<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
CHECK THE APPROPRIATE BOX:
[X] PRELIMINARY PROXY STATEMENT
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(e)(2))
[ ] DEFINITIVE PROXY STATEMENT
[ ] DEFINITIVE ADDITIONAL MATERIALS
[ ] SOLICITING MATERIAL PURSUANT TO 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:
------------------------------------------------
(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:
------------------------------------------------
[ ] FEE PAID PREVIOUSLY WITH PRELIMINARY MATERIALS.
[ ] CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY EXCHANGE ACT
<PAGE> 2
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:
------------------------------------------------
(2) FORM, SCHEDULE OR REGISTRATION STATEMENT NO.:
------------------------------------------------
(3) FILING PARTY:
------------------------------------------------
(4) DATE FILED:
------------------------------------------------
<PAGE> 3
[READ-RITE LOGO]
READ-RITE CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 20, 2001
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 20, 2001, 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 amend the Company's Certificate of Incorporation to increase
the number of authorized shares of Common Stock by 40,000,000
shares to an aggregate of 200,000,000 shares.
3. To amend the Company's 1995 Stock Plan to increase the number of
shares reserved for issuance thereunder by 3,000,000.
4. To ratify the appointment of Ernst & Young LLP as independent
auditors for the Company for the 2001 fiscal year.
5. 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 29,
2000 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
Fremont, California
January 24, 2001
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> 4
READ-RITE CORPORATION
44100 OSGOOD ROAD
FREMONT, CALIFORNIA 94539
--------------
PROXY STATEMENT FOR 2001
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 20, 2001, 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 principal executive offices at 44100 Osgood Road,
Fremont, California.
The proxy solicitation materials were mailed on or about January 24,
2001 to all stockholders of record on December 29, 2000 (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
held 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 expressly not voted. Accordingly, broker non-votes will not affect
the outcome of the voting on a proposal that requires a majority of the Votes
Cast (such as the amendment of a plan). However, with respect to a proposal that
requires a majority of the outstanding shares (such as an amendment to the
certificate of incorporation), a broker non-vote has the same effect as a vote
against the proposal.
The cost of soliciting proxies will be borne by the Company. In
addition, the Company has retained Mellon Investor Services LLC to act as proxy
solicitor for the Annual Meeting at a cost of approximately $9,500, 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.
1
<PAGE> 5
RECORD DATE AND OUTSTANDING SHARES
Stockholders of record at the close of business on December 29, 2000 are
entitled to notice of the meeting and to vote at the meeting. At the Record
Date, 117,927,523 shares of the Company's Common Stock were issued and
outstanding. The last sale price of the Company's Common Stock on the Record
Date was $4.03 per share.
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 possible inclusion
in the Company's proxy materials for the annual meeting of stockholders to be
held in the year 2002, stockholder proposals must be received by the Secretary
of the Company no later than September 26, 2001, 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 director 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 at least 90 days in advance of
the 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 by the Company 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 intended to be included in the
Company's proxy materials, should be sent to Read-Rite Corporation, 44100 Osgood
Road, Fremont, California 94539, Attention: Corporate Secretary.
If a stockholder wishes to present a proposal at the Company's annual
meeting in the year 2002, 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 2002 annual meeting is
December 10, 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 2002 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
2
<PAGE> 6
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
February 3, 2001.
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, all of whom
are currently 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. Votes withheld from any director
are counted for purposes of determining the presence or absence of a quorum, but
have no other legal effect under Delaware law. There is no cumulative voting in
the election 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 58 Chairman of the Board of Directors 1991
William J. Almon 68 Managing Director of Netfish Technologies 1994
Michael L. Hackworth 59 Chairman of the Board of Directors of Cirrus Logic, Inc. 1995
Matthew J. O'Rourke 62 Retired Partner, Price Waterhouse LLP 1996
Robert M. White 62 Professor, Carnegie Mellon University 1999
Alan S. Lowe 38 President and Chief Executive Officer of the Company 2000
</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 is the Chairman of the Board of Directors. Prior to June
2000, Mr. Yansouni served as both Chairman of the Board of Directors and Chief
Executive Officer of the Company since March
3
<PAGE> 7
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 also serves as a director of PeopleSoft, Inc., a software company,
and is Chairman of the Board of Directors of Scion Photonics, Inc.
Mr. Almon has been a Director of the Company since 1994 and is currently
Managing Director of Netfish Technologies. From December 1998 to December 2000
he was Chairman of Internet Image. Prior to that he served as Chairman and CEO
of Stormedia, a disk media producer, from May 1994 to October 1998 when it filed
for Bankruptcy. From 1989 to 1992, Mr. Almon served as President of Conner
Peripherals Inc. a disk drive manufacturer which he joined from IBM where he was
the Vice President of Low End Storage. He holds a B.S. degree from the United
States Military Academy, West Point. Mr. Almon is also a director of Netfish
Technologies, Inc, HDI, Inc. and Sigma Designs, Inc., a multimedia company.
Mr. Hackworth has been a director of the Company since November 1995.
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. Mr.
Hackworth also continues to serve as Chairman of the Board of Directors of
Cirrus Logic, Inc. and also serves as a director of Virage Logic Corporation.
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, and is a Certified Public Accountant in
a number of states. Mr. O'Rourke is also on the board of directors of Infonet
Services Corporation, a data communications company, and LSI Logic Corporation,
a semiconductor products and storage systems designer and manufacturer.
Dr. White has been a director of the Company since July 1999. 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 since 1993. Prior to joining Carnegie
Mellon University, Dr. White served as the first Under Secretary for Technology
in the Commerce Department from 1990 to 1993. 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 his Bachelor of Science degree in physics from MIT
and his Ph.D. in physics from Stanford University. Dr. White is also on the
board of directors
Mr. Lowe has served as President and Chief Executive Officer of the
Company since June 2000 and has been a director of the Company since February
2000. Prior to June 2000, Mr. Lowe 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.
Mr. Lowe holds B.A. degrees in Computer Science and Business Economics from the
University of California, Santa Barbara. Mr. Lowe is also the President and
Chief Executive Officer of Scion Photonics, Inc. and serves on its Board of
Directors.
