
such amounts advanced only if, and to the extent that, it shall ultimately be
determined that Indemnitee is not entitled to be indemnified by the Company as
authorized hereby. The advances to be made hereunder shall be paid by the
Company to Indemnitee within twenty (20) days following delivery of a written
request therefor by Indemnitee to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to his right to be indemnified under this Agreement, give
the Company notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to Read-Rite Corporation, 345
Los Coches Street, Milpitas, California 95035 (Attn: Corporate Secretary) (or
such other address as the Company shall designate in writing to Indemnitee).
Notice shall be deemed received on the third business day after the date
postmarked if sent by domestic certified or registered mail, properly addressed;
otherwise notice shall be deemed received when such notice shall actually be
received by the Company. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
(c) Procedure. Any indemnification and advances provided for
in Section 1 and this Section 2 shall be made no later than forty-five (45) days
after receipt of the written request of Indemnitee. If a claim under this
Agreement, under any statute, or under any provision of the Company's
Certificate of Incorporation or Bylaws providing for indemnification, is not
paid in full by the Company within forty-five (45) days after a written request
for payment thereof has first been received by the Company, Indemnitee may, but
need not, at any time thereafter bring an action against the Company to recover
the unpaid amount of the claim and, subject to Section 12 of this Agreement,
Indemnitee shall also be entitled to be paid for the expenses (including
attorneys' fees) of bringing such action. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred in
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connection with any action, suit or proceeding in advance of its final
disposition) that Indemnitee has not met the standard of conduct which makes it
permissible under applicable law for the Company to indemnify Indemnitee for the
amount claimed, but the burden of proving such defense shall be on the Company
and Indemnitee shall be entitled to receive interim payments of expenses
pursuant to Subsection 2(a) unless and until such defense may be finally
adjudicated by court order or judgment from which no further right of appeal
exists. It is the parties' intention that if the Company contests Indemnitee's
right to indemnification, the question of Indemnitee's right to indemnification
shall be for the court to decide, and neither the failure of the Company
(including its Board of Directors, any committee or subgroup of the Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination that indemnification of Indemnitee is proper in the circumstances
because Indemnitee has met the applicable standard of conduct required by
applicable law, nor an actual determination by the Company (including its Board
of Directors, any committee or subgroup of the Board of Directors, independent
legal counsel, or its stockholders) that Indemnitee has not met such applicable
standard of conduct, shall create a presumption that Indemnitee has or has not
met the applicable standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a
notice of a claim pursuant to Section 2(b) hereof, the Company has director and
officer liability insurance in effect, the Company shall give prompt notice of
the commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be
obligated under Section 2(a) hereof to pay the expenses of any proceeding
against Indemnitee, the Company, shall be entitled to assume the defense of such
proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee
of written notice of its election so to do. After delivery of such notice,
approval of such counsel by Indemnitee and the retention of such counsel by the
Company, the Company will not be liable to Indemnitee under this Agreement for
any fees of counsel subsequently incurred by Indemnitee with respect to the same
proceeding, provided that (i) Indemnitee shall have the right to employ his
counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the
employment of counsel by Indemnitee has been previously authorized by the
Company, (B) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and
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<PAGE> 5
Indemnitee in the conduct of any such defense or (C) the Company shall not, in
fact, have employed counsel to assume the defense of such proceeding, then the
fees and expenses of Indemnitee's counsel shall be at the expense of the
Company.
3. ADDITIONAL INDEMNIFICATION RIGHTS; NON-EXCLUSIVITY.
(a) Scope. Notwithstanding any other provision of this
Agreement, the Company hereby agrees to indemnify Indemnitee to the fullest
extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the Company's
Certificate of Incorporation, the Company's Bylaws or by statute. In the event
of any changes, after the date of this Agreement, in any applicable law,
statute, or rule which expands the right of a Delaware corporation to indemnify
a member of its board of directors or an officer, such changes shall be, ipso
facto, within the purview of Indemnitee's rights and the Company's obligations
under this Agreement. In the event of any change in any applicable law, statute,
or rule which narrows the right of a Delaware corporation to indemnify a member
of its board of directors or an officer, such changes, to the extent not
otherwise required by such law, statute or rule to be applied to this Agreement
shall have no effect on this Agreement or the parties' rights and obligations
hereunder.
(b) Nonexclusivity. This Agreement shall supersede any prior
indemnification agreement between Indemnitee and the Company. Subject to the
foregoing, the indemnification provided by this Agreement shall not be deemed
exclusive of any rights to which Indemnitee may be entitled under the Company's
Certificate of Incorporation, its Bylaws, any agreement, any vote of
stockholders or disinterested Directors, the General Corporation Law of the
State of Delaware, or otherwise, both as to action in Indemnitee's official
capacity and as to action in another capacity while holding such office. The
indemnification provided under this Agreement shall continue as to Indemnitee
for any action taken or not taken while serving in an indemnified capacity even
though he may have ceased to serve in such capacity at the time of any action,
suit or other covered proceeding.
4. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred by him in the investigation, defense, appeal or settlement of any civil
or criminal action, suit or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for
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<PAGE> 6
the portion of such expenses, judgments, fines or penalties to which Indemnitee
is entitled.
5. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise. For example, the Company and Indemnitee
acknowledge that the Securities and Exchange Commission (the "SEC") has taken
the position that indemnification is not permissible for liabilities arising
under certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the SEC to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
6. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall, from
time to time, make the good faith determination whether or not it is practicable
for the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors with coverage
for losses from wrongful acts, or to ensure the Company's performance of its
indemnification obligations under this Agreement. Among other considerations,
the Company will weigh the costs of obtaining such insurance coverage against
the protection afforded by such coverage. In all policies of director and
officer liability insurance, Indemnitee shall be named as an insured in such a
manner as to provide Indemnitee the same rights and benefits as are accorded to
the most favorably insured of the Company's directors, if Indemnitee is a
director; or of the Company's officers, if Indemnitee is not a director of the
Company but is an officer. Notwithstanding the foregoing, the Company shall have
no obligation to obtain or maintain such insurance if the Company determines in
good faith that such insurance is not reasonably available, if the premium costs
for such insurance are disproportionate to the amount of coverage provided, if
the coverage provided by such insurance is limited by exclusions so as to
provide an insufficient benefit, or if Indemnitee is covered by similar
insurance maintained by a parent or subsidiary of the Company.
7. SEVERABILITY. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as
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provided in this Section 7. If this Agreement or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify Indemnitee to the full extent permitted by
any applicable portion of this Agreement that shall not have been invalidated,
and the balance of this Agreement not so invalidated shall be enforceable in
accordance with its terms.
8. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except with respect
to proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
(b) Lack of Good Faith. To indemnify Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous;
(c) Insured Claims. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy
of officers' and directors' liability insurance maintained by the Company.
(d) Claims Under Section 16(b). To indemnify Indemnitee for
expenses or the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
9. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the
"Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a con-
-7-
<PAGE> 8
stituent) absorbed in a consolidation or merger so that if Indemnitee is or was
a director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, Indemnitee shall stand in the same position under the
provisions of this Agreement with respect to the resulting or surviving
corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee or agent of the Company
which imposes duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan, Indemnitee shall be deemed to have acted in a
manner "not opposed to the best interests of the Company" as referred to in this
Agreement.
10. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall constitute an original.
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
12. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and crossclaims made in such action), unless as a part of such
action the
-8-
<PAGE> 9
court determines that each of Indemnitee's material defenses to such action were
made in bad faith or were frivolous.
13. NOTICE. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressed, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.
14. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of Delaware.
15. CHOICE OF LAW. This Agreement shall be governed by and its
provisions construed in accordance with the laws of the State of Delaware, as
applied to contracts between Delaware residents entered into and to be performed
entirely within Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
READ-RITE CORPORATION
345 Los Coches Street
Milpitas, California 95035
------------------------------
(Signature)
------------------------------
(Title)
AGREED TO AND ACCEPTED:
INDEMNITEE:
-9-
<PAGE> 10
- -------------------------------
(Signature)
- -------------------------------
(Address)
- -------------------------------
- -------------------------------
-10-
<PAGE> 1
EXHIBIT 5
PRESS RELEASE
CONTACTS: Steve Poleyn Andrea Bergofin
Jerry Parrott Todd Fogarty
Read-Rite Corporation Kekst and Company
408-956-2217 212-593-2655
FOR IMMEDIATE RELEASE
READ-RITE BOARD UNANIMOUSLY REJECTS APPLIED MAGNETICS'
UNSOLICITED PROPOSAL
MILPITAS, CA -- March 3, 1997 -- Read-Rite Corporation (NASDAQ: RDRT)
announced today that its Board of Directors has voted unanimously to reject the
unsolicited acquisition proposal by Applied Magnetics Corporation. The Board
has concluded that remaining an independent company offers the best opportunity
for Read-Rite's shareholders, employees and customers to capitalize on
Read-Rite's market leadership, technology and future prospects.
"Read-Rite's independence has been critical to its success to date,
and we are confident that adherence to our existing, long-term strategic
business plan will enable us to deliver further value to our shareholders,
employees, customers, suppliers, and the company's other constituencies in the
future. For this fundamental reason, Read-Rite's Board of Directors has
rejected Applied Magnetics' unsolicited proposal," said Cyril J. Yansouni,
chairman and chief executive officer.
