<PAGE> 1
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
READ-RITE CORPORATION
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(4) Date Filed:
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<PAGE> 2
LOGO
READ-RITE CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 24, 1998
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Read-Rite
Corporation, a Delaware corporation (the "Company"), will be held on Tuesday,
February 24, 1998, at 10:00 a.m., local time, at the Company's facility at 44100
Osgood Road, Fremont, California, for the following purposes:
1. To elect five directors to serve for the ensuing year or until their
successors are duly elected and qualified.
2. To amend the Company's 1995 Stock Plan to increase the number of shares
reserved for issuance thereunder by 2,250,000 shares.
3. To amend the Company's 1995 Stock Plan to increase the number of shares
that may be granted to an employee in any one fiscal year from 250,000
shares to 500,000 shares, to increase the number of shares that may be
granted to an employee upon initial employment from 250,000 shares to
500,000 shares and to provide that an employee may be granted up to an
additional 500,000 shares in any fiscal year (other than the first
fiscal year of employment) that the employee receives a promotion.
4. To amend the Company's 1991 Director Option Plan to increase the number
of shares reserved for issuance thereunder by 150,000 shares.
5. To ratify the appointment of Ernst & Young LLP as independent auditors
for the Company for the 1998 fiscal year.
6. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on December 30, 1997
are entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, please sign and return
the enclosed proxy as promptly as possible in the prepaid postage envelope
enclosed for that purpose. Any stockholder attending the meeting may vote in
person even if he or she has returned a proxy.
THE BOARD OF DIRECTORS
Milpitas, California
January 20, 1998
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO
COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE
PROVIDED.
<PAGE> 3
READ-RITE CORPORATION
345 LOS COCHES STREET
MILPITAS, CALIFORNIA 95035
------------------------
PROXY STATEMENT FOR 1998
ANNUAL MEETING OF STOCKHOLDERS
The enclosed Proxy is solicited on behalf of the Board of Directors of
Read-Rite Corporation (the "Company") for use at the Annual Meeting of
Stockholders to be held on Tuesday, February 24, 1998, at 10:00 a.m., local
time, or at any adjournment thereof, for the purposes set forth herein and in
the accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting
will be held at the Company's facility at 44100 Osgood Road, Fremont,
California.
The proxy solicitation materials were mailed on or about January 20, 1998
to all stockholders of record on December 30, 1997 (the "Record Date").
INFORMATION CONCERNING SOLICITATION AND VOTING
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it any time before its use by delivering to the Secretary of the Company
at the above address written notice of revocation or a duly executed proxy
bearing a later date, or by attending the meeting and voting in person.
VOTING AND SOLICITATION
Each stockholder is entitled to one vote for each share of Common Stock on
all matters presented at the meeting. The required quorum for the transaction of
business at the Annual Meeting is a majority of the votes eligible to be cast by
holders of shares of Common Stock issued and outstanding on the Record Date.
Shares that are voted "FOR," "AGAINST," "WITHHELD" or "ABSTAIN" are treated as
being present at the meeting for purposes of establishing a quorum and are also
treated as shares entitled to vote at the Annual Meeting (the "Votes Cast") with
respect to such matter. ABSTAIN votes will have the same effect as a vote
against the proposal. Broker non-votes will be counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
but will not be counted for purposes of determining the number of Votes Cast
with respect to the particular proposal on which a broker has not voted. Thus, a
broker non-vote will not effect the outcome of the voting on a particular
proposal.
The cost of soliciting proxies will be borne by the Company. In addition,
the Company has retained Georgeson & Company Inc. to act as proxy solicitor for
the Annual Meeting at a cost of approximately $7,500, plus expenses. The Company
may also reimburse brokerage firms and other persons representing beneficial
owners of shares for their expenses in forwarding solicitation materials to such
beneficial owners. Proxies may also be solicited by certain of the Company's
directors, officers, and regular employees, without additional compensation,
personally or by telephone, facsimile or telegram.
<PAGE> 4
RECORD DATE AND PRINCIPAL OWNERSHIP
Stockholders of record at the close of business on December 30, 1997 are
entitled to notice of the meeting and to vote at the meeting. At the record
date, 48,309,913 shares of the Company's Common Stock were issued and
outstanding. As of December 30, 1997, the following entities were known by the
Company to be the beneficial owners of more than 5% of the Company's Common
Stock:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME SHARES TOTAL
------------------------------------------------------- --------- ----------
<S> <C> <C>
J&W Seligman & Co. Inc.(1)............................. 4,598,700 9.5%
100 Park Avenue, 8th Floor
New York, NY 10017
Pioneering Management Corporation(2)................... 4,000,000 9.2%
60 State Street
Boston, MA 02109-1820
</TABLE>
- ---------------
(1) Based on information received from J&W Seligman & Co. Inc. as of December
30, 1997.
(2) Based on information received from Pioneering Management Corporation as of
December 30, 1997.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Stockholders of the Company may submit proposals which they believe should
be voted upon at the Annual Meeting or nominate persons for election to the
Board of Directors. In accordance with the Company's Bylaws and applicable rules
under the Securities Exchange Act of 1934, as amended, any such proposal or
nomination must be submitted in writing to the Secretary of the Company no later
than September 22, 1998. As set forth in the Company's Bylaws, this submission
must include certain specified information concerning the proposal or nominee,
as the case may be. Proposals or nominations not meeting these requirements will
not be entertained at the Annual Meeting. The Secretary should be contacted in
writing at the address on the first page of this Proxy Statement to make any
submission or to obtain additional information as to the proper form and content
of submissions. Stockholders interested in submitting such a proposal are
advised to contact knowledgeable counsel with regards to the detailed
requirements of submitting such a proposal.
PROPOSAL ONE:
ELECTION OF DIRECTORS
NOMINEES
A board of five directors is to be elected at the Annual Meeting of
Stockholders. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the Company's five nominees named below, all of
whom are presently directors of the Company. If any nominee of the Company is
unable or declines to serve as a director at the time of the Annual Meeting of
Stockholders, the proxies will be voted for the nominee designated by the
present Board of Directors to fill the vacancy. It is not expected that any
nominee will be unable or will decline to serve as a director. The term of the
office of each person elected as a director will continue until the next Annual
Meeting of Stockholders or until a successor has been elected and qualified.
Fred Schwettmann, a director of the Company since May 1993 and the Company
President and Chief Operating Officer from May 1993 through April 1997, will be
leaving the Board of Directors at the end of his current term and will not be
standing for reelection at the Annual Meeting. The Company wishes to thank Mr.
Schwettmann for his excellent service.
2
<PAGE> 5
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The five candidates receiving the highest number of "FOR" votes shall be
elected to the Company's Board of Directors.
The Board of Directors recommends that the stockholders vote "FOR" the
nominees listed below:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
- ------------------------ --- ---------------------------------------------
<S> <C> <C>
Cyril J. Yansouni....... 55 Chairman of the Board of Directors and Chief
Executive Officer of the Company
John G. Linvill......... 78 Professor Emeritus, Stanford University
William J. Almon........ 65 Chairman and Chief Executive Officer of
StorMedia, Inc.
Michael L. Hackworth.... 56 Chairman and Chief Executive Officer of
Cirrus Logic, Inc.
Matthew J. O'Rourke..... 59 Retired Partner, Price Waterhouse LLP
</TABLE>
Except as set forth below, each nominee has been engaged in his principal
occupation described above during the past five years. There is no family
relationship among any directors or executive officers of the Company.
Mr. Yansouni has served as Chief Executive Officer and Chairman of the
Board of Directors of the Company since March 1991. Prior to joining the
Company, Mr. Yansouni was with Unisys Corporation, a manufacturer of computer
systems, from December 1988 to February 1991, where he served in various senior
management capacities, most recently as an Executive Vice President. From
October 1986 to December 1988, Mr. Yansouni was President of Convergent
Technologies, a manufacturer of computer systems which was acquired by Unisys
Corporation in December 1988. From 1967 to 1986, Mr. Yansouni was at Hewlett-
Packard Company, where he served in a variety of technical and management
positions, most recently as Vice President and General Manager of the Personal
Computer Group. Mr. Yansouni received his M.S. degree in electrical engineering
from Stanford University and his B.S. degree in electrical engineering and
mechanical engineering from the University of Louvain, Belgium. Mr. Yansouni is
also a director of Informix Software, Inc. and PeopleSoft, Inc., both software
companies, of Raychem Corporation, a material sciences manufacturing company,
and of ActivCard, a manufacturer of network access security systems.
Dr. Linvill has been a director of the Company since August 1991. Dr.
Linvill has been a faculty member at Stanford University since 1955. Since 1989,
he has been Professor Emeritus, and from 1980 to 1990, he was Director of the
Center for Integrated Systems in Stanford's Electrical Engineering Department.
Dr. Linvill received his A.B. degree in mathematics and physics from William
Jewel College and his S.B., S.M. and Sc.D. degrees in electrical engineering
from the Massachusetts Institute of Technology.
Mr. Almon has been a director of the Company since December 1994. Since May
1994, Mr. Almon has been Chairman and Chief Executive Officer of StorMedia,
Inc., a manufacturer of thin film magnetic disks for rigid disk drives. From
1989 to 1992, Mr. Almon served as the President and Chief Operating Officer of
Conner Peripherals, Inc., a disk drive manufacturer, which was acquired by
Seagate Technology, Inc., a customer of the Company. Mr. Almon received his B.S.
degree from the United States Military Academy at West Point, and pursued
graduate studies at the Georgetown University School of Economics. Mr. Almon is
also a director of Sigma Designs, Inc., a multimedia company, and of
International Manufacturing Services, a contract manufacturer.
Mr. Hackworth has been a director of the Company since November 1995. Since
August 1997, Mr. Hackworth has been the Chairman and Chief Executive Officer of
Cirrus Logic, Inc, a manufacturer of semiconductors. Previously, Mr. Hackworth
served as President, Chief Executive Officer and as a director of Cirrus Logic
since he founded the company in January 1985. Prior to founding Cirrus Logic,
Mr. Hackworth was employed by Signetics Corporation, most recently as Senior
Vice President of MOS and Linear Products.
Mr. O'Rourke has been a director of the Company since July 1996. He joined
Price Waterhouse in 1960, was admitted to partnership in 1972 and worked in
various Price Waterhouse offices throughout the United
3
<PAGE> 6
States until his retirement in June 1996. He was a managing partner at Price
Waterhouse's New York national office from 1994 through June 1996, prior to
which he served as the managing partner for Northern California. Mr. O'Rourke
holds a B.S. degree in Economics from Villanova University(Pennsylvania), and is
a Certified Public Accountant in a number of states, including California.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of December 30, 1997 by each director(including the Company's
Chief Executive Officer), by the five other most highly compensated executive
officers of the Company (one of whom was not serving as an executive officer at
the end of the fiscal year) whose compensation exceeded $100,000 for fiscal 1997
(such officers, together with the Chief Executive Officer, are collectively
referred to as the "Named Executive Officers"), and by all current directors and
executive officers as a group:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME SHARES TOTAL
------------------------------------------------------- --------- ----------
<S> <C> <C>
Cyril J. Yansouni(l)................................... 969,022 2.0%
Fred Schwettmann(2).................................... 131,391 *
John G. Linvill(3)..................................... 28,500 *
William J. Almon(4).................................... 11,500 *
Michael L. Hackworth(5)................................ 4,500 *
Matthew J. O'Rourke(6)................................. 2,700 *
Alan S. Lowe(7)........................................ 133,196 *
Michael A. Klyszeiko(8)................................ 126,422 *
Peter G. Bischoff(9)................................... 200,746 *
Ralph Patterson(10).................................... 34,559 *
All directors and executive officers and as a group
(13 persons)(11)..................................... 1,900,953 3.9%
</TABLE>
- ---------------
* Less than 1%
(1) Includes 732,318 shares issuable upon the exercise of stock options to
purchase shares of Common Stock which are exercisable within 60 days of
December 30, 1997.