4
<PAGE> 8
for STMicroelectronics NV, Ontrack Data International, Inc., and ENSCO, Inc.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock and of the Common Stock of its subsidiary, Scion Photonics, Inc.,
as of the Record Date by each director (including both the Company's current and
former Chief Executive Officers), by the four other most highly compensated
executive officers of the Company whose salary plus bonus exceeded $100,000 for
fiscal 2000 (such officers, together with the Chief Executive Officers, 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>
Read-Rite Corporation Scion Photonics, Inc. (1)
--------------------- -------------------------
Percent Percent
Name or Group Number of Shares of Class Number of Shares of Class
------------- ----------------- -------- ---------------- --------
<S> <C> <C> <C> <C>
State of Wisconsin Investment Board 7,900,000 6.7% 0 0
121 East Wilson Street, Madison WI 53702
Cyril J. Yansouni(2) 2,036,959 1.7% 900,000 *
Alan S. Lowe(3) 690,343 * 2,000,000 1.7%
James Murphy(4) 331,356 * 700,000 *
John T. Kurtzweil (5) 291,799 * 500,000 *
Mark Re(6) 192,700 * 1,200,000 1.0%
Sherry McVicar(7) 196,832 * 200,000 *
William J. Almon(8) 72,500 * 0 0
Michael L. Hackworth(9) 41,500 * 0 0
Matthew J. O'Rourke(10) 44,423 * 0 0
Robert M. White(11) 20,000 * 0 0
All current directors and 3,918,412 3.3% 5,500,000 4.8%
executive officers as a group(12)
</TABLE>
*Less than 1%
(1) These shares in Scion Photonics, Inc. are shares of unvested
restricted stock purchased by the holder. The shares vest over a
four year period at the rate of 25% per year. Until these
restricted shares have vested the Company has a right to
repurchase the shares from the holder at the original purchase
price paid by the holder upon the termination of that
individual's employment with the Company. All shares are held in
escrow until vested. Additionally, the restricted shares are
subject to a Lock-Up Period and a Right of First Refusal in
favor of the Company. Under the Lock-Up Period, the holder of
the restricted shares may not offer, pledge, sell, lend, or
otherwise transfer or dispose of any of the shares for a period
of 180 days following the effective date of a registration
statement of the Company filed under the Securities Act. Under
the Right of First Refusal held by the Company, the holder must
first offer the shares to the Company at the same price and upon
the same terms, before any of these shares may be sold or
otherwise transferred to a third party. Percentages are based on
the total outstanding shares of Scion Photonics, Inc. on the
Record Date.
(2) Includes 1,439,959 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 647,274 shares issuable upon the exercise of stock
options to purchase shares of Common Stock that are exercisable
within 60 days of the Record Date.
5
<PAGE> 9
(4) Includes 326,418 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) Includes 288,000 shares issuable upon the exercise of stock
options to purchase shares of Common Stock that are exercisable
within 60 days of the Record Date.
(6) Includes 192,500 shares issuable upon the exercise of stock
options to purchase shares of Common Stock that are exercisable
within 60 days of the Record Date.
(7) Includes 196,061 shares issuable upon the exercise of stock
options to purchase shares of Common Stock that are exercisable
within 60 days of the Record Date.
(8) Includes 47,500 shares issuable upon the exercise of stock
options to purchase shares of Common Stock that are exercisable
within 60 days of the Record Date.
(9) Includes 41,500 shares issuable upon the exercise of stock
options to purchase shares of Common Stock that are exercisable
within 60 days of the Record Date.
(10) Includes 43,223 shares issuable upon the exercise of stock
options to purchase shares of Common Stock that are exercisable
within 60 days of the Record Date.
(11) Includes 20,000 shares issuable upon the exercise of stock
options to purchase shares of Common Stock that are exercisable
within 60 days of the Record Date.
(12) Includes 3,242,435 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 28 meetings during fiscal
2000.
The Audit Committee held four meetings during fiscal 2000. During fiscal
2000, the Audit Committee consisted of Messrs. Almon (Chairman), 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. On June 4, 2000,
the Board of Directors adopted an Audit Committee Charter, setting forth the
responsibilities and duties of the Company's Audit Committee.
The Compensation Committee held two meetings during fiscal 2000. During
fiscal 2000, the Compensation Committee consisted of Messrs. 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 2000, 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.
AUDIT COMMITTEE REPORT
The Audit Committee oversees the Company's financial reporting process on behalf
of the board of directors. The Audit Committee is responsible for providing
independent, objective oversight of the Company's accounting functions and
internal controls. Management has the primary responsibility for the financial
statements and the reporting process, including the systems of internal
controls. The Audit Committee acts under a written charter first adopted and
approved by the Board of Directors in June 2000. Each of the members of the
Audit Committee is independent as defined by Read-Rite policy and
6
<PAGE> 10
the Nasdaq listing standards. A copy of the Audit Committee Charter is attached
to this Proxy Statement as Appendix A.
In fulfilling its oversight responsibilities, the Audit Committee reviewed and
discussed the audited financial statements in the Annual Report on Form 10-K
with management, including a discussion of the quality, not just the
acceptability, of the accounting principles, the reasonableness of significant
judgments, and the clarity of disclosures in the financial statements for the
fiscal year ended October 1, 2000. Additionally, this year the Audit Committee
adopted the Audit Committee Charter to reflect the new standards set forth in
SEC regulations and the Nasdaq listing standards. After appropriate review and
discussion, the Board of Directors determined that the Committee had fulfilled
its responsibilities under the Audit Committee Charter.
The Audit Committee is responsible for recommending to the Board of Directors
that the Company's financial statements be included in the Company's Annual
Report on Form 10-K. The Audit Committee took a number of steps in making this
recommendation for 2000. First, the Audit Committee discussed with Ernst &
Young, LLP (the "Auditors"), the Company's independent auditors for 2000, those
matters the Auditors communicated to and reviewed with the Audit Committee under
applicable auditing standards, including information regarding the scope and
results of the audit. These communications and discussions are intended to
assist the Audit Committee in overseeing the financial reporting and disclosure
process. Second, the Audit Committee discussed the Auditors' independence with
the Auditors and received a letter from the Auditors concerning independence as
required under applicable independence standards for auditors of public
companies. The Audit Committee also discussed with the Auditors the matters set
forth in the Statement of Auditing Standards No. 61.
The Audit Committee discussed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The Audit
Committee meets with the internal and independent auditors, with and without
management present, to discuss the results of their examinations, their
evaluations of the Company's internal controls, and the overall quality of the
Company's financial reporting. The Audit Committee reviewed with the Auditors,
who are responsible for expressing an opinion on the conformity of those audited
financial statements with generally accepted accounting principles, their
judgments as to the quality, not just the acceptability, of the Company's
accounting principles and such other matters as are required to be discussed
with the Audit Committee under generally accepted auditing standards.