"Read-Rite today is the world's largest independent supplier of
recording heads for the rapidly growing mass storage industry, and is the
volume leader among independent manufacturers in advanced inductive disk-drive
heads," continued Mr. Yansouni. "Our magnetoresistive technology is being well
received by our customers, and we are aggressively scaling up production of
magnetoresistive heads to meet our customers' demand for this next-generation
technology. By virtue of the critical mass we have achieved in production and
our commitment to fulfilling our customers' future needs by developing new
technologies, Read-Rite is well positioned as the market for disk-drive heads
evolves."
Read-Rite said it has retained Goldman, Sachs & Co. as its independent
financial advisor and to provide counsel to the Board in connection with this
matter.
Read-Rite Corporation is the world's leading independent manufacturer
of recording heads, head gimbal assemblies (HGAs) and head stack assemblies
(HSAs) for disk drives and magnetoresistive heads for quarter-inch-cartridge
tape drives. The company is headquartered in Milpitas, California and has
operations in Thailand, Malaysia, the Philippines and Singapore. Read-Rite
also has a strong presence in Japan through Read-Rite SMI Corporation, its
joint venture with Sumitomo Metal Industries, Ltd. Read-Rite employs some
20,000 people. The company's home page on the World Wide Web can be reached at
www.readrite.com.
This news release contains forward-looking information within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Act of 1934, as amended, and is subject to the "safe
harbor" created by those sections. The company's actual results for future
periods could differ materially from those projected in such forward-looking
information. Factors that could cause actual results to differ include, but
are not limited to, the following: the company's ability to ramp-up volume
production quickly and cost-effectively on its new advanced inductive and
magnetoresistive products; design-ins and qualifications for additional
products may not occur or could be slower than anticipated; demand for the
company's products could weaken and lead to order cancellations or reschedules;
and the company's ability to achieve and maintain satisfactory yields on its
new and current products.
# # #
<PAGE> 1
EXHIBIT 6
PRESS RELEASE
CONTACTS: Read-Rite Corporation Kekst and Company
Steve Polcyn Andrea Bergofin
408-956-2217 Todd Fogarty
Media: Jerry Parrott 212-593-2655
408-956-2217
FOR IMMEDIATE RELEASE
READ-RITE DECLARES DIVIDEND DISTRIBUTION OF
PREFERRED SHARES PURCHASE RIGHTS
MILPITAS, CA -- March 4, 1997 -- Read-Rite Corporation (NASDAQ:RDRT)
announced today that its Board of Directors has declared a dividend
distribution of one Preferred Share Purchase Right on each outstanding share of
the company's Common Stock.
"Our Board has determined that this distribution of Rights is a prudent
step given its unanimous conclusion that Read-Rite's continuing pursuit of its
long-term strategic plan will best serve the interests of Read-Rite
shareholders. The Rights are designed to protect and maximize the long-term
value of the company for our shareholders by assuring that they receive fair
and equal treatment in any unsolicited proposed takeover of the company," said
Cyril J. Yansouni, chairman and chief executive officer.
Each Right will entitle shareholders to buy one one-thousandth of a share
of the company's Series A Participating Preferred Stock at an exercise price of
$150.00. The Rights will become exercisable following the tenth day after a
person or group announces acquisition of 20% or more of the company's Common
Stock or announces commencement of a tender offer, the consummation of which
would result in ownership by the person or group of 20% or more of the Common
Stock. The company will be entitled to redeem the Rights for $.001 per Right
at any time on or before the tenth day following acquisition by a person or
group of 20% or more of the company's Common Stock.
If, prior to redemption of the Rights, a person or group acquires 20% or
more of the company's Common Stock (a "Flip-In"), each Right not owned by a
holder of 20% or more of the Common Stock (or an affiliate of such a holder)
will entitle its holder to purchase, at the Right's then current exercise
price, that number of shares of Common Stock of the company (or, in certain
circumstances as determined by the Board, cash, other property or other
securities) having a market value at that time of twice the Right's exercise
price. If, after a Flip-In, Read-Rite sells more than 50% of its assets or
earning power or is acquired in a merger or other business combination
transaction, the acquiring person must assume the obligations under the Rights,
and the Rights will become exercisable to acquire Common Stock of the acquiring
person at the discounted price. At any time after a Flip-In and prior to the
acquisition by any person of 50% or more of the outstanding Common Stock, the
Board of Directors of the company may exchange the Rights (other than those
owned by the acquiring person or its affiliates) for Common Stock of the
company at an exchange ratio of one share of Common Stock per Right.
