<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ____ to ____
----------
Commission File Number 0-20095
STAC SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3825313
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12636 High Bluff Drive, San Diego, California 92130-2093
(Address of principal executive office, including zip code)
(619) 794-4300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---- ----
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of March 31, 1999.
Common Stock, par value $0.001 per share 23,730,544 shares
<PAGE>
STAC SOFTWARE, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
Condensed Consolidated Balance Sheets
as of March 31, 1999 and
September 30, 1998 3
Condensed Consolidated Statements of
Operations for the three and six months
ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash
Flows for the three and six months ended
March 31, 1999 and 1998 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
Item 3. Market Risk 15
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a vote of Securities Holders 15
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
2
<PAGE>
<TABLE>
STAC SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<CAPTION>
ASSETS
March 31, September 30,
1999 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 14,955 $ 11,573
Marketable securities 14,423 12,859
Accounts receivable 1,707 777
Inventories 257 197
Income taxes receivable 1,677 1,314
Other current assets 502 317
------------- -------------
Total current assets 33,521 27,037
Property and equipment, net 2,132 3,329
Net assets of discontinued operations - 12,995
Other assets 474 505
------------- -------------
$ 36,127 $ 43,866
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,181 $ 1,458
Accrued expenses and other
current liabilities 2,914 3,022
------------- -------------
Total current liabilities 4,095 4,480
Other liabilities 157 173
------------- -------------
4,252 4,653
------------- -------------
Stockholders' equity
Common stock at par value 31 31
Additional paid in capital 76,403 75,143
Treasury stock (41,347) (41,347)
Cumulative translation adjustment (27) (29)
Retained earnings (3,185) 5,415
------------- -------------
Total stockholders' equity 31,875 39,213
------------- -------------
$ 36,127 $ 43,866
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE>
<TABLE>
STAC SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
---------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Software and service $ 3,370 $ 3,803 $ 6,376 $ 7,508
Royalties - 1,111 - 5,111
----------- ----------- ----------- -----------
Net revenues 3,370 4,914 6,376 12,619
Cost of revenues 205 213 397 460
----------- ----------- ----------- -----------
Gross margin 3,165 4,701 5,979 12,159
----------- ----------- ----------- -----------
Operating expenses:
Research and development 1,388 1,814 3,373 3,678
Sales and marketing 1,925 2,470 4,336 5,241
General and administrative 754 800 2,155 2,238
Restructuring - - 822 350
----------- ----------- ----------- -----------
Total operating expenses 4,067 5,084 10,686 11,507
----------- ----------- ----------- -----------
Operating income (loss) (902) (383) (4,707) 652
Interest income 420 643 860 1,354
----------- ----------- ----------- -----------
Income (loss) before income taxes (482) 260 (3,847) 2,006
Provision (benefit) for income taxes (294) 121 (1,733) 1,073
----------- ----------- ----------- -----------
Income (loss) from continuing operations (188) 139 (2,114) 933
Discontinued operations:
Income from discontinued operations,
net of taxes of $550 in 1999 and
$425 and $1,047 in the three and
six months ended 3/31/98 respectively - 625 885 1,559
----------- ----------- ----------- -----------
Net income (loss) $ (188) $ 764 $ (1,229) $ 2,492
=========== =========== =========== ===========
Earnings per common share, basic
Income (loss) from continuing operations $ (0.01) $ 0.01 $ (0.09) $ 0.04
Income from discontinued operations 0.00 0.02 0.04 0.06
Net income (loss) (0.01) 0.03 (0.05) 0.09
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Earnings per common share, diluted
Income (loss) from continuing operations $ (0.01) $ 0.01 $ (0.09) $ 0.03
Income from discontinued operations 0.00 0.02 0.04 0.06
Net income (loss) (0.01) 0.03 (0.05) 0.09
Weighted average common shares
outstanding, basic 23,705 25,699 23,586 26,264
Weighted average common shares
outstanding, diluted 23,705 26,294 23,586 27,023
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE>
<TABLE>
STAC SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
<CAPTION>
Six Months Ended
March 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,229) $ 2,492
Adjustments required to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 933 1,038
Loss on disposals of property and equipment 554 -
Provision for deferred income taxes - 555
Changes in assets and liabilities:
Accounts receivable (930) 493
Inventories (60) (54)
Other assets (174) (108)
Accounts payable (277) 479
Income taxes receivable/payable (363) (791)
Accrued expenses and other current liabilities (108) (1,118)
----------- -----------
Net cash provided (used) by operating activities (1,654) 2,986
----------- -----------
Cash flows from investing activities:
Purchases of marketable securities (19,564) (23,436)
Sales of marketable securities 18,000 40,556
Acquisitions of treasury stock - (10,682)
Purchases of property and equipment (270) (842)
----------- -----------
Net cash provided (used) by investing activities (1,834) 5,596
----------- -----------
Cash flows from financing activities:
Issuance of common stock 1,105 759
Tax benefit from exercise of stock options 139 157
----------- -----------
Net cash provided by financing activities 1,244 916
----------- -----------
Effect of exchange rates on cash 2 45
----------- -----------
Cash received from repayment of note 5,000 -
----------- -----------
Net cash provided by discontinued operations 624 779
----------- -----------
Net increase in cash 3,382 10,322
Cash and cash equivalents at beginning of period 11,573 18,609
----------- -----------
Cash and cash equivalents at end of period $ 14,955 $ 28,931
=========== ===========
Supplemental non-cash activities:
Stock dividend $ 7,371 $ -
=========== ===========
Conversion of deferred compensation to equity
upon exercise of common stock options $ 16 $ -
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
6
<PAGE>
STAC SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Basis of Presentation:
----------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
The accompanying condensed consolidated unaudited financial statements of Stac
Software, Inc. ("Stac" or the "Company") have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission regarding
interim financial reporting. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements and should be read in conjunction with the
Consolidated Financial Statements and notes thereto included in the Company's
annual report for the year ended September 30, 1998. In the opinion of
management, the accompanying condensed consolidated unaudited financial
statements contain all adjustments, consisting of only normal recurring items,
necessary for a fair presentation of the Company's financial position as of
March 31, 1999 and its results of operations for the three and six month periods
ended March 31, 1999 and 1998, respectively. These condensed consolidated
unaudited financial statements are not necessarily indicative of the results to
be expected for the entire year.
NOTE 2. Earnings (Loss) Per Share: (in thousands, except per share amounts;
unaudited)
-------------------------------------------------------------------
Basic EPS is calculated by dividing net income by the weighted average number of
common shares outstanding for the period, without consideration for the dilutive
impact of potential common shares ("dilutive securities") that were outstanding
during the period. Diluted EPS is computed by dividing net income by the
weighted average number of common shares outstanding for the period, increased
by dilutive securities that were outstanding during the period unless the effect
of these securities is anti-dilutive. Net income remains the same for the
calculations of basic EPS and diluted EPS. A reconciliation of the numerators
and denominators of the basic and diluted EPS calculations for the three and six
months ended March 31, 1999 and 1998 is presented below.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, 1999 March 31, 1999
------------------ ----------------
Per-Share Per-Share
Net Loss Shares Amount Net Loss Shares Amount
-------- ------- --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Loss $ (188) $(1,229)
Basic EPS 23,705 ($0.01) 23,586 $(0.05)
Dilutive Securities - -
------- -------
Diluted EPS 23,705 ($0.01) 23,586 $(0.05)
======= =======
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, 1998 March 31, 1998
------------------ ----------------
Per-Share Per-Share
Net Income Shares Amount Net Income Shares Amount
---------- ------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 764 $ 2,492
Basic EPS 25,699 $ 0.03 26,264 $ 0.09
Dilutive Securities 595 759
------- -------
Diluted EPS 26,294 $ 0.03 27,023 $ 0.09
======= =======
</TABLE>
NOTE 3. Inventories (in thousands, March 31, 1999 unaudited):
-----------
March 31, September 30,
1999 1998
---------- -------------
Raw materials $ 115 $ 132
Finished goods 142 65
--------- ---------
$ 257 $ 197
========= =========
NOTE 4. Stock Option Plan Summary (unaudited)
------------------------------------
On March 11, 1999 the Company's stockholders voted to increase the number of
shares subject to outstanding options under the Company's 1992 Stock Option Plan
by 6,935,702 shares in order to adjust for the diminution in the value of
options outstanding as a result of the spin-off of the Company's Hi/fn
subsidiary. The following is a summary of stock options outstanding at March 31,
1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------------
WEIGHTED-
AVERAGE WEIGHTED-
REMAINING AVERAGE
CONTRACTUAL EXERCISE
NUMBER LIFE (YEARS) PRICE
---------- ------------ ---------
<S> <C> <C> <C>
Price Range
$0.06 - $0.83.............. 1,958,318 5.88 $0.65
$0.84 - $0.84.............. 3,360,058 7.34 $0.84
$0.88 - $1.35.............. 2,138,932 8.49 $1.04
$1.39 - $2.40.............. 1,556,725 7.59 $1.71
----------
$0.06 - $2.40.............. 9,014,033 7.34 $1.00
==========
</TABLE>
The following is a summary of stock options exercisable at March 31, 1999:
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
----------------------------
WEIGHTED-
AVERAGE
EXERCISE
NUMBER PRICE
---------- ---------
<S> <C> <C>
Price Range
$0.06 - $0.83...................... 1,452,844 $0.63
$0.84 - $0.84...................... 1,929,707 $0.84
$0.88 - $1.35...................... 568,161 $1.09
$1.39 - $2.40...................... 1,318,953 $1.75
----------
$0.06 - $2.40...................... 5,269,665 $1.04
==========
</TABLE>
8
<PAGE>
NOTE 5. Subsequent Event
----------------
On May 3, 1999, the Company announced that the Board of Directors had approved a
one-for-four reverse stock split that would be effective with the close of
business May 7, 1999. The Company's stockholders of record as of the close of
business May 7, 1999 received one share of the new stock for each four shares
owned as of the date of record. The reverse stock split had previously been
approved by the Company's stockholders at the Company's Annual Meeting of
Stockholders held on March 11, 1999. As a result of the reverse stock split, the
number of shares outstanding and the number of options outstanding,
exerciseable, and available for future grant, were reduced by a factor of four.