In addition, the Audit Committee discussed with the Auditors the Auditors'
independence from management and the Company, including the matters in the
written disclosures required by the Independence Standards Board. This
discussion and disclosure informed the Audit Committee of the Auditors'
independence, and assisted the Audit Committee in evaluating such independence.
Upon
7
<PAGE> 11
recommendation of the Audit Committee, the Board engaged Ernst & Young LLP to
audit the Company's 2001 financial statements.
Finally, the Audit Committee reviewed and discussed, with the Company management
and the Auditors, the Company's audited consolidated balance sheets at October
1, 2000 and October 3, 1999, and consolidated statements of income, cash flows
and stockholders' equity for the three years ended October 1, 2000. In reliance
on the reviews and discussions referred to above, the Audit Committee
recommended to the board of directors and the board approved that the audited
financial statements be included in the Annual Report on Form 10-K for the year
ended October 1, 2000 for filing with the Securities and Exchange Commission.
The Audit Committee and the board have also recommended, subject to stockholder
approval, the selection of the Company's independent auditors for fiscal year
2001.
AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS
WILLIAM J. ALMON
MICHAEL L. HACKWORTH
MATTHEW J. O'ROURKE
ROBERT M. WHITE
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 in the Company's
1995 Stock Option Plan (the "1995 Plan").
Under the Director Plan, on the date a non-employee director is
reelected 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 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 vest immediately upon grant. Effective February 24, 2000, Messrs.
Almon, Hackworth, White 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 $3.625 per share the fair
market value of the common stock on February 24, 2000, the date of the option
grant.
Prior to October 1, 2000, under the Director Plan, a non-employee
director could elect to receive an option ("Deferral Option") to purchase the
Company's common stock in lieu of receiving cash payment of fees. A non-employee
director could 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. This election is 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 could, in its sole discretion, allow changes to such
election. The Deferral Options were granted automatically under the Director
Plan on the last business day of each fiscal year in which a non-employee
director elected to waive fees. The number of shares granted pursuant to a
Deferral Option were 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 Deferral Options have a term of ten (10) years, and an exercise price of 25%
of the fair market value per share on the date of grant. The
8
<PAGE> 12
Deferral Options are fully vested and exercisable on the date of grant, and
remain exercisable only while the non-employee director remains a director of
the Company and for three (3) months thereafter. Mr. O'Rourke submitted an
election to waive fees payable in favor of a Deferral Option prior to the first
business day of fiscal 2000, and on September 29, 2000, the last business day of
fiscal 2000, Mr. O'Rourke was automatically granted a Deferral Option to
purchase 3,793 shares of Common Stock under the Director Plan; such option was
immediately vested and has an exercise price of $2.812 per share. Effective
October 1, 2000, the Board of Directors resolved that all options granted under
the Company's stock option plans would be granted at an exercise price equal to
or greater than fair market value and amended the Director Plan to eliminate the
Deferral Option as an election.
COMPENSATION OF EXECUTIVE OFFICERS
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation for the Named Executive
Officers for the Company's last three fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation (1) Compensation
--------------------------------------------- ------------
Awards
----------
Other Annual Securities All Other
Fiscal Bonus ($) Compensation Underlying Compensation
Name and Principal Position Year Salary ($) (2) ($) Options (#) ($) (3)
--------------------------------------- ------ ---------- --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cyril J. Yansouni (4) 2000 570,000 1,000,000 -- 0 15,182
Chairman of the Board of Directors 1999 570,000 1,000,000 -- 500,000 10,585
and Former Chief Executive Officer 1998 570,000 600,000 -- 500,000 14,245
Alan S. Lowe (5) 2000 464,615 250,000 -- 1,000,000 5,109
President and 1999 418,269 -- -- 250,000 659
Chief Executive Officer 1998 374,423 253,197 -- 676,174 1,381
John T. Kurtzweil (6) 2000 324,461 269,994 -- 310,000 469
Senior Vice President, Finance 1999 283,077 -- -- 40,000 659
and Chief Financial Officer 1998 259,615 119,555 -- 186,106 1,381
James Murphy (7) 2000 324,461 216,800 -- 310,000 469
Senior Vice President 1999 283,077 66,600 -- 50,000 659
Customer Business Units 1998 259,615 187,755 -- 353,537 1,381
Mark Re (8) 2000 324.461 375,000 -- 370,000 469
Senior Vice President 1999 293,250 75,000 -- 50,000 620
Research & Development 1998 121,154 100,000 -- 250,000 --
Sherry McVicar (9) 2000 255,000 75,000 -- 120,000 469
Vice President Human Resources 1999 244,423 -- -- 20,000 659
1998 229,731 101,431 -- 254,138 1,381
</TABLE>
9
<PAGE> 13
-----------
(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 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 ceased serving as Chief Executive Officer on June 5, 2000.
Mr. Yansouni's fiscal 2000 bonus compensation includes the $1,000,000
bonus that was established pursuant to his 1998 retention arrangement.
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 was deferred and
paid in fiscal 2000. See "Board Compensation Committee Report on
Executive Compensation -- Compensation of the Former Chief Executive
Officer." "All Other Compensation" for fiscal 2000 includes $14,713 in
life insurance and medical 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 ($469).
(5) Mr. Lowe commenced serving as Chief Executive Officer on June 5, 2000.
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 2000 includes
$4,640 in life insurance and medical 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 ($469).
(6) Mr. Kurtzweil's fiscal 1998 Securities Underlying Options granted
includes a grant of 40,000 new options, and a cancellation and repricing
of 73,053 previously granted options in connection with the April 1998
Option Exchange Program and a subsequent cancellation and repricing of
73,053 previously granted options in connection with the August 1998
Option Exchange Program. "All Other Compensation" for fiscal 2000
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 an 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. "All
Other Compensation" for fiscal 2000 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's bonus compensation includes payments pursuant to his employment
agreement whereby Dr. Re received retention payments of $100,000 and
$75,000 in fiscal 1998 and 1999, respectively. Dr. Re's fiscal 1998
Securities Underlying Options granted includes 100,000 options cancelled
and re-granted in connection with the August 1998 Option Exchange
Programs. "All Other Compensation" for fiscal 2000 represents the value
of the matching contributions of the Company's Common Stock contributed
by the Company under the Company's 401(k) Plan.