(2) Includes 126,502 shares issuable upon the exercise of stock options to
purchase shares of Common Stock which are exercisable within 60 days of
December 30, 1997.
(3) Includes 25,500 shares issuable upon the exercise of stock options to
purchase shares of Common Stock which are exercisable within 60 days of
December 30, 1997.
(4) Includes 10,500 shares issuable upon the exercise of stock options to
purchase shares of Common Stock which are exercisable within 60 days of
December 30, 1997.
(5) Represents shares issuable upon the exercise of stock options to purchase
shares of Common Stock which are exercisable within 60 days of December 30,
1997.
(6) Includes 1,500 shares issuable upon the exercise of stock options to
purchase shares of Common Stock which are exercisable within 60 days of
December 30, 1997.
(7) Includes 110,051 shares issuable upon the exercise of stock options to
purchase shares of Common Stock which are exercisable within 60 days of
December 30, 1997.
(8) Includes 125,951 shares issuable upon the exercise of stock options to
purchase shares of Common Stock which are exercisable within 60 days of
December 30, 1997.
(9) Includes 196,888 shares issuable upon the exercise of stock options to
purchase shares of Common Stock which are exercisable within 60 days of
December 30, 1997.
(10) Includes 32,500 shares issuable upon the exercise of stock options to
purchase shares of Common Stock which are exercisable within 60 days of
December 30, 1997.
4
<PAGE> 7
(11) Includes 1,620,314 shares issuable upon the exercise of stock options to
purchase shares of Common Stock which are exercisable within 60 days of
December 30, 1997.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held 12 meetings during fiscal 1997.
The Audit Committee held 4 meetings during fiscal 1997. During fiscal 1997
the Audit Committee consisted of Messrs. Linvill, Almon, Hackworth and O'Rourke.
The Audit Committee reviews the financial statements and the internal financial
reporting systems and controls of the Company with the Company's management and
independent auditors, recommends resolutions for any dispute between the
Company's management and its auditors, and reviews other matters relating to the
relationship of the Company with its auditors.
The Compensation Committee held 2 meetings during fiscal 1997. During
fiscal 1997 the Compensation Committee consisted of Messrs. Linvill, Almon,
Hackworth and O'Rourke. The Compensation Committee makes recommendations to the
Board of Directors regarding the Company's executive compensation policies and
administers the Company's stock option plans and Employee Stock Purchase Plan
(the "Purchase Plan").
The Board of Directors currently has no nominating committee or committee
performing a similar function.
Messrs. Yansouni, Schwettmann, Almon, Linvill and O'Rourke participated in
all meetings of the Board of Directors held during fiscal 1997. Mr. Almon,
Linvill and O'Rourke further participated in all meetings of the Audit Committee
and the Compensation Committee held during fiscal 1997. Mr. Hackworth
participated in all meetings of the Board of Directors except four, all meetings
of the Audit Committee except one, and all meetings of the Compensation
Committee.
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 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, 1997, Messrs. Almon, Hackworth, Linvill and
O'Rourke were each granted options to purchase 6,000 shares of Common Stock
under the Director Plan at an exercise price of $21.06 per share.
COMPENSATION OF EXECUTIVE OFFICERS
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997, the Compensation Committee consisted of Messrs.
Linvill, Almon, Hackworth and O'Rourke. Each member of the Compensation
Committee is a nonemployee director. No member of the Compensation Committee has
a relationship that would constitute an interlocking relationship with executive
officers or directors of another entity.
5
<PAGE> 8
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation for the Named Executive
Officers for the Company's last three fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1)
------------------------------------------------ LONG-TERM
QUARTERLY COMPENSATION
VARIABLE --------------
COMPENSATION STOCK OPTION
FISCAL AND ANNUAL OTHER ANNUAL GRANTS
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (2) COMPENSATION (# OF SHARES)
------------------------------- ------ -------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Cyril J. Yansouni.............. 1997 $570,000 $815,000 $ -- 100,000
Chairman and Chief 1996 570,000 99,750 -- --
Executive Officer 1995 500,000 520,000 -- 122,672
Fred Schwettmann (3)........... 1997 350,000 323,000 -- 80,000
President and Chief 1996 410,000 61,500 -- --
Operating Officer (Retired) 1995 360,000 331,200 -- 98,888
Alan S. Lowe (3)............... 1997 266,000 333,000 -- 110,000
President and Chief 1996 242,000 24,200 -- --
Operating Officer
Michael A. Klyszeiko........... 1997 255,000 218,000 -- 50,000
Executive Vice President 1996 255,000 25,500 -- 10,000
Operations 1995 240,000 140,160 -- 45,480
Peter G. Bischoff.............. 1997 258,000 212,000 217,000(5) 50,000
Executive Vice President 1996 245,000 25,800 200,155 --
Opto Magnetic Division 1995 245,000 143,080 231,364 50,604
Ralph Patterson (4)............ 1997 243,000 203,000 129,000(6) 60,000
Senior Vice President 1996 125,000 39,000 69,147(6) 70,000
Research and Development
</TABLE>
- ---------------
(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 programs. See "Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values"
below. Under the fiscal 1994 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 vested on October 1,
1997. The remaining shares from the October 1993 grants will vest October 1,
1999, provided the employee remains an employee in good standing through
such date. See "Board Compensation Committee Report on Executive
Compensation -- Annual Bonus Program."
(3) In May 1997, Mr. Schwettmann retired from his duties as the Company's
President and Chief Operating Officer. Mr. Lowe, formerly Senior Vice
President, Customer Business Units, was promoted to President and Chief
Operating Officer, succeeding Mr. Schwettmann.
(4) Mr. Patterson was hired in March 1996 as Senior Vice President, Research and
Development. Mr. Patterson was not a Named Executive Officer during fiscal
1996.
6
<PAGE> 9
(5) Mr. Bischoff's fiscal 1995 and 1996 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 Mr. Bischoff's
direction. All accrued income from the investment of the trust principal was
also paid to Mr. Bischoff at the time of each annual payment. Mr. Bischoff's
fiscal 1997 compensation includes the first payment under the October 1995
extension of Mr. Bischoff's retention arrangements. See "Employment
Arrangements."
(6) Mr. Patterson's other annual compensation includes payments pursuant to his
employment agreement whereby Mr. Patterson received $96,000 and $62,000 in
fiscal 1997 and 1996, respectively, for relocation purposes.
OPTIONS GRANTED AND OPTIONS EXERCISED IN THE LAST FISCAL YEAR
The following tables set forth information regarding stock options granted
to and exercised by the Named Executive Officers during the last fiscal year, as
well as options held by such officers as of September 28, 1997, the last day of
the Company's 1997 fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUES AT ASSUMED
ANNUAL RATES
OF STOCK PRICE
INDIVIDUAL GRANTS(1) APPRECIATION (THROUGH
-------------------------------------------- EXPIRATION DATE)(2)
% OF TOTAL EXERCISE ----------------------
OPTION OPTIONS PRICE EXPIRATION 5% 10%
NAME GRANTS GRANTED ($/SH) DATE PER YEAR PER YEAR
---------------------------- ------- ---------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cyril J. Yansouni........... 100,000 4.1% $15.38 10-01-06 $ 966,925 $2,450,379
Fred Schwettmann............ 80,000 3.2 15.38 10-01-06 773,540 1,960,303
Alan S. Lowe................ 60,000 2.4 15.38 10-01-06 580,155 1,470,227
50,000(3) 2.0 25.88 04-30-07 813,632 2,061,904
Michael A. Kyszeiko......... 50,000 2.0 15.38 10-01-06 483,463 1,225,190
Peter G. Bischoff........... 50,000 2.0 15.38 10-01-06 483,463 1,225,190
Ralph Patterson............. 60,000 2.4 15.38 10-01-06 580,155 1,470,227
</TABLE>
- ---------------
(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
granted 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. Options vest over four years
(25% on each of the first four anniversaries of the grant date).
(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) Mr. Lowe was granted these options upon his promotion to President and Chief
Operating Officer.
7
<PAGE> 10
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............. 50,000 $1,261,460 700,308 211,600 $13,223,628 $1,351,910
Fred Schwettmann.............. 110,000 1,406,756 101,752 163,595 1,239,501 1,098,409
Alan S. Lowe.................. -- -- 92,776 146,198 663,513 815,318
Michael A. Klyszeiko.......... -- -- 110,839 97,232 892,904 770,266
Peter G. Bischoff............. -- -- 181,721 95,974 1,024,740 747,237
Ralph Patterson............... -- -- 17,500 112,500 131,250 1,031,250
</TABLE>
- ---------------
(1) Represents the difference between the closing price of the Company's Common
Stock on September 28, 1997 of $26.00 per share and the exercise price of
the options multiplied by the total number of shares.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") 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 administers the Company's 1995
Stock Plan, Amended and Restated 1987 Stock Option 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 $570,000 for fiscal 1996, and was not
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 the total of 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.
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<PAGE> 11
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. If eligibility is
established based on Company performance, actual awards can be adjusted upwards
or downwards at the Committee's discretion for individual performance and other
Company performance criteria. Quarterly awards for both the Chief Executive
Officer and the President are based solely on Company performance.
Quarterly variable compensation eligibility for fiscal 1997 ranged from
25% - 40% (or 6.25% - 10% per quarter) of the respective base salaries of the
participating officers except the Company's Chief Executive Officer and
President, whose percentages were 70% and 60% (or 17.5% and 15% per quarter),
respectively. Mr. Yansouni's quarterly variable eligibility was not changed in
fiscal 1997. Based on the PAT goals set by the Committee for fiscal 1997, full
or partial quarterly awards were paid for all four quarters of fiscal 1997.
Annual Bonus. The Company's annual bonus program also acknowledges Company
and individual performance. 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 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 each
participating executive's annual bonus eligibility ("ABE")(generally expressed
as a percentage of the executive's base compensation plus quarterly variable
compensation eligibility), 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 exceeded the PAT 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. For fiscal 1994 and 1995, the cash portion, if awarded,
would have been paid 50% at the time of the award, 25% one year later and 25%
two years later provided the executive remained employed by the Company through
such dates. For fiscal 1996, the cash portion, if awarded, would have been paid
at the time of the award. Because the Company did not meet or exceed the PAT
goal for fiscal 1996, vesting of the applicable options was not accelerated, nor
were any annual cash bonuses awarded.