Option exercise prices and historical earnings per share amounts were increased
by a factor of four. These changes are not currently reflected in the
information presented by this 10-Q.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risk and
uncertainties. Stac Software, Inc.'s ("Stac" or "the Company") future results
could differ materially from those discussed here. Factors that could cause or
contribute to such differences include but are not limited to; fluctuations in
the Company's operating results, continued new product introductions by the
Company, market acceptance of the Company's new product introductions, new
product introductions by competitors, OEM and distributor inventory levels,
technological changes in the personal computer and communications industries,
uncertainties regarding intellectual property rights and the other factors
referred to herein (including, but not limited to, the factors discussed below
under "Revenues," "Quarterly Trends and Channel Inventories" "Seasonality,"
"Operating Systems," "Competition and Risks Associated with New Product
Introductions," and "Stock Price Volatility"), in the Company's Form 10-K for
the year ended September 30, 1998 and in the Company's Form 10-Q for the quarter
ended December 31, 1998.
OVERVIEW
Stac's storage systems recovery software business is comprised of its
Replica Tape and Replica Network Data Manager ("NDM") product lines. Replica
Tape and Replica NDM are high-performance, easy-to-deploy, distributed business
systems recovery software products, which enable fast PC server, desktop and
notebook replication and disaster recovery. Replica Tape for NetWare was
introduced in February 1996 and Replica for NT was made available in April 1997.
Replica NDM was introduced to selected customer sites in April 1998 and became
commercially available in January 1999. The Company intends to focus on the
development of relationships with key OEMs in the storage management software
sector and with system integration partners, and is investing the majority of
its product development, marketing and sales resources in the Replica product
line and extensions to Replica.
The Company also develops and markets ReachOut Enterprise ("ReachOut")
remote communications software, a remote access software suite which allows
administrators and end users to access a PC using another PC through a network,
the Internet, ISDN lines or modems. ReachOut works with Microsoft Corporation's
("Microsoft") Windows NT, Windows 98/95, Windows 3.x and DOS operating systems.
On December 16, 1998, the Company distributed a special dividend of its
stock in its Hi/fn, Inc. ("Hi/fn") subsidiary to its stockholders. Hi/fn was a
majority owned subsidiary of the Company and is engaged in silicon and software
implementations of data compression and data encryption standards for the
network communications and storage equipment markets. As a result of the
spin-off, Hi/fn has been accounted for as a discontinued operation in the
Company's financial statements. Hi/fn is currently traded on Nasdaq under the
symbol HIFN. Please refer to the December 8, 1998 General Form for Registration
of Securities on Form 10 filed by Hi/fn with the SEC for a complete discussion
of Hi/fn and the spin-off transaction.
Stac received royalties from Microsoft and IBM Corporation ("IBM") for
licenses of its data compression technology from June 1994 through January 1998
after which the royalty agreements became paid in full. The Company does not
expect further revenues from these agreements.
9
<PAGE>
The following discussion should be read in conjunction with the
consolidated financial statements included elsewhere within this quarterly
report. Fluctuations in annual and quarterly results may occur as a result of
factors affecting demand for the Company's products such as the timing of the
Company's and competitors' new product introductions and upgrades. Due to such
fluctuations, historical results and percentage relationships are not
necessarily indicative of the operating results for any future period. In
addition, the Company believes that certain individuals and entities that
traditionally buy software from both the Company and others may defer purchases
of software in the third and fourth quarters of the 1999 calendar year due to
concern over the Year 2000 issue, which could impact the Company's financial
results.
RESULTS OF OPERATIONS
The following table sets forth the Company's results of operations and
the percentage relationship of certain items to revenues during the periods
shown:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues 100% 100% 100% 100%
Cost of revenues 6 4 6 4
---------- ---------- --------- ----------
Gross margin 94 96 94 96
---------- ---------- --------- ----------
Research and development 41 37 53 29
Sales and marketing 57 50 68 42
General and administrative 23 17 34 17
Restructuring - - 13 3
---------- ---------- --------- ----------
Total operating expenses 121 104 168 91
---------- ---------- --------- ----------
Operating income (loss) (27) (8) (74) 5
Interest income 12 13 14 11
---------- ---------- --------- ----------
Income (loss) before income taxes (15) 5 (60) 16
Provision for (benefit from) income taxes (9) 2 (27) 8
---------- ---------- --------- ----------
Net income (loss) from continuing operations (6) 3 (33) 8
Net income from discontinued operations (-) 13 14 12
---------- ---------- --------- ----------
Net income (loss) (6)% 16% (19)% 20%
========== ========== ========= ==========
</TABLE>
10
<PAGE>
REVENUES. Revenues decreased 31% to $3.4 million for the quarter ended
March 31, 1999 from $4.9 million in the quarter ended March 31, 1998, and 49% to
$6.4 million for the six months ended March 31, 1999 from $12.6 million for the
six months ended March 31, 1998. The decrease in revenues from the comparable
periods of the prior fiscal year was primarily due to the completion of royalty
payments from IBM and Microsoft in January 1998, and due to declining sales of
REACHOUT.
Software sales, which are comprised of domestic and international sales
through distributors, retailers, solution providers, OEMs and direct channels,
accounted for $3.4 million in the March 1999 quarter, compared to $3.8 million
in the comparable quarter of the prior fiscal year, a decrease of 11%. Software
sales were $6.4 million in the six months ended March 31, 1999, a 15% decrease
from $7.5 million in the six months ended March 31, 1998. The decrease in
revenues for both the quarter and six month periods, is due to declining sales
of REACHOUT, which has reached a mature phase of the product life cycle, and is
partially offset by increasing sales of the Company's REPLICA product family.
International sales, which are included in the above software sales,
are comprised primarily of software products and were $1.8 million, or 53% of
revenues for the quarter ended March 31, 1999 compared to $1.3 million, or 26%
of revenues in the quarter ended March 31, 1998. International sales were $2.9
million or 45% of revenues in the six months ended March 31, 1999 and $2.6
million, or 21% of revenues for the comparable period of the prior fiscal year.
The increase in international revenues as a percentage of revenues in the
quarter and six month periods ended March 31, 1999, over the comparable periods
in the prior fiscal year was primarily due to the decrease in domestic license
revenues as a result of the completion of the Company's royalty agreements with
Microsoft and IBM, and stronger penetration in the European marketplace with its
current product offerings. Stac markets and sells to its European accounts from
its office in the United Kingdom and markets and sells to the other principal
international markets through sales personnel in its San Diego office and
through relationships with distributors and resellers abroad.
There were no revenues from licenses of Stac's data compression
technology to operating systems vendors in the quarter or six months ended March
31, 1999, compared to $1.1 million, or 23% of revenues in the March 31, 1998
quarter and $5.1 million, or 41% of revenues for the six months ended March 31,
1998, due to the completion of the underlying license agreements with IBM and
Microsoft. The Company expects no further revenues from these agreements.
COST OF REVENUES AND GROSS MARGIN. Cost of revenues consists primarily
of the user manuals, packaging, media and assembly associated with the Company's
software products. Gross margins decreased to 94% for the quarter and six months
ended March 31, 1999 from 96% in the quarter and six months ended March 31, 1998
primarily due to the decrease in IBM and Microsoft royalty revenues which
carried 100% gross margins.
RESEARCH AND DEVELOPMENT. The research and development costs consist
primarily of salaries, employee benefits, overhead, outside contractors and
non-recurring engineering fees. Such expenses were $1.4 million and $1.8 million
for the quarters ended March 31, 1999 and March 31, 1998 respectively, and $3.4
million and $3.7 million for the six months ended March 31, 1999 and March 31,
1998, respectively. The decrease in research and development costs from the
prior year's quarter and six month period is primarily due to the timing of
localization costs associated with new product versions. The Company expects to
continue to invest in the development of products for which it believes there is
a need in the market; however, there can be no assurance that research and
development programs invested in by the Company will be successful or that
products resulting from such programs will achieve market acceptance.
SALES AND MARKETING EXPENSE. Selling and marketing expenses consist
primarily of the salaries, commissions and benefits of sales, marketing and
customer support personnel, and consulting, advertising, promotion and overhead
expenses. Such expenses were $1.9 million for the quarter ended March 31, 1999
and $2.5 million for the quarter ended March 31, 1998, and $4.3 million for the
six months ended March 31, 1999 and $5.2 million for the six months ended March
31, 1998. The reduced spending in the quarter and six months ended March 31,
1999 from the prior year's comparable quarter and six month period is primarily
due to reductions in staffing and marketing program costs attributable to the
corporate restructurings completed in the December 1997 and 1998 quarters.
Consolidated sales and marketing expenses are expected to remain a significant
ongoing operating expense.
11
<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses are
comprised primarily of salaries for administrative and corporate services
personnel, legal, and other professional fees. Such expenses were $.8 million
for each of the quarters ended March 31, 1999 and March 31, 1998, and $2.2
million for each of the six month periods ended March 31, 1999 and March 31,
1998.
RESTRUCTURING. The restructuring charge of $0.8 million in the quarter
ended December 31, 1998 reflects $0.5 million of fixed assets abandoned and
written off as a result of the restructuring, $0.2 million in severance costs
and benefits, and $0.1 million in lease termination costs. The restructuring was
initiated to better align the Company's costs and resources with the needs of a
stand-alone, partner-focused software company. The restructuring charge of $0.4
million in the December 31, 1997 quarter is primarily for the costs of severance
benefits and is part of a total restructuring charge of $1.2 million, $0.8
million of which was charged to operations in fiscal 1997. The severance
benefits had not been communicated to the affected employees at September 30,
1997, and therefore could not be expensed until the subsequent quarter, when the
notification and restructuring were completed. The restructuring began in the
September 1997 quarter and was completed in the December 1997 quarter, and was
initiated to better align costs and resources with the Company's focus on the
storage systems recovery needs of enterprise customers.
INTEREST INCOME. Interest income was $0.4 million for the quarter ended
March 31, 1999 and $0.6 million for the quarter ended March 31, 1998, and $0.9
million and $1.4 million for the six month periods ended March 31, 1999 and
March 31, 1998, respectively. The decrease in interest income for the three and
six months ended March 31, 1999 compared to the three and six months ended March
31, 1998 was due primarily to lower invested cash balances during the March 1999
periods as a result of the Company's share repurchase programs executed
beginning in July 1997.
INCOME TAXES. The effective income tax rate for the quarters ended
March 31,1999 and 1998 was 61% and 47%, respectively, and was 45% and 53% for
the six months ended March 31, 1999 and March 31, 1998, respectively. The
effective tax rate for the March 1999 quarter and six months was based on the
Company's forecasted taxable results for the year and the anticipated carry-back
benefit for income taxes paid in previous years. The effective tax rate for the
March 1998 quarter and six months reflects the non-deductible nature of certain
costs associated with the Hi/fn spin-off transaction, for which, consistent with
statutory guidelines, no tax benefit was recognized.
