-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BDLOeV4dC/gn8fGB9WCYCemopB2buSHaYqBNGph4kSBmzHySc5ZvT25auzMhqHBk wfkjdCk31zv0eLpLDZVufA== 0000891618-98-002345.txt : 19980514 0000891618-98-002345.hdr.sgml : 19980514 ACCESSION NUMBER: 0000891618-98-002345 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980513 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEEQ TECHNOLOGY INC CENTRAL INDEX KEY: 0000702756 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 942711298 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11778 FILM NUMBER: 98618310 BUSINESS ADDRESS: STREET 1: 47200 BAYSIDE PARKWAY CITY: FREMONT STATE: CA ZIP: 94538 BUSINESS PHONE: 5102267400 MAIL ADDRESS: STREET 1: 47200 BAYSIDE PARKWAY CITY: FREMONT STATE: CA ZIP: 94538 10-Q 1 FORM 10-Q 1 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended March 31, 1998 [ ] 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: 0-11778 -------------------- SEEQ TECHNOLOGY INCORPORATED (Exact name of registrant as specified in its charter) Delaware 94-2711298 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 47200 Bayside Parkway Fremont, California 94538 (510) 226-7400 (Address, including zip code, of Registrant's principal executive offices and 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 issuer's classes of common stock, as of the latest practicable date. Common Stock, $0.01 par value 30,651,180 (Class of common stock) (Shares outstanding at March 31, 1998) - -------------------------------------------------------------------------------- This report on Form 10-Q, including all exhibits, contains 14 pages. 1 2 SEEQ TECHNOLOGY INCORPORATED FORM 10-Q Table of Contents
PAGE PART I. FINANCIAL INFORMATION Item 1. Condensed Financial Statements ......................................................... 3 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations .. 8 PART II. OTHER INFORMATION Item 1. Legal Proceedings ..................................................................... 12 Item 2. Changes in Securities ................................................................. 12 Item 3. Defaults upon Senior Securities ....................................................... 12 Item 4. Submission of Matters to a Vote of Security Holders ................................... 13 Item 5. Other Information ..................................................................... 13 Item 6. Exhibits and Reports on Form 8-K ...................................................... 13
2 3 This Quarterly Report of Form 10-Q may contain forward-looking statements that involve risks and uncertainties. The Company's actual results may differ materially from the results discussed in any such forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed under the captions "Legal Proceedings" and "Factors Affecting Operating Results" contained herein and under the caption "Business Risks" in the Company's fiscal 1997 annual report on Form 10-K. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SEEQ TECHNOLOGY INCORPORATED CONDENSED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
Three months ended Six months ended Mar. 31, Mar. 31, Mar. 31, Mar. 31, 1998 1997 1998 1997 -------- -------- -------- -------- Revenues $7,880 $8,031 $15,432 $14,655 Cost of revenues 4,442 5,059 8,625 9,619 Gross profit 3,438 2,972 6,807 5,036 Operating expense Research and development 1,072 902 1,922 1,682 Marketing, general and 1,445 1,444 2,979 2,696 administrative Total operating expenses 2,517 2,346 4,901 4,378 Income from operations 921 626 1,906 658 Interest expense (80) (87) (168) (170) Interest and other income, net 164 95 299 181 Income before income taxes 1,005 634 2,037 669 Income tax (provision), benefit (32) (20) 16 (21) Net income $973 $614 $2,053 $648 ======== ======== ======== ======== Net income per share: Basic $0.03 $0.02 $0.07 $0.02 Diluted $0.03 $0.02 $0.06 $0.02 Shares used in per share calculation: Basic 30,624 30,288 30,549 30,280 Diluted 32,020 31,571 32,321 31,742 -------- -------- -------- --------
See accompanying notes to condensed financial statements. 3 4 SEEQ TECHNOLOGY INCORPORATED CONDENSED BALANCE SHEETS (In thousands) (Unaudited) CONSOLIDATED BALANCE SHEETS
MARCH 31, SEPTEMBER 30, (Thousands, except share amounts) 1998 1997 ------- ------- ASSETS Current assets: Cash and cash equivalents $10,286 6,937 Accounts receivable, less allowances 5,590 7,284 Inventories 4,330 3,176 Deferred tax asset 2,029 1,950 Other current assets 337 332 ------- ------- Total current assets 22,572 19,679 ------- ------- Property and equipment, net 4,973 4,384 Other assets 2,875 2,977 ------- ------- $30,420 $27,040 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $2,335 $1,582 Accrued salaries, wages and employee benefits 684 698 Other accrued liabilities 676 997 Deferred income on sales to distributors 227 146 Current portion of capitalized lease obligations 1,422 1,091 ------- ------- Total current liabilities 5,344 4,514 ------- ------- Long-term liabilities 3,491 3,308 ------- ------- Total stockholders' equity 21,585 19,218 ------- ------- $30,420 $27,040 ======= =======
See accompanying notes to condensed financial statements. 4 5 SEEQ TECHNOLOGY INCORPORATED CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Six months ended ----------------------- Mar. 31, Mar. 31, 1998 1997 -------- -------- OPERATING ACTIVITIES: Net income $ 2,053 $ 648 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 916 743 Deferred taxes (79) -- Changes in assets and liabilities: Accounts receivable 1,694 2,212 Inventories (1,154) (152) Prepaid expenses and other assets (110) (162) Accounts payable 753 (2,740) Accrued liabilities and long term obligations (335) 26 -------- -------- Net cash provided by (used for) operating activities 3,738 575 -------- -------- INVESTING ACTIVITIES: Capital expenditures (125) (25) -------- -------- Net cash provided by (used for) investing activities (125) (25) -------- -------- FINANCING ACTIVITIES: Payments of capital lease obligations (578) (470) Proceeds from issuance of stock 314 82 -------- -------- Net cash used for financing activities (264) (388) -------- -------- Net increase (decrease) in cash and cash equivalents 3,349 162 Cash and cash equivalents at beginning of period 6,937 3,974 -------- -------- Cash and cash equivalents at end of period $ 10,286 $ 4,136 ======== ========
See accompanying notes to condensed financial statements. 5 6 SEEQ TECHNOLOGY INCORPORATED NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. BASIS OF PRESENTATION The accompanying unaudited condensed financial statements of SEEQ Technology Incorporated ("SEEQ" or the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the rules and regulations of the Securities and Exchange Commission. 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 financial statements and the notes thereto included in the Company's Annual Report to Stockholders for the fiscal year ended September 30, 1997. These financial statements reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations as of and for the periods indicated. The results of operations for the six months ended March 31, 1998 are not necessarily indicative of the results expected for the year ending September 30, 1998. For purposes of presentation, the Company has shown its fiscal quarters as ending on December 31, March 31, June 30 and September 30; whereas, in fact, the Company operates on a 52/53-week fiscal year ending on the last Sunday in September of each year. The fiscal quarter ends are actually December 28, March 29, June 28 and September 27 for the year ending September 30, 1998, and actually December 29, March 30, June 29 and September 28 for the year ending September 30, 1997. NOTE 2. INVENTORIES Inventories were comprised of the following:
Mar. 31, Sep. 30, 1998 1997 -------- -------- (in thousands) Work in process $1,243 $ 437 Finished goods 3,087 2,739 ------ ------ $4,330 $3,176 ====== ======
NOTE 3. NON-RECURRING PRODUCTION TRANSFER COSTS Non-recurring costs such as tooling and engineering costs resulting from transferring production of current products to new foundries are capitalized and amortized to cost of revenues over the shorter of: the remaining life of the product, the term of the foundry agreement or two years. Non-recurring costs which are associated with the development of new products are expensed as research and development costs when incurred. During the six month period ended March 31, 1998 the Company did not capitalize any of such costs. During the six month period ended March 31, 1997 the Company capitalized $250,000 of non-recurring production transfer costs. Amortization of aggregate capitalized non-recurring costs for the six month periods ended March 31, 1998 and March 31, 1997 was $207,000 and $245,000, respectively. 6 7 NOTE 4. NET INCOME PER SHARE Diluted net income per share for the six month periods ended March 31, 1998 and March 31, 1997 was determined using the treasury stock method. Diluted net income per common share is computed using the weighted average number of shares outstanding during the respective periods, including dilutive stock options and warrants. The effect of such shares are excluded from the computation if their effect is anti-dilutive. The Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128") during the first quarter of fiscal 1998. This statement simplifies the standards for computing earnings per share (EPS) previously defined in Accounting Principles Board Opinion No. 15 "Earnings Per Share." All prior-period earnings per share data has been restated in accordance with SFAS 128. SFAS 128 requires presentation of both Basic EPS and Diluted EPS on the face of the income statement. Basic EPS is computed by dividing net income available to common stockholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury stock method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options. Following is a reconciliation of the numerators and denominators of the Basic and Diluted EPS computations for the periods presented below: (In thousands, except per share amounts)
Three Months Ended Six Months Ended -------------------- -------------------- March 31, March 31, March 31, March 31, 1998 1997 1998 1997 ------ ------ ------ ------ Net income available to common stockholders (numerator) $ 973 $ 614 $2,053 $ 648 Shares calculation (denominator): Weighted average shares outstanding 30,624 30,288 30,549 30,280 Effect of dilutive securities: Options 1,396 1,283 1,772 1,462 ------ ------ ------ ------ Average shares outstanding assuming dilution 32,020 31,571 32,321 31,742 ====== ====== ====== ====== Basic earnings per share $ 0.03 $ 0.02 $ 0.07 $ 0.02 ====== ====== ====== ====== Diluted earnings per share $ 0.03 $ 0.02 $ 0.06 $ 0.02 ====== ====== ====== ======
Options to purchase 621,000 and 987,000 shares of common stock were outstanding during the three month periods ended March 31, 1998 and March 31, 1997 respectively but were not included in the computations of diluted EPS as the option exercise price was higher than the average market price of the common shares. Options to purchase 383,000 and 709,000 shares of common stock were outstanding during the six month periods ended March 31, 1998 and March 31, 1997 respectively but were not included in the computations of diluted EPS as the option exercise price was higher than the average market price of the common shares. 7 8 NOTE 5. LITIGATION On November 28, 1995, Level One Communications Incorporated ("Level One") filed a complaint against the Company, in the United States District Court of Northern California, alleging patent infringement. In the complaint, Level One claims that the Company has used and sold products in violation of two of Level One's patents. Level One seeks immediate and permanent injunctive relief preventing the Company from making, using, or selling any devices that infringe such patents and unspecified damages. The Company intends to vigorously contest all of Level One's claims. Based on the Company's review to date, management believes that it has meritorious defenses to the claims asserted by Level One; however, there can be no assurance that the outcome of these legal proceedings will not have a material adverse effect on the Company's financial position or results of operations. Patent litigation is often highly complex, can extend for a protracted period of time, can involve substantial cost to the Company and may divert the attention of the Company's management and technical personnel, which can substantially increase the cost of such litigation. There can be no assurance that such costs and diversion of resources will not have a material adverse effect on the Company's business, financial condition and results of operations. On January 21, 1998, the Court ruled upon certain motions filed by SEEQ. SEEQ had filed motions to declare all asserted claims of the Level One patents in the suit as invalid in view of certain prior art. As to these motions, the Court denied SEEQ's request. SEEQ also had requested leave to amend its counterclaim to add SEEQ's U.S. Patent 5,504,738. SEEQ asserts that Level One's products, including the LXT 970 product, infringe the `738 patent in the manner in which these products incorporate an auto-negotiate feature. The Court granted SEEQ's motion to amend. Currently, the Level One litigation involves two Level One patents and SEEQ's `738 patent. The Court has set a trial date for August, 1998. No other motions are currently pending. There can be no assurance that such costs and diversion of resources will not have a material adverse effect on the Company's business, financial condition and results of operations. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Interim Condensed Financial Statements and Notes thereto and the SEEQ Technology Incorporated Annual Report and Form 10-K for the fiscal year ended September 30, 1997. This Quarterly Report of Form 10-Q contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ materially from the results discussed in any such forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed under the captions "Legal Proceedings" and "Factors Affecting Operating Results" contained herein and under the caption "Business Risks" in the Company's fiscal 1997 annual report on Form 10-K. RESULTS OF OPERATIONS Revenues Net revenues were $7,880,000 in the second quarter of fiscal 1998, a decrease of $151,000 or 2% compared to net revenues of $8,031,000 for the second quarter of fiscal 1997. Net revenues were $15,432,000 in the six month period ended March 31, 1998 compared to $14,655,000 for the six month period ended March 31, 1997, an increase of $777,000 or 5%. In the second quarter of fiscal 1998, products servicing the Fast Ethernet market accounted for approximately 77% of revenues compared to 48% of revenues for the second quarter of fiscal 1997. Revenues from Fast Ethernet products were approximately 69% and 46% of total revenues for the six month periods ended March 31, 1998 and 1997, respectively. 