(9) Ms. McVicar's fiscal 1998 Securities Underlying Options granted includes
a grant of 30,000 new options, a cancellation and repricing of 89,569
previously granted options in connection with the April 1998 Option
Exchange Program and a subsequent cancellation and repricing of 134,138
previously granted options in connection with the August 1998 Option
Exchange Program. "All Other Compensation" for fiscal 2000 represents
the value of the matching contributions of the Company's Common Stock
contributed by the Company under the Company's 401(k) Plan.
10
<PAGE> 14
STOCK OPTIONS IN FISCAL 2000
The following tables set forth information regarding stock options
granted to and exercised by the Named Executive Officers during the last fiscal
year, as well as options held by such officers as of October 1, 2000, the last
day of the Company's 2000 fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Values at Assumed
Annual Rates
of Stock Price
Individual Grants (1) Appreciation for Option Term (2)
----------------------------------------------------------------------------------- -----------------------------------
Number of
Securities % of Total
Underlying Options Granted Exercise
Options to Employees in Price Expiration
Name Granted (#) Fiscal Year ($/sh) Date 5% ($) 10% ($)
---------------------- -------------- ------------------ ------------ ------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Cyril J. Yansouni 0 -- -- -- -- --
Alan S. Lowe 80,000 0.90% 3.5312 11/01/09 177,690 450,299
300,000 3.38% 3.6250 02/24/10 684,038 1,733,475
75,000 0.85% 3.5312 05/01/10 166,584 422,155
545,000 6.14% 2.3750 06/05/10 814,162 2,063,234
John T. Kurtzweil 60,000 0.68% 3.5312 11/01/09 133,267 337,724
200,000 2.25% 3.6250 02/24/10 456,025 1,155,650
50,000 0.56% 2.9688 05/01/10 93,369 236,613
James Murphy 60,000 0.68% 3.5312 11/01/09 133,267 337,724
200,000 2.25% 3.6250 02/24/10 456,025 1,155,650
50,000 0.56% 2.9688 05/01/10 93,369 236,613
Mark Re 120,000 1.35% 3.5312 11/01/09 266,535 675,448
200,000 2.25% 3.6250 02/24/10 456,025 1,155,650
50,000 0.56% 2.9688 05/01/10 93,369 236,613
Sherry McVicar 30,000 0.34% 3.5312 11/01/09 66,634 168,862
60,000 0.68% 3.6250 02/24/10 136,808 346,695
30,000 0.34% 2.9688 05/01/10 56,021 141,968
</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. Options have a term of ten years. Each option granted vests at
the rate of 25% per annum, other than as noted in footnote (2).
(2) 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. Additionally, all executive
officers of the Company are participants in the Management Severance
Plan. Under that plan in the event that a participant's employment with
the Company is terminated as a result of an Involuntary Termination
other than for Cause at any time within 18 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. The
fourth year of vesting of the Options granted on February 24, 2000 and
expiring on February 24, 2010, were accelerated to November 1,
11
<PAGE> 15
2000 when certain performance targets were met. The Options granted on
May 1, 2000 and expiring on May 1, 2010 vested in full on November 1,
2000.
(3) 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 Value of Unexercised
Unexercised Options at Fiscal In-the-Money Options at Fiscal
Shares Year End (#) Year End ($) (1)
Acquired on Value ------------------------------- -------------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
--------------------- ------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cyril J. Yansouni 0 -- 1,844,236 67,672 6,379,982 0
Alan S. Lowe 0 -- 304,774 1,264,200 1,065,260 9,119,245
John T. Kurtzweil 0 -- 98,000 365,053 357,625 2,593,946
James Murphy 0 -- 123,918 391,288 445,229 2,666,781
Mark Re 0 -- 62,500 507,500 218,750 3,340,316
Sherry McVicar 0 -- 133,561 154,069 457,615 1,049,067
</TABLE>
-----------
(1) Represents the difference between the closing price of the Company's
Common Stock on September 29, 2000 (the last trading day of fiscal 2000)
of $11.25 per share and the exercise price of in-the-money options
multiplied by the total number of shares.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") consists of Messrs. 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"), Amended and
Restated 1987 Stock Option Plan (the "1987 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.
12
<PAGE> 16
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 remained at $570,000 for
fiscal 2000. Mr. Lowe's salary was increased to $500,000 in recognition of his
promotion to Chief Executive Officer in June 2000.
Semi-Annual Variable Compensation. 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 Variable
Compensation 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 the
Chief Executive Officer are based solely on Company performance. Semi-annual
variable compensation eligibility for fiscal 2000 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 Chairman and
Former Chief Executive Officer and the Company's current Chief Executive
Officer, 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 2000. Based on the PAT goals set by the Committee for fiscal 1999, no
semi-annual awards were paid in fiscal 2000 to participating officers under this
program.
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 consists 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
13
<PAGE> 17
target for the Company is achieved. Upon attaining 100% of the annual PAT goal,
an executive may earn 0.5 times his or her 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 2000, 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 2000, the Company did not meet its Annual PAT target,
however, and no Year End On Plan Bonuses or Year-End Over Bonuses were paid in
fiscal 2000, with the exception of the guaranteed minimum bonuses as set forth
below.
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 guaranteed a minimum
bonus payout under existing bonus programs for certain executives and key
technical employees, provided these executives and employees were still in the
employment of the Company on September 26, 2000. Mr. Lowe, Mr. Murphy, Dr. Re,
Mr. Kurtzweil and Ms. McVicar were the only named executive officers of the
Company who participated in this program for fiscal 2000. For fiscal 2001 and
fiscal 2002, the Company has guaranteed a minimum bonus payouts 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
April 1, 2001 and October 1, 2001, respectively. Mr. Lowe, Mr. Kurtzweil, Mr.
Murphy, Dr. Re and Ms. McVicar are the only named executive officers of the
Company currently participating in this program for fiscal 2001 and fiscal 2002.
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 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,
responsibilities and position with the Company, as well as on the individual's
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 increases in 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 Chief Executive Officer -- Alan S. Lowe. In June 2000,
the Committee approved an executive retention arrangement for Mr. Lowe in
connection with his promotion to Chief Executive Officer. The retention
arrangement consists of (i) an annual salary of $500,000 (ii) a stock option
grant in June 2000 of 545,000 shares. In addition to the $250,000 minimum
guaranteed bonus which was paid on October 1, 2000, the Board has also
guaranteed Mr. Lowe minimum bonuses of $250,000 on April 1, 2001 and $250,000 on
October 1, 2001, under existing bonus programs provided he is an employee in
good standing on each of these dates.