QUARTERLY TRENDS AND CHANNEL INVENTORIES. The Company historically has
experienced significant fluctuations in its revenues and operating results,
including net income, and anticipates that these fluctuations will continue. The
Company operates with relatively little backlog of its software sales, and the
majority of its software revenues each quarter result from orders received in
that quarter. Consequently, if near-term demand for the Company's products
weakens in a given quarter or if inventory of the Company's products in the
retail and distribution channels satisfies near-term demand, the Company's
operating results for that quarter would be adversely affected. In addition,
when the Company announces enhanced versions of its software products, the
announcement may have the effect of slowing sales of the current version of the
product as buyers delay their purchase. Quarterly results have been or may in
the future be influenced by the timing of announcements or introductions of new
products and product upgrades by the Company or its competitors, distributor
ordering patterns, product returns, delays in product development and licensing
of the Company's products and core technology. In addition, the Company's new
products typically have a lengthy evaluation period before any purchase is made.
SEASONALITY. The software industry has typically experienced some
seasonal variations in demand, with sales declining somewhat in the summer
months. The Company believes that its software sales are subject to similar
seasonal variations which, when combined with the other factors described above,
are likely to result in fluctuations in the Company's quarterly results. As a
result, historical quarter-to-quarter comparisons should not be relied upon as
indicative of future performance.
12
<PAGE>
OPERATING SYSTEMS. Stac's ReachOut, Replica Tape and Replica NDM
products currently operate on a limited number of personal computer and network
operating systems. ReachOut supports Microsoft Windows NT, Windows 98, Windows
95, Windows 3.x and DOS, while Replica Tape supports Windows NT. Previous
versions of Replica Tape are still available to support Novell NetWare servers.
Replica Tape customers may require support of the Unix operating system, which
the Company does not currently provide. Replica NDM server component supports
only Windows NT with client support for Windows 98, Windows 95 and Windows NT
workstations. In addition, future versions of Microsoft's Windows operating
systems may require significant changes to the Company's products in order to
maintain compatibility.
COMPETITION AND RISKS ASSOCIATED WITH NEW PRODUCT INTRODUCTIONS. The
market for the Company's products is intensely competitive. Increased
competition could result not only in a decline in sales volume, but also in
price reductions that could have a material adverse effect on the Company's
business, operating results and financial condition.
The Company's Replica product line competes with well established back-up
products from Computer Associates, Inc., Seagate Software ("Seagate") (currently
owned by Seagate Technologies, Inc. but in the process of being acquired by
Veritas Software Corporation ("Veritas")), Legato Systems, Inc. ("Legato") and
Veritas, all of which have established channels of distribution and installed
customer bases. The Company has entered into OEM licenses with Legato, Seagate,
Hewlett-Packard Company and Tivoli Systems, Inc. (a wholly owned subsidiary of
IBM) which authorize those companies to resell Replica products under certain
conditions. While the Company hopes to expand its sales and marketing reach
through these agreements, the Company expects to realize less revenue per unit
than it would if it sold the products itself. As a result, the Company could
realize less revenue from sales of Replica than it might have otherwise obtained
by only directly selling Replica. In addition, resellers could choose not to
sell Replica over competitors' products with the result that significant sales
of Replica could fail to materialize, or products similar to Replica could be
successfully introduced to resellers by the Company's competitors. In addition,
Microsoft's current operating systems incorporate back-up functionality and
future operating systems are expected to include some disaster recovery
functionality. Also, Replica is being introduced into sophisticated server
environments and, while the Company has invested significant resources in
testing Replica under a variety of conditions, configurations and circumstances,
there are likely to be environments which have not been anticipated for which
additional development of Replica will be necessary.
The Company's ReachOut product competes in the remote control software
market against more established products such as Symantec Corporation's
pcAnywhere, Compaq Corporation's Carbon Copy, Computer Associate Inc.'s Control
IT, Netopia's Timbuktu and Traveling Software, Inc.'s Laplink. ReachOut also
competes against remote access products from companies such as Citrix, Inc.
Further, Microsoft could elect to incorporate remote control or additional
remote access capabilities into its operating systems which are pre-installed on
most personal computers. The Company believes that the rate of growth of the
remote control market it serves has decreased from prior years' growth rates or
may actually be declining and that it will have a difficult time gaining further
sales growth against its competitors.
STOCK PRICE VOLATILITY. Due to the factors noted above, the Company's
future earnings and stock price may be subject to significant volatility,
particularly on a quarterly basis. Any shortfall in earnings from levels
expected by securities analysts could have an immediate and significant adverse
effect on the trading price of the Company's common stock in any given period.
Shortfalls could be caused by shortfalls in revenues, timing of the receipt of
technology license fees, and/or increased levels of expenditures. Additionally,
the Company participates in a highly dynamic industry, which often results in
significant volatility of the Company's stock price.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and marketable securities increased by $4.9 million
to $29.4 million at March 31, 1999 from those at September 30, 1998. The
increase is primarily due to the repayment of the $5.0 million note receivable,
by the Company's recently spun-off Hi/fn subsidiary, partially offset by cash
used in general operations. Working capital increased by $6.9 million to $29.3
million at March 31, 1999 from that at September 30, 1998.
The Company believes that existing cash balances and funds provided by
operations will be sufficient to finance the working capital requirements of the
consolidated companies for at least the next twelve months.
YEAR 2000
The term "Year 2000 issue" is a general term used to describe the
various problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000 is
approached and reached. These problems generally arise from the fact that most
of the world's computer hardware and software have historically used only two
digits to identify the year in a date, often meaning that the computer will fail
to distinguish dates in the "2000's" from dates in the "1900's." These problems
may also arise from other sources as well, such as the use of special codes and
conventions in software that make use of the date field.
However, the Company believes that certain individuals and entities
that traditionally buy software from both the Company and others may defer
purchases of software in the third and fourth quarters of calendar 1999 due to
concerns over the Year 2000 issue, which could impact the Company's financial
results.
To date, the Company's primary focus in its analysis of its Year 2000
issue has been on its product offerings. Stac has performed extensive year 2000
compliance testing of its current products and believes, to its best knowledge,
that all of its significant current product offerings are year 2000 compliant;
provided that the underlying operating system and other software are year 2000
compliant.
The Company has also completed its initial evaluation of Year 2000
compliance with respect to all of its internal computer, telephone and security
systems (hardware and software). As a result of this evaluation, the Company has
determined that all business critical systems are Year 2000 compliant, or will
be made compliant through available product upgrades prior to the end of the
June 1999 quarter at an estimated cost to the Company of $100,000.
In addition, the Company has had initial communications with certain
third parties with which it does significant business to discuss and evaluate
their Year 2000 compliance plans and state of readiness and to determine the
extent to which the Company's systems may be affected by the failure of others
to remediate their own Year 2000 issues. To date, the Company has received only
preliminary feedback from such parties indicating that they are in the process
of implementing measures to ensure Year 2000 compliance, and further
representing that they will achieve compliance before the close of calendar
1999. The Company has not independently confirmed any information received from
other parties with respect to the Year 2000 issues. As such, there can be no
assurance that such other parties will complete their Year 2000 conversion in a
timely fashion or will not suffer a Year 2000 business disruption that may
adversely affect the Company's financial condition and results of operations.
To date, the Company has not identified any system which presents a
material risk of not being Year 2000 ready in a timely fashion or for which a
suitable alternative cannot be implemented. However, the Company may ultimately
identify systems which do present a material risk of Year 2000 disruption. Such
disruption may include, among other things, the inability to process
transactions or information, procure inventory, or engage in similar normal
business activities. The failure of the Company to identify systems which
require Year 2000 conversion that are critical to the Company's operations or
the failure of the Company or others with which the Company does business to
become Year 2000 ready in a timely manner could have a material adverse effect
on the Company's financial condition and results of operations.
14
<PAGE>
The Company has not yet completed the development of a comprehensive
Year 2000-specific contingency plan. However, as part of its contingency Year
2000 effort, information received from external sources is examined for date
integrity before being brought into the Company's internal systems. The Company
will incorporate alternatives into its contingency plan, should the software
upgrades described above prove to not fully resolve Year 2000 compliance issues.
If the Company determines that its business is at material risk of disruption
due to currently unforeseen Year 2000 issue or anticipates that its Year 2000
compliance will not be achieved in a timely fashion, the Company will work to
enhance its contingency plan.
The discussion above contains certain forward-looking statements. The
costs of the Year 2000 conversion, and possible risks associated with the Year
2000 issue are based on the Company's current estimates and are subject to
various uncertainties that could cause the actual results to differ materially
from the Company's expectations. Such uncertainties include, among others, the
success of the Company in identifying systems that are not Year 2000 compliant,
the nature and amount of programming required to upgrade or replace each of the
affected systems, the availability of qualified personnel, consultants and other
resources, and the success of the Year 2000 conversion efforts of others.
ITEM 3. MARKET RISK.
The Company is exposed to a variety of risks, including foreign
currency fluctuations and changes in the market value of its investments. In the
normal course of business, the Company employs established policies and
procedures to manage its exposure to fluctuations in foreign currency values and
changes in the market value of its investments.
The Company's foreign currency risks are mitigated principally by
maintaining only nominal foreign currency cash balances. Working funds necessary
to facilitate the short term operations of the Company's Subsidiary in the
United Kingdom are kept in the local currencies for the European countries in
which they do business, with excess funds transferred to Stac's offices in the
United States for investment.
The fair value of the Company's investments in marketable securities at
March 31, 1999 was $14,423,000. The Company's investment policy is to manage its
portfolio of marketable securities in order to preserve principal and liquidity
while maximizing the return. At March 31, 1999 the Company's portfolio was
primarily invested in high quality commercial paper, typically with maturities
of less than six months. These investments are distributed among several issuers
to minimize the credit risk associated with any single institution.