8 9 Gross Product Margins The Company includes in cost of revenues all costs associated with subcontractor manufacturing, electrical testing, subcontractor assembly and final test of its integrated circuits and subsystems, warehousing, shipping, product returns and reserves for inventory obsolescence. Allowances for product returns are netted against revenues. Gross profit for the second quarter of fiscal 1998 was $3,438,000 or 44% of net revenues, an increase of $466,000 over the second quarter of fiscal 1997's gross profit of $2,972,000 or 37% of net revenues. For the six month period ended March 31, 1998, the gross profit margin was $6,807,000 or 44% of net revenues, compared to $5,036,000 or 34% of revenues for the comparable period of fiscal 1997. The increase in gross profit margins is primarily attributable to changes in product mix, a decline in low margin 10Mbps transceiver revenues, a shift to higher margin products and lower production costs, all of which were partially offset by the under-utilization of manufacturing capacity. Gross margins in future periods will be affected primarily by revenue levels and changes in product mix, average selling prices, factory utilization, wafer yields, the introduction of new products, and changes in manufacturing costs. Research and Development Research and development expenditures increased $170,000 from $902,000 in the second quarter of fiscal 1997 to $1,072,000 in the second quarter of fiscal 1998 primarily due to an increase in outside consulting services for new product development, partly offset by lower tooling and payroll costs. For the six month periods ended March 31, 1997 and 1998, research and development expenses increased $240,000 from $1,682,000 to $1,922,000, respectively. As a percentage of net revenues, research and development expenditures increased from 11% in the second quarter of fiscal 1997 to 14% in the second quarter of fiscal 1998 and from 11% to 12% for the six month periods ended March 31, 1997 and 1998, respectively. The Company expects that the level of research and development spending will increase in absolute dollars in the next several quarters as a result of increased development efforts on new LAN products, but may vary as a percentage of net revenues. Marketing, General and Administrative Expenses Marketing, general and administrative expenses increased from $1,444,000, or 18% of revenues in the second quarter of fiscal 1997 to $1,445,000, or 18% or revenues in the second quarter of fiscal 1998, as higher legal and employment fees were offset by lower commissions and payroll costs. For the six month periods ended March 31, 1997 and 1998, marketing, general and administrative expenses increased from $2,696,000, or 18% of revenues to $2,979,000, or 19% or revenues, respectively. This dollar increase is primarily attributable to higher payroll, recruitment, and travel and entertainment expenses. The Company anticipates that the level of marketing, general and administrative expenses will vary in future periods based on expected revenue growth. Interest and other, net Interest and other income, net increased from $95,000 in the second quarter of fiscal 1997 to $164,000 in the second quarter of fiscal 1998 and increased from $181,000 for the six months ended March 31, 1997 to $299,000 for the six months ended March 31, 1998. The fluctuations in interest income are directly affected by average cash balances. Interest expense decreased from $87,000 in the second fiscal quarter of 1997 to $80,000 in the second quarter of fiscal 1998. Interest expense decreased from $170,000 for the six months ended March 31, 1997 to $168,000 for the six months ended March 31, 1998. Income Taxes The provision for income taxes increased from $20,000 in the second quarter of fiscal 1997 to $32,000 in the second quarter of fiscal 1998. For the first six months of fiscal 1998 the Company recognized a portion of its deferred tax asset in the amount of $79,000. This was partially offset by a 9 10 provision of $63,000 for income taxes. For the first six months of fiscal 1997 the Company recorded a provision of $21,000 for income taxes. The Company's provisions were computed by applying the estimated annual tax rate to income taxes, taking into account net operating loss carryforwards and alternative minimum taxes. FACTORS AFFECTING OPERATING RESULTS The Company's quarterly operating results have varied significantly in the past and are likely to vary significantly in the future, depending on a number of factors, many of which are outside the control of the Company. A complete description of risk factors is contained in the Company's 1997 Annual Report on Form 10-K, in the section entitled "Risk Factors That May Affect Future Results." These factors include, among others, customer concentration, the timing of introduction of new products by the Company and its competitors, changes in the markets addressed by the Company's products, market acceptance of the Company's and its customers' products, the volume and timing of orders received, changes in the Company's product mix and customer base, the timing and extent of research and development expenditures, the availability and cost of semiconductor wafers from outside foundries, fluctuations in manufacturing yields, product obsolescence, price erosion, competitive factors, litigation expenses, cyclical semiconductor industry conditions and general economic conditions. The Company's net revenue and cost of revenues may vary depending upon the mix of products sold. Any unfavorable change in manufacturing yields or product mix, delays in new product introductions, under-utilization of manufacturing capacity, increased price competition or other factors could have a material adverse effect on the Company's operating results and financial condition. Historically, average selling prices in the semiconductor industry have decreased over the life of any particular product. There can be no assurance that the average selling prices of the Company's current or future products will not be subject to significant pricing pressures. In addition, the Company's business is characterized by short-term orders and shipment schedules, and customer orders typically can be cancelled or rescheduled without significant penalty to the customer. Due to the absence of significant non-cancelable backlog, the Company typically plans its production and inventory levels based on internal forecasts of customer demand, which are highly unpredictable and can fluctuate substantially. The Company is also limited in its ability to reduce costs quickly in response to any revenue shortfalls, which could have a material adverse effect on the Company's business, operating results and financial condition. Due to the foregoing factors, it is possible that in some future quarter the Company's operating results will be below the expectations of public market analysts and investors. In such event, the price of the Company's Common Stock would likely be materially adversely affected. The "Year 2000 issue" arises because most computer systems and programs were designed to handle only a two-digit year, not a four-digit year. When the Year 2000 begins, these computers may interpret "00" as the year 1900 and could either stop processing date-related computations or could process them incorrectly. The Company has recently updated its information systems and accordingly does not anticipate any internal Year 2000 issues from its own information systems, databases or programs. However, the Company could be adversely impacted by Year 2000 issues faced by major distributors, suppliers, customers, vendors and financial service organizations with which the Company interacts. LIQUIDITY AND CAPITAL RESOURCES The Company