<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14 OF THE
SECURITIES EXCHANGE ACT OF 1934
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 RULE 14a-11(c) OR RULE 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:
---------------------------------------------------------------------
(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):
---------------------------------------------------------------------
(4) PROPOSED MAXIMUM AGGREGATE VALUE OF TRANSACTION:
---------------------------------------------------------------------
(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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(3) FILING PARTY:
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(4) DATE FILED:
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<PAGE> 2
[READ-RITE LOGO]
READ-RITE CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 24, 2000
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 Thursday,
February 24, 2000, 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 six directors to serve for the ensuing year or until their
successors are duly elected and qualified.
2. To ratify the appointment of Ernst & Young LLP as independent
auditors for the Company for the 2000 fiscal year.
3. 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, 1999
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, mark, date,
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, 2000
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE
PROVIDED.
<PAGE> 3
READ-RITE LOGO
345 LOS COCHES STREET
MILPITAS, CALIFORNIA 95035
---------------------------------------
PROXY STATEMENT FOR 2000
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 Thursday, February 24, 2000, 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, 2000
to all stockholders of record on December 30, 1999 (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 matters. 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 affect the outcome of the voting on any proposal set
forth in this Proxy Statement.
The cost of soliciting proxies will be borne by the Company. In addition,
the Company has retained ChaseMellon Shareholder Services, LLC to act as proxy
solicitor for the Annual Meeting at a cost of approximately $5,500, 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.
RECORD DATE AND OUTSTANDING SHARES
Stockholders of record at the close of business on December 30, 1999 are
entitled to notice of the meeting and to vote at the meeting. At the Record
Date, 49,927,337 shares of the Company's Common Stock were issued and
outstanding.
<PAGE> 4
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Stockholders of the Company may submit proper proposals to be considered
for inclusion in the Company's Proxy Statement for the next annual meeting of
its stockholders by submitting their proposals in writing to the Secretary of
the Company in a timely manner. In order to be considered for inclusion in the
Company's proxy materials for the annual meeting of stockholders to be held in
the year 2001, stockholder proposals must be received by the Secretary of the
Company no later than September 22, 2000, and must otherwise comply with the
requirements of Rule 14a-8 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
In addition, the Company's Bylaws establish an advance notice procedure
with regard to certain matters, including stockholder proposals not included in
the Company's proxy statement, to be brought before an annual meeting of
stockholders. For nominations or other business to be properly brought before
the meeting by a stockholder, such stockholder must provide written notice
delivered to the Secretary of the Company 90 days in advance of the annual or
special meeting, which notice must contain specified information concerning the
matters to be brought before such meeting and concerning the stockholder
proposing such matters. In the event that less than 100 days notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be received not later than the close
of business on the tenth day following the earlier of the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made. A copy of the full text of the Bylaw provisions discussed above may be
obtained by writing to the Secretary of the Company. All notices of proposals by
stockholders, whether or not included in the Company's proxy materials, should
be sent to Read-Rite Corporation, 345 Los Coches Street, Milpitas, California
95035, Attention: Corporate Secretary.
If a stockholder wishes to present a proposal at the Company's annual
meeting in the year 2001, and the proposal is not intended to be included in the
Company's proxy statement relating to that meeting, the stockholder must give
advance notice to the Company prior to the deadline for such meeting determined
in accordance with the Bylaws, as described above (the "Bylaw Deadline"). If a
stockholder gives notice of such a proposal after the Bylaw Deadline, the
stockholder will not be permitted to present the proposal to the stockholders
for a vote at the meeting.
SEC rules also establish a different deadline for submission of stockholder
proposals that are not intended to be included in the Company's proxy statement
with respect to discretionary voting (the "Discretionary Vote Deadline"). The
Discretionary Vote Deadline for the year 2001 annual meeting is December 6, 2001
(45 calendar days prior to the anniversary of the mailing date of this proxy
statement.) If a stockholder gives notice of such a proposal after the
Discretionary Vote Deadline, the Company's proxy holders will be allowed to use
their discretionary voting authority to vote against the stockholder proposal
when and if the proposal is raised at the Company's year 2001 annual meeting.
Because the Bylaw Deadline is not capable of being determined until the Company
publicly announces the date for its next annual meeting, it is possible that the
Bylaw Deadline may occur after the Discretionary Vote Deadline. In such a case,
a proposal received after the Discretionary Vote Deadline, but before the Bylaw
Deadline, would be eligible to be presented at next year's annual meeting and
the Company believes that its proxy holders would be allowed to use the
discretionary authority granted by the proxy card to vote against the proposal
at the meeting, without including any disclosure of the proposal in the proxy
statement relating to such meeting.
The Company has not been notified by any stockholder of his or her intent
to present a stockholder proposal from the floor at this year's Annual Meeting.
The enclosed proxy card grants the proxy holders discretionary authority to vote
on any matter properly brought before the Annual Meeting, including any
stockholder proposals received between the date of this proxy statement and the
Bylaw Deadline for this year's Annual Meeting, which is January 30, 2000.