PART II-OTHER INFORMATION
ITEM 4. The Company's Annual Meeting of Stockholders (the "Annual Meeting")
was held on March 11, 1999. At the Annual Meeting, the stockholders of
the Company (i) elected each of the persons listed below to serve as a
director of the Company until the 2000 Annual Meeting of Stockholders
or until his successor is elected, (ii) approved a series of
amendments to the Company's Certificate of Incorporation to effect a
reverse stock split, within a range of one to two and one to four,
(iii) ratified and approved an increase in the aggregate number of
shares of Common Stock authorized for issuance under the 1992 Stock
Option Plan by 7,373,363 shares, (iv) ratified and approved an
increase in the aggregate number of shares of Common Stock authorized
for issuance under the 1992 Non-Employee Directors' Stock Option Plan
by 493,785 shares and (v) ratified the selection of
PricewaterhouseCoopers, LLP as the Company's independent accountants
for the fiscal year ending September 30, 1999.
The Company had 23,680,670 shares of Common Stock outstanding as of
January 14, 1999, the record date for the Annual Meeting. At the
Annual Meeting, holders of a total of 22,582,484 shares of Common
Stock were present in person or represented by proxy. The following
sets forth information regarding the results of the voting at the
Annual Meeting:
15
<PAGE>
Proposal 1: Election of Directors
- ----------------------------------
Voting Shares Voting Shares
In Favor Withheld
------------- -------------
Director
Gary W. Clow 22,426,546 155,938
Robert W. Johnson, Ph.D. 22,426,871 155,613
Antonio Perez 22,422,871 159,613
Peter D. Schleider 22,426,871 155,613
Corey M. Smith 22,422,871 159,613
John T. Ticer 22,426,871 155,613
Proposal 2: Approval of amendments to the Company's Certificate of
Incorporation to Effect a Reverse Stock Split
- -------------------------------------------------------------------
Votes in favor: 21,812,237
Votes against: 558,041
Abstentions: 50,725
Proposal 3: Ratification of Increase of Shares Authorized under the 1992 Stock
Option Plan
- -------------------------------------------------------------------------------
Votes in favor: 13,288,385
Votes against: 775,601
Abstentions: 48,925
Proposal 4: Ratification of Increase of Shares Authorized under the 1992
Non-Employee Directors' Stock Option Plan
- -------------------------------------------------------------------------
Votes in favor: 13,419,665
Votes against: 798,452
Abstentions: 56,275
Proposal 5: Ratification of Selection of Independent Accountants
- -----------------------------------------------------------------
Votes in favor: 22,475,114
Votes against: 66,065
Abstentions: 41,305
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Severance agreement with Gary Clow
10.2 Severance agreement with John Witzel
10.3 1992 Non-Employee Directors' Stock Option Plan
27 Financial Data Schedule
(b) Reports on Form 8-K
None
Items 1 through 3 and 5 are not applicable and have been omitted.
16
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
Stac Software, Inc.
-----------------------------------
(Registrant)
Date: May 14, 1999 /s/ Clifford L. Flowers
-----------------------------------
Clifford L. Flowers
Vice President of Finance and
Chief Financial Officer
Principal Financial and Accounting
Officer and Duly Authorized Officer
17
<PAGE>
Exhibit 10.1 Severance agreement with Gary Clow
Severance Agreement
This severance agreement ("Agreement") is made between Stac Software, Inc., a
Delaware company and its subsidiaries ("Stac" or the "Company"), and Gary Clow,
an individual ("Mr. Clow" or the "Executive").
WHEREAS, Stac's Board of Directors believes it is in the best interests
of the Company, its shareholders and employees to separate the Company into two
publicly traded companies - Stac Software, a software company, and Hi/fn, a
semiconductor company (the "Spin-off"); and
WHEREAS, the Executive has, in his capacity as Chief Executive Officer,
worked to timely accomplish the Spin-off and to retain and develop executive
management teams suited to continue the management of each of Stac Software and
Hi/fn; and
WHEREAS, as a result of the Spin-off, the Executive's position with the
Company will become redundant; and
WHEREAS, upon receipt of the Executive's resignation, the Company
wishes to receive a covenant not to compete from with Mr. Clow for the one year
period following the Resignation Date and to perfect the assignment of any
Company related innovations or inventions from Mr. Clow to the Company (Exhibit
A attached hereto);
NOW THEREFORE, in consideration of the mutual promises made herein,
Company and Executive (sometimes collectively referred to herein as the
"parties") hereby agree as follows:
1. TERMINATION AND RESIGNATION. Mr. Clow's employment by Stac, including all
positions Mr. Clow holds at Stac, but excluding his positions as an elected
Director and Chairman of the Board of Stac will terminate effective January
4, 1999, or such other mutually agreed upon date (the "Resignation Date").
2. CONSIDERATION. In consideration of the terms of this Agreement and
contingent upon receipt of a Notice of Resignation in the form attached
hereto as Exhibit B:
(a) Stac shall pay to Mr. Clow an amount equal to Mr. Clow's base salary
for the immediately preceding 12 months less $48,000. Any payments to
Mr. Clow shall be subject to all ordinary and appropriate federal,
state, or local withholdings normally required for the payment of
wages.
(b) Stac shall pay for Mr. Clow's COBRA healthcare benefits (as those
benefits exist on the Resignation Date) until one year from the
Resignation Date.
(c) In consideration for the agreement to not compete as specified in
section 6 below, Stac shall pay to Mr. Clow a monthly retainer of
$4,000 at the beginning of each of the twelve months starting the day
immediately following the Resignation Date.. Such payments shall be
gross and Mr. Clow shall be responsible for all federal, state, and
local taxes related thereon.
<PAGE>
(d) Stac shall extend Mr. Clow's right to exercise the Stac stock options
he is vested in as of the Resignation Date (Exhibit C attached
hereto), at any time, in whole or part, for one year beyond the normal
termination of exercise rights of such option(s), which such normal
termination shall be ninety (90) days following Mr. Clow's departure
from the Stac Board of Directors, provided such extension does not
extend beyond the term of such option(s).
(e) Mr. Clow shall have all rights of indemnification (including
advancement of expenses) in connection with his service as a director,
officer or employee of Stac or any of its subsidiaries, that are in
effect as of the date this Agreement is executed by Mr. Clow.
(f) Stac shall maintain during each of the years through December 31, 2003
minimum directors and officers insurance of $10 million covering all
customarily insurable activities of Mr. Clow both as an officer and a
director.
3. GENERAL AND SPECIAL RELEASE. In consideration of the terms of this
Agreement, and subject to the indemnification and insurance provisions
above, Mr. Clow hereby releases, acquits, and forever discharges Stac, its
officers, directors, agents, servants, insurers, employees, shareholders,
partners, successors, assigns, affiliates, customers, and clients of and
from any and all claims, liabilities and demands, causes of action, costs,
expenses, attorneys' fees, damages, indemnities and obligations of every
kind and nature, in law, equity, or otherwise, know or unknown, suspected
and unsuspected, disclosed and undisclosed, arising out of or in any way
connected with Stac's employment of Mr. Clow, the termination of that
employment, and Stac's performance of its obligations as Mr. Clow's former
employer; claims or demands related to salary, bonuses, commissions, stock,
stock options, vacation pay, fringe benefits, expense reimbursements, or
any form of compensation; claims pursuant to any federal, state or local
law cause of action including, but not limited to, the California Fair
Employment Practices Act; the federal Civil Right Act of 1964, as amended;
the federal Age Discrimination in Employment Act of 1967, as amended; the
Americans With Disabilities Act; wrongful discharge; discrimination; fraud;
defamation; emotional distress; and breach of the implied covenant of good
faith and fair dealing. The effective date of this release shall be the
eighth day after this Agreement is signed by Mr. Clow.
4. AGE DISCRIMINATION. Mr. Clow further acknowledges that he is knowingly and
voluntarily waiving and releasing any rights he may have under the Age
Discrimination in Employment Act of 1967 ("ADEA"). Mr. Clow also
acknowledges the consideration given for the waiver and release in the
preceding paragraphs hereof is in addition to anything of value to which he
was already entitled. Mr. Clow hereby provides the further acknowledgment
that he is advised by this writing, as required by the Older Workers
Benefit Protection Act, that: (a) his waiver and release does not apply to
any rights or claims that may arise after the effective date of this
release; (b) he should consult with an attorney prior to executing his
release (although he may voluntarily choose not to do so); (c) he may have
at least twenty-one (21) days to consider this Agreement (although he may
by his own choice execute this release earlier); (d) he has seven (7) days
following the execution of this release to revoke the release; and (e) this
Agreement shall not be effective until the date upon which the revocation
period has expired, therefor making the effective date the eighth day after
this release is signed by Mr. Clow.
5. SECTION 1542 AND RELATED LAW. Mr. Clow hereby acknowledges that he has read
and understands Section 1542 of the Civil Code of the State of California
which reads as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
<PAGE>
Mr. Clow hereby expressly waives and relinquishes all rights and benefits
under that section and any similar law or common law principle of similar
effect of any state or territory of the United States with respect to the
claims released hereby.
6. COVENANT NOT TO COMPETE - In consideration of the retainer being paid to
Mr. Clow pursuant to this Agreement, Mr. Clow agrees that during the one
year period ending December 31, 1999, he will not directly or indirectly as
an individual proprietor, partner, corporation, stockholder, officer,
employee, consultant, director, joint venturer, investor, lender, or in any
other capacity (except as the holder of not more than one percent (1%) of
the total outstanding stock of a publicly held company), engage in any
business activity that involves development, production, marketing or
selling of products, processes, techniques or technology which are
identical to, substantially similar to or directly competitive with the
products of the Company.
7. NO ADMISSION OF LIABILITY OR OBLIGATION BY STAC. Mr. Clow hereby
acknowledges that this Agreement is a compromise settlement of potential
claims and that the promises in, and consideration of, this Agreement shall
not be construed to be an admission of any liability or obligation
whatsoever by Stac to Mr. Clow or to any person whomsoever.
8. CONFIDENTIALITY. Mr. Clow hereby agrees and acknowledges that he will keep
the terms, amount and fact of this Agreement completely confidential, and
that he will not hereafter disclose any such information to anyone other
than his immediate family and professional representatives unless required
to do so. Prior to any disclosure of the terms, amount or fact of this
agreement to any other person, Mr. Clow shall inform that person of the
existence of this confidentiality requirement, and obtain the agreement of
that person to be bound by this confidentiality clause.
9. ASSIGNMENT OR TRANSFER. Mr. Clow hereby represents to Stac that he has not
previously assigned or transferred any interest in any of the claims
released herein.
10. TRANSFER OF ASSETS IN POSSESSION. Stac shall assign all right, title and
interest in and to those Stac assets in his personal possession listed in
Exhibit D to Mr. Clow on the Resignation Date.