<PAGE> 1
EXHIBIT 7
EXHIBIT C
STOCKHOLDER RIGHTS PLAN
READ-RITE CORPORATION
Summary of Rights
<TABLE>
<S> <C>
Distribution and The Board of Directors has declared a dividend of one
Transfer of Rights; Right for each share of Read-Rite Corporation Common
Rights Certificate: Stock outstanding. Prior to the Distribution Date
referred to below, the Rights will be evidenced by and
trade with the certificates for the Common Stock.
After the Distribution Date, Read-Rite Corporation
(the "COMPANY") will mail Rights certificates to the
Company's stockholders and the Rights will become
transferable apart from the Common Stock.
Distribution Date: Rights will separate from the Common Stock and become
exercisable following (a) the tenth day (or such later
date as may be determined by the Company's Board of
Directors) after a person or group acquires beneficial
ownership of 20% or more of the Company's Common Stock
or (b) the tenth business day (or such later date as
may be determined by the Company's Board of Directors)
after a person or group announces a tender or exchange
offer, the consummation of which would result in
ownership by a person or group of 20% or more of the
Company's Common Stock.
Preferred Stock After the Distribution Date, each Right will entitle
Purchasable Upon the holder to purchase for $150.00 (the "EXERCISE
Exercise of Rights: PRICE"), a fraction of a share of the Company's
Preferred Stock with economic terms similar to that of
one share of the Company's Common Stock.
Flip-In: If an acquiror (an "ACQUIRING PERSON") obtains 20% or
more of the Company's Common Stock), then each Right
(other than Rights owned by an Acquiring Person or its
affiliates) will entitle the holder thereof to
purchase, for the Exercise Price, a number of shares of
the Company's Common Stock having a then current market
value of twice the Exercise Price.
Flip-Over: If, after an Acquiring Person obtains 20% or more of
the Company's Common Stock, (a) the Company merges into
another entity, (b) an acquiring entity merges into the
Company or (c) the Company sells more than 50% of the
Company's assets or earning power, then each Right
(other than Rights owned by an Acquiring Person or its
affiliates) will entitle the holder thereof to
purchase, for the Exercise Price, a number of shares of
Common Stock of the
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
person engaging in the transaction having a then
current market value of twice the Exercise Price.
Exchange Provision: At any time after the date an Acquiring Person obtains
20% or more of the Company's Common Stock and prior to
the acquisition by any person or group of 50% of the
outstanding Common Stock, the Board of Directors may
exchange the Rights (other than Rights owned by the
Acquiring Person or its affiliates), in whole or in
part, for shares of Common Stock of the Company at an
exchange ratio of one share of Common Stock per Right
(subject to adjustment).
Redemption of Rights will be redeemable at the Company's option for
the Rights: $0.001 per Right at any time on or prior to the tenth
day (or such later date as may be determined by the
Company's Board of Directors) after public announcement
that a Person has acquired beneficial ownership of 20%
or more of the Company's Common Stock (the "SHARES
ACQUISITION DATE").
Expiration of The Rights expire on the earliest of (a) March 17,
the Rights: 2007, (b) exchange or redemption of the Rights as
described above, or (c) consummation of a merger,
consolidation or asset sale resulting in expiration of
the Rights as described above.
Amendment of The terms of the Rights and the Rights Agreement may be
Terms of Rights: amended in any respect without the consent of the
Rights holders on or prior to the Distribution Date;
thereafter, the terms of the Rights and the Rights
Agreement may be amended without the consent of the
Rights holders in order to cure any ambiguities or to
make changes which do not adversely affect the
interests of Rights holders (other than the Acquiring
Person).
Voting Rights: Rights will not have any voting rights.
Anti-Dilution Rights will have the benefit of certain customary
Provisions: anti-dilution provisions.
</TABLE>
-2-
<PAGE> 3
<TABLE>
<S> <C>
Taxes: The Rights distribution should not be taxable for
federal income tax purposes. However, following an
event which renders the Rights exercisable or upon
redemption of the Rights, stockholders may recognize
taxable income.
</TABLE>
The foregoing is a summary of certain principal terms of the Stockholder Rights
Plan only and is qualified in its entirety by reference to the detailed terms
of the Rights Agreement dated as of March 3, 1997, between the Company and the
Rights Agent.
-3-
<PAGE> 1
EXHIBIT 8
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- -----------------------------------
JANET COHEN,
C. A. No. 15572
Plaintiff,
- against -
CYRIL J. YANSOUNI,
FREDERIC SCHWETTMANN,
JOHN G. LINVILL, WILLIAM J. ALMON,
MICHAEL L. HACKWORTH, AND
READ-RITE CORPORATION,
Defendants.