For fiscal 1997, awards under the annual bonus program were again payable
only if the Company exceeded for the year the sum of the quarterly PAT targets
(the "Annual PAT Target") set by the Committee at the beginning of the fiscal
year. Each executive's target base ABE under the 1997 annual program was the
same aggregate percentage of the executive's base salary used under the
quarterly variable compensation program. Annual bonus eligibility accrued on a
straight-line basis to the extent the Company's performance exceeded the Annual
PAT Target, with the ABE payable in full if the Company achieved 125% of the
Annual PAT Target, and two times the ABE payable if the Company achieved 150% of
the Annual PAT Target. To the extent eligibility was established based on
Company performance, actual awards could be adjusted at the Committee's
discretion for individual performance and other Company performance criteria.
Awards for both the Chief Executive Officer and the President under the 1997
annual bonus program were based solely on Company performance.
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<PAGE> 12
During fiscal 1997, the Company exceeded its Annual PAT Target, as a result
of which annual bonuses were paid to all executive officers, including the Chief
Executive Officer and President.
The fourth quarter and annual bonuses are calculated based upon the
Company's publicly announced results, typically released in the latter half of
October of each year, and are paid prior to the end of October. Accordingly, the
fourth quarter and annual fiscal 1997 bonuses were calculated and paid prior to
the unexpected November 10, 1997 announcement by Singapore Technologies that
Micropolis, a Company customer, would be liquidated. In accordance with
generally accepted accounting principles, the Company reflected the impact of
this subsequent event by recording a $14.8 million charge to its audited fiscal
1997 financial statements included in its Annual Report on Form 10-K filed with
the Securities and Exchange Commission on December 17, 1997.
Stock Options. Under the Company's 1995 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. Thereafter, executives are considered for additional
stock option grants annually; if made, the number of shares subject to any grant
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. Prior to November 1995, options typically vested over
three years (25% on each of the first two anniversaries of the date of grant,
and 50% on the third anniversary); in November 1995, the Committee extended
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 benefit is realized from the
stock option grant unless the price of the Common Stock rises over a number of
years. In fiscal 1997, Mr. Yansouni was granted a stock option to purchase
100,000 shares at an exercise price of $15.38, the closing price of the Common
Stock on the date of grant.
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 is
necessary in some circumstances. In particular, the Committee notes that in the
event that Company and individual performance goals are achieved under the
Company's quarterly variable compensation program and annual bonus program, the
cash compensation of certain officers may exceed the $1,000,000 threshold. As a
result of the Company's financial performance relative to the quarterly and
annual PAT targets for the year, quarterly and annual
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<PAGE> 13
bonuses were paid to all executive officers during fiscal 1997. Accordingly, the
Committee notes that the cash compensation of the Chief Executive Officer
exceeded $1,000,000 for fiscal 1997.
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, Executive Vice President, Opto Magnetic Division, 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, respectively, 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.
In January 1998, the Compensation Committee of the Board of Directors
approved an executive retention arrangement for Cyril Yansouni, the Company's
Chief Executive Officer. For a description of the retention arrangement, please
refer to Proposal Three.
In March 1997, the Company's Board of Directors adopted a Management
Severance Plan (the "Severance Plan") which provides for severance payments to
the Company's executive officers in certain circumstances following a change in
control. Specifically, the Severance Plan provides that if a participant's
employment with the Company terminates as a result of an Involuntary Termination
other than for Cause (as such terms are defined in the Severance Plan) at any
time within eighteen months following a change in control, the participant will
receive a one-time payment, equal to: (i) two times the participant's Annual
Compensation (generally, base salary plus the yearly average of quarterly and
annual bonuses received by the participant over the preceding three years), plus
(ii) the participant's Pro-Rated Bonus Amount (generally, quarterly and annual
bonuses prorated through the date of the change in control). In such event, the
participant is also entitled to receive medical, dental, vision, disability life
insurance and other employee benefits no less favorable than those provided
immediately prior to the change in control for twenty-four months following the
change in control. In addition, the participant's stock options will continue to
vest for twelve months following the change in control.
Under the Severance Plan, a "change in control" means the occurrence of any
of the following events: (i) a person becomes the beneficial owner of 50% or
more of the total voting power of the Company's outstanding voting securities,
(ii) a change in the composition of the Company's Board of Directors occurs
within a two-year period as a result of which fewer than a majority of the
directors are Incumbent Directors (as defined in the Severance Plan), (iii) the
consummation of a merger or consolidation of the Company other than one in which
the voting securities of the Company outstanding immediately prior thereto
continue
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<PAGE> 14
to represent more than 50% of the total voting power of the Company or the
surviving corporation following such transaction, or (iv) the sale by the
Company of all or substantially all of its assets. Payments under the Severance
Plan are subject to reduction under certain circumstances to the extent such
payments would constitute "parachute payments" within the meaning of Section
2800 of the Code and would be subject to the excise tax imposed by Section 4999
of the Code. The Severance Plan will terminate on the fifth anniversary of its
effective date unless (i) the plan is extended by the Board, (ii) the plan is
terminated by the Board, or (iii) a change in control occurs prior to such fifth
anniversary.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on its review of copies of filings under Section 16(a) of the
Securities Exchange Act of 1934, as amended, received by it, or written
representations from certain reporting persons, the Company believes that during
fiscal 1997, all Section 16 filing requirements were met.
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<PAGE> 15
COMPARISON OF TOTAL CUMULATIVE STOCKHOLDER RETURN
The following graph sets forth the Company's total cumulative stockholder
return compared to the Standard and Poor's 500 Composite Index and the Hambrecht
and Quist Computer Hardware Sector Index for the period from September 30, 1992
through September 28, 1997. Total stockholder return assumes $100 invested at
the beginning of the period in the Common Stock of the Company, the stocks
represented in the Standard and Poor's 500 Composite Index and the stocks
represented in the Hambrecht and Quist Computer Hardware Sector Index,
respectively. Total return also assumes reinvestment of dividends; the Company
has never paid dividends on its Common Stock.
Historical stock price performance should not be relied upon as indicative
of future stock price performance.
<TABLE>
<CAPTION>
Measurement Period READ-RITE HAMBRECHT & QUIST
(Fiscal Year Covered) CORPORATION COMPUTER HARDWARE S & P 500 INDEX
<S> <C> <C> <C>
Sep-92 100 100 100
Sep-93 40 79 113
Sep-94 71 104 117
Sep-95 139 166 152
Sep-96 60 201 183
Sep-97 93 388 257
</TABLE>
PROPOSAL TWO:
APPROVAL OF AMENDMENT TO 1995 STOCK PLAN
The 1995 Stock Plan (the "1995 Plan") was adopted by the Board of Directors
in December 1995 and approved by the stockholders in February 1996, with
3,000,000 shares of Common Stock reserved for issuance thereunder. The 1995 Plan
replaced the Company's Amended and Restated 1987 Stock Option Plan (the "1987
Plan") with respect to future option grants. The 1995 Plan also included
approximately 1,400,000 shares available for grant under the 1987 Plan, plus any
shares made available due to cancelled options under the 1987 Plan. As of
December 30, 1997, an aggregate of 726,062 shares were available for future
grant under the 1995 Plan. In October 1997, the Board of Directors amended the
1995 Plan, subject to stockholder approval, to increase the shares reserved for
issuance thereunder by 2,250,000 shares. The stockholders are being asked to
approve this share increase at the Annual Meeting. The Board believes that
increasing the
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<PAGE> 16
number of shares available under the 1995 Plan will enable the Company to
continue to attract, retain and motivate employees.
The principal features of the 1995 Plan are described below:
General. The 1995 Plan authorizes the Board of Directors (the "Board"), or
a committee which the Board may appoint from among its members (the "Option
Committee"), to grant options and rights to purchase shares of Common Stock.
Options granted under the Stock Plan may either be "incentive stock options" as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, ("the
Code"), or nonstatutory stock options, as determined by the Board or Option
Committee. The 1995 Plan is not a qualified deferred compensation plan under
Section 401(a) of the Code, nor is it subject to the Employee Retirement Income
Security Act of 1974, as amended.
Purpose. The general purpose of the 1995 Plan is to attract and retain the
best available personnel for positions of substantial responsibility, to provide
additional incentive to the employees and consultants of the Company and to
promote the success of the Company's business.
Stock Subject to the 1995 Plan. Subject to other provisions of the 1995
Plan, the maximum aggregate number of shares of Common Stock which may be
optioned and sold under the Stock Plan shall be 3,000,000 shares plus any unused
shares from the 1987 Plan, and the lesser of any shares covered by outstanding
options under the 1987 Plan or any forfeited shares under the 1987 Plan. For
purposes of this paragraph: (i)"unused shares" means any shares reserved for
issuance which are not covered by grants prior to the termination of the 1987
Plan; and (ii) "forfeited shares" means any shares issued pursuant to awards
made under the 1987 Plan which are forfeited to the Company pursuant to award
terms and conditions. The term "forfeited shares" shall not include shares as to
which the original recipient received any benefits of ownership (other than
voting rights). The shares reserved under the 1995 Plan may be authorized, but
unissued, or reacquired Common Stock.
Administration. The 1995 Plan may be administered by the Board or Option
Committee. Subject to other provisions of the 1995 Plan, the Board or Option
Committee has the authority to: (i) interpret the plan and apply its provisions;
(ii) prescribe, amend or rescind rules and regulations relating to the plan;
(iii) select the employees and consultants to whom options and stock purchase
rights are to be granted; (iv) determine the number of shares to be made subject
to each option or stock purchase right; (v) determine whether and to what extent
options and stock purchase rights are to be granted; (vi) prescribe the terms
and conditions of each option and stock purchase right (including the exercise
price, whether an option will be classified as an incentive stock option or a
nonstatutory option and the provisions of the stock option or restricted stock
purchase agreement to be entered into between the Company and the grantee);
(vii) modify or amend each option or stock purchase right subject to applicable
legal and plan restrictions; (viii) authorize any person to execute, on behalf
of the Company, any instrument required to effect the grant of an option or
stock purchase right; and (ix) make all other determinations deemed necessary or
advisable for administering the 1995 Plan. The Board or Option Committee's
decisions, determinations and interpretations shall be final and binding on all
optionees and any other holder of options or stock purchase rights.
Eligibility. The 1995 Plan provides that nonstatutory stock options and
stock purchase rights may be granted to employees and consultants of the Company
and its majority-owned subsidiaries. Incentive stock options may be granted only
to employees.
Limitation. The 1995 Plan provides that no employee shall be granted, in
any fiscal year of the Company, options and stock purchase rights to purchase
more than 250,000 shares of Common Stock. In connection with an employee's
initial employment, the employee may be granted options or stock purchase rights
to purchase up to an additional 250,000 shares of Common Stock.
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<PAGE> 17
Terms and Conditions of Options. Each option is to be evidenced by a stock
option agreement between the Company and the employee or consultant to whom such
option is granted, and is subject to the following additional terms and
conditions:
(a) Exercise Price. The Board or the Option Committee determines the
exercise price of options at the time the options are granted. However,
excluding options issued to 10% stockholders, the exercise price under an
incentive stock option must not be less than 100% of the fair market value
of the Common Stock on the date such option is granted, and in the case of
a nonstatutory stock option, the exercise price shall be determined by the
Board or Option Committee, but in no case may the exercise price be less
than 85% of the fair market value of the Common Stock on the date such
option is granted. Incentive stock options granted to 10% shareholders must
have an exercise price of not less than 110% of the fair market value of
the Common Stock on the date such option is granted. If the Common Stock is
listed on any established stock exchange or a national market system, the
fair market value shall be the closing sale price for such stock (or the
closing bid if no sales were reported) on the date such option is granted.