11. CALIFORNIA LAW. This Agreement shall be deemed to have been entered into
and shall be construed and enforced in accordance with the laws of the
State of California as applied to contracts made and to be performed
entirely within California.
IN WITNESS WHEREOF, I have carefully read this Agreement, understand its
terms and conditions, and agree to be bound thereby.
- -------------------------------------------- ---------------------------
Charles Gaylord Date
Chairman - Compensation Committee
- -------------------------------------------- ---------------------------
Gary Clow Date
<PAGE>
STAC, INC.
EXHIBIT A
PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
In consideration of this Severance Agreement, of which this is a part, I hereby
agree as follows:
1. RECOGNITION OF COMPANY'S RIGHTS; NONDISCLOSURE. I will hold in strictest
confidence and will not disclose, use, lecture upon or publish any of the
Company's Proprietary Information (defined below). I hereby assign to the
Company any rights I may have or acquire in such Proprietary Information and
recognize that all Proprietary Information shall be the sole property of the
Company and its assigns and the Company and its assigns shall be the sole owner
of all trade secret rights, patent rights, copyrights, mask work rights and all
other rights throughout the world (collectively, "Proprietary Rights") in
connection therewith.
The term "Proprietary Information" shall mean trade secrets, confidential
knowledge, data or any other proprietary information of the Company. By way of
illustration but not limitation, "Proprietary Information" includes (a) trade
secrets, inventions, mask works, ideas, processes, formulas, source and object
codes, data, programs, - other works of authorship, know-how, improvements,
discoveries, developments, designs and techniques (hereinafter collectively
referred to as "Inventions"); and (b) information regarding plans for research,
development, new products, marketing and selling, business plans, budgets and
unpublished financial statements, licenses, prices and costs, suppliers and
customers; and information regarding the skills and compensation of other
employees of the Company.
2. THIRD PARTY INFORMATION. I understand, in addition, that the Company has
received and in the future will receive from third parties confidential or
proprietary information ( Third Party Information") subject to a duty on the
Company's part to maintain the confidentiality of such information and to use it
only for certain limited purposes. I will hold such Third Party Information in
my possession in confidence and will not disclose (to anyone other than Company
personnel who need to know such information in connection with their work for
the Company) or use, Third Party Information unless expressly authorized by an
officer of the Company in writing.
3. ASSIGNMENT OF INVENTIONS.
A. ASSIGNMENT. I hereby assign to the Company all my right, title and
interest in and to any and all Inventions (and all Proprietary Rights with
respect thereto) whether or not patentable or registrable under copyright
or similar statutes, made or conceived or reduced to practice or learned by
me, either alone or jointly with others, during the period of my employment
with the Company. Inventions assigned to or as directed by the Company by
this paragraph 3 are hereinafter referred to as "Company Inventions." I
recognize that this Agreement does not require assignment of any invention
which qualifies fully for protection under Section 2870 of the California
Labor Code (hereinafter "Section 2870") (or any similar or comparable
statute or law in effect in the state I am employed), which provides as
follows:
<PAGE>
1. ANY PROVISION IN AN EMPLOYMENT AGREEMENT WHICH PROVIDES THAT
AN EMPLOYEE SHALL ASSIGN, OR OFFER TO ASSIGN, ANY OF HIS OR HER RIGHTS
IN AN INVENTION TO HIS OR HER EMPLOYER SHALL NOT APPLY TO AN INVENTION
THAT THE EMPLOYEE DEVELOPED ENTIRELY ON HIS OR HER OWN TIME WITHOUT
USING THE EMPLOYER'S EQUIPMENT, SUPPLIES, FACILITIES, OR TRADE SECRET
INFORMATION EXCEPT FOR THOSE INVENTIONS THAT EITHER:
a) RELATE AT THE TIME OF CONCEPTION OR REDUCTION TO PRACTICE
OF THE INVENTION TO THE EMPLOYER'S BUSINESS, OR ACTUAL OR
DEMONSTRABLY ANTICIPATED RESEARCH OR DEVELOPMENT OF THE EMPLOYER.
b) RESULT FROM ANY WORK PERFORMED BY THE EMPLOYEE FOR THE
EMPLOYER.
2. TO THE EXTENT A PROVISION IN AN EMPLOYMENT AGREEMENT PURPORTS
TO REQUIRE AN EMPLOYEE TO ASSIGN AN INVENTION OTHERWISE EXCLUDED FROM
BEING REQUIRED TO BE `ASSIGNED UNDER SUBDIVISION (i), THE PROVISION IS
AGAINST THE PUBLIC POLICY OF THIS STATE AND IS UNENFORCEABLE.
B. GOVERNMENT. I also assign to or as directed by the Company all my
right, title and interest in and to any and all Inventions, full title to
which is required to be in the United States by a contract between the
Company and the United States or any of its agencies.
C. WORKS FOR HIRE. I acknowledge that all original works of authorship
which are made by me (solely or jointly with others) within the scope of my
employment and which are protectable by copyright are "works made for
hire," as that term is defined in the United States Copyright Act (17
U.S.C., Section 101).
4. ENFORCEMENT OF PROPRIETARY RIGHTS. I will assist the Company in every
proper way to obtain and from time to time enforce United States and foreign
Proprietary Rights relating to Company Inventions in any and all countries. To
that end I will execute, verify and deliver such documents and perform such
other acts as the Company may reasonably request for use in applying for,
obtaining, perfecting, evidencing, sustaining and enforcing such Proprietary
Rights and the assignment thereof. In addition, I will execute, verify and
deliver assignments of such Proprietary Rights to the Company or its designee.
My obligation to assist the Company with respect to Proprietary Rights relating
to such Company Inventions in any and all countries shall continue beyond the
termination of my employment, but the Company shall compensate me at .a
reasonable rate after my termination for the time actually spent by me at the
Company's request on such assistance.
In the event the Company is unable for any reason, after reasonable effort, to
secure my signature on any document needed in connection with the actions
specified in the preceding paragraph, I
<PAGE>
hereby irrevocably designate and appoint the Company and its duly authorized
officers and agents as my agent and attorney in fact, which appointment is
coupled with an interest, to act for and in my behalf to execute, verify and
file any such documents and to do all other lawfully permitted acts to further
the purposes of the preceding paragraph with the same legal force and effect as
if executed by me. I hereby waive and quitclaim to the Company any and all
claims, of any nature whatsoever, which I now or may hereafter have for
infringement of any Proprietary Rights assigned hereunder to the Company.
5. RETURN OF COMPANY DOCUMENTS. When I leave the employ of the Company, I
will deliver to the Company any and all drawings, notes, memoranda,
specifications, devices, formulas, and documents, together with all copies
thereof, and any other material containing or disclosing any Company Inventions,
Third Party Information or Proprietary Information of the Company. I further
agree that any property situated on the Company's premises and owned by the
Company, including disks and other storage media, filing cabinets or other work
areas, is subject to inspection by Company personnel at any time with or without
notice. Prior to leaving, I will cooperate with the Company in completing and
signing the Company's current termination statement for technical and management
personnel.
6. NOTICES. Any notices required or permitted hereunder shall be given to
the appropriate party at the address specified below or at such other address as
the party shall specify in writing. Such notice shall be deemed given upon
personal delivery to the appropriate address or if sent by certified or
registered mail, three (3) days after the date of mailing.
7. GENERAL PROVISIONS.
A. GOVERNING LAW. This Agreement will be governed by and construed
according to the laws of the State of California.
B. ENTIRE AGREEMENT. This Agreement is the final, complete and
exclusive agreement of the parties with respect to the subject matter
hereof and supersedes and merges all prior discussions between us. No
modification of or amendment to this Agreement, nor any waiver of any
rights under this Agreement, will be effective unless in writing and signed
by the party to be charged. Any subsequent change or changes in my duties,
salary or compensation will not affect the validity or scope of this
Agreement. As used in this Agreement, the period of my employment includes
any time during which I may be retained by the Company as a consultant.
C. SEVERABILITY. If one or more of the provisions in this Agreement
are deemed unenforceable by law, then such provision will be deemed
stricken from this Agreement and the remaining provisions will continue in
full force and effect.
<PAGE>
D. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my
heirs, executors, administrators and other legal representatives and will
be for the benefit of the Company, its successors, and its assigns.
E. SURVIVAL. The provisions of this Agreement shall survive the
termination of my employment and the assignment of this Agreement by the
Company to any successor in interest or other assignee.
F. WAIVER. No waiver by the Company of any breach of this Agreement
shall be a waiver of any preceding or succeeding breach. No waiver by the
Company of any right under this Agreement shall be construed as a waiver of
any other right. The Company shall not be required to give notice to
enforce strict adherence to all terms of this Agreement.
I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. I HAVE
COMPLETELY FILLED OUT EXHIBIT A TO THIS AGREEMENT.
Dated: 12/23/98 /s/ Gary W. Clow
----------------- ---------------------------
Signature
Gary W. Clow
---------------------------
(Printed Name)
<PAGE>
STAC, INC.
EXHIBIT B
NOTICE OF RESIGNATION
To: The Board of Directors of Stac, Inc.
I hereby tender my resignation as Chief Executive Officer of Stac, Inc.
Pursuant to the terms and conditions of the Severance Agreement between Stac and
me, this resignation becomes effective as of the date below.
/s/ Gary W. Clow 12/23/98
--------------------------- ------------
Gary W. Clow Date
<PAGE>
STAC, INC.
EXHIBIT C
STOCK OPTIONS OUTSTANDING
CLOSING STATEMENT STAC
ID: 953825313
12636 High Bluff Drive
San Diego, Ca 92130
(619) 794-4300
TERMINATION DATE 1/4/99
- --------------------------------------------------------------------------------
GARY CLOW ID: 442-60-473
- --------------------------------------------------------------------------------
<TABLE>
EXERCISABLE OPTIONS
<CAPTION>
Vesting Late
Option Option Plan/ Option Shares Shares Stop Shares Date to
Number Date Type Price Granted Exercised Date Exercisable Total Price Exercise
- -------- -------- -------- ------- --------- --------- ------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
000015 7/27/89 1989/ISO $0.0700 844,200 844,200 1/4/99 0 $0.00
000135 10/22/93 1992/NQ $0.6500 675,360 105,525 1/4/99 569,835 $370,392.75
000921 10/ 1/96 1992/ISO $1.9000 263,813 0 1/4/99 158,287 $300,745.30
000922 10/ 1/96 1992/NQ $1.9000 918,068 0 1/4/99 506,519 $962,386.10
----------- -------------
TOTALS 1,234,641 $1,633,524.15
</TABLE>
<PAGE>
STAC, INC.