2
<PAGE> 5
PROPOSAL ONE:
ELECTION OF DIRECTORS
NOMINEES
A board of six 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 six nominees named below, five 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
current 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.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The six 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>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
---- --- -------------------- --------
<S> <C> <C> <C>
Cyril J. Yansouni...................... 57 Chairman of the Board of Directors and 1991
Chief Executive Officer of the Company
William J. Almon....................... 67 Chairman of Internet Image, Inc. 1994
Michael L. Hackworth................... 58 Chairman of the Board of Cirrus Logic, 1995
Inc.
Matthew J. O'Rourke.................... 61 Retired Partner, Price Waterhouse LLP 1996
Robert M. White........................ 61 Professor, Carnegie Mellon University 1999
Alan S. Lowe........................... 37 President and Chief Operating Officer --
of the Company
</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 that 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.
Mr. Almon has been a director of the Company since December 1994. Since
December of 1998, Mr. Almon has been the Chairman of Internet Image, an
E-commerce company. From May 1994 to October 1998, Mr. Almon served as the
Chairman and Chief Executive Officer of StorMedia, Inc., a manufacturer of thin
film magnetic disks for rigid disk drives, which filed a voluntary petition for
relief under Chapter 11 of the federal bankruptcy laws in October of 1998. From
1989 to 1992, Mr. Almon served as the President and Chief Operating Officer of
Conner Peripherals, Inc., a disk drive manufacturer, that was acquired by
Seagate Technology, Inc., a customer of the Company. Mr. Almon received his B.S.
degree from the United States
3
<PAGE> 6
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.
Mr. Hackworth has been a director of the Company since November 1995. Since
February 1999, Mr. Hackworth has been Chairman of the Board of Cirrus Logic,
Inc. From August 1997 until February 1999, Mr. Hackworth served as 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 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. Mr. O'Rourke is also on the Board of Directors
of LSI Logic Corporation, a semi-conductor products and storage systems designer
and manufacturer.
Dr. White has been a director of the Company since July 1999. Since 1993,
Dr. White has been a University Professor of Electrical and Computer
Engineering, Director of the Data Storage Systems Center, and Professor of
Engineering and Public Policy at Carnegie Mellon University. Prior to joining
Carnegie Mellon University, Dr. White served as the first Under Secretary for
Technology in the Commerce Department from 1990 to 1993. His industry experience
includes positions at Control Data Corporation as vice president and chief
technology officer, and at Xerox's Palo Alto Research Center as a principal
scientist. Dr. White has written extensively, and is the author of over 120
technical publications. He is on the board of directors for STMicroelectronics
NV (Geneva), Ontrack Data International, Inc. (Minneapolis), and ENSCO, Inc.
(Springfield, VA). In addition, Dr. White is a member of the National Academy of
Engineering, and a Fellow at the American Physical Society, the IEEE and the
American Association for the Advancement of Science (AAAS). Dr. White received a
Bachelor of Science degree in physics from MIT and a Ph.D. in physics from
Stanford University.
Mr. Lowe has served as President and Chief Operating Officer of the Company
since May 1997. Mr. Lowe joined the Company in 1989. Mr. Lowe served as Vice
President, Sales from November 1991 to August 1994, as Vice President of
Customer Programs from August 1994 to November 1995, and as Senior Vice
President, Customer Programs from November 1995 to October 1996. Mr. Lowe was
Senior Vice President, Customer Business Units, from October 1996 to March 1997
and was promoted to President and Chief Operating Officer in May of 1997. Prior
to joining the Company in 1989, Mr. Lowe was sales manager for Microcom
Corporation, a data communications hardware and software company. From 1985 to
1989, Mr. Lowe held various sales positions at IBM. Mr. Lowe holds B.A. degrees
in Computer Science and Business Economics from the University of California,
Santa Barbara.
RETIREMENT FROM BOARD OF DIRECTORS
Dr. John G. Linvill, who is currently a director of the Company and has
served on the Board since August 1991, is retiring and will not stand for
reelection in 2000. The Company wishes to thank Dr. Linvill for his many years
of dedicated service to the Company and for his many years of guidance and
advice to management. 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.
4
<PAGE> 7
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of the Record Date 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 salary plus bonus exceeded $100,000 for fiscal
1999 (such officers, together with the Chief Executive Officer, are collectively
referred to as the "Named Executive Officers"), by all current directors and
executive officers as a group, and by each person (including any "group" as that
term is used in Section 13(d)(3) of the Securities Exchange Act of 1934 (the
"Exchange Act")) who is known to the Company to be the beneficial owner of more
than five percent of the Company's Common Stock:
<TABLE>
<CAPTION>
NAME OR GROUP NUMBER OF SHARES PERCENT OF TOTAL
------------- ---------------- ----------------
<S> <C> <C>
State of Wisconsin Investment Board......................... 3,910,800 7.83%
121 East Wilson Street, Madison WI 53702
Cyril J. Yansouni(l)........................................ 1,505,759 3.01%
William J. Almon(2)......................................... 45,000 *
Michael L. Hackworth(3)..................................... 26,000 *
John G. Linvill(4).......................................... 53,930 *
Matthew J. O'Rourke(5)...................................... 25,130 *
Robert M. White(6).......................................... 10,000 *
Peter G. Bischoff(7)........................................ 331,653 *
Michael A. Klyszeiko(8)..................................... 265,742 *
Alan S. Lowe(9)............................................. 329,383 *
James Murphy(10)............................................ 126,256 *
Mark Re(11)................................................. 37,600 *
All current directors and executive officers as a group
(12)...................................................... 2,993,123 5.99%
</TABLE>
- ---------------
* Less than 1%
(1) Includes 1,344,236 shares issuable upon the exercise of stock options to
purchase shares of Common Stock that are exercisable within 60 days of the
Record Date.