14
<PAGE> 18
Other elements of executive compensation include participation in a
Company-wide medical and insurance benefits plan, additional life insurance and
medical 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. Lowe receives no other material compensation or benefits not
provided to all executive officers.
Compensation of the Former Chief Executive Officer -- Cyril Yansouni. 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 grant in 1998 of a stock option to
purchase 500,000 shares and (ii) a leadership bonus opportunity (the "Leadership
Bonus"). In the 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. Following Mr. Yansouni's
succession by Mr. Alan Lowe as Chief Executive Officer in June 2000, the options
granted to Mr. Yansouni in 1998 vested in full.
The Leadership Bonus was based upon Mr. Yansouni's continued status as
Chief Executive Officer of the Company during fiscal years 1998, 1999, 2000,
2001 and 2002. For fiscal 1998 and fiscal 1999, Mr. Yansouni was eligible to
receive his awards of $600,000 on September 27, 1998 and $1,000,000 on September
26, 1999. Payment of all or a portion the awards 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 to Mr. Yansouni, and in
December 1998, Mr. Yansouni elected to defer payment of the $1,000,000 award.
These awards were paid with interest in fiscal 2000 following Mr. Yansouni's
retirement from the position of Chief Executive Officer of the Company in June
2000.
Following Mr. Yansouni's retirement as Chief Executive Officer, the
Committee awarded Mr. Yansouni a further leadership award payment of $250,000,
conditioned on Mr. Yansouni remaining a full-time employee at the Company
through the end of fiscal year 2000, which, when added to his pro rata
leadership bonus of $750,000 earned for fiscal 2000 through June of 2000, in
accordance with Mr. Yansouni's retention agreement, brought his fiscal 2000
leadership bonus to $1,000,000.
Other elements of executive compensation include participation in a
Company-wide medical and insurance benefits plan, additional life insurance and
medical 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.
15
<PAGE> 19
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. In this
regard, the Company's 1995 Stock Option Plan is designed to meet the criteria
for "performance-based" compensation. 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. The Company's cash bonus plans are not
"performance-based" plans within the meaning of Section 162(m). The Committee
notes that in the event that Company and individual performance goals are
achieved under the Company's semi-annual variable compensation program and
annual bonus program, the cash compensation of certain officers may exceed the
$1,000,000 threshold. Even if such goals are not met, certain contractual bonus
obligations may cause compensation to exceed $1,000,000.
COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS
WILLIAM J. ALMON
MICHAEL L. HACKWORTH
MATTHEW J. O'ROURKE
ROBERT M. WHITE
CERTAIN TRANSACTIONS
As discussed previously under the Board Compensation Committee Report of
Executive Compensation, in addition to the minimum bonus of $250,000, which was
paid on October 1, 2000, the Board has guaranteed Mr. Alan S. Lowe, President
and Chief Executive Officer, minimum bonuses of $250,000 on April 1, 2001 and
$250,000 on October 1, 2001, under existing bonus programs provided he is an
employee in good standing on each of these dates.
As discussed previously under the Board Compensation Committee Report of
Executive Compensation, in addition to the minimum bonus of $150,000 paid on
October 1, 2000, the Board has guaranteed James Murphy, the Company's Senior
Vice President, Customer Business Units, a minimum bonus of $180,000 on April 1,
2001 and $180,000 on October 1, 2001, under existing bonus programs provided he
is an employee in good standing on each of these dates. In addition, on June 27,
2000, the company provided Mr. Murphy with a loan in the amount of $360,000.
Accrued interest at the annual rate of 6.42% 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 in
fiscal 2000 and the amount outstanding on December 29, 2000 was $360,000. Fifty
percent of this loan is due on October 2, 2001 and the remainder is due on
October 1, 2002. Mr. Murphy has been guaranteed an additional bonus of $180,000
payable on October 2, 2002, provided he is an employee in good standing on such
date.
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 principal amount of the loan was paid in full on September 30,
2000. On December 31, 1999, the Company paid Dr. Re a hire-on bonus of $75,000
pursuant to his retention arrangement with the
16
<PAGE> 20
Company. Additionally, under 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 bonus 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, 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.
In May 2000, as discussed previously under the Board Compensation Committee
Report of Executive Compensation, the Board guaranteed Dr. Re an additional
minimum bonus under existing bonus programs of $100,000 for fiscal 2000 which
was paid on October 1, 2000, and additional guaranteed bonuses of $180,000 on
April 1, 2001 and $180,000, on October 1, 2001, provided he is an employee in
good standing on such dates. Therefore, Dr. Re was guaranteed and paid total
bonuses of $375,000 for fiscal 2000. In addition, on June 27, 2000, the company
provided Dr. Re with a loan in the amount of $360,000. Accrued interest at the
annual rate of 6.42% on the outstanding balance of the loan is due annually;
however, the Company has agreed to waive such interest payments as they come
due. Fifty percent of this loan is due on October 2, 2001 and the remainder is
due on October 1, 2002. The maximum amount outstanding during fiscal 2000 on all
loans to Dr. Re from the Company was $560,000 and the amount outstanding on
December 29, 2000 was $360,000. Dr. Re has been guaranteed an additional bonus
of $180,000 payable on October 2, 2002, 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 granted John T. Kurtzweil, Senior Vice President
of Finance and Chief Financial Officer, an interest free loan in the amount of
$145,000 in October 1995, for the purchase of his principal residence in
Northern California. The Company agreed to pay Mr. Kurtzweil two bonuses of
$72,500 in each of January 2000 and 2001, provided he is an employee in good
standing on such dates, and a gross up for tax purposes of the bonuses. The loan
is repayable in two installments of $72,500 in each of February 2000 and 2001,
or in full 90 days following Mr. Kurtzweil's termination of employment with the
Company. In May 2000, the Company guaranteed Mr. Kurtzweil, as discussed
previously under the Board Compensation Committee Report of Executive
Compensation, minimum bonuses of $150,000 on October 1, 2000, $180,000 on April
1, 2001 and $180,000, on October 1, 2001, under existing bonus programs,
provided he is an employee in good standing on such dates. In addition, on June
27, 2000, the Company provided Mr. Kurtzweil with a loan in the amount of
$360,000. Accrued interest at the annual rate of 6.42% on the outstanding
balance of the loan is due annually; however, the Company has agreed to waive
such interest payments as they come due. Fifty percent of this loan is due on
October 2, 2001 and the remainder is due on October 1, 2002. The maximum amount
outstanding during fiscal 2000 under all loans to Mr. Kurtzweil from the Company
was $505,000 and the amount outstanding as of December 29, 2000 on these loans
was $432,500. Mr. Kurtzweil has been guaranteed an additional bonus of $180,000
payable on October 2, 2002, provided he is an employee in good standing on such
date.