EXHIBIT D
TRANSFERRED ASSETS IN MR. CLOW'S POSSESSION
Dell Latitude Laptop PC
Serial #: 7147346BYK8850A
<PAGE>
Exhibit 10.2 Severance agreement with John Witzel
Severance Agreement
This severance agreement ("Agreement") is made on September 30, 1998, between
Stac, Inc., a Delaware company and its subsidiaries ("Stac" or the "Company"),
and John Witzel, an individual ("Mr. Witzel" or the "Executive").
WHEREAS, Stac's Board of Directors believes it is in the best interests
of the Company, its shareholders and employees to separate the Company into two
publicly traded companies - Stac Software, a software company, and Hi/fn, a
semiconductor company (the "Spin-off"); and
WHEREAS, the Executive has, in his capacity as Chief Financial Officer,
worked to timely accomplish the Spin-off and to retain and develop financial
executive management suited to continue the management of each of Stac Software
and Hi/fn; and
WHEREAS, as a result of the Spin-off, the Executive's position with the
Company will become redundant; and
WHEREAS, upon receipt of the Executive's resignation, the Company
wishes to receive a covenant not to compete from with Mr. Witzel for the one
year period following the Resignation Date and to perfect the assignment of any
Company related innovations or inventions from Mr. Witzel to the Company
(Exhibit A attached hereto);
NOW THEREFORE, in consideration of the mutual promises made herein,
Company and Executive (sometimes collectively
referred to herein as the "parties") hereby agree as follows:
1. TERMINATION AND RESIGNATION. It is anticipated that, provided the Spin-off
occurs on or about November 19, 1998, Mr. Witzel's employment by Stac,
including all positions Mr. Witzel holds at Stac, will terminate effective
January 1, 1999, or such other mutually agreed upon date (the "Resignation
Date"). In the event the Spin-off does not occur by the end of calendar
1998, the parties agree that this Agreement shall automatically terminate
and will have no effect on Mr. Witzel's employment.
2. CONSIDERATION. In consideration of the terms of this Agreement and
contingent upon receipt of a Notice of Resignation in the form attached
hereto as Exhibit B:
(a) Stac shall pay to Mr. Witzel an amount equal to Mr. Witzel's base
salary for the immediately preceding 12 months less $48,000. Any
payments to Mr. Witzel shall be subject to all ordinary and
appropriate federal, state, or local withholdings normally required
for the payment of wages.
(b) Stac shall pay for Mr. Witzel's COBRA healthcare benefits (as those
benefits exist on the Resignation Date) until one year from the
Resignation Date.
(c) In consideration for the agreement to not compete as specified in
section 6 below and for consulting services to be provided by Mr.
Witzel to Stac as mutually agreed upon between the parties, Stac shall
pay to Mr. Witzel a monthly retainer of $4,000 at the beginning of
each of the twelve months starting the day immediately following the
Resignation Date.. Such payments shall be gross and Mr. Witzel shall
be responsible for all federal, state, and local taxes related
thereon.
(d) Stac shall extend Mr. Witzel's right to exercise the Stac stock
options he is vested in as of the Resignation Date (Exhibit C attached
hereto), at any time, in whole or part, for one year beyond the normal
termination of exercise rights of such option(s) (i.e. through March
31, 2000), provided such extension does not extend beyond the term of
such option(s).
<PAGE>
(e) Mr. Witzel shall have all rights of indemnification (including
advancement of expenses) in connection with his service as a director,
officer or employee of Stac or any of its subsidiaries, that are in
effect as of the date this Agreement is executed by Mr. Witzel.
(f) Stac shall maintain during each of the years through December 31, 2003
minimum directors and officers insurance of $10 million covering all
customarily insurable activities of Mr. Witzel both as an officer and
a director.
3. GENERAL AND SPECIAL RELEASE. In consideration of the terms of this
Agreement, and subject to the indemnification and insurance provisions
above, Mr. Witzel hereby releases, acquits, and forever discharges Stac,
its officers, directors, agents, servants, insurers, employees,
shareholders, partners, successors, assigns, affiliates, customers, and
clients of and from any and all claims, liabilities and demands, causes of
action, costs, expenses, attorneys' fees, damages, indemnities and
obligations of every kind and nature, in law, equity, or otherwise, know or
unknown, suspected and unsuspected, disclosed and undisclosed, arising out
of or in any way connected with Stac's employment of Mr. Witzel, the
termination of that employment, and Stac's performance of its obligations
as Mr. Witzel's former employer; claims or demands related to salary,
bonuses, commissions, stock, stock options, vacation pay, fringe benefits,
expense reimbursements, or any form of compensation; claims pursuant to any
federal, state or local law cause of action including, but not limited to,
the California Fair Employment Practices Act; the federal Civil Right Act
of 1964, as amended; the federal Age Discrimination in Employment Act of
1967, as amended; the Americans With Disabilities Act; wrongful discharge;
discrimination; fraud; defamation; emotional distress; and breach of the
implied covenant of good faith and fair dealing. The effective date of this
release shall be the eighth day after this Agreement is signed by Mr.
Witzel.
4. AGE DISCRIMINATION. Mr. Witzel further acknowledges that he is knowingly
and voluntarily waiving and releasing any rights he may have under the Age
Discrimination in Employment Act of 1967 ("ADEA"). Mr. Witzel also
acknowledges the consideration given for the waiver and release in the
preceding paragraphs hereof is in addition to anything of value to which he
was already entitled. Mr. Witzel hereby provides the further acknowledgment
that he is advised by this writing, as required by the Older Workers
Benefit Protection Act, that: (a) his waiver and release does not apply to
any rights or claims that may arise after the effective date of this
release; (b) he should consult with an attorney prior to executing his
release (although he may voluntarily choose not to do so); (c) he may have
at least twenty-one (21) days to consider this Agreement (although he may
by his own choice execute this release earlier); (d) he has seven (7) days
following the execution of this release to revoke the release; and (e) this
Agreement shall not be effective until the date upon which the revocation
period has expired, therefor making the effective date the eighth day after
this release is signed by Mr. Witzel.
5. SECTION 1542 AND RELATED LAW. Mr. Witzel hereby acknowledges that he has
read and understands Section 1542 of the Civil Code of the State of
California which reads as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
<PAGE>
Mr. Witzel hereby expressly waives and relinquishes all rights and benefits
under that section and any similar law or common law principle of similar
effect of any state or territory of the United States with respect to the
claims released hereby.
6. COVENANT NOT TO COMPETE - In consideration of the retainer being paid to
Mr. Witzel pursuant to this Agreement, Mr. Witzel agrees that during the
one year period ending December 31, 1999, he will not directly or
indirectly as an individual proprietor, partner, corporation, stockholder,
officer, employee, consultant, director, joint venturer, investor, lender,
or in any other capacity (except as the holder of not more than one percent
(1%) of the total outstanding stock of a publicly held company), engage in
any business activity that involves development, production, marketing or
selling of products, processes, techniques or technology which are
identical to, substantially similar to or directly competitive with the
products of the Company.
7. NO ADMISSION OF LIABILITY OR OBLIGATION BY STAC. Mr. Witzel hereby
acknowledges that this Agreement is a compromise settlement of potential
claims and that the promises in, and consideration of, this Agreement shall
not be construed to be an admission of any liability or obligation
whatsoever by Stac to Mr. Witzel or to any person whomsoever.
8. CONFIDENTIALITY. Mr. Witzel hereby agrees and acknowledges that he will
keep the terms, amount and fact of this Agreement completely confidential,
and that he will not hereafter disclose any such information to anyone
other than his immediate family and professional representatives unless
required to do so. Prior to any disclosure of the terms, amount or fact of
this agreement to any other person, Mr. Witzel shall inform that person of
the existence of this confidentiality requirement, and obtain the agreement
of that person to be bound by this confidentiality clause.
9. ASSIGNMENT OR TRANSFER. Mr. Witzel hereby represents to Stac that he has
not previously assigned or transferred any interest in any of the claims
released herein.
10. TRANSFER OF ASSETS IN POSSESSION. Stac shall assign all right, title and
interest in and to those Stac assets in his personal possession listed in
Exhibit D to Mr. Witzel on the Resignation Date.
11. CALIFORNIA LAW. This Agreement shall be deemed to have been entered into
and shall be construed and enforced in accordance with the laws of the
State of California as applied to contracts made and to be performed
entirely within California.
IN WITNESS WHEREOF, I have carefully read this Agreement, understand its
terms and conditions, and agree to be bound thereby.
- -------------------------------------------- ---------------------------
Gary W. Clow Date
Chief Executive Officer
- -------------------------------------------- ---------------------------
John R. Witzel Date
<PAGE>
STAC, INC.
EXHIBIT A
PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
In consideration of this Severance Agreement, of which this is a part, I hereby
agree as follows:
1. RECOGNITION OF COMPANY'S RIGHTS; NONDISCLOSURE. I will hold in strictest
confidence and xviii not disclose, use, lecture upon or publish any of the
Company's Proprietary Information (defined below). I hereby assign to the
Company any rights I may have or acquire in such Proprietary Information and
recognize that all Proprietary Information shall be the sole property of the
Company and its assigns and the Company and its assigns shall be the sole owner
of all trade secret rights, patent rights, copyrights, mask work rights and all
other rights throughout the world (collectively, "Proprietary Rights") in
connection therewith.
The term "Proprietary Information" shall mean trade secrets, confidential
knowledge, data or any other proprietary information of the Company. By way of
illustration but not limitation, "Proprietary Information" includes (a) trade
secrets, inventions, mask works, ideas, processes, formulas, source and object
codes, data, programs, other works of authorship, know-how, improvements,
discoveries, developments, designs and techniques (hereinafter collectively
referred to as "Inventions"); and (b) information regarding plans for research,
development, new products, marketing and selling, business plans, budgets and
unpublished financial statements, licenses, prices and costs, suppliers and
customers; and information regarding the skills and compensation of other
employees of the Company.
<PAGE>
2. THIRD PARTY INFORMATION. I understand, in addition, that the Company has
received and in the future will receive from third parties confidential or
proprietary information ("Third Party Information") subject to a duty on the
Company's part to maintain the confidentiality of such information and to use it
only for certain limited purposes. I will hold such Third Party Information in
my possession in confidence and will not disclose (to anyone other than Company
personnel who need to know such information in connection with their work for
the Company) or use, Third Party Information unless expressly authorized by an
officer of the Company in writing.