has satisfied its cash requirements principally through cash flow from operations, borrowings under bank lines of credit, capital lease financing and the public and private sale of securities. The Company believes that existing sources of liquidity, anticipated cash flow from operations, and borrowings under the Company's credit facility will be adequate to satisfy its cash requirements at least through the end of fiscal 1998. However, there can be no assurance that the Company will have adequate resources to satisfy such requirements. It may become necessary for the Company to raise funds from debt and/or equity financing. There can be no assurance that such funds will be available on terms acceptable to the Company, if at all. Issuance of additional equity securities could result in dilution to 10 11 stockholders. The inability to fund capital requirements would have a material adverse effect on the Company's business, financial condition and results of operations. The Company's cash and cash equivalents balance increased from $6,937,000 as of September 30, 1997 to $10,286,000 as of March 31, 1998, primarily from cash provided by operating activities, and partially offset by capital expenditures and payments of capital lease obligations. Operating Activities Cash flows provided by operating activities were $3,738,000 for the six months ended March 31, 1998 compared to $575,000 for the six months ended March 31, 1997. The increase is a result of higher net income and depreciation, and an increase in accounts payable, partially offset by lower collections of accounts receivable, higher inventories, and lower accrued liabilities. Investing Activities Cash flows used for investing activities were $125,000 during the first six months of fiscal 1998, compared to $25,000 for the first six months of fiscal 1997. Financing Activities Cash flows used for financing activities were $264,000 in the six month period ended March 31, 1998 compared to $388,000 in the six month period ended March 31, 1997. Net proceeds from the issuance of stock pursuant to stock options and the Company's employee periodic stock purchase plan were $314,000 for the first six months of fiscal 1998 compared to $82,000 for the first six months of fiscal 1997. Principal payments against capital lease obligations were $578,000 for the six months ended March 31, 1998 compared to $470,000 for the three months ended March 31, 1997. In August 1996, the Company entered into a one-year revolving line of credit agreement with Silicon Valley Bank. This credit agreement was renewed by the Company in July 1997. Under the terms of the revolving line of credit, the Company can borrow the lesser of $7,000,000 or an amount determined by a formula applied to eligible accounts receivable, at a variable interest rate equal to the prime rate plus 0.25%. The revolving line of credit is secured by a security interest in the Company's assets, including intellectual property and expires August 5, 1998. The loan agreement requires the Company to remain profitable each fiscal quarter and to maintain certain quarterly financial ratios. The loan agreement also requires the Company to maintain a level of tangible net worth which, in effect, limits the ability of the Company to make payments of cash dividends. There were no borrowings outstanding under this revolving line of credit as of March 31, 1998. 11 12 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On November 28, 1995, Level One Communications Incorporated ("Level One") filed a complaint against the Company, in the United States District Court of Northern California, alleging patent infringement. In the complaint, Level One claims that the Company has used and sold products in violation of two of Level One's patents. Level One seeks immediate and permanent injunctive relief preventing the Company from making, using, or selling any devices that infringe such patents and unspecified damages. The Company intends to vigorously contest all of Level One's claims. Based on the Company's review to date, management believes that it has meritorious defenses to the claims asserted by Level One; however, there can be no assurance that the outcome of these legal proceedings will not have a material adverse effect on the Company's financial position or results of operations. Patent litigation is often highly complex, can extend for a protracted period of time, can involve substantial cost to the Company and may divert the attention of the Company's management and technical personnel, which can substantially increase the cost of such litigation. There can be no assurance that such costs and diversion of resources will not have a material adverse effect on the Company's business, financial condition and results of operations. On January 21, 1998, the Court ruled upon certain motions filed by SEEQ. SEEQ had filed motions to declare all asserted claims of the Level One patents in the suit as invalid in view of certain prior art. As to these motions, the Court denied SEEQ's request. SEEQ also had requested leave to amend its counterclaim to add SEEQ's U.S. Patent 5,504,738. SEEQ asserts that Level One's products, including the LXT 970 product, infringe the `738 patent in the manner in which these products incorporate an auto-negotiate feature. The Court granted SEEQ's motion to amend. Currently, the Level One litigation involves two Level One patents and SEEQ's `738 patent. The Court has set a trial date for August, 1998. No other motions are currently pending. ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. 12 13 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On March 10, 1998 an Annual Meeting of Stockholders was held. The following Directors were elected at this meeting: Charles H. Giancarlo Alan V. Gregory Charles C. Harwood Phillip J. Salsbury Other matters voted Upon:
Votes -------------------------------------------- Affirmative Negative Abstain ---------- --------- ------- Proposal to amend Company's 23,347,509 2,226,780 188,908 Restated 1982 Stock Option Plan Proposal to amend Company's 22,441,261 3,167,469 154,467 1989 Non-employee Director Stock Option Plan Proposal to amend the 23,705,692 1,910,643 146,862 Company's Restated Periodic Purchase Plan Ratify the appointment of 25,592,385 118,329 52,483 Price Waterhouse LLP as independent accountants of the Company for the fiscal year ending September 28, 1998
ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 10.2.4 Restated Periodic Purchase Plan, as amended (incorporated herein by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1991). 10.2.5 Restated 1982 Stock Option Plan, as amended (incorporated herein by reference to Registrant's Form S-8 Registration Statement (33-6544) filed on July 2, 1993. 10.2.6 1989 Non-Employee Director Stock Option Plan (incorporated herein by reference to Registrant's Form S-8 Registration Statement (Registration No. 33- 35838) filed on July 11, 1990). 27.1 Financial Data Schedule (b) No reports on Form 8-K were filed for the period for which this report is being filed. 13 14 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. SEEQ TECHNOLOGY INCORPORATED (Registrant) Dated: May 8, 1998 By: /s/ Phillip J. Salsbury ------------------------------------ Phillip J. Salsbury President and Chief Executive Officer Dated: May 8 , 1998 By: /s/ Gary R. Fish ------------------------------------ Gary R. Fish Vice President, Finance, Chief Financial Officer and Secretary 14 15 INDEX TO EXHIBITS