As discussed previously under the Board Compensation Committee Report of
Executive Compensation, in May 2000 the Board guaranteed Sherry McVicar, Vice
President of Human Resources, a minimum bonus for fiscal 2000 of $75,000 on
October 1, 2000, which was paid and additional minimum bonuses of $75,000 on
April 1, 2001 and $75,000 on October 1, 2001, under existing bonus programs
provided she is an employee in good standing on these dates. In addition, on
June 27, 2000, the Company provided Ms. McVicar with a loan in the amount of
$150,000. Accrued interest at the annual rate of 6.42% 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 on this
loan in fiscal 2000 and the amount outstanding as of December 29, 2000 was
$150,000. Fifty percent of this loan is due on October 2, 2001 and the remainder
is due on October 1, 2002. Ms. McVicar has been guaranteed an additional bonus
of $75,000 payable on October 2, 2002, provided she is an employee in good
standing on such date.
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
17
<PAGE> 21
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 18 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 18 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.
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 in March 2002, 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 all executive officers a lump sum cash bonus equal to
the then outstanding balance on their respective loans with the Company
(described above) 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 2000, all Section 16 filing requirements were met by its reporting
persons.
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 Chase Hambrecht and Quist Computer Hardware Sector Index for the period from
September 30, 1995 through September 29, 2000. 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 Chase
18
<PAGE> 22
Hambrecht and Quist Computer Hardware Sector Index. 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.
[PERFORMANCE GRAPH]
COMPARISON OF TOTAL CUMULATIVE STOCKHOLDER RETURN
<TABLE>
09/29/95 09/30/96 09/30/97 09/30/98 09/24/99 09/29/00
<S> <C> <C> <C> <C> <C> <C>
CHASE H&Q COMPUTER HARDWARE INDEX 100.00 120.98 233.88 261.07 449.93 759.81
S&P 500 COMPOSITE INDEX 100.00 117.61 162.09 174.02 218.57 245.81
READ-RITE CORPORATION 100.00 43.15 67.12 21.40 13.01 30.82
</TABLE>
19
<PAGE> 23
PROPOSAL TWO:
APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION
The Company's Certificate of Incorporation (the "Certificate") presently
provides that the Company is authorized to issue two classes of stock consisting
of 160,000,000 shares of Common Stock, $0.0001 par value per share, and
4,000,000 shares of Preferred Stock, $0.0001 par value per share. In December
2000, the Board of Directors authorized an amendment to the Certificate, subject
to stockholder approval, to increase the authorized number of shares of Common
Stock to 200,000,000 shares. The stockholders are being asked to approve such
amendment to the Certificate. The proposed amendment would give the Board the
authority to issue additional shares of Common Stock without requiring future
stockholder approval of such issuances except as may be required by applicable
law.
The Company currently has 160,000,000 authorized shares of Common Stock.
As of December 29, 2000: 117,927,523 shares of Common Stock were issued and
outstanding; 12,556,582 shares were reserved for future grant or for issuance
upon the exercise of outstanding options under the Company's Stock Option Plans;
402,365 shares were reserved for issuance under the Company's 401(k) Plan; and
903,959 shares were reserved for future sale under the Company's Employee Stock
Purchase Plan.
The principal purpose of the proposed amendment to the Certificate is to
authorize additional shares of Common Stock which will be available in the event
the Board of Directors determines that it is necessary or appropriate to raise
additional capital through the sale of securities, to grant options or other
stock incentives to the Company's employees, to acquire another company or its
business or assets, to seek to establish a strategic relationship with a
corporate partner or to permit a future stock dividend or stock split. The Board
of Directors has no present agreement or arrangement to issue any such shares.
If the amendment is approved by the stockholders, the Board of Directors does
not intend to solicit further stockholder approval prior to the issuance of any
additional shares of Common Stock, except as may be required by applicable law.
The increase in the authorized number of shares of Common Stock and the
subsequent issuance of such shares could have the effect of delaying or
preventing a change in control of the Company without further action by the
stockholders. Shares of authorized and unissued Common Stock could (within the
limits imposed by applicable law) be issued in one or more transactions, which
would make a change in control of the Company more difficult, and therefore less
likely. Any such issuance of additional stock could have the effect of diluting
the earnings per share and book value per share of outstanding shares of Common
Stock, and such additional shares could be used to dilute the stock ownership or
voting rights of persons seeking to obtain control of the Company. The holders
of Common Stock of the Company have no preemptive rights.
VOTE REQUIRED; RECOMMENDATION OF THE BOARD OF DIRECTORS
The approval of the amendment to the Certificate requires the
affirmative vote of a majority of the outstanding shares of Common Stock of the
Company as of the Record Date. Abstentions and broker non-votes will have the
same effect as a vote against the proposal.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE AMENDMENT TO THE
CERTIFICATE AND RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THIS PROPOSAL.
20
<PAGE> 24
PROPOSAL THREE:
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. In October
1997, the Board of Directors amended the 1995 Plan, and in February 1998 the
stockholders approved the amendment, to increase the shares reserved for
issuance thereunder by 2,250,000 shares. In December 2000, the Board of
Directors amended the 1995 Plan, subject to stockholder approval, to increase
the shares reserved for issuance thereunder by 3,000,000 shares. The
stockholders are being asked to approve this share increase at the Annual
Meeting. The Board believes that increasing the number of shares available under
the 1995 Plan will enable the Company to continue to attract, retain and
motivate employees.
SUMMARY OF THE 1995 PLAN
The principal features of the 1995 Plan are described below:
General. The 1995 Plan authorizes the Board of Directors (the "Board"),
or a committee that 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. The Company's current Bylaws provide that all
option grants under the Company's stock option plans, including the 1995 Plan,
must be equal to or in excess of the fair market value of the Company's common
stock on the date of the grant, and the Company shall not, without the consent
of the majority of the Company's stockholders decrease the exercise price of any
option grants made under the Company's stock option plans, including the 1995
Plan.