3. ASSIGNMENT OF INVENTIONS.
A. ASSIGNMENT. I hereby assign to the Company all my right, title and
interest in and to any and all Inventions (and all Proprietary Rights with
respect thereto) whether or not patentable or registrable under copyright
or similar statutes, made or conceived or reduced to practice or learned by
me, either alone or jointly with others, during the period of my employment
with the Company. Inventions assigned to or as directed by the Company by
this paragraph 3 are hereinafter referred to as "Company Inventions." I
recognize that this Agreement does not require assignment of any invention
which qualifies fully for protection under Section 2870 of the California
Labor Code (hereinafter "Section 2870") (or any similar or comparable
statute or law in effect in the state I am employed), which provides as
follows:
1. ANY PROVISION IN AN EMPLOYMENT AGREEMENT WHICH PROVIDES THAT
AN EMPLOYEE SHALL ASSIGN, OR OFFER TO ASSIGN, ANY OF HIS OR HER RIGHTS
IN AN INVENTION TO HIS OR HER EMPLOYER SHALL NOT APPLY TO AN INVENTION
THAT THE EMPLOYEE DEVELOPED ENTIRELY ON HIS OR HER OWN TIME WITHOUT
USING THE EMPLOYER'S EQUIPMENT, SUPPLIES, FACILITIES, OR TRADE SECRET
INFORMATION EXCEPT FOR THOSE INVENTIONS THAT EITHER:
a) RELATE AT THE TIME OF CONCEPTION OR REDUCTION TO PRACTICE
OF THE INVENTION TO THE EMPLOYER'S BUSINESS, OR ACTUAL OR
DEMONSTRABLY ANTICIPATED RESEARCH OR DEVELOPMENT OF THE EMPLOYER.
b) RESULT FROM ANY WORK PERFORMED BY THE EMPLOYEE FOR THE
EMPLOYER.
2. TO THE EXTENT A PROVISION IN AN EMPLOYMENT AGREEMENT PURPORTS
TO REQUIRE AN EMPLOYEE TO ASSIGN AN INVENTION OTHERWISE EXCLUDED FROM
BEING REQUIRED TO BE ASSIGNED UNDER SUBDIVISION (i), THE PROVISION IS
AGAINST THE PUBLIC POLICY OF THIS STATE AND IS UNENFORCEABLE.
B. GOVERNMENT. I also assign to or as directed by the Company all my
right, title and interest in and to any and all Inventions, full title to
which is required to be in the United States by a contract between the
Company and the United States or any of its agencies.
C. WORKS FOR HIRE. I acknowledge that all original works of authorship
which are made by me (solely or jointly with others) within the scope of my
employment and which are protectable by copyright are "works made for
hire," as that term is defined in the United States Copyright Act (17
U.S.C., Section 101).
<PAGE>
4. ENFORCEMENT OF PROPRIETARY RIGHTS. I will assist the Company in every
proper way to obtain and from time to time enforce United States and foreign
Proprietary Rights relating to Company Inventions in any and all countries. To
that end I will execute, verify and deliver such documents and perform such
other acts as the Company may reasonably request for use in applying for,
obtaining, perfecting, evidencing, sustaining and enforcing such Proprietary
Rights and the assignment thereof. In addition, I will execute, verify and
deliver assignments of such Proprietary Rights to the Company or its designee.
My obligation to assist the Company with respect to Proprietary Rights relating
to such Company Inventions in any and all countries shall continue beyond the
termination of my employment, but the Company shall compensate me at a
reasonable rate after my termination for the time actually spent by me at the
Company's request on such assistance.
5. In the event the Company is unable for any reason, after reasonable
effort, to secure my signature on any document needed in connection with the
actions specified in the preceding paragraph, I hereby irrevocably designate and
appoint the Company and its duly authorized officers and agents as my agent and
attorney in fact, which appointment is coupled with an interest, to act for and
in my behalf to execute, verify and file any such documents and to do all other
lawfully permitted acts to further the purposes of the preceding paragraph with
the same legal force and effect as if executed by me. I hereby waive and
quitclaim to the Company any and all claims, of any nature whatsoever, which I
now or may hereafter have for infringement of any Proprietary Rights assigned
hereunder to the Company.
6. RETURN OF COMPANY DOCUMENTS. When I leave the employ of the Company, I
will deliver to the Company any and all drawings, notes, memoranda,
specifications, devices, formulas, and documents, together with all copies
thereof, and any other material containing or disclosing any Company Inventions,
Third Party Information or Proprietary Information of the Company. I further
agree that any property situated on the Company's premises and owned by the
Company, including disks and other storage media, filing cabinets or other work
areas, is subject to inspection by Company personnel at any time with or without
notice. Prior to leaving, I will cooperate with the Company in completing and
signing the Company's current termination statement for technical and management
personnel.
7. NOTICES. Any notices required or permitted hereunder shall be given to
the appropriate party at the address specified below or at such other address as
the party shall specify in writing. Such notice shall be deemed given upon
personal delivery to the appropriate address or if sent by certified or
registered mail, three (3) days after the date of mailing.
8. GENERAL PROVISIONS.
A. GOVERNING LAW. This Agreement will be governed by and construed
according to the laws of the State of California.
B. ENTIRE AGREEMENT. This Agreement is the final, complete and
exclusive agreement of the parties with respect to the subject matter
hereof and supersedes and merges all prior discussions between us. No
modification of or amendment to this Agreement, nor any waiver of any
rights under this Agreement, will be effective unless in writing and signed
by the party to be charged. Any subsequent change or changes in my duties,
salary or compensation will not affect the validity or scope of this
Agreement. As used in this Agreement, the period of my employment includes
any time during which I may be retained by the Company as a consultant.
<PAGE>
C. SEVERABILITY. If one or more of the provisions in this Agreement
are deemed unenforceable by law, then such provision will be deemed
stricken from this Agreement and the remaining provisions will continue in
full force and effect.
D. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my
heirs, executors, administrators and other legal representatives and will
be for the benefit of the Company, its successors, and its assigns.
E. SURVIVAL. The provisions of this Agreement shall survive the
termination of my employment and the assignment of this Agreement by the
Company to any successor in interest or other assignee.
F. WAIVER. No waiver by the Company of any breach of this Agreement
shall be a waiver of any preceding or succeeding breach. No waiver by the
Company of any right under this Agreement shall be construed as a waiver of
any other right. The Company shall not be required to give notice to
enforce strict adherence to all terms of this Agreement.
I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. I HAVE
COMPLETELY FILLED OUT EXHIBIT A TO THIS AGREEMENT.
Dated: Jan 4, 1999 /s/ John R. Witzel
---------------- ----------------------------
Signature
John R. Witzel
----------------------------
(Printed Name)
<PAGE>
STAC, INC.
EXHIBIT B
NOTICE OF RESIGNATION
To: The Board of Directors of Stac, Inc.
I hereby tender my resignation as Vice President of Finance, Chief
Financial Officer and Secretary of Stac Software, Inc. Pursuant to the terms and
conditions of the Severance Agreement between Stac and me signed January 4,
1999, this resignation becomes effective as of the date below.
/s/ John R. Witzel Jan 4, 1999
- ------------------------ ----------------
John R. Witzel Date
<PAGE>
STAC, INC.
EXHIBIT C
STOCK OPTIONS OUTSTANDING
<TABLE>
PERSONNEL OPTION STATUS STAC Page: 1
ID 953825313 File: Optstmt
12636 High Bluff Drive Date: 1/3/99
(619) 794-4300 Time: 3:07:52 PM
AS OF 1/4/99
JOHN WITZEL ID: ###-##-####
972 ARCHER STREET
SAN DIEGO, CA USA 92109
<CAPTION>
=====================================================================================================================
Option
Number Date Plan Type Granted Price Exercised Vested Cancelled Unvested Outstanding Exercisable
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
000011 9/14/88 1989 NQ 422,100 $0.0300 422,100 422,100 0 0 0 0
000018 7/27/89 1989 ISO 253,260 $0.0600 253,260 253,260 0 0 0 0
000044 9/26/91 1989 ISO 168,840 $0.0600 168,840 168,840 0 0 0 0
000132 10/22/93 1992 NQ 422,100 $0.6500 0 422,100 0 0 422,100 422,100
000917 1/29/97 1992 ISO 280,848 $1.5400 0 156,387 0 124,461 280,848 156,387
000918 1/29/97 1992 NQ 225,672 $1.5400 0 128,529 0 97,143 225,672 128,529
--------- --------- --------- --------- -------- ----------- -----------
1,772,820 844,200 1,551,216 0 221,604 928,620 707,016
</TABLE>
<TABLE>
====================================================================================================================
Information Currently on File
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Tax Rate % Broker Registration Alternate Address
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Federal 28.00
CA-State 6.00
Medicare 1.45
Social Security 6.20
</TABLE>
<PAGE>
STAC, INC.
EXHIBIT D
TRANSFERRED ASSETS IN MR. WITZEL'S POSSESSION
Hewlett Packard IIIP Printer
Dell desktop computer used by him in his office
IBM Thinkpad computer - Type 2625, Def S/N 78-WYG38 96/06
<PAGE>
Exhibit 10.3 1992 Non-Employee Directors' Stock Option Plan
STAC SOFTWARE, INC.
1992 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Adopted on March 13, 1992
As Amended by the Board of Directors on
December 2, 1994, January 22, 1999, and March 4, 1999
1. PURPOSE.
--------
(a) The purpose of the 1992 Non-Employee Directors' Stock Option Plan (the
"Plan") is to provide a means by which each director of Stac Software,
Inc., a Delaware corporation (the "Company"), who is not otherwise an
employee of the Company or of any Affiliate of the Company (each such
person being hereafter referred to as a "Non-Employee Director") will
be given an opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company as those terms are defined in
Sections 424(e) and (f), respectively, of the Internal Revenue Code of
1986, as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to
secure and retain the services of persons capable of serving in such
capacity, and to provide incentives for such persons to exert maximum
efforts for the success of the Company.
(d) The Company intends that the options issued under the Plan not be
incentive stock options as that term is used in Section 422 of the
Code.
2. ADMINISTRATION.
--------------
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates
administration to a committee, as provided in subparagraph 2(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) To construe and interpret the Plan and options granted under it,
and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may
correct any defect, omission or inconsistency in the Plan or in
any option agreement, in a manner and to the extent it shall deem
necessary or expedient to make the Plan fully effective.