(2) Includes 32,000 shares issuable upon the exercise of stock options to
purchase shares of Common Stock that are exercisable within 60 days of the
Record Date.
(3) Includes 26,000 shares issuable upon the exercise of stock options to
purchase shares of Common Stock that are exercisable within 60 days of the
Record Date.
(4) Includes 50,930 shares issuable upon the exercise of stock options to
purchase shares of Common Stock that are exercisable within 60 days of the
Record Date.
(5) Includes 23,930 shares issuable upon the exercise of stock options to
purchase shares of Common Stock that are exercisable within 60 days of the
Record Date.
(6) Includes 10,000 shares issuable upon the exercise of stock options to
purchase shares of Common Stock that are exercisable within 60 days of the
Record Date.
(7) Includes 327,695 shares issuable upon the exercise of stock options to
purchase shares of Common Stock that are exercisable within 60 days of the
Record Date. Mr. Bischoff retired as an executive officer of the Company as
of March 1, 1999. Accordingly, he was not serving as an executive officer
at the end of the fiscal 1999.
(8) Includes 258,071 shares issuable upon the exercise of stock options to
purchase shares of Common Stock that are exercisable within 60 days of the
Record Date.
(9) Includes 292,274 shares issuable upon the exercise of stock options to
purchase shares of Common Stock that are exercisable within 60 days of the
Record Date.
(10) Includes 121,418 shares issuable upon the exercise of stock options to
purchase shares of Common Stock that are exercisable within 60 days of the
Record Date.
5
<PAGE> 8
(11) Includes 37,500 shares issuable upon the exercise of stock options to
purchase shares of Common Stock that are exercisable within 60 days of the
Record Date.
(12) Includes 2,757,554 shares issuable upon the exercise of stock options to
purchase shares of Common Stock, held by current executive officers and
directors, which are exercisable within 60 days of the Record Date.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held eight meetings during fiscal
1999.
The Audit Committee held four meetings during fiscal 1999. During fiscal
1999, the Audit Committee consisted of Messrs. Linvill, Almon, Hackworth,
O'Rourke and White. 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, and reviews other matters
relating to the relationship of the Company with its auditors.
The Compensation Committee held three meetings during fiscal 1999. During
fiscal 1999, the Compensation Committee consisted of Messrs. Linvill, Almon,
Hackworth, O'Rourke and White. 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 Board of Directors currently has no nominating committee or committee
performing a similar function.
During fiscal 1999, no director attended fewer than 75 percent of the
aggregate of (i) the total number of meetings of the Board of Directors and (ii)
the total number of meetings held by all committees of the Board of Directors on
which he served during the fiscal year.
COMPENSATION OF DIRECTORS
Each non-employee 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. Non-employee directors also participate in the
Company's 1991 Director Option Plan (the "Director Plan") and, as of July 1,
1998, in the Company's 1995 Stock Option Plan (the "1995 Plan"). The Director
Plan was amended effective April 13, 1999. Under the Director Plan, as amended,
each non-employee director automatically received a nonstatutory option to
purchase 6,000 shares on April 13, 1999, and each new non-employee 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 (after April 13,
1999). Thereafter, on the date a non-employee director is elected or re-elected
to the Board of Directors, that director automatically receives a nonstatutory
option under the Director Plan to purchase 6,000 shares of the Company's Common
Stock and a nonstatutory option under the 1995 Plan to purchase 4,000 shares of
the Company's Common Stock. These options granted under the Director Plan and
the 1995 Plan have a term of ten years, unless terminated sooner following
termination of the optionee's status as a director or otherwise pursuant to the
terms of the Director Plan and the 1995 Plan, respectively. The exercise price
of each option granted under both plans is equal to the fair market value of the
Common Stock on the date of grant. Options granted after April 13, 1999 vest
immediately upon grant. Options granted prior to April 13, 1999 under the
Director Plan typically vest over four years (25% on each of the first four
anniversaries of the grant date). Effective April 13, 1999, Messrs. Almon,
Hackworth, Linvill and O'Rourke were each granted an option to purchase 6,000
shares of Common Stock under the Director Plan, and an option to purchase 4,000
shares of Common Stock under the 1995 Stock Plan; such options were immediately
vested and have an exercise price of $5.9063 per share. Effective July 16, 1999,
Robert M. White was granted an option to purchase 6,000 shares of Common Stock
under the Director Plan and an option to purchase 4,000 shares of Common Stock
under the 1995 Plan; such options were immediately vested and have an exercise
price of $6.0625 per share.