- ----------------------------------X
CLASS ACTION COMPLAINT
Plaintiff, by her attorneys, Rosenthal, Monnait, Grose & Goddess,
P.A., for her complaint against defendants, alleges upon information and
belief, except for paragraph 2 hereof which is alleged upon knowledge, as
follows:
1. Plaintiff brings this action pursuant to Rule 23 of the Rules of
the Court of Chancery on her own behalf and as a class action on behalf of all
persons, other than defendants and those in privity with them, who own the
common stock of Read-Rite Corporation ("Read-Rite" or the "Company").
2. Plaintiff has been the owner of the common stock of the Company
since prior to the transaction herein complained of and continuously to date.
3. Defendant Read-Rite is a corporation duly organized and existing
under the laws of the State of Delaware. The Company produces and sells thin
film magnetic recording heads for rigid disk drives.
<PAGE> 2
4. The following individual defendants (the "Individual
Defendants") constitute the Board of Directors of Read-Rite:
Name Position
---- --------
Cyril J. Yansouni Chairman and C.E.O.
Frederic Schwettman President, C.O.O. and Director
John G. Linvill Director
William J. Almon Director
Michael L. Hackworth Director
5. The Individual Defendants named in paragraph 4 are in a
fiduciary relationship with the plaintiff and the other public stockholders of
Read-Rite and owe them the highest obligations of good faith, due care, candor
and fair dealing.
CLASS ACTION ALLEGATIONS
6. Plaintiff brings this action on her own behalf and as a class
action, pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of
all holders of common stock of the Company (except the defendants herein and
any person, firm, trust, corporation, or other entity related to or affiliated
with any of the defendants) and their successors in interest, who are or will
be threatened with injury arising from defendants' actions as more fully
described herein.
7. This action is properly maintainable as a class action.
8. The class is so numerous that joinder of all members is
impracticable. There are approximately 47,117,632 shares of
2
<PAGE> 3
Read-Rite common stock outstanding, owned by over 39,000 record shareholders
scattered throughout the country.
9. There are questions of law and fact which are common to the
class including, inter alia, the following: (a) whether defendants have breached
their fiduciary and other common law duties owed by them to plaintiff and the
members of the class; (b) whether defendants are unlawfully impeding a takeover
attempt; (c) whether defendants' actions hereinafter described, constitute a
breach of the duty of fair dealing with respect to the plaintiff and the other
members of the class, a failure to maintain a level playing field and a failure
to maximize shareholder value; and (d) whether the class is entitled to
injunctive relief or damages as a result of defendants' wrongful conduct.
10. Plaintiff is committed to prosecuting this action and has
retained competent counsel experienced in litigation of this nature. The claims
of the plaintiff are typical of the claims of other members of the class and
plaintiff has the same interests as the other members of the class. Plaintiff
will fairly and adequately represent the class.
12. The prosecution of separate actions by individual members of the
Class would create the risk of inconsistent or varying adjudications with
respect to individual members of the Class which would establish incompatible
standards of conduct for defendants, or adjudications with respect to
individual members of the Class which would as a practical matter be
dispositive of the interests of the other members not parties to the
adjudications or
3
<PAGE> 4
substantially impair or impede their ability to protect their interests.
13. The defendants have acted, or refused to act, on grounds
generally applicable to, and causing injury to, the Class and, therefore,
preliminary and final injunctive relief on behalf of the Class as a whole is
appropriate.
SUBSTANTIVE ALLEGATIONS
14. On February 24, 1997 Applied Magnetics Corp. ("Applied
Magnetics") announced that it was proposing to acquire rival disk-head supplier
Read-Rite for $1.8 billion in stock or $37.50 per share. This consideration
represents a premium of 33 percent over the closing price of Read Rite common
stock on Friday, February 21, 1997.
15. On February 24, 1997, the Dow Jones News Service reported that
"Applied Magnetics said that 'on a number of occasions' it had, in direct
discussions, 'expressed its desire to negotiate a friendly transaction' with
Read-Rite." The news story continued: "Applied Magnetics said Read-Rite's lack
of apparent interest in such a deal makes it appropriate to take the deal to
Read-Rite shareholders."
16. Furthermore, the Dow Jones News Service reported that "Applied
Magnetics said it plans to begin a consent solicitation aimed at replacing
Read-Rite's directors with a board that would endorse the deal."