Exhibit Number Description - ------ ----------- 10.2.4 Restated Periodic Purchase Plan, as amended (incorporated herein by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1991). 10.2.5 Restated 1982 Stock Option Plan, as amended (incorporated herein by reference to Registrant's Form S-8 Registration Statement (33-6544) filed on July 2, 1993. 10.2.6 1989 Non-Employee Director Stock Option Plan (incorporated herein by reference to Registrant's Form S-8 Registration Statement (Registration No. 33-35838) filed on July 11, 1990). 27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed for the period for which this report is being filed. EX-10.2.4 2 RESTATED PERIODIC PURCHASE PLAN 1 SEEQ TECHNOLOGY INCORPORATED RESTATED PERIODIC PURCHASE PLAN (As Amended February 15, 1987 and Further Amended October 25, 1988 and November, 1991 and January 1998) 1. PURPOSE. (a) The purpose of the Plan is to provide a means by which employees of SEEQ Technology Incorporated, a Delaware corporation (the "Company"), and one or more of its Affiliates (as defined in subparagraph 2(a)) designated as participating employers in accordance with subparagraph 3(b) may be given an opportunity to purchase stock of the Company. (b) The Company, by means of the Plan, seeks to retain the services of its employees, to secure and retain the services of new employees, and to provide incentives for such persons to exert maximum efforts for the success of the Company. (c) The Company intends that the rights to purchase stock of the Company granted under the Plan be considered options issued under an "employee stock purchase plan," as that term is defined in Section 423(b) of the Internal Revenue Code (the "Code"). 2. DEFINITIONS. (a) "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 Code. (b) "Base Compensation" shall mean a participant's wages, salaries, commissions and other amounts received for personal services rendered to the Company or an Affiliate as an employee. Base Compensation shall not include any amounts paid to a participant as a bonus or as overtime payments, nor shall there be included any similar payments such as Shift Differentials, Fab Bonuses or Extended Work Week Payments for supervisors, nor any contributions by the Company or an Affiliate on account of any participant under any employee benefit plan of the Company or Affiliate. 3. ADMINISTRATION. (a) The Plan shall be administered by a committee (the "Committee") of at least two non-employee members of the Board of Directors (the "Board"). The Committee shall have full authority to administer the Plan, including the authority to interpret and construe any provision of the Plan and to adopt such rules and regulations for administering the Plan as it may 2 deem necessary in order to comply with the requirements of Section 423 of the Code. Decisions of the Committee shall be final and binding on all parties who have an interest in the Plan. (b) The Board shall have the power to designate from time to time which Affiliates of the Company shall be eligible to adopt the Plan as participating employers and thereby extend the benefits of the Plan to their eligible employees. 4. SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of paragraph 13 relating to adjustments upon changes in stock, the stock that may be sold pursuant to rights granted under the Plan shall not exceed in the aggregate five hundred twenty thousand (520,000) shares(1) of the Company's Common Stock. If any right granted under the Plan shall for any reason terminate without having been exercised, the stock not purchased under such right shall again become available for sale under the Plan. (b) The maximum number of shares for which rights may be granted to any participant during any Offering shall not exceed 1,000 shares of the Company's Common Stock. (c) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 5. GRANT OF RIGHTS; OFFERING. (a) Stock shall be offered for purchase under the Plan through the grant of rights in a series of successive offerings (the "Offering") until such time as (i) the maximum number of shares of stock available for issuance under the Plan shall have been purchased or (ii) the Plan shall have been sooner terminated in accordance with paragraph 15. (b) Each Offering shall be of a duration of six (6) months (the "Purchase Period") and shall commence on the second day of April or October (the "Offering Date") and end on the first day of the next succeeding October or April, respectively (the "Exercise Date") unless otherwise provided by the Committee prior to the commencement of an Offering. The Board may terminate an Offering following any Exercise Date and recommence a new Offering at any subsequent date. (c) The right to purchase stock under each Offering shall be granted on the Offering Date and shall be automatically exercised on the Exercise Date of such Offering. (d) An employee who participates in the Plan for a particular Offering shall have the right to purchase the number of shares of stock purchasable with up to 10% of such employee's Base Compensation during the Purchase Period beginning with such Offering. - -------- (1) Includes a 100,000 share increase approved by the stockholders at the Company's 1998 Annual Meeting. From and after February 1, 1998, not more than 145,487 shares may be issued under the Plan, subject to adjustment under paragraph 13. 2 3 6. ELIGIBILITY. (a) Rights may be granted only to individuals who are, on the Offering Date, employees of the Company or of any Affiliate which is a participating employer in the Plan pursuant to subparagraph 3(b). In addition, no employee of the Company or such Affiliate shall be eligible to be granted rights under the Plan, unless, on the relevant Offering Date, such employee's customary employment with the Company or such Affiliate is at least twenty (20) hours per week and at least five (5) months per calendar year. (b) A director of the Company or a participating Affiliate shall not be eligible to be granted rights under the Plan unless such director is also an employee of the Company or such Affiliate. (c) No employee shall be eligible for the grant of any rights under the Plan if, immediately after any such rights are granted, such employee owns stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or of any Affiliate. For purposes of this subparagraph 6(c), the rules of Section 424(d) of the Code shall apply in determining the stock ownership of any employee, and stock which such employee may purchase under all outstanding rights and options shall be treated as stock owned by such employee. (d) An eligible employee may be granted rights under the Plan only if such rights, together with any other rights granted such employee under all "employee stock purchase plans" of the Company and any Affiliates, as specified by Section 423(b)(8) of the Code, do not permit such employee's rights to purchase stock of the Company or any Affiliate to accrue at a rate which exceeds $25,000 of fair market value of such stock (determined at the time such rights are granted) for each calendar year in which rights are outstanding at any time. 7. PURCHASE PRICE. (a) The purchase price of stock acquired pursuant to rights granted under the Plan shall be not less than the lesser of: (i) an amount equal to 85% of the fair market value of the stock on the Offering Date; or (ii) an amount equal to 85% of the fair market value of the stock on the Exercise Date, as defined in paragraph 9. (b) The fair market value of a share of the Common Stock on any date shall be the closing selling price of such share on such date, as officially quoted on the principal exchange on which the Common Stock is at the time traded or, if not traded on any exchange, the mean of the highest bid and the lowest asked prices (or, if such information is available, the closing selling price per share) of the Common Stock on such date, as reported on the Nasdaq system. If there are no sales of Common Stock on such day, then the closing selling price (or, to the extent applicable, the mean of the highest bid and lowest asked prices) for the Common 3 4 Stock on the next preceding day for which there do exist such quotations shall be determinative of fair market value. 