If the Common Stock is regularly quoted by a recognized security dealer but
the selling prices are not reported, the fair market value shall be the
mean between the high bid and low asked prices on the date the option is
granted. In the absence of an established market for the Common Stock, the
fair market value shall be determined in good faith by the Board or Option
Committee.
(b) Form of Consideration. The means of payment for shares issued upon
exercise of an option is specified in each option agreement and generally
may be made by cash, check, promissory note, other shares of Common Stock
of the Company owned by the optionee for more than six months on the date
of surrender, delivery of an exercise notice together with such other
documentation as the administrator or broker shall require to effect the
exercise of the option and delivery to the Company of the sale or loan
proceeds required to pay the exercise price, a reduction in the amount of
any Company liability to the optionee, or by any combination thereof or any
other consideration and payment method for the issuance of Common Stock to
the extent permitted by applicable laws.
(c) Term of the Option. Each stock option agreement will specify the
term of the option and the date when the option is to become exercisable.
In the case of an incentive stock option, the term shall be ten years from
the date of grant or such shorter time as may be provided in the notice of
grant. In the case of an incentive stock option granted to a 10%
stockholder, the term of the option shall be no more than five years from
the date of grant. No option may be exercised by any person after the
expiration of its term.
(d) Termination of Employment. If an optionee's employment terminates
for any reason (other than death or permanent disability), then all options
held by such optionee under the 1995 Plan will expire as set forth in his
or her notice of grant (but not to exceed three months after the
termination of his or her employment in the case of an incentive stock
option) or in the absence of a specified time in the notice of grant, three
months following the optionee's termination. The optionee may exercise all
or part of his or her option at any time before such expiration to the
extent such option was exercisable at the time of termination of
employment.
(e) Disability. If an optionee should terminate his or her employment
or consulting relationship as a result of total and permanent disability
(as defined in the Code), then all options held by such optionee under the
1995 Plan shall expire the earlier of (i) 12 months from the date of
termination of the optionee's employment, or (ii) the expiration date of
such option. The optionee may exercise all or part of his or her option at
any time before such expiration to the extent that such option was
exercisable at the time of termination of employment.
(f) Death. In the event of death of an optionee, any options which are
then vested, or which would have otherwise vested within 12 calendar months
from the date of death, may be exercised at any time within 12 months after
the date of death (but in no event later than the expiration of such option
as set forth in the notice of grant), by the optionee's estate or by the
person who acquired the right to exercise the option by bequest or
inheritance.
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<PAGE> 18
(g) Nontransferability of Options. During an optionee's lifetime, his
or her option(s) shall be exercisable only by the optionee and shall not be
transferable other than by will or laws of descent and distribution.
(h) Value Limitation. If the aggregate fair market value of all shares
of Common Stock subject to an optionee's incentive stock option which are
exercisable for the first time during any calendar year exceeds $100,000,
the excess options shall be treated as nonstatutory stock options.
(i) Other Provisions. The stock option agreement may contain such
other terms, provisions and conditions not inconsistent with the 1995 Plan
as may be determined by the Board or Option Committee.
Stock Purchase Rights. The 1995 Plan permits the Company to grant rights to
purchase Common Stock either alone or in tandem with other awards granted under
the 1995 Plan and/or cash awards made outside the 1995 Plan. The stock purchase
right will not be offered at a purchase price of less than the fair market value
of the Common Stock on the date of its grant. The offer of a stock purchase
right will remain open no longer than six months from its grant and must be
accepted by the execution of a restricted stock purchase agreement between the
Company and the offeree and the payment of the purchase price of the shares.
Unless the Board or Option Committee determines otherwise, the restricted stock
purchase agreement will give the Company a repurchase option exercisable upon
the voluntary or involuntary termination of the purchaser's employment or
consulting relationship with the Company for any reason (including death and
disability). The purchase price for any shares repurchased by the Company shall
be the original price paid by the purchaser and may be paid by the cancellation
of indebtedness of the purchaser to the Company. The repurchase option shall
lapse at a rate fixed by the Board or Option Committee. A stock purchase right
is nontransferable by the offeree, other than by will or the laws of descent and
distribution. The restricted stock purchase agreement may contain such other
terms, provisions and conditions not inconsistent with the 1995 Plan as may be
determined by the Board or Option Committee.
Adjustments Upon Changes in Capitalization. In the event that the stock of
the Company is changed by reason of any stock split, reverse stock split, stock
dividend, combination, reclassification or other change in the capital structure
of the Company effected without the receipt of consideration, appropriate
proportional adjustments shall be made in the number and class of shares of
stock subject to the 1995 Plan, the number and class of shares of stock subject
to any option or stock purchase right outstanding under the 1995 Plan, and the
exercise price of any such outstanding option or stock purchase right. Any such
adjustment shall be made upon approval of the Board and, if required, the
stockholders of the Company, whose determination shall be conclusive.
Notwithstanding the above, in connection with any merger, consolidation,
acquisition of assets or like occurrence involving the Company, each outstanding
option or stock purchase right shall be assumed or an equivalent option or right
substituted by a successor corporation. If the successor corporation refuses to
assume the options and stock purchase rights or to substitute substantially
equivalent options and stock purchase rights, the optionee shall have the right
to exercise the option or stock purchase right to all the optioned stock,
including shares which would not otherwise be exercisable. If the option or
stock purchase right is exercisable in lieu of assumption or substitution, the
Board or Option Committee shall notify the optionee that the option or stock
purchase right shall be fully exercisable for 15 days from the date of such
notice, and the option or stock purchase right will terminate upon expiration of
such period.
Amendment and Termination of the Plan. The Board may amend, alter, suspend
or terminate the 1995 Plan or any part thereof, at any time and for any reason.
However, the Company will obtain stockholder approval for any amendment to the
1995 Plan to the extent necessary to comply with Section 422 of the Code, any
similar rule or statute, or any other applicable law, rule or regulation. No
such action by the Board of Directors or stockholders may alter or impair any
option or stock purchase right previously granted under the 1995 Plan without
the written consent of the optionee. In any event, the 1995 Plan shall terminate
no later than ten years from its approval by the Board.
FEDERAL INCOME TAX CONSEQUENCES
Stock Options. Options granted under the 1995 Plan may be either "incentive
stock options," as defined in Section 422 of the Code, or nonstatutory options.
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<PAGE> 19
An optionee who is granted an incentive stock option will not recognize
taxable income at the time the option is granted or upon its exercise, although
the exercise may subject the optionee to the alternative minimum tax. Upon the
sale or exchange of the shares more than two years after grant of the option and
one year after exercising the option, any gain or loss will be treated as
long-term capital gain or loss. If these holding periods are not satisfied, the
optionee will recognize ordinary income at the time of sale or exchange equal to
the difference between the exercise price and the lower of (i) the fair market
value at the date of the option exercise or (ii) the sale price of the shares. A
different rule for measuring ordinary income upon such a premature disposition
may apply if the optionee is also an officer, director, or 10% stockholder of
the Company. The Company will be entitled to a deduction in the same amount as
the ordinary income recognized by the optionee. Any gain or loss recognized on
such a premature disposition of the shares in excess of the amount treated as
ordinary income will be characterized as long-term or short-term capital gain or
loss, depending on the holding period.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory options. An optionee will not recognize any taxable
income at the time he or she is granted a nonstatutory option. However, upon its
exercise, the optionee will recognize taxable income generally measured by the
excess of the then fair market value of the shares purchased over the purchase
price. Any taxable income recognized in connection with an option exercise by an
optionee who is also an employee of the Company will be subject to tax
withholding by the Company. The Company will be entitled to a deduction in the
same amount as ordinary income recognized by the employee. Upon sale of such
shares by the optionee, any difference between the sales price and the
optionee's purchase price, to the extent not recognized as taxable income as
provided above, will be treated as long-term or short-term capital gain or loss,
depending on the holding period.
Restricted Stock. A recipient of restricted stock will have ordinary income
equal to the fair market value of the shares at the time if and when the share
restrictions lapse. Under current federal tax law, however, the employee may
elect to include as ordinary income for the year of the award the fair market
value of the shares on the grant date. The restrictions on the shares will not
affect fair market value for purposes of such an election. If the election is
made, the recipient will not incur additional tax liability until the sale or
disposition of the shares. If the shares are forfeited following such an
election, the recipient obtains no tax benefit with respect to the forfeiture or
prior tax payment. The Company is entitled to a federal tax deduction in the
same amount and at the same time as the employee realizes ordinary income.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON THE EMPLOYEE OR CONSULTANT AND THE COMPANY WITH RESPECT TO AWARDS UNDER THE
1995 PLAN AND DOES NOT PURPORT TO BE COMPLETE, AND REFERENCE SHOULD BE MADE TO
THE APPLICABLE PROVISIONS OF THE CODE. IN ADDITION, THIS SUMMARY DOES NOT
DISCUSS THE PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR
FOREIGN COUNTRY IN WHICH THE EMPLOYEE OR CONSULTANT MAY RESIDE.
17
<PAGE> 20
1995 Plan Benefits. The Company is unable to predict the amount of benefits
that will be received by or allocated to any particular participant under the
1995 Plan. The following table sets forth the dollar amount and the number of
shares granted under the 1995 Plan during the last fiscal year to (i) each of
the Company's Named Executive Officers, (ii) all executive officers as a group,
(iii) all non-employee directors as a group and (iv) all employees other than
executive officers as a group:
STOCK PLAN BENEFITS TABLE
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SHARES SHARES
NAME GRANTED GRANTED(1)
---------------------------------------------------- ---------- -----------
<S> <C> <C>
Cyril J. Yansouni................................... 100,000 $ 1,537,500
Fred Schwettmann.................................... 80,000 1,230,000
Alan S. Lowe........................................ 110,000 2,216,250
Michael A. Klyszeiko................................ 50,000 768,750
Peter G. Bischoff................................... 50,000 768,750
Ralph Patterson..................................... 60,000 922,500
All executive officers as a group (10 persons)...... 600,000 9,750,000
All non-employee directors as a group (4 persons)... 24,000 505,440
All employees other than executive officers as a
group............................................. 1,862,383 42,452,520
</TABLE>
- ---------------
(1) The dollar value of option grants under the 1995 Plan was computed by
multiplying the number of shares granted times the exercise price of the
option. All options granted under the 1995 Plan were granted at an exercise
price equal to the fair market value of the Common Stock on the date of
grant.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The approval of the amendment to the 1995 Plan requires the affirmative
vote of a majority of the Votes Cast on the proposal at the Annual Meeting.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE AMENDMENT TO THE 1995
PLAN AND RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THIS PROPOSAL.
PROPOSAL THREE:
APPROVAL OF AMENDMENT TO 1995 PLAN TO INCREASE THE NUMBER
OF SHARES THAT MAY BE GRANTED TO AN EMPLOYEE
The 1995 Plan was adopted by the Board of Directors in December 1995 and
approved by the stockholders in February 1996. Prior to the adoption of the
amendment discussed below, the 1995 Plan provided that no employee shall be
granted, in any fiscal year of the Company, options and/or stock purchase rights
to purchase more than 250,000 shares of Common Stock. In connection with an
employee's initial employment, the employee may be granted options or stock
purchase rights to purchase up to an additional 250,000 shares of Common Stock.