(2) To amend the Plan as provided in paragraph 11.
(3) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best
interests of the Company.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the
"Committee"). If administration is delegated to a Committee, the
Committee shall have, in connection with the administration of the
Plan, the powers theretofore possessed by the Board, subject, however,
to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the
administration of the Plan.
<PAGE>
3. SHARES SUBJECT TO THE PLAN.
---------------------------
(a) Subject to the provisions of paragraph 10 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to options
granted under the Plan shall not exceed in the aggregate eight hundred
ninety-three thousand seven hundred five (893,785) shares of the
Company's Common Stock. If any option granted under the Plan shall for
any reason expire or otherwise terminate without having been exercised
in full, the stock not purchased under such option shall revert to and
again become available for issuance pursuant to exercises of options
granted under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. ELIGIBILITY.
------------
Options shall be granted only to Non-Employee Directors of the Company.
5. NON-DISCRETIONARY GRANTS.
-------------------------
(a) Each person who is, after March 4, 1999, elected for the first time by
the Board or stockholders of the Company to serve as a Non-Employee
Director of the Company and who has not previously served as a member
of the Board shall, upon the date of such election, be granted an
option (on the terms and conditions set forth herein) to purchase
sixty thousand (60,000) shares of the Company's Common Stock
(hereinafter referred to as an "Initial Election Option"); provided
that each person elected between January 1, 1999 and March 4, 1999 for
the first time by the Board or stockholders of the Company to serve as
a Non-Employee Director of the Company and who received a grant of an
option to purchase twenty five thousand (25,000) shares upon election,
shall be granted as of March 4, 1999, an option (on the terms and
conditions set forth herein) to purchase thirty five thousand (35,000)
additional shares so that each of such persons as of March 4, 1999
shall have been granted options to purchase an aggregate sixty
thousand (60,000) shares of the Company's Common Stock, all of which
shall constitute such each such person's Initial Election Option.
(b) Each person has who previously served as a member of the Board
(whether or not as a Non-Employee Director) and who is, after March 4,
1999, re-elected by the Board or stockholders of the Company to serve
as a Non-Employee Director of the Company shall, upon the date of such
re-election be granted an option (on the terms and conditions set
forth herein) to purchase fifteen thousand (15,000) shares of the
Company's Common Stock (hereinafter referred to as a "Re-Election
Option").
6. OPTION PROVISIONS.
------------------
Each option shall contain the following terms and conditions:
(a) No option shall be exercisable after the expiration of ten (10) years
from the date it was granted.
(b) The exercise price of each option shall be equal to the fair market
value on the date of grant (the "Grant Date") of the stock subject to
such option. For purposes of this Plan, "fair market value" means, as
of any date, the value of the common stock of the Company determined
as follows:
<PAGE>
(1) If the common stock is listed on any established stock exchange
or a national market system, including without limitation the
National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") System, the fair
market value of a share of common stock shall be the closing
price of the common stock on such exchange or national market
system on the date as of which the determination is to be made
(or, if such date is not a trading day on such exchange or
system, on the date that is the first preceding market trading
day prior to the date as of which the determination is to be
made);
(2) If the common stock is quoted on the NASDAQ System (but not on
the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported,
the fair market value of a share of common stock shall be the
closing price of the common stock on the date as of which the
determination is to be made (or, if such date is not a trading
day on such exchange or system, on the date that is the first
preceding market trading day prior to the date as of which the
determination is to be made), as reported in the Wall Street
Journal or such other source as the Board deems reliable;
(3) In the absence of an established market for the common stock, the
fair market value shall be determined in good faith by the Board.
(c) The purchase price of stock acquired pursuant to an option shall be
paid, to the extent permitted by applicable statutes and regulations,
either (4) in cash at the time the option is exercised, or (5) by
delivery to the Company of shares of the Company's Common Stock that
have been held for the requisite period necessary to avoid a charge to
the Company's reported earnings and valued at the fair market value on
the date of exercise, or (3) by a combination of such methods of
payment.
(d) An option shall not be transferable except by will or by the laws of
descent and distribution, and shall be exercisable during the lifetime
of the person to whom the option is granted only by such person or by
his guardian or legal representative.
(e) Shares subject to options granted pursuant to the Plan shall become
issuable upon exercise of such options in accordance with their terms
("vest") with respect to each optionee as follows:
i. Each Initial Election Option shall vest in five (5) equal
installments, according to the following schedule:
o 12,000 shares shall vest immediately prior to the date of
the first Annual Meeting of Stockholders of the Company following the date of
grant of such Option (the "Initial Vesting Annual Meeting"); and
o An additional 12,000 shares shall vest immediately prior to
the date of each Annual Meeting of Stockholders of the Company that is held
following the Initial Vesting Annual Meeting; and
ii. Each Re-Election Option shall vest in four (4) equal
installments, according to the following schedule:
o 3,750 shares shall vest immediately prior to the date of the
each Annual Meeting of Stockholders of the Company following the date of grant
of such Option;
provided, however, that no such option shall vest as set forth above in
paragraphs 6(e)(i) and (ii) unless the optionee has, during the entire period
prior to each applicable vesting date, continuously served as a Non-Employee
Director of the Company or any Affiliate of the Company.
<PAGE>
(f) The Company may require any optionee, or any person to whom an option
is transferred under subparagraph 6(d), as a condition of exercising
any such option: (1) to give written assurances satisfactory to the
Company as to the optionee's knowledge and experience in financial and
business matters; and (2) to give written assurances satisfactory to
the Company stating that such person is acquiring the stock subject to
the option for such person's own account and not with any present
intention of selling or otherwise distributing the stock. These
requirements, and any assurances given pursuant to such requirements,
shall be inoperative if (i) the issuance of the shares upon the
exercise of the option has been registered under a
then-currently-effective registration statement under the Securities
Act of 1933, as amended (the "Securities Act"), or (ii), as to any
particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances
under the then-applicable securities laws.
(g) Notwithstanding anything to the contrary contained herein, an option
may not be exercised unless the shares issuable upon exercise of such
option are then registered under the Securities Act or, if such shares
are not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration
requirements of the Securities Act.
7. COVENANTS OF THE COMPANY.
-------------------------
(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock
required to satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be
required to issue and sell shares of stock upon exercise of the
options granted under the Plan; provided, however, that this
undertaking shall not require the Company to register under the
Securities Act either the Plan, any option granted under the Plan, or
any stock issued or issuable pursuant to any such option. If the
Company is unable to obtain from any such regulatory commission or
agency the authority which counsel for the Company deems necessary for
the lawful issuance and sale of stock under the Plan, the Company
shall be relieved from any liability for failure to issue and sell
stock upon exercise of such options.
8. USE OF PROCEEDS FROM STOCK.
---------------------------
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
9. MISCELLANEOUS.
--------------
(a) Neither an optionee nor any person to whom an option is transferred
under subparagraph 6(d) shall be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares subject
to such option unless and until such person has satisfied all
requirements for exercise of the option pursuant to its terms.
(b) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Non-Employee Director any right to continue in
the service of the Company or any Affiliate or shall affect any right
of the Company, its Board or stockholders or any Affiliate to
terminate the service of any Non-Employee Director with or without
cause.
(c) No Non-Employee Director, individually or as a member of a group, and
no beneficiary or other person claiming under or through him, shall
have any right, title or interest in or to any option reserved for the
purposes of the Plan except as to such shares of Common Stock, if any,
as shall have been reserved for him pursuant to an option granted to
him.
<PAGE>
(d) In connection with each option made pursuant to the Plan, it shall be
a condition precedent to the Company's obligation to issue or transfer
shares to a Non-Employee Director, or an affiliate of such
Non-Employee Director, or to evidence the removal of any restrictions
on transfer, that such Non-Employee Director make arrangements
satisfactory to the Company to insure that the amount of any federal
or other withholding tax required to be withheld with respect to such
sale or transfer, or such removal or lapse, is made available to the
Company for timely payment of such tax.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
----------------------------------
(a) If any change is made in the stock subject to the Plan, or subject to
any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property
other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or
otherwise), the Plan and outstanding options will be appropriately
adjusted in the class(es) and maximum number of shares subject to the
Plan and the class(es) and number of shares and price per share of
stock subject to outstanding options.
(b) In the event of: (1) a dissolution or liquidation of the Company; (2)
a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the
surviving corporation but the shares of the Company's Common Stock
outstanding immediately preceding the merger are converted by virtue
of the merger into other property, whether in the form of securities,
cash or otherwise; or (4) any other capital reorganization in which
more than fifty percent (50%) of the shares of the Company entitled to
vote are exchanged, then to the extent permitted by applicable law,
the time during which such options may be exercised shall be
accelerated and the options terminated if not exercised prior to such
event.
11. AMENDMENT OF THE PLAN.
----------------------
(a) The Board at any time, and from time to time, may amend the Plan,
provided, however, that the Board shall not amend the plan more than
once every six months, with respect to the provisions of the plan
which relate to the amount, price and timing of grants, other than to
comport with changes in the Code, the Employee Retirement Income
Security Act, or the rules thereunder. Except as provided in paragraph
10 relating to adjustments upon changes in stock, no amendment shall
be effective unless approved by the stockholders of the Company within
twelve (12) months before or after the adoption of the amendment,
where the amendment will:
(1) Increase the number of shares reserved for options under the
Plan;
(2) Modify the requirements as to eligibility for participation in
the Plan (to the extent such modification requires stockholder
approval in order for the Plan to comply with the requirements of
Rule 16b-3 promulgated under the Exchange Act); or
(3) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act.
(b) Rights and obligations under any option granted before any amendment
of the Plan shall not be altered or impaired by such amendment of the
Plan unless (i) the Company requests the consent of the person to whom
the option was granted and (ii) such person consents in writing.
<PAGE>
12. TERMINATION OR SUSPENSION OF THE PLAN.
--------------------------------------
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on March 12, 2002. No options may
be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) Rights and obligations under any option granted while the Plan is in
effect shall not be altered or impaired by suspension or termination
of the Plan, except with the consent of the person to whom the option
was granted.
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
-----------------------------------------------
(a) The Plan shall become effective upon adoption by the Board of
Directors, subject to the condition subsequent that the Plan is
approved by the stockholders of the Company.
(b) No option granted under the Plan shall be exercised or exercisable
unless and until the condition of subparagraph 13(a) above has been
met.
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<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
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0
0
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