Pursuant to an October 1998 amendment to the Director Plan, a non-employee
director may elect to receive an option ("Deferral Option") to purchase the
Company's common stock in lieu of receiving cash
6
<PAGE> 9
payment of fees. A non-employee director may elect to waive fees payable in
favor of a Deferral Option by submitting to the Company an election before the
first business day of a given fiscal year. The election shall be irrevocable,
except that upon the request of a non-employee director and based upon a showing
of financial hardship caused by accident, illness or any other event beyond the
non-employee director's control, the Board of Directors may, in its sole
discretion, allow changes to such election. Deferral Options shall be granted
automatically under the Director Plan on the last business day of each fiscal
year in which a non-employee director elects to waive fees. The number of shares
granted pursuant to a Deferral Option shall be a quotient equal to the fees
waived, divided by 75% of the fair market value of a share of the Company's
Common Stock on the date of grant. The term of a Deferral Option shall be ten
(10) years, and the exercise price shall be 25% of the fair market value per
share on the date of grant. A Deferral Option shall be fully vested and
exercisable on the date of grant, but shall remain exercisable only while the
non-employee director remains a director of the Company and for three (3) months
thereafter. Non-employee directors received fees payable for the first quarter
of fiscal 1999 in cash. Messrs. Linvill and O'Rourke submitted an election to
waive fees payable in favor of a Deferral Option, and on September 24, 1999, the
last business day of fiscal 1999, Messrs. Linvill and O'Rourke were each
automatically granted a Deferral Option to purchase 3,930 shares of Common Stock
under the 1995 Stock Plan; such options were immediately vested and have an
exercise price of $1.1875 per share.
COMPENSATION OF EXECUTIVE OFFICERS
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation for the Named Executive
Officers for the Company's last three fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION (1) ------------
----------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
FISCAL COMPENSATION OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(2) ($) SARS(#) ($)(3)
--------------------------- ------ --------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Cyril J. Yansouni(4)........... 1999 570,000 1,000,000 -- 500,000 10,585
Chairman and Chief 1998 570,000 600,000 -- 500,000 14,245
Executive Officer 1997 570,000 815,000 -- 100,000 9,079
Alan S. Lowe(5)................ 1999 418,269 -- -- 250,000 659
President and Chief 1998 374,423 -- -- 676,174 1,381
Operating Officer 1997 266,000 333,000 -- 110,000 1,490
Michael A. Klyszeiko(6)........ 1999 310,000 -- -- -- 659
Executive Vice President 1998 309,577 -- -- 506,551 1,381
Operations................... 1997 255,000 218,000 -- 50,000 1,490
James Murphy(7)................ 1999 283,077 66,600 -- 50,000 659
Senior Vice President 1998 259,615 66,600 -- 353,537 1,381
Customer Business Units 1997 201,923 60,900 65,374 50,000 --
Mark Re(8)..................... 1999 293,250 75,000 -- 50,000 620
Senior Vice President 1998 121,154 100,000 -- 250,000 --
Research & Development 1997 -- -- -- -- --
Peter G. Bischoff(9)........... 1999 252,115 200,000 -- -- --
Former Executive Vice
President 1998 284,792 200,000 -- 538,708 1,381
1997 258,000 412,000 -- 50,000 1,490
</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.
7
<PAGE> 10
(2) Includes bonus awards earned for performance in the fiscal year noted even
though portions of such amounts may be payable in subsequent years. Excludes
bonus awards paid in the fiscal year noted but earned in prior years.
(3) Includes the value of the Company's Common Stock issued as matching
contributions pursuant to the Company's 401(k) Plan and the value of
premiums paid on life insurance policies.
(4) Mr. Yansouni's fiscal 1998 and fiscal 1999 bonus compensation includes the
$600,000 and $1,000,000 bonuses that were established pursuant to his 1998
retention arrangement and on which payment has been deferred. See "Board
Compensation Committee Report on Executive Compensation -- Compensation of
the Chief Executive Officer." "All Other Compensation" for fiscal 1999
includes $9,926 in life insurance premiums paid by the Company and the value
of the matching contributions of the Company's Common Stock contributed by
the Company under the Company's 401(k) Plan ($659).
(5) Mr. Lowe's fiscal 1998 Securities Underlying Options granted includes a
grant of 80,000 new options, a cancellation and repricing of 277,200
previously granted options in connection with the April 1998 Option Exchange
Program and a subsequent cancellation and repricing of 318,974 previously
granted options in connection with the August 1998 Option Exchange Program.
"All Other Compensation" for fiscal 1999 represents the value of the
matching contributions of the Company's Common Stock contributed by the
Company under the Company's 401(k) Plan.
(6) Mr. Klyszeiko's fiscal 1998 Securities Underlying Options granted includes a
grant of 50,000 new options, a cancellation and repricing of 198,480
previously granted options in connection with the April 1998 Option Exchange
Program and a subsequent cancellation and repricing of 258,071 previously
granted options in connection with the August 1998 Option Exchange Program.
"All Other Compensation" for fiscal 1999 represents the value of the
matching contributions of the Company's Common Stock contributed by the
Company under the Company's 401(k) Plan.
(7) Mr. Murphy's fiscal 1998 and fiscal 1999 bonus compensation each included a
$66,600 bonus payment made pursuant to his retention agreement with the
Company. See "Employment Arrangements." Mr. Murphy's fiscal 1998 Securities
Underlying Options granted includes a grant of 50,000 new options, a
cancellation and repricing of 148,331 previously granted options in
connection with the April 1998 Option Exchange Program and a subsequent
cancellation and repricing of 155,206 previously granted options in
connection with the August 1998 Option Exchange Program. Mr. Murphy's Other
Annual Compensation for fiscal 1997 includes $51,311 in relocation payments.