These limitations are in the 1995 Plan to ensure that any awards thereunder will
qualify as "performance-based" compensation within the meaning of Section 162(m)
of the Code and the regulations thereunder.
In October, 1997, the Board of Directors amended the 1995 Plan, subject to
stockholder approval, to increase the maximum number of options and stock
purchase rights that may be granted to an employee in any fiscal year, and the
additional number of options and stock purchase rights that may be granted to an
employee in connection with an employee's initial employment, from 250,000
shares to 500,000 shares. The amendment to the 1995 Plan also provides that an
employee may be granted options or stock purchase rights to purchase up to an
additional 500,000 shares of Common Stock in any fiscal year in which the
employee, by resolution of the Board of Directors, is promoted (other than the
first fiscal year of employment). This
18
<PAGE> 21
amendment to the 1995 Plan is being made in connection with a retention
arrangement for the Company's Chief Executive Officer, which is described below.
In October 1997, the Compensation Committee of the Board of Directors
approved an executive retention arrangement for Cyril Yansouni, the Company's
Chief Executive Officer. Pursuant to this arrangement, effective January 20,
1998, Mr. Yansouni was granted an option to purchase 250,000 shares of Common
Stock at the fair market value at such date. The option vests as to 50%, 25% and
25% of the shares on January 20, 2000, 2001 and 2002, respectively. In addition,
the Committee agreed to grant Mr. Yansouni an option to purchase 250,000 of
Common Stock on the date that such grant may be made so as to qualify as
"performance based" compensation within the meaning of Section 162(m) of the
Code. The exercise price of this option will be equal to the fair market value
of the Common Stock on the date of the grant. If Proposal Three is approved by
the stockholders at the Annual Meeting, this grant will be made on such date.
This option will vest on the same schedule as the option granted effective
January 20, 1998. In addition, the Committee may make a grant of 250,000 shares
of restricted stock to Mr. Yansouni in October 1998 as part of this retention
arrangement, although there is no binding obligation on the part of the Company
to do so.
In the event of the death or disability of Mr. Yansouni or a change in
control of the Company (as defined in the Severance Plan) on or prior to January
20, 1999, Mr. Yansouni's options will vest as to 25% of the shares. In the event
of the death or disability of Mr. Yansouni or a change in control of the Company
(as defined in the Severance Plan) after January 20, 1999, Mr. Yansouni's
options will vest for the vesting continuation period for Mr. Yansouni and other
executives as provided in the Severance Plan. In addition, in the event the
Company hires a new Chief Executive Officer or terminates Mr. Yansouni without
cause, his options shall vest in full.
FEDERAL INCOME TAX CONSEQUENCES
For a description of certain federal income tax consequences of the 1995
Plan, see "Proposal Two: Amendment of 1995 Stock Plan to Increase the Number of
Shares Available for Issuance Thereunder."
1995 Plan Benefits. For a description of the stock plan benefits under the
1995 Plan, see "Proposal Two: Amendment of 1995 Stock Plan to Increase the
Number of Shares Available for Issuance Thereunder."
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The approval of the amendment to the 1995 Plan requires the affirmative
vote of a majority of the Votes Cast on the proposal at the Annual Meeting.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE AMENDMENT TO THE 1995
PLAN AND RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THIS PROPOSAL.
PROPOSAL FOUR:
APPROVAL OF AMENDMENT TO 1991 DIRECTOR OPTION PLAN
The Company's 1991 Director Option Plan (the "Director Plan") provides for
the granting of nonstatutory stock options to nonemployee directors of the
Company. A total of 150,000 shares of Common Stock are presently reserved for
issuance pursuant to the Director Plan. As of December 30, 1997, an aggregate of
36,000 shares were available for future grant under the Director Plan. In
October 1997, the Board amended the Director Plan, subject to stockholder
approval, to increase shares reserved for issuance from 150,000 to 300,000. The
stockholders are being asked to approve this share increase at the Annual
Meeting. The principal features of the Director Plan are described below.
General. The Director Plan authorizes the Board to grant nonstatutory stock
options to nonemployee directors of the Company.
Purpose. The purpose of the Director Plan is to attract and retain the best
available personnel to serve as outside directors of the Company.
19
<PAGE> 22
Administration. The Director Plan is administered by the Board. However,
all options granted under the Director Plan are automatic and non-discretionary.
On July 1, 1991 and on each July 1 thereafter during the term of the Director
Plan, each outside director will automatically receive an option to purchase six
thousand (6,000) shares. Additionally, each new outside director will
automatically be granted an option to purchase six thousand (6,000) shares upon
the date on which such person becomes a director.
The Board has the authority to: (i) determine the fair market value of the
Common Stock in accordance with Section 2(i) of the Director Plan; (ii)
interpret the Director Plan; (iii) prescribe, amend and rescind rules and
regulations relating to the Director Plan; (iv) authorize any person to execute,
on behalf of the Company, any instrument required to effectuate the grant of an
option previously granted under the Director Plan; and (v) make all other
determinations deemed necessary or advisable for the administration of the
Director Plan. All decisions, determinations and interpretations of the Board
shall be final.
Eligibility. The Director Plan provides that options may be granted only to
the Company's outside directors.
Terms and Conditions. Each option granted under the Director Plan is
evidenced by a written stock option agreement between the optionee and the
Company and is subject to the following terms and conditions:
(a) Exercise Price. The price to be paid for shares of Common Stock
upon the exercise of an option granted under the Director Plan shall be
100% of the fair market value of the Common Stock on the date the option is
granted. If the Common Stock is listed on any established stock exchange or
a national market system, the fair market value shall be the closing sale
price for such stock (or the closing bid if no sales were reported) on the
date the option is granted. If the Common Stock is traded on the
over-the-counter market, the fair market value shall be the mean of the
high bid and low asked prices on the date the option is granted.
(b) Form of Consideration. The consideration to be paid for the shares
of Common Stock issued upon exercise of an option shall be determined by
the Board. Such form of consideration may vary for each option, and may
consist entirely of cash, check, promissory note, shares of stock
(including the Company's Common Stock, provided such stock has been held by
the optionee for at least twelve (12) months), delivery of a properly
executed exercise notice together with irrevocable instructions to a broker
to promptly deliver to the Company the amount of sale or loan proceeds
required to pay the exercise price, delivery of an irrevocable subscription
agreement for the shares which obligates the optionee to take and pay for
the shares within twelve (12) months after the date of delivery of such
subscription agreement, any combination thereof, or any other legally
permissible form of consideration as may be provided in the option
agreement.
(c) Exercise of the Option. Options granted under the Director Plan
will become exercisable in installments cumulatively as to 25% of the
shares of Common Stock subject to the option one (1) year after the date of
grant, an additional 25% two (2) years after the date of grant, and an
additional 50% three (3) years after date of grant, so long as the optionee
remains a director. In no event may an option granted under the Director
Plan be exercised more than ten (10) years after the date of grant. An
option granted under the Director Plan is not exercisable for a fraction of
a share. An option is exercised by giving written notice of exercise to the
Company specifying the number of shares of Common Stock to be purchased and
by tendering full payment of the purchase price.
(d) Termination of Status as a Director. If the optionee's status as a
director terminates for any reason (other than death or permanent
disability), then all options held by such optionee under the Director Plan
expire upon the earlier of (i) three (3) months after such termination or
(ii) the expiration date of the option. The optionee may exercise all or
part of his or her option at any time before such expiration to the extent
that such option was exercisable as of the date of termination of the
optionee's status as a director.
(e) Permanent Disability. If the optionee's status as a director
terminates as a result of total and permanent disability (as defined in the
Code), then all options held by such optionee under the Director Plan shall
expire upon the earlier of (i) twelve (12) months after the date of such
termination or (ii) the
20
<PAGE> 23
expiration date of the option. The optionee may exercise all or part of his
or her option at any time before such expiration to the extent that such
option was exercisable at the time of termination of the optionee's status
as a director.
(f) Death. If an optionee dies while serving as a director of the
Company, the director's options under the Director Plan shall expire upon
the earlier of (i) twelve (12) months after his or her death or (ii) the
expiration date of the option. The executor or legal representative of the
optionee may exercise all or part of the optionee's option at any time
before such expiration to the extent that such option was exercisable at
the time of the optionee's death.
(g) Nontransferability of Options. An option is nontransferable by the
optionee, other than by will or the laws of descent and distribution, and
is exercisable during the optionee's lifetime only by the optionee. In the
event of the optionee's death, options held by the optionee may be
exercised by a person who acquires the right to exercise the option by
bequest or inheritance.
(h) Other Provisions. The stock option agreement may contain such
terms, provisions and conditions not inconsistent with the Director Plan as
may be determined by the Board.
Adjustment Upon Changes in Capitalization; Corporate Transactions. In the
event that the stock of the Company is changed by reason of any stock split,
reverse stock split, stock dividend, recapitalization or other change in the
capital structure of the Company or converted into or exchanged for other
securities as a result of any merger, consolidation or reorganization,
appropriate proportional adjustments shall be made in the number and class of
shares of stock subject to the Director Plan, the number and class of shares of
stock subject to any option outstanding under the Director Plan, and the
exercise price of any such outstanding option; provided, however, that the
Company shall not be required to issue fractional shares as a result of such
adjustment. Any such adjustment shall be made upon approval of the Board whose
determination shall be conclusive. Notwithstanding the above, in connection with
any merger, consolidation, acquisition of assets or like occurrence involving
the Company, each option may be assumed or an equivalent option substituted by a
successor corporation. If the successor corporation does not assume the options
or substitute substantially equivalent options, or if the Board determines in
its sole discretion that the options should not continue to be outstanding, then
the options shall become null and void upon consummation of the merger or
transaction provided that the optionee shall be given notice of the transaction
and have thirty (30) days from the date such notice is sent to exercise all
unexpired options and, if as a result of the transaction the Company is not the
surviving entity, the optionee may exercise all options not otherwise
exercisable.
Amendment and Termination of the Director Plan. The Board may amend, alter,
suspend or discontinue the Director Plan; provided, however, that such action
shall not impair the rights of any optionee under the Director Plan without the
optionee's consent.
FEDERAL INCOME TAX CONSEQUENCES
All options granted under the Director Plan are nonstatutory options. For a
description of certain federal income tax consequences of nonstatutory stock
options, see "Proposal Two: Approval of Amendment to 1995 Stock Plan -- Federal
Income Tax Consequences."
Director Plan Benefits. Only non-employee directors of the Company are
eligible to receive grants under the Director Plan. During fiscal 1998, each
non-employee director will automatically receive an option to purchase 6,000
shares of Common Stock on July 1 at the fair market value of the Common Stock on
such date.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The approval of the amendment to the Director Plan requires the affirmative
vote of a majority of the Votes Cast on the proposal at the Annual Meeting.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE AMENDMENT TO THE
DIRECTOR PLAN AND RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THIS PROPOSAL.