17. Defendants owe fundamental fiduciary obligations to the
Read-Rite shareholders to take all necessary and appropriate
4
<PAGE> 5
steps to maximize the value of their shares. In addition, the Individual
Defendants have the responsibility to act independently so that the interests
of Read-Rite's public stockholders will be protected, to seriously consider all
bona fide offers for the company, and to conduct fair and active bidding
procedures or other mechanisms for checking the market to assure that the
highest possible price is achieved. Further, the directors of the Company must
adequately insure that no conflict of interest exists between defendants' own
interest and their fiduciary obligations to maximize stockholder value or, if
such conflicts exist, insure that all such conflicts will be resolved in the
best interests of the company's public stockholders.
18. The Individual Defendants have breached their fiduciary and
other common law duties owed to Plaintiff and other members of the Class in that
they have not exercised and are not exercising independent business judgment and
have acted and are acting to the detriment of the Class. The defendants'
refusal to negotiate with Applied Magnetics has deprived and will continue to
deprive the Company's public shareholders of the very substantial premium which
Applied Magnetics is prepared to pay or the even greater enhanced premium which
negotiations could secure.
19. The Individual Defendants are acting to entrench themselves in
their offices and positions and to maintain their substantial salaries and
perquisites, all at the expense and to the detriment of the public shareholders
of Read-Rite.
5
<PAGE> 6
20. Defendants have refused to take those steps necessary to ensure
that the Company's public shareholders will receive maximum value for their
shares of Read-Rite common stock. Defendants' failure to negotiate with Applied
Magnetics is clearly the result of the desire by the Individual Defendants to
protect their own substantial salaries, perquisites and positions with the
Company.
23. Unless enjoined by this Court, the Individual Defendants will
continue to breach their fiduciary duties owed to plaintiff and the other
members of the class.
24. Plaintiff and the class have no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
A. declaring this to be a proper class action;
B. ordering the Individual Defendants to carry out their fiduciary
duties to plaintiff and the other members of the class by announcing their
intention to:
1) cooperate fully with any person or entity, having a
bona fide interest in proposing any transaction which would maximize
shareholder value, including, but not limited to, a buyout or takeover of the
Company by Applied Magnetics;
2) undertake an appropriate evaluation of Read-Rite's worth
as a merger/acquisition candidate;
3) take all appropriate steps to enhance Read-Rite's value
and attractiveness as a merger/acquisition candidate; and
6
<PAGE> 7
4) take all appropriate steps to effectively expose Read-Rite
to the marketplace in an effort to create an active auction for Read-Rite.
C. ordering the Individual Defendants, jointly and severally, to
account to plaintiff and the class for all damages suffered and to be suffered
by them as a result of the acts and transactions alleged herein;
D. awarding plaintiff the costs and disbursements of this action,
including a reasonable allowance for plaintiff's attorneys' and experts' fees;
and
E. granting such other and further relief as may be just and
proper in the premises.
ROSENTHAL, MONHAIT, GROSS
& GODDESS, P.A.
By: /s/
-------------------------------------
P.O. Box 1070
919 Market Street
Suite 1401, Mellon Bank Center
Wilmington, Delaware 19801
(302) 656-4433
Attorneys for Plaintiff
OF COUNSEL:
BERNSTEIN LIEBHARD & LIFSHITZ
274 Madison Avenue
New York, NY 10016
(212) 779-1414
7
<PAGE> 1
EXHIBIT 9
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
- -----------------------------------
GREAT NECK CAPITAL
APPRECIATION L.P.,
C. A. No. 15571-NC
Plaintiff,
- against -
CYRIL J. YANSOUNI, CLASS ACTION COMPLAINT
FREDERIC SCHWETTMANN, W. J.
ALMON, M. L. HACKWORTH,
J. G. LINVILL, and READ-RITE
CORPORATION,
Defendants.
- ----------------------------------X
Plaintiff alleges on knowledge as to his own acts and upon information
and belief as to all other matters, as follows:
NATURE OF THE ACTION
--------------------
1. This action is brought on behalf of the public stockholders of
Read-Rite Corporation ("Read-Rite" or the "Company") who have been, and continue
to be, deprived of the opportunity to realize fully the benefits of their
investment in the Company. The individual defendants have wrongfully refused to
take the steps necessary to maximize stockholder value, including properly
considering a bona fide offer for the Company from Applied Magnetics Corporation
("Applied Magnetics"). By failing and refusing to take such steps, including
adequately considering the offer, defendants have breached their fiduciary
duties to plaintiff and the class. The individual defendants are using their
fiduciary positions of control over Read-Rite in order to entrench themselves
<PAGE> 2
in their positions with the Company and to thwart others in their legitimate
attempts to acquire Read-Rite.
PARTIES
-------
2. Plaintiff is and, at all relevant times has been, the owner of
shares of Read-Rite common stock.