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. Prior to this amendment and subject to
other provisions of the 1995 Plan, the maximum aggregate number of shares of
Common Stock that may be optioned and sold under the Stock Plan, is 5,250,000
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 that 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 that 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
21
<PAGE> 25
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. As of December 29, 2000, there were 11,768 employees eligible to
receive options under the 1995 Plan.
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 500,000 shares of Common Stock. In connection with an employee's
initial employment, or upon an employee's promotion, the employee may be granted
options or stock purchase rights to purchase up to an additional 500,000 shares
of Common Stock.
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, the exercise price must not be less than 100% 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.
(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. The term of each Option shall be stated
in the Option Agreement; provided, however, that the term shall be no
more than ten (10) years from the date of grant thereof. In the case of
an Incentive Stock Option granted to an Optionee who, at the time the
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 Option shall be five (5) years from the
date of grant or such shorter term as may be provided in the Option
Agreement.
(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
22
<PAGE> 26
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. The 1995 Plan
also provides for an extension of this exercise period, up to three
years, based on a formula using years of service to the Company and the
optionees age upon retirement.
(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
that are then vested, or that 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.
(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
that 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
23
<PAGE> 27
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.
Incentive Stock Options. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise is an adjustment item for alternative
minimum tax purposes and may subject the optionee to the alternative minimum
tax. Upon a disposition of the shares more than two years after grant of the
option and one year after the exercise of the option, any gain or loss will be
treated as long-term capital gain or loss. Net capital gains on shares held more
than twelve (12) months may be taxed at a maximum federal rate of 20%. Capital
losses are allowed in full against capital gains and up to $3,000 against other
income. If these holding periods are not satisfied, the optionee must recognize
ordinary income at the time of the disposition equal to the difference between
the exercise price and the lower of either: (i) the fair market value at the
date of the option exercise or (ii) the sale price of the shares. Any gain or
loss recognized on such a premature disposition of shares in excess of the
amount treated as ordinary income is treated as long-term or short-term capital
gain or loss, depending upon the holding period. A different rule for measuring
ordinary income upon such a premature disposition may apply if the optionee is
also an officer, director, or 10% shareholder of the Company. Unless limited by
Section 162(m) of the Code, the Company will be entitled to a deduction in the
same amount as the ordinary income recognized by the optionee.
Nonstatutory Stock Options. All options that do not qualify as incentive
stock options under Section 422 of the Code are referred to as nonstatutory
options. An optionee does not recognize any taxable income at the time that 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 exercise 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. Unless limited by Section 162(m) of the Code, the Company will be
entitled to a deduction in the same amount as ordinary income recognized by the
optionee. Upon a disposition of such shares by the optionee, any difference
between the sales price and the optionee's exercise 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. Net capital
gains on shares held more than twelve (12) months may be taxed at a maximum
federal rate of 20%. Capital losses are allowed in full against capital gains
and up to $3,000 against other income.
24
<PAGE> 28
Stock Purchase Rights. Stock purchase rights will generally be taxed in
the same manner as nonstatutory stock options. However, restricted stock is
subject to a "substantial risk or forfeiture" within the meaning of Section 83
of the Code because the Company may repurchase the stock when the purchaser
ceases to provide services to the Company. As a result of this substantial risk
of forfeiture, the purchaser will not recognize ordinary income at the time of
the purchase. Instead, the purchaser will recognize ordinary income on the dates
when the stock is not longer subject to a substantial risk of forfeiture (i.e.,
when the Company's right of repurchase lapses). The purchaser's ordinary income
is measured as the difference between the purchase price and the fair market
value of the stock on the date that the stock is no longer subject to the
Company's right of repurchase.
The purchaser may accelerate to the date of purchase his or her
recognition of ordinary income, of any, and begin his or her capital gains
holding period by timely filing (i.e., within thirty (30) days of purchase), an
election pursuant to Section 83(b) of the Code. In such event, the ordinary
income recognized, if any, is measured as the difference between the purchase
price and the fair market value of the stock on the date of purchase, and the
capital gain holding period commences on such date of purchase. The ordinary
income recognized by a purchaser who is an employee will be subject to tax
withholding by the Company. Different rules may apply if the purchaser is also
an officer, director, or 10% shareholder of the Company.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON OPTIONEES AND THE COMPANY WITH RESPECT TO THE GRANT AND EXERCISE OF OPTIONS
AND STOCK PURCHASE RIGHTS UNDER THE 1995 PLAN. IT 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 TAX CONSEQUENCES OF THE
OPTIONEE'S DEATH OR PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE
OR FOREIGN COUNTRY IN WHICH THE OPTIONEE MAY RESIDE.
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 SUBJECT OPTION SHARES
NAME TO OPTIONS GRANTED GRANTED (1)
---- ------------------- -----------
<S> <C> <C>
Cyril J. Yansouni 0 0
Alan S. Lowe 1,000,000 $2,929,211
John T. Kurtzweil 310,000 $1,085,312
James Murphy 310,000 $1,085,312
Mark Re 370,000 $1,297,184
Sherry McVicar 120,000 $ 412,500
All executive officers as a group (5 persons) 2,110,000 $6,809,519
All non-employee directors as a group (4 persons) 16,000 $ 58,000
All employees other than executive officers as a group 1,954,120 $6,447,903
</TABLE>
25
<PAGE> 29
(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 FOUR:
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 2001 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 2001 AND RECOMMENDS THAT THE
STOCKHOLDERS VOTE "FOR" THIS PROPOSAL.
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. See "INFORMATION CONCERNING
SOLICITATION AND VOTING -- Deadline for Receipt of Stockholder Proposals."
THE BOARD OF DIRECTORS
Fremont, California
January 24, 2001
26
<PAGE> 30
APPENDIX A
READ-RITE CORPORATION
AUDIT COMMITTEE CHARTER
Read-Rite Corporations Board of Directors (the "Board") has established
an Audit Committee ("Committee") of the Board to assist the Board in fulfilling
its responsibilities regarding the integrity and adequacy of the Company's
financial information, control systems and reporting practices. This charter
governs the Committee and shall be reviewed and reassessed at least annually,
and approval by the Board for any significant change made to the charter shall
be obtained. The Committee will meet at such times and places as it determines
appropriate and no less than four times per fiscal year. Activities and actions
of the Committee shall be reported to the Board.
I. Organization & Membership
The Committee shall be appointed by the Board and shall be comprised of at least
three directors, each of whom are independent of management and the Company.