21
<PAGE> 24
PROPOSAL FIVE:
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP, independent
auditors, to audit the financial statements of the Company for the 1998 fiscal
year. This nomination is being presented to the stockholders for ratification at
the Annual Meeting. Ernst & Young LLP has audited the Company's financial
statements since the Company's inception. A representative of Ernst & Young LLP
is expected to be present at the meeting, will have the opportunity to make a
statement, and is expected to be available to respond to appropriate questions.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The affirmative vote of a majority of the Votes Cast on the proposal at the
Annual Meeting is required to ratify the Board's selection. If the stockholders
reject the nomination, the Board will reconsider its selection.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE APPOINTMENT OF ERNST &
YOUNG LLP AS THE COMPANY'S AUDITORS FOR FISCAL 1998 AND RECOMMENDS THAT THE
STOCKHOLDERS VOTE "FOR" THIS PROPOSAL.
CERTAIN TRANSACTIONS
Upon his relocation to California, and in connection with his initial
employment with the Company as Senior Vice President, Research and Development,
the Company loaned Ralph Patterson $300,000. The loan did not bear interest and
was paid in full in January, 1997, upon the sale of Mr. Patterson's prior
residence. The Company also loaned Mr. Patterson $250,000 in July 1996, in
connection with the purchase of his principal residence in Northern California.
This loan does not bear interest and is secured by a second deed of trust in
favor of the Company. The maximum amount outstanding under this loan during
fiscal 1997, and the amount outstanding as of December 31, 1997, was $250,000.
The Company agreed to pay Mr. Patterson cash bonuses in the amount of $125,000,
in July 1999 and July 2000, respectively, provided he is an employee in good
standing on such dates. The loan is repayable in two installments of $125,000 in
each of July 1999 and July 2000, or in full 90 days following Mr. Patterson's
termination of employment with the Company.
In October 1996, the Company loaned James Murphy, the Company's Senior Vice
President, Customer Business Units, $200,000 in connection with the purchase of
his principal residence in Northern California. This loan bears interest at
6.02% per annum and is secured by a second deed of trust in favor of the
Company. Accrued interest on the outstanding balance of the loan is due
annually; however the Company has agreed to waive such interest payments as they
come due. The maximum amount outstanding under this loan during fiscal 1997 was
$200,000; the amount outstanding as of December 31, 1997, was $133,400. The
Company also agreed to pay Mr. Murphy two retention bonuses of $66,600 on each
of the first two anniversaries of the date of the loan, and one retention bonus
of $66,800 on the third anniversary of the date of the loan, provided he is an
employee in good standing on such dates. Mr. Murphy, as an employee in good
standing in October 1997, received the first anniversary retention bonus of
$66,600. The principal amount of the loan is payable in installments of $66,600,
$66,600 and $66,800 on the first, second and third anniversaries of the loan,
respectively, or in full 90 days following Mr. Murphy's termination of
employment with the Company. In October 1997, Mr. Murphy paid the first
principal installment payment of $66,600.
Upon his relocation to California, and in connection with his initial
employment with the Company, the Company loaned John T. Kurtzweil, Vice
President Finance and Chief Financial Officer, $145,000 in October 1995, for the
purchase of his principal residence in Northern California. This loan does not
bear interest and is secured by a second deed of trust in favor of the Company.
The maximum amount outstanding under this loan during fiscal 1997, and the
amount outstanding at December 31, 1997, was $145,000. The Company also agreed
to pay Mr. Kurtzweil cash bonuses in the amount of $72,500 in January 2000 and
January 2001, respectively, provided he is an employee in good standing on such
dates. The loan is repayable in two installments of $72,500 in each of January
2000 and January 2001, or in full 90 days following Mr. Kurtzweil's termination
of employment with the Company.
22
<PAGE> 25
READ-RITE CORPORATION
1991 DIRECTOR OPTION PLAN
(AS AMENDED ON OCTOBER 21, 1997)
1. Purpose of the Plan. The purpose of this 1991 Director Option Plan
is to attract and retain the best available personnel to serve as Outside
Directors of the Company.
All options granted hereunder shall be "non-statutory stock
options".
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" means the Common Stock of the Company.
(d) "Company" means Read-Rite Corporation, a Delaware
corporation.
(e) "Continuous Status as a Director" means the absence of any
interruption or termination of service as a Director.
(f) "Director" means a member of the Board.
(g) "Employee" means any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(h) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(i) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, the Fair Market Value of a Share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in Common Stock) on the last market
trading day prior to the day of determination, as reported in the Wall Street
Journal or such other source as the Board deems reliable;
<PAGE> 26
(ii) If the Common Stock is quoted on the NASDAQ
System (but not on the National Market System thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable, or;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board.
(j) "Option" means a stock option granted pursuant to the
Plan.
(k) "Optioned Stock" means the Common Stock subject to an
Option.
(l) "Optionee" means an Outside Director who receives an
Option.
(m) "Outside Director" means a Director who is not an
Employee.
(n) "Parent" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 1991 Director Option Plan.
(p) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(q) "Subsidiary" means a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 10
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is two hundred fifty thousand (250,000) Shares (the "Pool")
of Common Stock. The Shares may be authorized but unissued, or reacquired Common
Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. Administration of and Grants of Options under the Plan.
(a) Administrator. Except as otherwise required herein, the
Plan shall be administered by the Board.
2
<PAGE> 27
(b) Procedure for Grants. The provisions set forth in this
Section 4(b) shall not be amended more than once every six months, other than to
comply with changes in the Code, the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder. All grants of Options hereunder shall
be automatic and non-discretionary and shall be made strictly in accordance with
the following provisions:
(i) No person shall have any discretion to select
which Outside Directors shall be granted Options or to determine the number of
Shares to be covered by Options granted to Outside Directors.
(ii) On July 1, 1991 and on each July 1 thereafter
during the term of this Plan, each Outside Director shall automatically receive
an Option to purchase six thousand (6,000) Shares. In addition, each new Outside
Director shall be automatically granted an Option to purchase six thousand
(6,000) Shares upon the date (after July 1, 1991) on which such person first
becomes a Director, whether through election by the shareholders of the Company
or appointment by the Board to fill a vacancy.
(iii) The terms of each Option granted hereunder
shall be as follows:
(A) the term of the Option shall be ten (10)
years.
(B) the Option shall be exercisable only
while the Outside Director remains a Director of the Company, except as set
forth in Section 8 hereof.
(C) the exercise price per Share shall be
100% of the Fair Market Value per Share on the date of grant of the Option.
(D) the Option shall become exercisable in
installments cumulatively as to twenty-five percent (25%) of the Optioned Stock
one year after the date of grant and as to an addi tional twenty-five percent
(25%) of the Optioned Stock two years after the date of grant and as to an
additional fifty percent (50%) of the Optioned Stock three years after the date
of grant, so that 100% of the Optioned Stock granted under an individual Option
shall be exercisable three years after the date of grant of the Option.
(iv) In the event that any Option granted under the
Plan would cause the number of Shares subject to outstanding Options plus the
number of Shares previously purchased upon exercise of Options to exceed the
Pool, then each such automatic grant shall be for that number of Shares
determined by dividing the total number of Shares remaining available for grant
by the number of Outside Directors on the automatic grant date. No further
grants shall be made until such time, if any, as additional Shares become
available for grant under the Plan through action of the shareholders to
increase the number of Shares which may be issued under the Plan or through
cancellation or expiration of Options previously granted hereunder.
(c) Powers of the Board. Subject to the provisions and
restrictions of the Plan, the Board shall have the authority, in its discretion:
(i) to determine, upon review of relevant information
3
<PAGE> 28
and in accordance with Section 2(i) of the Plan, the Fair Market Value of the
Common Stock; (ii) to interpret the Plan; (iii) to prescribe, amend and rescind
rules and regulations relating to the Plan; (iv) to authorize any person to
execute on behalf of the Company any instrument required to effectuate the grant
of an Option previously granted hereunder; and (v) to make all other
determinations deemed necessary or advisable for the administration of the Plan.
(d) Effect of Board's Decision. All decisions, determinations
and interpretations of the Board shall be final.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof. An Outside Director who has been granted an Option may, if
he is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.
The Plan shall not confer upon any Optionee any right with respect
to continuation of service as a Director or nomination to serve as a Director,
nor shall it interfere in any way with any rights which the Director or the
Company may have to terminate his directorship at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for Optioned
Stock shall be 100% of the Fair Market Value per Share on the date of grant of
the Option.
(b) Form of Consideration. The consideration to be paid for
the Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Board and may consist entirely of (i) cash,
(ii) check, (iii) promissory note, (iv) other shares which have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised and which, in the case of
Shares acquired upon exercise of an option, have been owned by the Optionee for
more than twelve (12) months on the date of surrender, (v) delivery of a
properly executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company the amount of sale or loan proceeds
required to pay the exercise price, (vi) delivery of an irrevocable subscription
agreement for the Shares which irrevocably obligates the Optionee to take and
pay for the Shares not more than twelve (12) months after the date of delivery
of the subscription agreement, (vii) any combination of the foregoing methods of
payment, or (viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted under applicable law.
4
<PAGE> 29
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times as are set forth in
Section 4(b) hereof; provided, however, that no Options shall be exercisable
until shareholder approval of the Plan in accordance with Section 16 hereof has
been obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may consist of any consideration and method of payment
allowable under Section 7(b) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be issued
to the Optionee as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Continuous Status as a Director. In the
event an Optionee's Continuous Status as a Director terminates (other than upon
the Optionee's death or total and permanent disability (as defined in Section
22(e)(3) of the Code)), the Optionee may exercise his or her Option, but only
within three (3) months from the date of such termination, and only to the
extent that the Optionee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to exercise an Option at
the date of such termination, and to the extent that the Optionee does not
exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event Optionee's Continuous
Status as a Director terminates as a result of total and permanent disability
(as defined in Section 22(e)(3) of the Code), the Optionee may exercise his or
her Option, but only within twelve (12) months from the date of such ter
mination, and only to the extent that the Optionee was entitled to exercise it
at the date of such termina tion (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option at the date of termination, or if he or she does not exercise
such Option (to the extent otherwise so entitled) within the time specified
herein, the Option shall terminate.
(d) Death of Optionee. In the event of an Optionee's death,
the Optionee's estate or a person who acquired the right to exercise the Option
by bequest or inheritance may exercise the
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Option, but only within twelve (12) months following the date of death, and only
to the extent that the Optionee was entitled to exercise it at the date of death
(but in no event later than the expiration of its ten (10) year term). To the
extent that the Optionee was not entitled to exercise an Option at the date of
death, and to the extent that the Optionee's estate or a person who acquired the
right to exercise such Option does not exercise such Option (to the extent
otherwise so entitled) within the time specified herein, the Option shall
terminate.
9. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments.
(a) Changes in Capitalization. In the event that the stock of
the Company is changed by reason of any stock split, reverse stock split,
recapitalization, or other change in the capital structure of the Company, or
converted into or exchanged for other securities as a result of any merger,
consolidation or reorganization, or in the event that the outstanding number of
shares of stock of the Company is increased through payment of a stock dividend,
appropriate proportionate adjustments shall be made in the number and class of
shares of stock subject to the Plan, the number and class of shares subject to
any Option outstanding under the Plan, and the exercise price of any such
outstanding Option; provided, however, that the Company shall not be required to
issue fractional shares as a result of any such adjustment. Any such adjustment
shall be made upon approval by the Board, whose determination shall be
conclusive. If there is any other change in the number or type of the
outstanding shares of stock of the Company, or of any other security into which
such stock shall have been changed or for which it shall have been exchanged,
and if the Board in its sole discretion determines that such change equitably
requires an adjustment in the Options then outstanding under the Plan, such
adjustment shall be made in accordance with the determination of the Board. No
adjustments shall be required by reason of the issuance or sale by the Company
for cash or other consideration of additional shares of its stock or securities
convertible into or exchangeable for shares of its stock.