3. Read-Rite is a corporation duly organized and existing under
the laws of the State of Delaware. Read-Rite produces and sells thin magnetic
recording heads for rigid disk drives. Read-Rite maintains its principal
executive offices at 345 Los Coches Street, Milpitas, California 95035.
Read-Rite has approximately 47,117,632 shares of common stock outstanding and
thousands of stockholders of record. Read-Rite's stock trades over the NASDAQ
National Market System.
4. Defendant Cyril J. Yansouni ("Yansouni") is the Chief Executive
Officer and Chairman of the Board of Directors of Read-Rite.
5. Defendant Frederic Schwettmann ("Schwettmann") is the
President, Chief Operating Officer, and a director of Read-Rite.
6. Defendants W. J. Almon, M. L. Hackworth, and J. G. Linvill are
directors of Read-Rite.
7. The defendants named in paragraphs 4 through 6 are hereinafter
referred to as the "Individual Defendants."
8. Because of their positions as officers/directors of the
Company, the Individual Defendants owe fiduciary duties of
2
<PAGE> 3
loyalty and due care to plaintiff and the other members of the class.
CLASS ACTION ALLEGATIONS
9. Plaintiff brings this case in its own behalf and as a class
action, pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of
all stockholders of the Company (except defendants herein and any person, firm,
trust, corporation, or other entity related to or affiliated with any of the
defendants), who are and will be threatened with injury arising from defendants'
actions as described more fully below (the "Class").
10. This action is properly maintainable as a class action because:
a. The Class is so numerous that joinder of all members is
impracticable. The Company has thousands of stockholders who are scattered
throughout the United States.
b. There are questions of law and fact common to the Class
including, inter alia, whether:
(1) defendants have breached their fiduciary duties
owed to plaintiff and other members of the Class by failing and refusing to
attempt in good faith to maximize stockholder value, including considering the
sale of Read-Rite;
(2) defendants have engaged in a plan and scheme to
thwart and reject offers and proposals from third parties, including the offer
made by Applied Magnetics; and
(3) plaintiff and the other members of the Class
are being and will continue to be injured by the wrongful
3
<PAGE> 4
conduct alleged herein and, if so, what is the proper remedy and/or measure of
damages.
c. Plaintiff is committed to prosecuting the action and
has retained competent counsel experienced in litigation of this nature.
Plaintiff's claims are typical of the claims of the other members of the Class
and plaintiff has the same interests as the other members of the Class.
Plaintiff is an adequate representative of the Class.
d. The prosecution of separate actions by individual
members of the Class would create the risk of inconsistent or varying
adjudications with respect to individual members of the Class which would
establish incompatible standards of conduct for defendants, or adjudications
with respect to individual members of the Class which would as a practical
matter be dispositive of the interests of the other members not parties to the
adjudications or substantially impair or impede their ability to protect their
interests.
e. The defendants have acted, or refused to act, on
grounds generally applicable to, and causing injury to, and causing injury to,
the Class and, therefore, preliminary and final injunctive relief on behalf of
the Class as a whole are appropriate.
SUBSTANTIVE ALLEGATIONS
11. On February 24, 1997, Applied Magnetics confirmed that it had
offered to acquire Read-Rite in a transaction whereby Read-Rite shareholders
would receive 0.679 of an Applied Magnetics share for each common share of
Read-Rite. The stock-for-stock
4
<PAGE> 5
exchange values Read-Rite stock at $37.50 per share in a transaction with a
total value of approximately $1.7 billion.
12. Based on the closing price of Read-Rite's stock on February 21,
1997, the offered consideration represented a 33% premium over the market price
of the Company's stock.
13. Applied Magnetics also reported that it would immediately
commence a consent solicitation to replace Read-Rite's directors with a slate
of directors who would endorse the proposed transaction. The appointment of
new directors is intended to maximize shareholder value by ensuring that the
Applied Magnetics's offer is dealt with fairly and in accordance with sound
principles of corporate governance and that the Read-Rite Board respects the
views of its shareholders.
14. There will be significant cost-saving synergies if the proposed
transaction is permitted to go forward. Applied Magnetics stated that it
expected that a combination of cost savings, manufacturing efficiencies, and
revenue enhancements would produce "estimated incremental gains in pre-tax
earnings of more than $100 million."
15. Applied Magnetics further projected that a combined company
would have annualized revenue of $1.8 billion and a roughly 30% market
share.
16. Applied Magnetics has attempted to enter into discussions with
representatives of the Read-Rite Board of Directors on several occasions since
May 1996 but to no avail. Applied Magnetics said that "on a number of
occasions" it had
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"expressed its desire to negotiate a friendly transaction." However,
Read-Rite's total failure to respond to the friendly overtures has sent the
message that it is not interested in even exploring a possible combination with
Applied Magnetics.