Members of the Committee shall be considered independent if they have no
relationship that may interfere with the exercise of their independence from
management and the Company and is further defined by Rule 4200(a)(15) of the
National Association of Securities Dealers, Inc.'s ("NASD") Rules. All Committee
members shall be financially literate, or shall become financially literate
within a reasonable period of time after appointment to the Committee, and at
least one member shall have accounting or related financial management expertise
as provided by the NASD Rules. The Committee will then choose one member to
chair the Committee and communicate this selection to the Board whenever a
change is made.
II. Objective of the Committee
The objective of the Committee shall be to provide assistance to the Board in
fulfilling their oversight responsibility to the shareholders, potential
shareholders, investment community, employees of the Company and others relying
on the Company's financial statements, financial reporting process, systems of
internal accounting and financial controls, internal audit function, annual
independent audit of the Company's financial statements, and the legal
compliance and ethics programs as established by management and the Board. It is
also an objective of the Committee to maintain free and open communication
between the Committee and the independent auditors, internal auditors and
management of the Company. In performing its objectives, the Committee is
empowered by the Board to investigate any matter brought to its attention with
the full access to all financial and non-financial books and records,
facilities, and personnel of the Company along with the power to retain outside
counsel, auditors or other experts for this purpose.
III. Responsibilities and Processes
A. The primary responsibility of the Committee is to oversee the Company's
financial reporting process on behalf of the Board and report the results of
their activities to the Board. Management is responsible for preparing the
Company's financial statements, and the independent auditors are responsible for
auditing those financial statements on an annual basis. The Committee in
carrying out its responsibilities believes its policies and procedures should
remain flexible, in order to best react to changing conditions and
circumstances. The Committee should take the appropriate actions to set the
overall corporate "tone" for quality financial reporting, sound business risk
practices, and ethical behavior.
B. The following shall be the principal recurring processes of the Committee in
carrying out its oversight responsibilities. The processes are set forth as a
guide with the understanding that the Committee may supplement them as
appropriate.
27
<PAGE> 31
1. The Committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the Board and the Committee, as representatives of the
Company's shareholders. The Committee shall have the ultimate authority
and responsibility to evaluate and, where appropriate, replace the
independent auditors. The Committee shall discuss with the auditors
their independence from management and the Company with the matters
included in the written disclosures required by the Independence
Standards Board. Annually, the Committee shall review and recommend to
the Board the selection of the Company's independent auditors, subject
to shareholders' approval.
2. The Committee shall discuss with the internal auditors and the
independent auditors the overall scope and plans for their respective
audits including the adequacy of their staffing and their compensation.
Also, the Committee shall discuss with management, the internal
auditors, and the independent auditors the adequacy and effectiveness of
the accounting and financial controls, including the Company's system to
monitor and manage business risk, and legal and ethical compliance
programs. Further, the Committee shall meet with the internal auditors
and the independent auditors, with and without management present, to
discuss the results of their examinations.
3. The Committee shall review the interim financial statements with
management and the independent auditors, who will perform a SAS 71
review, prior to the filing of the Company's Quarterly Report on Form
10-Q. Also, the Committee shall discuss the results of the quarterly
review and any other matters required to be communicated to the
Committee by the independent auditors under generally accepted auditing
standards. The chair of the Committee may represent the entire Committee
for the purposes of this review.
4. The Committee shall review with management and the independent auditors
the financial statements to be included in the Company's Annual Report
on Form 10-K (or the annual report to shareholders if distributed prior
to the filing of Form 10-K), including their judgment about the quality,
not just acceptability, of accounting principles, the reasonableness of
significant judgments, and the clarity of the disclosures in the
financial statements. Also, the Committee shall discuss the results of
the annual audit and any other matters required to be communicated to
the Committee by the independent auditors under generally accepted
auditing standards.
28
<PAGE> 32
READ-RITE CORPORATION
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints ALAN S. LOWE, ANDREW C. HOLCOMB and MARK A.
SOKOLOWSKI, and each of them, proxies, with full power of substitution, to vote
all shares of Common Stock of Read-Rite Corporation, a Delaware corporation,
that 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 20, 2001, at 10:00 a.m., local time, or any adjournment thereof. THE
PROXIES WILL VOTE THE SHARES AS SPECIFIED BELOW OR, IF NO SPECIFICATION IS MADE,
FOR THE ELECTION OF DIRECTORS, FOR THE AMENDMENT OF THE COMPANY'S CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK, FOR
THE AMENDMENT TO THE COMPANY'S 1995 STOCK PLAN TO INCREASE THE NUMBER OF SHARES
RESERVED FOR ISSUANCE, AND FOR THE APPOINTMENT OF ERNST & YOUNG LLP AS
INDEPENDENT AUDITORS. IN EITHER CASE, THE PROXIES WILL VOTE THE SHARES IN
ACCORDANCE WITH THEIR DISCRETION ON SUCH OTHER MATTERS THAT MAY PROPERLY COME
BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
The directors recommend a FOR vote on each item.
(Continued and to be signed on reverse side)
--------------------------------------------------------------------------------
<PAGE> 33
<TABLE>
<S> <C> <C> <C> <C>
1. ELECTION OF DIRECTORS: FOR WITHHOLD
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, All nominees AUTHORITY
STRIKE A LINE THROUGH THAT NOMINEE'S NAME BELOW.) listed (except to vote for all
as withheld) nominees listed
Nominees: Cyril J. Yansouni William J. Almon [ ] [ ]
Matthew J. O'Rourke Robert M. White
Michael L. Hackworth Alan S. Lowe
FOR AGAINST ABSTAIN
2. Proposal to amend the Company's Certificate of Incorporation to increase [ ] [ ] [ ]
the number of authorized shares of Common Stock by 40,000,000 shares to
an aggregate of 200,000,000 shares.
FOR AGAINST ABSTAIN
3. Proposal to approve an amendment to the Company's 1995 Stock Plan to [ ] [ ] [ ]
increase the number of shares reserved for issuance by 3,000,000 shares.
FOR AGAINST ABSTAIN
4. Proposal to ratify the appointment of Ernst & Young LLP as independent [ ] [ ] [ ]
auditors for the 2001 fiscal year.
YES NO
I plan to attend the meeting: [ ] [ ]
</TABLE>
Signature(s) Dated: , 2001
----------------------------------------- -------------
(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 or other entity, please give your
title. When shares are in the names of more than one person, each should sign
this proxy.)