(b) Corporate Transactions. New Options (substantially
equivalent to the Options) may be substituted for the Options granted under the
plan, or the Company's duties as to Options outstanding under the Plan may be
assumed, by an employer corporation other than the Company or by a parent or
subsidiary of such employer corporation, in connection with any merger,
consolidation, acquisition of assets or stock, separation, reorganization,
liquidation or like occurrence in which the Company is involved, provided,
however, in the event such employer corporation or parent or subsidiary of such
employer corporation does not assume the Options granted hereunder or substitute
for such Options sub stantially equivalent options, or if the Board determines,
in its sole discretion, that Options outstanding under the Plan should not then
continue to be outstanding, the Options granted hereunder shall terminate and
thereupon become null and void (i) upon dissolution or liquidation of the
Company, acquisition, separation, or similar occurrence, or (ii) upon any
merger, consolidation, or similar occurrence, where the Company will not be a
surviving corporation; provided, however, that each Optionee shall be given
notice of such dissolution, liquidation, merger, consolidation, acquisition,
separation or similar occurrence and shall have the right, at any time prior to,
but contingent upon the consummation of such
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<PAGE> 31
transaction, to exercise (x) any unexpired Options granted hereunder to the
extent they are then exercisable, and (y) in the case of a merger,
consolidation, or similar occurrence where the Company is not the surviving
corporation, those Options which are not then otherwise exercisable; provided,
further, that such exercise right shall not in any event expire less than thirty
(30) days after the date notice of such transaction is sent to the Optionee.
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act (or any other applicable law or regulation), the Company shall
obtain shareholder approval of any Plan amendment in such a manner and to such a
degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
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14. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company at or prior to the first annual
meeting of shareholders held subsequent to the granting of an Option hereunder.
Such shareholder approval shall be obtained in the degree and manner required
under applicable state and federal law.
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READ-RITE CORPORATION
1995 STOCK PLAN
(as amended on October 21, 1997)
1. Purposes of the Plan. The purposes of this Stock Plan are:
o to attract and retain the best available personnel for
positions of substantial responsibility,
o to provide additional incentive to Employees and
Consultants, and
o to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Administrator at the time of grant. Stock
Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the legal requirements relating to
the administration of stock option plans under state corporate and securities
laws and the Code.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a Committee appointed by the Board in
accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means Read-Rite Corporation, a Delaware
corporation.
(h) "Consultant" means any person, including an advisor, engaged
by the Company or a Parent or Subsidiary to render services and who is
compensated for such services. The term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(i) "Continuous Status as an Employee or Consultant" means that
the employment or consulting relationship with the Company, any Parent, or
Subsidiary, is not interrupted or terminated. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of
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(i) any leave of absence approved by the Company or (ii) transfers between
locations of the Company or between the Company, its Parent, any Subsidiary, or
any successor. A leave of absence approved by the Company shall include sick
leave, military leave, or any other personal leave approved by an authorized
representative of the Company. For purposes of Incentive Stock Options, no such
leave may exceed ninety days, unless reemployment upon expiration of such leave
is guaranteed by statute or contract. If reemployment upon expiration of a leave
of absence approved by the Company is not so guaranteed, on the 181st day of
such leave any Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option.
(j) "Director" means a member of the Board.
(k) "Disability" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
(l) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(n) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(o) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
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(p) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(q) "Notice of Grant" means a written notice evidencing certain
terms and conditions of an individual Option or Stock Purchase Right grant. The
Notice of Grant is part of the Option Agreement.
(r) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(s) "Option" means a stock option granted pursuant to the Plan.
(t) "Option Agreement" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions of the
Plan.
(u) "Optioned Stock" means the Common Stock subject to an Option
or Stock Purchase Right.
(v) "Optionee" means an Employee or Consultant who holds an
outstanding Option or Stock Purchase Right.
(w) "Parent" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this Read-Rite Corporation 1995 Stock Plan
(y) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 below.
(z) "Restricted Stock Purchase Agreement" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "Section 16(b)" means Section 16(b) of the Securities
Exchange Act of 1934, as amended.
(cc) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
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(dd) "Stock Purchase Right" means the right to purchase Common
Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ee) "Subsidiary" means a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan shall be five million two hundred fifty thousand (5,250,000)
Shares plus (i) any unused Shares, (ii) any forfeited Shares under the Plan and
(iii) the lesser of any Shares covered by grants under the Amended and Restated
1987 Stock Option Plan (the "1987 Plan") or any forfeited Shares under the 1987
Plan. For purposes of this Section 3, the following apply: (i) "unused Shares"
means any Shares reserved for issuance which are not covered by grants prior to
the termination of the 1987 Plan; (ii) "forfeited Shares" means any Shares
issued pursuant to awards which are forfeited to the Company pursuant to award
terms and conditions. The term "forfeited Shares" shall not include Shares as to
which the original recipient received any benefits of ownership (other than
voting rights). The Shares may be authorized, but unissued, or reacquired Common
Stock.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups of
Employees and Consultants.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above,
the Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
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(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(n) of the Plan;
(ii) to select the Consultants and Employees to whom
Options and Stock Purchase Rights may be granted hereunder;
(iii) to determine whether and to what extent Options and
Stock Purchase Rights or any combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common Stock to
be covered by each Option and Stock Purchase Right granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder. Such
terms and conditions include, but are not limited to, the exercise price, the
time or times when Options or Stock Purchase Rights may be exercised (which may
be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option
or Stock Purchase Right or the shares of Common Stock relating thereto, based in
each case on such factors as the Administrator, in its sole discretion, shall
determine;
(vii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(viii) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;
(ix) to modify or amend each Option or Stock Purchase
Right (subject to Section 15(c) of the Plan), including the discretionary
authority to extend the post-termination exercisability period of Options longer
than is otherwise provided for in the Plan;
(x) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xi) to determine the terms and restrictions applicable
to Options and Stock Purchase Rights and any Restricted Stock; and
(xii) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be
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withheld. The Fair Market Value of the Shares to be withheld shall be determined
on the date that the amount of tax to be withheld is to be determined. All
elections by an Optionee to have Shares withheld for this purpose shall be made
in such form and under such conditions as the Administrator may deem necessary
or advisable.
(xiii) to make all other determinations deemed necessary
or advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. If otherwise eligible, an Employee or Consultant who has been
granted an Option or Stock Purchase Right may be granted additional Options or
Stock Purchase Rights.
6. Limitations.
(a) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
employment or consulting relationship with the Company, nor shall they interfere
in any way with the Optionee's right or the Company's right to terminate such
employment or consulting relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options
and Stock Purchase Rights to Employees:
(i) No Employee shall be granted, in any fiscal year of
the Company, Options and Stock Purchase Rights to purchase more than 500,000
Shares.
(ii) In connection with his or her initial employment, an
Employee may be granted Options and Stock Purchase Rights to purchase up to an
additional 500,000 Shares which shall not count against the limit set forth in
subsection (i) above.
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(iii) In connection with the promotion of an Employee
pursuant to a resolution of the Company's Board of Directors, an Employee may be
granted Options and Stock Purchase Rights to purchase up to an additional
500,000 Shares which shall not count against the limits set forth in subsection
(i) or (ii) above, provided that the additional Shares described in this Section
6(c)(iii) shall only apply once in any fiscal year of the Company with respect
to any individual Employee and shall not apply during the fiscal year in which
the Employee's employment with the Company commences.
(iv) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(v) If an Option or Stock Purchase Right is cancelled in
the same fiscal year of the Company in which it was granted (other than in
connection with a transaction described in Section 13), the cancelled Option or
Stock Purchase Right will be counted against the limits set forth in subsections
(i), (ii) and (iii) above. For this purpose, if the exercise price of an Option
or Stock Purchase Right is reduced, the transaction will be treated as a
cancellation of the Option or Stock Purchase Right and the grant of a new Option
or Stock Purchase Right.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
become effective upon the earlier to occur of its adoption by the Board or its
approval by the shareholders of the Company as described in Section 19 of the
Plan. It shall continue in effect for a term of ten (10) years unless terminated
earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Notice
of Grant; provided, however, that in the case of an Incentive Stock Option, the
term shall be ten (10) years from the date of grant or such shorter term as may
be provided in the Notice of Grant. Moreover, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Incentive Stock Option shall be five (5) years from the date of grant or
such shorter term as may be provided in the Notice of Grant.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares
to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
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<PAGE> 40
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per
Share exercise price shall be determined by the Administrator but in no case
shall be less than 85% of the Fair Market Value per Share on the date of grant.
In the case of a Nonstatutory Stock Option intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the per Share exercise price shall be no less than 100% of the Fair Market
Value per Share on the date of grant.
(iii) Notwithstanding the foregoing, Options may be
granted with a per Share exercise price of less than 100% of the Fair Market
Value per Share on the date of grant pursuant to a merger or other corporate
transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised. In so doing, the Administrator may specify that an
Option may not be exercised until the completion of a service period.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six months on the date of surrender, and (B) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised;
(v) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price;
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<PAGE> 41
(vi) a reduction in the amount of any Company liability
to the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of
payment; or
(viii) such other consideration and method of payment for
the issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company
receives: (i) written notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the stock certificate evidencing such Shares is issued (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly after the Option is exercised. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number
of Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Employment or Consulting Relationship. Upon
termination of an Optionee's Continuous Status as an Employee or Consultant,
other than upon the Optionee's death or Disability, the Optionee may exercise
his or her Option, but only within such period of time as is specified in the
Notice of Grant, and only to the extent that the Optionee was entitled to
exercise it at the date of termination (but in no event later than the
expiration of the term of such Option as set forth in the Notice of Grant). In
the absence of a specified time in the Notice of Grant, the Option shall remain
exercisable for three (3) months following the Optionee's termination. In the
case of an Incentive Stock Option, such period of time for exercise shall not
exceed three (3) months from the
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<PAGE> 42
date of termination. If, on the date of termination, the Optionee is not
entitled to exercise the Optionee's entire Option, the Shares covered by the
unexercisable portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified by the Administrator, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
Notwithstanding the above, in the event of an Optionee's change
in status from Consultant to Employee or Employee to Consultant, an Optionee's
Continuous Status as an Employee or Consultant shall not automatically terminate
solely as a result of such change in status. However, in such event, an
Incentive Stock Option held by the Optionee shall cease to be treated as an
Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory
Stock Option three months and one day following such change of status.