"All Other Compensation" for fiscal 1999 represents the value of the
matching contributions of the Company's Common Stock contributed by the
Company under the Company's 401(k) Plan.
(8) Dr. Re became an executive officer of the Company on April 3, 1998. Dr. Re's
bonus compensation includes payments pursuant to his employment agreement
whereby Dr. Re received retention payments of $100,000 and $75,000 in fiscal
1998 and 1999, respectively. Dr. Re's fiscal 1998 Securities Underlying
Options granted includes 100,000 options cancelled and re-granted in
connection with the August 1998 Option Exchange Programs. "All Other
Compensation" for fiscal 1999 represents the value of the matching
contributions of the Company's Common Stock contributed by the Company under
the Company's 401(k) Plan.
(9) Mr. Bischoff resigned as an executive officer of the Company on March 1,
1999 and retired from the Company on October 31, 1999. Mr. Bischoff's fiscal
1997, fiscal 1998 and fiscal 1999 compensation included payments under the
October 1995 extension of Mr. Bischoff's retention arrangement. See
"Employment Arrangements." Mr. Bischoff's fiscal 1998 Securities Underlying
Options granted includes a grant of 50,000 new options, a cancellation and
repricing of 180,604 previously granted options in connection with the April
1998 Option Exchange Program and a cancellation and repricing of 308,104
previously granted options in connection with the August 1998 Option
Exchange Program.
8
<PAGE> 11
STOCK OPTIONS IN FISCAL 1999
The following tables set forth information regarding stock options granted
to and exercised by the Named Executive Officers during the last fiscal year, as
well as options held by such officers as of September 26, 1999, the last day of
the Company's 1999 fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUES ($) AT ASSUMED
ANNUAL RATES
INDIVIDUAL GRANTS(1) OF STOCK PRICE
------------------------------- APPRECIATION FOR
NUMBER OF OPTION TERM(2)
SECURITIES % OF TOTAL OPTIONS ---------------------
UNDERLYING GRANTED TO EXERCISE 5% 10%
OPTIONS EMPLOYEES IN PRICE EXPIRATION PER YEAR PER YEAR
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE ($) ($)
---- ---------- ------------------ -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cyril J. Yansouni............ 500,000 19.62% 8.00 10-01-08 2,515,579 6,374,970
Alan S. Lowe................. 250,000 9.81% 8.50 02-26-09 1,336,401 3,386,702
Michael A. Klyszeiko......... -- -- -- -- -- --
James Murphy................. 50,000 1.96% 8.50 02-26-09 267,280 677,341
Peter G. Bischoff............ -- -- -- -- -- --
Mark Re...................... 50,000 1.96% 8.50 02-26-09 267,280 677,341
</TABLE>
- ---------------
(1) These options were granted under the 1995 Plan at an exercise price equal to
the fair market value of the Company's Common Stock on the date of grant.
The 1995 Plan provides that in the event of a merger of the Company with or
into another corporation or a sale of substantially all of the assets of the
Company, each option shall be assumed or an equivalent option substituted by
the successor corporation. If the successor corporation refuses to assume or
substitute for the options granted under the 1995 Plan, the optionee shall
have the right to exercise the option as to all shares (including shares for
which the option would not otherwise be exercisable) for a period of 15 days
from the date the optionee receives notice thereof from the administrator.
Options vest over four years (25% on each of the first four anniversaries of
the grant date) and have a term of ten years.
(2) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and are not an estimate or projection
of future prices for the Company's Common Stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS
ACQUIRED END(#) AT FISCAL YEAR END($)(1)
ON VALUE ---------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cyril J. Yansouni.............. -- -- 797,318 1,114,590 1,895,988 --
Peter G. Bischoff.............. -- -- 306,273 21,422 -- --
Michael A. Klyszeiko........... -- -- 223,931 34,140 -- --
Alan S. Lowe................... -- -- 187,551 381,423 -- --
James Murphy................... -- -- 83,918 121,288 -- --
Mark Re........................ -- -- 25,000 125,000 -- --
</TABLE>
- ---------------
(1) Represents the difference between the closing price of the Company's Common
Stock on September 26, 1999 of $4.75 per share and the exercise price of
in-the-money options multiplied by the total number of shares.
9
<PAGE> 12
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") consists of Messrs. Linvill,
Almon, Hackworth, O'Rourke and White, 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 Plan, 1998 Nonstatutory Stock Option Plan (the "1998 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, semi-annual variable compensation, annual bonus
and stock options. The combination and relative weighting of these elements
reflect 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 as well as individual performance and
responsibilities. Mr. Yansouni's base compensation was $570,000 for fiscal 1999
and has not been changed since 1995.
Semi-Annual Variable Compensation (formerly Quarterly Variable
Compensation). In fiscal 1999, in order to ensure the alignment of bonus payouts
to executives with those of all other Company employees, the Company changed its
quarterly variable compensation program to a semi-annual variable compensation
program. The Company's semi-annual variable compensation program acknowledges
both Company and individual performance and is intended to bring the total of
base salary plus semi-annual variable compensation up to approximately the 75th
percentile established by reference to the statistical data referenced above
when all Company profitability and individual performance objectives are met.