8. PARTICIPATION; WITHDRAWAL; TERMINATION. (a) An eligible employee may become a participant in an Offering by delivering an agreement to the Company before the Offering Date, in such form as the Company provides. Each such agreement shall authorize payroll deductions of up to 10% of such employee's Base Compensation during the Purchase Period. The maximum number of shares a participant may purchase each offering shall be limited to 1,000 shares. The payroll deductions made for each participant shall be credited to an account for such participant under the Plan and shall be deposited with the general funds of the Company. A participant may not increase or begin such payroll deductions after the beginning of any Purchase Period; however he/she may, at any time during the Purchase Period, reduce the rate of his/her payroll deductions or suspend such deductions in their entirety. A participant may not make additional payments into his/her account. Once a participant's accumulated payroll deductions equal the amount necessary to purchase the maximum number of shares such participant can purchase under the Offering, such participant's payroll deductions will terminate for the remainder of the Purchase Period, but his/her purchase rights shall not be exercised until the Exercise Date for such Purchase Period. (b) If a participant stops his/her payroll deduction the participant has the option to (i) withdraw all funds in his/her payroll account; or (ii) have the funds held for purchase of shares at the next Exercise Date. A participant's withdrawal from an Offering will have no affect upon such participant's eligibility to participate in any other Offerings under the Plan. (c) Rights granted to a participant pursuant to any Offering under the Plan shall terminate immediately upon his/her cessation of Employee status, and all payroll deductions under the Plan collected from the participant during the Purchase Period in which such cessation of Employee status occurs shall be promptly refunded. However, should the participant die or become permanently disabled while in Employee status, then the participant or the person or persons to whom the rights of the deceased participant under the Plan are transferred by will or by the laws of descent and distribution (the "successor") shall have the election to (i) withdraw all the funds in the participant's payroll account at the time of his/her cessation of Employee status or (ii) have such funds held for purchase of shares at the next Exercise Date. In no event, however, shall any further payroll deductions be added to the participant's account following his/her cessation of Employee status. (d) A participant shall be deemed to continue in Employee status for so long as he/she remains in the employ of the Company or one or more of its Affiliates. A participant shall be deemed to be permanently disabled if he/she is unable, by reason of any medically 4 5 determinable physical or mental impairment expected to result in death or to be of continuous duration of at least twelve (12) months, to engage in any substantial gainful employment. (e) Rights granted under the Plan 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 such rights are granted, only by such person. 9. EXERCISE. (a) On each Exercise Date, each participant's accumulated payroll deductions will be automatically applied to the purchase of whole shares of Common Stock of the Company, up to the maximum number of shares permitted pursuant to subparagraph 4(b), at the purchase price stated in subparagraph 7(a). No fractional shares shall be issued upon the exercise of rights granted under the Plan. The amount, if any, of accumulated payroll deductions remaining in any participant's account after the purchase of shares which is less than the amount required to purchase one share of Common Stock on the Exercise Date of the Purchase Period shall be held in each such participant's account for the purchase of shares under the next Offering under the Plan. However, if (i) there is no further Offering provided for under the Plan or (ii) such participant withdraws from the next Offering (as provided in subparagraph 8(b)) or is no longer eligible to be granted rights under the Plan (as provided in paragraph 6), then such remaining amount shall be distributed to such participant as soon as practical after the Exercise Date, without interest. The amount, if any, of accumulated payroll deductions remaining in any participant's account after the purchase of the maximum number of shares purchasable for such Offering under subparagraph 4(b) shall be distributed in full to such participant as soon as practical after the Exercise Date, without interest. (b) The Company may require any participant, or his/her successor, as a condition of exercising any rights granted under the Plan, to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the rights for such person's own account and for investment, and not with any present intention of selling or otherwise distributing the stock. The requirement of providing written assurances, and any assurances given pursuant to the requirement, shall be inoperative if (i) the issuance of the shares upon the exercise of the rights has been registered under a then currently effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), and qualified under all applicable state securities laws, if required, or (ii) a determination is made by counsel for the Company that such written assurances are not required in the circumstances under the then applicable federal and state securities laws. 10. COVENANTS OF THE COMPANY. (a) During the term purchase rights remain outstanding under the Plan, the Company shall keep available the number of shares of Common Stock required to satisfy such rights. (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 5 6 shares of stock upon exercise of the rights granted under the Plan; provided, however, that this undertaking shall not require the Company to register or qualify under the Securities Act or any state securities law either the Plan, any rights granted under the Plan, or any stock issued or issuable pursuant to any such rights. 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 rights unless and until such authority is obtained. 11. USE OF PROCEEDS FROM STOCK. All cash proceeds from the sale of stock pursuant to rights granted under the Plan shall constitute general funds of the Company. 12. RIGHTS AS A SHAREHOLDER. Neither a participant nor his or her successor 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 rights unless and until certificates representing such shares shall have been issued. 