17. Despite the repeated attempts by Applied Magnetics to negotiate
a friendly transaction, the only response by Read-Rite after it learned of the
hostile takeover proposal was that it was "surprised to receive the letter from
Applied Magnetics" and that it would review the proposal in due course.
18. Defendants' failure to act promptly upon Applied Magnetics's
offer has no valid business purpose, and simply evidences their disregard for
their duty to maximize shareholder value. By failing to meet promptly and
negotiate, or offer to meet and negotiate, with Applied Magnetics, defendants
are depriving plaintiff and the Class of their right to receive the maximum
value for their Read-Rite shares.
19. Read-Rite represents a highly attractive acquisition
candidate. Defendants' conduct is depriving Read-Rite's public stockholders of
the control premium that Applied Magnetics is prepared to pay, and of the even
greater enhanced premium that further negotiation or exposure of Read-Rite to
the market could provide.
20. Defendants owe fundamentally fiduciary obligations to
Read-Rite's stockholders to take all necessary and appropriate steps to
maximize the value of their shares. In addition, the Individual Defendants
have the responsibility to act independently
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so that the interests of Read-Rite's public stockholders will be protected, to
seriously consider all bona fide offers for the Company, and to conduct fair
and active bidding procedures or other mechanisms for checking the market to
assure that the highest possible price is achieved.
21. The Individual Defendants have breached their fiduciary and
other common law duties owed to plaintiff and other members of the Class in
that they have not and are not exercising independent business judgment and
have acted and are acting to the detriment of the Class.
22. The Individual Defendants are acting to entrench themselves in
their offices and positions and maintain their substantial salaries and
perquisites, all at the expense and to the detriment of the public stockholders
of Read-Rite.
23. As a result of the actions of the Individual Defendants,
plaintiff and the other members of the Class have been and will be damaged in
that they have not and will not receive their fair proportion of the value of
Read-Rite's assets and businesses and/or have been and will be prevented from
obtaining a fair and adequate price for their shares of Read-Rite's common
stock.
24. Plaintiff seeks preliminary and permanent injunctive relief
preventing defendants from inequitably and unlawfully depriving plaintiff and
the Class of their right to realize full and fair value for their stock at a
premium over the market price, and from unlawfully entrenching themselves in
their positions of
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control, and to compel defendants to carry out their fiduciary duties to
maximize stockholder value.
25. Only through the exercise of this Court's equitable powers can
plaintiff and the Class be fully protected from the immediate and irreparable
injury that defendants' actions threaten to inflict. Defendants are precluding
the enjoyment by Read-Rite stockholders of the full economic value of their
investment by failing to proceed expeditiously and in good faith to evaluate
and pursue a premium acquisition proposal that would provide consideration for
all shares at a premium price.
26. Unless enjoined by the Court, defendants will continue to breach
their fiduciary duties owned to plaintiff and the members of the Class, and
will prevent the sale of Read-Rite at a substantial premium, all to the
irreparable harm of plaintiff and other members of the Class.
27. Plaintiff and the Class have no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
(a) Declaring this to be a proper class action and certifying
plaintiff as class representative;
(b) Ordering the Individual Defendants to carry out their
fiduciary duties to plaintiff and the other members of the Class by announcing
their intention to:
(i) cooperate fully with entity or person, including
Applied Magnetics, having a bona fide interest in proposing any transaction
that would maximize stockholder value
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including, but not limited to, a merger or acquisition of Read-Rite;
(ii) immediately undertake an appropriate evaluation of
Read-Rite's worth as a merger/acquisition candidate;
(iii) take all appropriate steps to enhance Read-Rite's
value and attractiveness as a merger/acquisition candidate; and
(iv) take all appropriate steps to effectively expose
Read-Rite to the marketplace in an effort to create an active auction of the
Company.
(c) Ordering the Individual Defendants, jointly and
severally to account to plaintiff and the Class for all damages suffered and to
be suffered by them as a result of the acts and transactions alleged herein;
(e) Awarding plaintiff the costs and disbursements of this
action, including a reasonable allowance for plaintiff's attorneys' and
experts' fees; and
(f) Granting such other and further relief as may be just
and proper.
ROSENTHAL, MONHAIT, GROSS
& GODDESS, P.A.
By: /s/
-------------------------------
Suite 1401 Mellon Bank Center
919 Market Street
Wilmington, Delaware 19899
Attorneys for Plaintiff
Of Counsel:
WECHSLER HARWOOD
HALEBIAN & FEFFER LLP
805 Third Avenue
New York, New York 10022
(212) 935-7400
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