Under the semi-annual program, each executive officer is eligible to
receive semi-annual 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 semi-annual 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, semi-annual award eligibility
begins to accrue once the Company achieves 80% of the applicable semi-annual PAT
target, and increases on a straight-line basis to full eligibility at 100% of
the applicable semi-annual PAT target (e.g., at 90% of the applicable target,
award eligibility is 50% of the executive's maximum percentage for the six month
period). Once eligibility is established based on Company performance, 80% of
that eligibility is paid, with the 20% balance 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. Semi-annual awards for both the Chief Executive Officer and the
President are based solely on Company performance.
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<PAGE> 13
Semi-annual variable compensation eligibility for fiscal 1999 ranged from
25% - 50% (or 12.5% - 25% per six-month period) of the respective base salaries
(the "Target Incentive") of the participating officers except the Company's
Chief Executive Officer and President, whose percentages were each 70% (or 35%
per six-month period). Mr. Yansouni's and Mr. Lowe's semi-annual variable
eligibility were not changed in fiscal 1999. Based on the PAT goals set by the
Committee for fiscal 1999, no semi-annual awards were paid in fiscal 1999 to
participating officers.
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, semi-annual 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. The Annual Bonus program was modified in fiscal
1998 to consist of two components: "Year-End On Plan Bonus" and "Year-End Over
Plan Bonus."
The Year-End On Plan Bonus is based on Company PAT performance for the full
fiscal year. Under this program, a year end "on plan" bonus is paid if, at the
end of the fiscal year, the annual PAT target for the Company is achieved. Upon
attaining 100% of the annual PAT goal, an executive may earn 0.5 times his
Target Incentive.
The Year-End Over Plan Bonus, formerly called the "Super Bonus," was
modified during fiscal year 1998. This plan, which provides a maximum payout of
2.0 times Target Incentive, has two criteria for payout. Each of these two
criteria is equally weighted in the calculation of bonus awards. The first
criteria is PAT achievement exceeding 100% of the target. The second criteria,
which varies annually, is designed to reinforce issues requiring particular
executive attention. For fiscal year 1999, the second criteria was improvement
in asset management (capital expenditure as a percentage of revenue). No
year-end over plan bonus may be paid unless at least 100% of the annual PAT is
achieved.
During fiscal 1999, the Company did not meet its Annual PAT target, and no
annual bonuses were paid to any executive.
In order to ensure the successful transition to our new GMR programs and
technologies, it is imperative that we retain key management and technical
personnel. Therefore, for fiscal year 2000, the Company has guaranteed a minimum
bonus payout under existing bonus programs for certain executives and key
technical employees, provided these executives and employees are still in the
employment of the Company on September 30, 2000. Mr. Lowe, Mr. Murphy and Dr. Re
were the only Named Executive Officers of the Company participating in this
program.
Stock Options. Under the Company's 1995 Plan, stock options may be granted
to executive officers and other employees of the Company, and under the
Company's 1998 Plan, stock options may be granted to other employees of the
Company. Upon joining the Company, an individual's initial option grant is based
on the individual's responsibilities, 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, 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. Options typically vest over 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, as no benefit is realized from a stock option grant unless the price
of the Common Stock rises over a number of years and the option holder is
actively employed at the time of vesting.
Compensation of the Chief Executive Officer. In October 1997, the Committee
approved an executive retention arrangement for Mr. Yansouni. Pursuant to this
arrangement, in 1998, in lieu of a 1998 stock grant of 250,000 shares of
restricted stock, the Committee offered Mr. Yansouni a retention arrangement
consisting of (i) a stock option grant in 1998 and (ii) a leadership bonus
opportunity (the "Leadership Bonus"). In the
11
<PAGE> 14
event of the death or disability of Mr. Yansouni after January 20, 1999, the
options granted to Mr. Yansouni in 1998 pursuant to this arrangement will vest
as to an additional 12 months. In the event the Company terminates Mr.
Yansouni's employment with the Company other than for cause, including removing
or replacing Mr. Yansouni as Chief Executive Officer, the options granted to Mr.
Yansouni in 1998 pursuant to this arrangement will vest in full.
The Leadership Bonus is based upon Mr. Yansouni's continued status as Chief
Executive Officer of the Company during fiscal years 1998, 1999, 2000, 2001 and
2002. Mr. Yansouni was eligible to receive an award of $600,000 on September 27,
1998 and an award of $1,000,000 on September 26, 1999. Provided Mr. Yansouni
remains Chief Executive Officer on the last day of the applicable fiscal year,
he will be further eligible to receive awards of $1,000,000 on the last day of
fiscal years 2000, 2001 and 2002, respectively. Payment of all or a portion of
each award may be deferred either (i) by Mr. Yansouni's irrevocable election on
or before December 31 of the year preceding a given payment, or (ii) by the
Company in order to preserve its tax deduction under Section 162(m), as
necessary. Either of these deferral elections shall render the corresponding
amount(s), plus interest accrued at a rate of 5% per annum during the deferral
period, payable to Mr. Yansouni following a change in control of the Company or
termination of Mr. Yansouni's employment with the Company for any reason except
termination for cause. In September 1998, the Company elected to defer payment
of the $600,000 award for fiscal year 1998 to Mr. Yansouni, and in December
1998, Mr. Yansouni elected to defer payment of the $1,000,000 award for fiscal
year 1999.