13. ADJUSTMENTS UPON CHANGES IN STOCK. (a) If any change is made in the stock subject to the Plan, or subject to any rights 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 or shares, change in corporate structure or otherwise), the Committee shall make appropriate adjustments to the aggregate number of shares issuable under the Plan, the maximum number of shares that may be purchased during an Offering, the maximum number of shares for which any one participant may be granted purchase rights under the Plan during an Offering, the maximum number of shares for which any one officer or director may be granted purchase rights over the term of the Plan, the maximum number of shares for which purchase rights may in the aggregate be granted to all officers and directors, and the number of shares and price per share of stock subject to outstanding rights. (b) In the event of any of the following shareholder-approved transactions (a "Corporate Transaction"): (1) a dissolution or liquidation of the Company; (2) a merger a consolidation in which the Company is not the surviving corporation, other than a transaction the principal purpose of which is to change the State of the Company's incorporation; (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's Common Stock outstanding immediately prior to 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 50% of the shares of the Company entitled to vote are transferred to different holders, then every right outstanding hereunder shall automatically be exercised immediately prior to such Corporate Transaction by applying all sums collected from participants pursuant to their payroll deductions in effect for such rights to the purchase of whole shares of Common Stock, subject, however, to the applicable limitations of subparagraph 4(b). 6 7 14. AMENDMENT OF THE PLAN. (a) The Board at any time, and from time to time, may amend the Plan. The approval of the Company's stockholders to any such amendment will be obtained to the extent required by applicable law. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to employee stock purchase plans and/or to bring the Plan and/or rights granted under it into compliance therewith. (b) Rights and obligations under any rights granted before amendment of the Plan shall not be altered or impaired by any amendment of the Plan, except with the consent of the person to whom such rights were granted. 15. 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 the first business day in October, 2007. No rights may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any rights 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 such rights were granted. 16. EFFECTIVE DATE OF PLAN. The Plan as restated became effective upon adoption by the Board in November 1986 and was approved by the requisite vote of the Company's shareholders in February 1987. The Plan was subsequently amended by the Board on October 25, 1988, and such amendment was approved by the stockholders at their Annual Meeting held in January 1989. The Plan was amended by the Board in November 1991 to increase the number of shares issuable thereunder by 200,000 shares and such amendment was approved by the stockholders at their 1992 Annual Meeting. The Plan was amended by the Board in January 1998 to increase the number of shares issuable thereunder by 100,000 shares, extend the term and delete certain obsolete share limitations. The 1998 amendment was approved by the Company's stockholders at the 1998 Annual Meeting. Subject to the foregoing limitations, the Board may grant purchase rights under the Plan at any time after the date of approval of the increase and before the date fixed herein for termination of the Plan. 7 EX-10.2.5 3 RESTATED 1982 STOCK OPTION PLAN 1 SEEQ TECHNOLOGY INCORPORATED RESTATED 1982 STOCK OPTION PLAN (Amended and Restated through January 13, 2008) I. PURPOSE OF THE PLAN This Restated l982 Stock Option Plan (the "Plan") is intended to promote the interests of SEEQ Technology Incorporated, a Delaware corporation ("Company"), by providing a method whereby (i) employees (including officers and employee members of the Board) of the Company and its parent or subsidiary corporations who are primarily responsible for the management, growth and financial success of the Company and its parent or subsidiary corporations and (ii) consultants or other independent contractors (other than non-employee members of the Board) who perform valuable services for the Company and its parent or subsidiary corporations may be offered incentives and rewards which will encourage them to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Company and continue to render services to the Company or its parent or subsidiary corporations. II. ADMINISTRATION OF THE PLAN The Plan shall be administered in accordance with the following standards: (a) The Company's Board of Directors (the "Board") shall appoint a committee ("Committee") consisting of not less than two (2) Board members to administer the Plan, including (without limitation) the power to grant options under the Plan, the power to accelerate the exercisability of granted options and the power to administer the option surrender provisions of the Plan. This committee shall function as the "Primary Committee" under the Plan and shall have sole and exclusive authority to grant stock options to officers of the Company. No Board member shall be eligible to serve on the Primary Committee if such individual has, within the twelve (12)-month period immediately preceding the date he or she is to be appointed to the Primary Committee, received an option grant under this Plan or an option grant or stock issuance under any other stock option, stock appreciation, stock bonus or other stock plan of the Company (or any parent or subsidiary corporation), other than the SEEQ Technology Incorporated 1989 Nonemployee Director Stock Option Plan. (b) Administration of the Plan with respect to the officers of the Company and all other individuals eligible to participate in the Plan may, at the Board's discretion, be vested in the Primary Committee or in a secondary committee of two or more Board members appointed by the Board, or the Board may retain the power to administer the Plan with respect to all individuals. Should a secondary committee be appointed, the membership may include Board members who are employees of the Company eligible to receive option grants under this Plan or option grants or stock issuances under any other stock option, stock appreciation, stock bonus or other stock plan of the Company (or any parent or subsidiary corporation). 2 (c) Members of the Primary Committee or any secondary committee shall serve for such term as the Board may determine and shall be subject to removal by the Board at any time. (d) The term "Plan Administrator" as used from time to time in this plan document shall mean the particular entity, whether the Primary Committee or any secondary committee, which is authorized to administer the option grant and option surrender provisions of the Plan with respect to one or more classes of eligible individuals, to the extent such entity is carrying out its administrative functions under the Plan with respect to those individuals. (e) The Plan Administrator shall have full power and authority (subject to the express provisions of the Plan) to establish such rules and regulations as it may deem appropriate for the proper administration of the plan functions within the scope of its administrative authority and to make any and all determinations with respect to those functions which it may deem necessary or advisable. All decisions of the Plan Administrator within the scope of its administrative authority under the Plan shall be final and binding on all parties who have an interest in any outstanding option granted pursuant to such authority. III. ELIGIBILITY FOR OPTION GRANTS (a) The persons who shall be eligible to receive options pursuant to the Plan are those employees (including officers) and consultants or other independent