(c) Disability of Optionee. In the event that an Optionee's
Continuous Status as an Employee or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option at any time
within twelve (12) months from the date of such termination, but only to the
extent that the Optionee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant). If, at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan. If,
after termination, the Optionee does not exercise his or her Option within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while employed with
the Company, any options held by such Optionee which are then vested or which
would have otherwise vested pursuant to such Optionee's option agreement with
the Company within twelve (12) calendar months following the date of death shall
be exercisable by the Optionee's estate or a person who acquired the right to
exercise the Option by bequest or inheritance at any time within twelve (12)
months following the date of death (but in no event later than the expiration of
the Option's specified term). To the extent that the Optionee was not entitled
to exercise an Option at the date of death pursuant to his/her option agreement
with the Company or via the acceleration provided in this Paragraph (d), or to
the extent that the Optionee's estate or a person who by bequest or inheritance
acquired the right to exercise such Option does not exercise such Option within
the time and to the extent specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing, by means of a Notice of Grant, of the terms,
conditions and restrictions related to the offer, including the number of Shares
that the offeree shall be entitled to purchase, the price to be paid, and the
time within which the offeree must accept such offer, which
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<PAGE> 43
shall in no event exceed six (6) months from the date upon which the
Administrator made the determination to grant the Stock Purchase Right. The
Administrator shall not set the purchase price for a Stock Purchase Right below
the Fair Market Value per share on the date of grant. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. An Option
or Stock Purchase Right may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not
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<PAGE> 44
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option or Stock
Purchase Right has not been previously exercised, it will terminate immediately
prior to the consummation of such proposed action. The Board may, in the
exercise of its sole discretion in such instances, declare that any Option or
Stock Purchase Right shall terminate as of a date fixed by the Board and give
each Optionee the right to exercise his or her Option or Stock Purchase Right as
to all or any part of the Optioned Stock, including Shares as to which the
Option or Stock Purchase Right would not otherwise be exercisable.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall have the right to exercise the Option
or Stock Purchase Right as to all of the Optioned Stock, including Shares as to
which it would not otherwise be exercisable. If an Option or Stock Purchase
Right is exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Administrator shall notify the Optionee that the
Option or Stock Purchase Right shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option or Stock Purchase
Right shall terminate upon the expiration of such period. For the purposes of
this paragraph, the Option or Stock Purchase Right shall be considered assumed
if, following the merger or sale of assets, the option or right confers the
right to purchase or receive, for each Share of Optioned Stock subject to the
Option or Stock Purchase Right immediately prior to the merger or sale of
assets, the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets was not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the
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<PAGE> 45
determination shall be provided to each Optionee within a reasonable time after
the date of such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Section 422 of the Code (or any successor rule or statute or other
applicable law, rule or regulation, including the requirements of any exchange
or quotation system on which the Common Stock is listed or quoted). Such
shareholder approval, if required, shall be obtained in such a manner and to
such a degree as is required by the applicable law, rule or regulation.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with all relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, Applicable Laws, and the requirements of any stock
exchange or quotation system upon which the Shares may then be listed or quoted,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
(b) Investment Representations. As a condition to the exercise of
an Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
-13-
<PAGE> 46
17. Liability of Company.
(a) Inability to Obtain Authority. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock
covered by an Option or Stock Purchase Right exceeds, as of the date of grant,
the number of Shares which may be issued under the Plan without additional
shareholder approval, such Option or Stock Purchase Right shall be void with
respect to such excess Optioned Stock, unless shareholder approval of an
amendment sufficiently increasing the number of Shares subject to the Plan is
timely obtained in accordance with Section 15(b) of the Plan.
18. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the manner and to the degree required under applicable federal and state law.
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<PAGE> 47
READ-RITE CORPORATION
1995 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number ____________________________
Date of Grant ____________________________
Vesting Commencement Date ____________________________
Exercise Price per Share $___________________________
Total Number of Shares Granted ____________________________
Total Exercise Price $___________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: ____________________________
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with
the following schedule:
25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 1/48 of the Shares subject to the Option
shall vest each month thereafter.
<PAGE> 48
Termination Period:
This Option may be exercised for _____ [days/months] after termination
of the Optionee's employment or consulting relationship with the Company. Upon
the death or Disability of the Optionee, this Option may be exercised for such
longer period as provided in the Plan. In the event of the Optionee's change in
status from Employee to Consultant or Consultant to Employee, this Option
Agreement shall remain in effect. In no event shall this Option be exercised
later than the Term/Expiration Date as provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby grants
to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 15(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement. In the event of
Optionee's death, Disability or other termination of Optionee's employment or
consulting relationship, the exercisability of the Option is governed by the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of
an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The Exercise Notice shall be accompanied by payment of
the aggregate Exercise Price as to all Exercised Shares. This Option shall be
deemed to be exercised upon receipt by the Company of such fully executed
Exercise Notice accompanied by such aggregate Exercise Price.
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<PAGE> 49
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with all relevant provisions of law
and the requirements of any stock exchange or quotation service upon which the
Shares are then listed. Assuming such compliance, for income tax purposes the
Exercised Shares shall be considered transferred to the Optionee on the date the
Option is exercised with respect to such Exercised Shares.
3. Method of Payment. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash; or
(b) check; or
(c) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price.
4. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The terms
of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal and state tax consequences
relating to this Option, as of the date of this Option, are set forth below.
THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE
SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING
THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercising the Option.
(i) Nonstatutory Stock Option. The Optionee may incur
regular federal income tax and state income tax liability upon exercise of a
NSO. The Optionee will be treated as having received compensation income
(taxable at ordinary income tax rates) equal to the excess, if any, of the Fair
Market Value of the Exercised Shares on the date of exercise over their
aggregate Exercise Price. If the Optionee is an Employee or a former Employee,
the Company will be required to withhold from his or her compensation or collect
from Optionee and pay to the applicable taxing authorities an amount in cash
equal to a percentage of this compensation income at the time of
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<PAGE> 50
exercise, and may refuse to honor the exercise and refuse to deliver Shares if
such withholding amounts are not delivered at the time of exercise.
(ii) Incentive Stock Option. If this Option qualifies as
an ISO, the Optionee will have no regular federal income tax or state income tax
liability upon its exercise, although the excess, if any, of the Fair Market
Value of the Exercised Shares on the date of exercise over their aggregate
Exercise Price will be treated as an adjustment to alternative minimum taxable
income for federal tax purposes and may subject the Optionee to alternative
minimum tax in the year of exercise. In the event that the Optionee undergoes a
change of status from Employee to Consultant, any Incentive Stock Option of the
Optionee that remains unexercised shall cease to qualify as an Incentive Stock
Option and will be treated for tax purposes as a Nonstatutory Stock Option on
the ninety-first (91st) day following such change of status.
(b) Disposition of Shares.
(i) NSO. If the Optionee holds NSO Shares for at least
one year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least
one year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
7. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by California law except for that body of
law pertaining to conflict of laws.
-4-
<PAGE> 51
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: READ-RITE CORPORATION
_________________________________ By:___________________________________
Signature
_________________________________ Title:________________________________
Print Name
_________________________________ ________________________________
Date Date
_________________________________ 345 Los Coches Street
Residence Address Milpitas, CA 95035
_________________________________
-5-
<PAGE> 52
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the
terms and conditions of the Plan and this Option Agreement. In consideration of
the Company's granting his or her spouse the right to purchase Shares as set
forth in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
_______________________________________
Spouse of Optionee
-6-
<PAGE> 53
EXHIBIT A
READ-RITE CORPORATION
1995 STOCK PLAN
EXERCISE NOTICE
Read-Rite Corporation
345 Los Coches Street
Milpitas, California 95035
Attention: Secretary
1. Exercise of Option. Effective as of today, ________________, 199__,
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of Read-Rite Corporation (the "Company")
under and pursuant to the Read-Rite Corporation 1995 Stock Plan (the "Plan") and
the Stock Option Agreement dated , 19___ (the "Option Agreement"). The purchase
price for the Shares shall be $______, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment will
be made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 13 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all
<PAGE> 54
prior undertakings and agreements of the Company and Purchaser with respect to
the subject matter hereof, and may not be modified adversely to the Purchaser's
interest except by means of a writing signed by the Company and Purchaser. This
agreement is governed by California law except for that body of law pertaining
to conflict of laws.
Submitted by: Accepted by:
PURCHASER: READ-RITE CORPORATION
_________________________________ By:___________________________________
Signature
_________________________________ Title:________________________________
Print Name
_________________________________ ________________________________
Date Date
_________________________________ 345 Los Coches Street
Residence Address Milpitas, CA 95035
_________________________________
-2-
<PAGE> 55
PROXY PROXY
READ-RITE CORPORATION
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints CYRIL J. YANSOUNI and REX S. JACKSON, jointly
and severally, proxies, with full power of substitution, to vote all shares of
Common Stock of Read-Rite Corporation, a Delaware corporation, which the
undersigned is entitled to vote at the Annual Meeting of Stockholders to be held
at the Company's facility at 44100 Osgood Road, Fremont, California, on February
24, 1998, at 10:00 a.m., local time, or any adjournment thereof. The proxies are
being directed to vote as specified below or, if no specification is made, FOR
the election of directors, FOR the proposal to amend the Company's 1995 Stock
Plan to increase the number of shares reserved for issuance thereunder, FOR the
proposal to amend the Company's 1995 Stock Plan with respect to the maximum
shares issuable, thereunder, to an employee in any given fiscal year, FOR the
proposal to amend the Company's 1991 Director Option Plan, FOR the appointment
of Ernst & Young LLP, as independent auditors, and in accordance with their
discretion on such other matters that may be properly come before the meeting.
THE DIRECTORS RECOMMEND A FOR VOTE ON EACH ITEM.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE> 56
THE DIRECTORS RECOMMEND A FOR VOTE ON EACH ITEM.
1. ELECTION OF DIRECTORS: (INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY
INDIVIDUAL NOMINEE, STRIKE THAT NOMINEE'S NAME BELOW.)
<TABLE>
<S> <C>
FOR all nominees listed ____ WITHHOLD AUTHORITY ____
(except as withheld) to vote for nominees listed
Nominees: Cyril J. Yansouni William J. Almon Michael L. Hackworth
John G. Linvill Matthew J. O'Rourke
</TABLE>
2. To amend the Company's 1995 Stock Plan to increase the number of shares
reserved for issuance thereunder by 2,250,000 shares.
FOR ____ AGAINST ____ ABSTAIN ____
3. To amend the Company's 1995 Stock Plan to increase the number of shares that
may be granted to an employee in any one fiscal year from 250,000 shares to
500,000 shares, to increase the number of shares that may be granted to an
employee upon initial employment from 250,000 shares to 500,000 shares, and
to provide that an employee may be granted up to an additional 500,000 shares
in any fiscal year (other than the first fiscal year of employment) that the
employee receives a promotion.
FOR ____ AGAINST ____ ABSTAIN ____
4. To amend the Company's 1991 Director Option Plan to increase the number of
shares reserved for issuance thereunder by 150,000 shares.
FOR ____ AGAINST ____ ABSTAIN ____
5. Proposal to ratify the appointment of Ernst & Young LLP, as independent
auditors for the 1998 fiscal year.
FOR ____ AGAINST ____ ABSTAIN ____
I plan to attend the meeting: YES ____ NO ____
Signature(s)
-------------------------------
-------------------------------
Dated: , 1998
(Signature(s) must be exactly
as name(s) appear on this
proxy. If signing as attorney,
executor, administrator,
trustee or guardian, please
give full title as such, and,
if signing for a corporation,
please give your title. When
shares are in the names of more
than one person, each should
sign this proxy.)