In the event of Mr. Yansouni's death or disability or a change in control,
award of the next payable installment shall be accelerated to coincide with the
date of such change in control, death or disability. If following a change of
control Mr. Yansouni remains Chief Executive Officer, each award date for the
remaining, unpaid installments shall be paid as described above unless the Board
specifies otherwise.
The Board may terminate or replace Mr. Yansouni as Chief Executive Officer
at any time. In such case, and provided he is not removed for cause, Mr.
Yansouni shall be awarded the pro rata amount of the next payable installment;
additionally, the Committee at its sole discretion may award Mr. Yansouni a
further leadership award payment, which, when added to the pro rata amount, may
not exceed $1,000,000. Should Mr. Yansouni voluntarily resign from his position
as Chief Executive Officer, the Committee may, but is not required to, pay Mr.
Yansouni the pro rata amount of the next payable award. If Mr. Yansouni is
terminated for cause, he shall not be eligible to receive any portion of the
award for the fiscal year in which such termination occurs.
Other elements of executive compensation include participation in a
Company-wide medical and insurance benefits plan, additional life insurance
coverage 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.
Deductibility of Compensation. 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 semi-annual variable
12
<PAGE> 15
compensation program and annual bonus program, the cash compensation of certain
officers may exceed the $1,000,000 threshold.
COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS
JOHN G. LINVILL
WILLIAM J. ALMON
MICHAEL L. HACKWORTH
MATTHEW J. O'ROURKE
ROBERT M. WHITE
CERTAIN TRANSACTIONS
In April 1991, the Company entered into a retention arrangement with Peter
G. Bischoff, Executive Vice President, 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 extended Mr. Bischoff's retention
arrangement for four years such that Mr. Bischoff receives $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 eliminated the trust requirement. Mr.
Bischoff resigned as an executive officer of the Company effective March 1,
1999. In April 1999, in connection with Mr. Bischoff's retirement, the Board
agreed to the following: to accelerate the vesting of Mr. Bischoff's options
unvested as of January 1, 2000 to August 31, 1999; agreed to provide Mr.
Bischoff with four months of salary continuation on a part-time pro-rated basis
from October 31, 1999, the date of Mr. Bischoff's retirement; and agreed to pay
Mr. Bischoff a prorated portion of his last retention award payment.
As discussed previously under the Board Compensation Committee Report of
Executive Compensation, for fiscal 2000 the Board has guaranteed Mr. Alan S.
Lowe, the Company's President and Chief Operating Officer, a minimum bonus of
$200,000 on September 30, 2000, under existing bonus programs provided he is an
employee in good standing on such date.
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 1999
was $66,800 and, as of December 31, 1999, the loan was paid in full. Provided he
was an employee in good standing on each such date, the Company additionally
agreed to pay Mr. Murphy two retention bonuses of $66,600 on the first two
anniversaries of the date of the loan, respectively, and one retention bonus of
$66,800 on the third anniversary of the date of the loan. Mr. Murphy was an
employee in good standing in October 1997, October 1998 and October 1999 and
received the first, second and third anniversary retention bonuses of $66,600,
$66,600 and $66,800, respectively. The principal amount of the loan was payable
in installments of $66,600, $66,600 and $66,800 on the first, second and third
anniversaries of the loan, respectively, and Mr. Murphy has paid the entire
balance of the loan in full. As discussed previously under the Board
Compensation Committee Report of Executive Compensation, for fiscal 2000 the
Board has guaranteed Mr. Murphy a minimum bonus of $150,000 under existing bonus
programs, on September 30, 1999, provided he is an employee of the Company in
good standing on such date.
Michael A. Klyszeiko, Executive Vice President of Operations has resigned
as an executive officer of the Company effective January 1, 2000. In April of
1999, in connection with Mr. Klyszeiko's retirement from the Company, the Board
agreed to accelerate the vesting of Mr. Klyszeiko's options unvested as of
January 1, 2000 to August 31, 1999.
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<PAGE> 16
In April 1998, in connection with his initial employment with the Company,
the Company loaned Mark Re, the Company's Senior Vice President, Research and
Development, $200,000 in connection with the purchase of his principal residence
in Northern California. This loan bears interest at a rate of 5.48% 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 1999 and the amount outstanding
as of December 31, 1999, was $200,000. The principal amount of the loan is
payable in full on September 30, 2000, or in full 90 days following Dr. Re's
termination of employment with the Company. The Company paid Dr. Re a hire-on
bonus of $75,000 in 1998. Provided he is an employee in good standing on such
dates, the Company has also agreed to pay Dr. Re two retention bonuses of
$50,000 and $75,000 on December 31, 1998 and December 31, 1999, respectively. In
July 1998, the Company agreed to pay Dr. Re a bonus on July 27, 2001 of $375,000
provided Dr. Re is an employee in good standing on such date. Dr. Re was an
employee in good standing on December 31, 1998 and received his first
anniversary retention bonus of $50,000. Pursuant to his retention agreement, if
bonuses paid to Dr. Re under the Company's executive bonus programs for fiscal
1999 and 2000, (collectively, the "Bonuses") not including the hire-on bonuses
described in this paragraph, total less than $200,000, the Company has agreed to
pay Dr. Re on September 30, 2000, the difference between $200,000 and the
Bonuses. Additionally, for fiscal 2000, as discussed previously under the Board
Compensation Committee Report of Executive Compensation, the Board has
guaranteed Dr. Re a minimum bonus of $100,000, under existing bonus programs,
provided he is an employee in good standing on September 30, 2000. Therefore,
under the two programs mentioned above, Dr. Re has effectively been guaranteed a
minimum bonus of $300,000 on September 30, 2000, provided he is an employee in
good standing on such date.
Upon his relocation to California, and in connection with his initial
employment with the Company, the Company loaned John T. Kurtzweil, Senior Vice
President of 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 1999, and
the amount outstanding at December 31, 1999, was $145,000. The Company also
agreed to pay Mr. Kurtzweil cash bonuses in the amount of $72,500 in each of
January 2000 and 2001, 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 2001, or in full 90 days following Mr. Kurtzweil's termination of
employment with the Company. In December of 1998, the Promissory Note was
amended to correct a clerical error changing the repayment dates on the loan to
the end of February 2000 and 2001. In October of 1999, to maintain consistency
with prior Company practice, the Board approved a gross up, for tax purposes, of
the bonuses to be granted, above, under the Company's relocation loan and bonus
arrangement.
In March 1997, the Company's Board of Directors adopted a Management
Severance Plan (the "Severance Plan") that 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 semi-annual and
annual bonuses received by the participant over the preceding three years), plus
(ii) the participant's Pro-Rated Bonus Amount (generally, semi-annual 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
coverage, life insurance and other employee benefits no less favorable than
those provided immediately prior to the change in control for 24 months
following the change in control. In April 1999, the Compensation Committee of
the Board of Directors voted to modify the Severance Plan to additionally
provide that in the event that a participant's employment with the Company is
terminated 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, all unvested Company stock options held by that
participant will be immediately vested as of the date of such termination.
14
<PAGE> 17
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 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
280G 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.
In accordance with the treatment of loans under the Severance Plan, the
Company has agreed to pay Dr. Re and Mr. Kurtzweil a lump sum cash bonus equal
to the then outstanding balance on the respective loan plus any accrued interest
in the event that their employment is terminated within 18 months following a
"change in control" of the Company as a result of an "involuntary termination"
other than "for cause" (as these terms are defined in the Severance Plan).
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 1999, all Section 16 filing requirements were met.
15
<PAGE> 18
PERFORMANCE GRAPH
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, 1994
through September 26, 1999. 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.
COMPARISON OF TOTAL CUMULATIVE STOCKHOLDER RETURN
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
HAMBRECHT & QUIST
READ-RITE CORPORATION S&P 500 COMPUTER HARDWARE
--------------------- ------- -----------------
<S> <C> <C> <C>
Sep-94 100.00 100.00 100.00
Sep-95 194.66 129.95 158.71
Sep-96 84.00 156.52 191.61
Sep-97 130.66 220.21 370.28
Sep-98 41.66 240.76 412.97
Sep-99 25.33 306.89 701.14
</TABLE>
PROPOSAL TWO:
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board has selected Ernst & Young LLP, independent auditors, to audit
the financial statements of the Company for the 2000 fiscal year. This
nomination is being presented to the stockholders for ratification at the Annual
Meeting. Ernst & Young LLP (or its predecessor) 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 2000 AND RECOMMENDS THAT THE
STOCKHOLDERS VOTE "FOR" THIS PROPOSAL.
16
<PAGE> 19
OTHER MATTERS
The Company knows of no other matters to be submitted at the Annual
Meeting. If any other matters properly come before the meeting, it is the
intention of the persons named in the enclosed proxy card to vote the shares
they represent as the Board may recommend.
THE BOARD OF DIRECTORS
Milpitas, California
January 20, 2000
17
<PAGE> 20
PROXY
READ-RITE CORPORATION
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints CYRIL J. YANSOUNI, ANDREW C. HOLCOMB and JANE
CONN, 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, 2000, 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 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)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 21
<TABLE>
<S> <C>
Please mark [X]
your votes as
indicated in
this example
FOR WITHHOLD
All nominees AUTHORITY
listed (except to vote for all
as withheld) nominees listed FOR AGAINST ABSTAIN
1. ELECTION OF DIRECTORS [ ] [ ] 2. Proposal to ratify the [ ] [ ] [ ]
(INSTRUCTIONS: TO WITHHOLD AUTHORITY appointment of Ernst &
TO VOTE FOR ANY INDIVIDUAL NOMINEE, Young LLP, as independent
STRIKE THAT NOMINEE'S NAME BELOW.) auditors for the 2000
fiscal year.
YES NO
I plan to attend the meeting: [ ] [ ]
Nominees: Cyril J. Yansouni William J. Almon
Matthew J. O'Rourke Robert M. White
Michael L. Hackworth Alan S. Lowe
Signatures(s)________________________________________________________________________________________ Dated: _________________, 2000
(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.)
- ------------------------------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE
</TABLE>