contractors (other than non-employee members of the Board) of the Company or its parent or subsidiary corporations who render services which tend to contribute materially to the success of the Company or its parent or subsidiary corporations or which may reasonably be anticipated to contribute materially to the future success of the Company or its parent or subsidiary corporations. (b) Non-employee members of the Board shall not be eligible to participate in the Plan or in any other stock bonus, stock purchase, stock option or other stock plan of the Company or its parent or subsidiary corporations other than the SEEQ Technology Incorporated 1989 Nonemployee Director Stock Option Plan. (c) The Plan Administrator shall have the sole and exclusive authority, within the scope of its administrative functions under the Plan, to select the eligible individuals who are to receive option grants under the Plan and to determine the number of shares to be covered by each such option grant, the status of the granted option as either an incentive stock option ("Incentive Option") which satisfies the requirements of Section 422 of the Internal Revenue Code or a non-statutory option not intended to meet such requirements, the time or times at which such option is to become exercisable and the maximum term for which the option is to remain outstanding. (d) For purposes of this Plan, the following provisions shall be applicable in determining the parent and subsidiary corporations of the Company: 2 3 (i) Any corporation (other than the Company) in an unbroken chain of corporations ending with the Company shall be considered to be a parent corporation of the Company, provided each such corporation in the unbroken chain (other than the Company) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (ii) Each corporation (other than the Company) in an unbroken chain of corporations beginning with the Company shall be considered to be a subsidiary of the Company, provided each such corporation (other than the last corporation) in the unbroken chain owns, at the time of determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. IV. STOCK SUBJECT TO THE PLAN (a) The stock issuable under the Plan shall be shares of the Company's authorized but unissued or reacquired common stock ("Common Stock"). The aggregate number of shares of Common Stock issuable over the term of the Plan shall not exceed 8,760,000 shares and not more than 6,171,481 shares shall be issued under the Plan after January 15, 1998. However, the number of shares issued under the Plan is subject to adjustment from time to time in accordance with paragraph IV(b) of the Plan. Should an option terminate for any reason prior to exercise or surrender in full (including options cancelled in accordance with the cancellation-regrant provisions of Article VIII of the Plan), the shares subject to the portion of the option not so exercised or surrendered shall be available for subsequent option grants under this Plan. Shares subject to any option or portion thereof surrendered or cancelled in accordance with Article IX of the Plan and all share issuances under the Plan, whether or not the shares are subsequently repurchased by the Company pursuant to its repurchase rights under the Plan, shall reduce on a share-for-share basis the number of shares of Common Stock available for subsequent option grants under the Plan. In addition, should the exercise price of an outstanding option under the Plan be paid with shares of Common Stock or should shares of Common Stock otherwise issuable under the Plan be withheld by the Company in satisfaction of the withholding taxes incurred in connection with the exercise of an outstanding option under the Plan, then the number of shares of Common Stock available for issuance under the Plan shall not be reduced by the gross number of shares for which the option is exercised, but by the net number of shares of Common Stock actually issued to the option holder. (b) In the event any change is made to the Common Stock issuable under the Plan by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding shares of the Common Stock as a class without the Company's receipt of consideration, appropriate adjustments shall be made to (i) the aggregate number and/or class of securities issuable under the Plan, (ii) the maximum number of shares issuable per participant under the Plan after December 31, 1993 and (iii) the number and/or class of shares and the price per share of the securities subject to each outstanding option in order to prevent the dilution or enlargement of benefits thereunder. The adjustments determined by the Primary Committee shall be final, binding and conclusive. 3 4 (c) No one person participating in the Plan may receive options for more than 2,500,000 shares of the Common Stock over the term of the Plan, exclusive of options granted prior to December 31, 1993. V. TERMS AND CONDITIONS OF OPTIONS Options granted pursuant to the Plan shall be authorized by action of the Plan Administrator and may, at the discretion of the Plan Administrator, be either Incentive Options or non-statutory options. Individuals who are not employees of the Company or its parent or subsidiary corporations may only be granted non-statutory options. Each granted option shall be evidenced by one or more instruments in such form as the Plan Administrator shall from time to time approve; provided, however, that each such instrument shall comply with the terms and conditions specified below. Each instrument evidencing an Incentive Option shall, in addition, be subject to the applicable provisions of Article VI. 1. Option Price. a. The option price per share shall be fixed by the Plan Administrator, but in no event shall the option price per share be less than eighty-five percent (85%) of the fair market value per share of Common Stock on the grant date. b. If any individual to whom an option is to be granted pursuant to the provisions of the Plan is on the date of grant the owner of stock (as determined under Section 424(d) of the Internal Revenue Code) possessing more than 10% of the total combined voting power of all classes of stock of the Company or any one of its parent or subsidiary corporations (such person to be herein referred to as a 10% Stockholder, then the option price per share shall not be less than one hundred ten percent (110%) of the fair market value per share of Common Stock on the grant date. c. The option price shall become immediately due upon exercise of the option and shall, subject to the provisions of Article X, be payable in one of the alternative forms specified below: (i) full payment in cash or check payable to the Company's order; or (ii) full payment in shares of Common Stock held for the requisite period necessary to avoid a charge to the Company's earnings for financial reporting purposes and valued at fair market value on the Exercise Date (as such term is defined below) equal to the option price; or (iii) full payment through a special sale and remittance procedure pursuant to which the optionee is to provide irrevocable written instructions (I) to a designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Company, out of the sale proceeds available on the settlement date, an amount sufficient to cover the aggregate option price payable for the purchased shares plus all applicable Federal and state income and employment taxes required to be withheld by the Company by reason of such 4 5 purchase and (II) to the Company to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction; or (iv) any combination of the foregoing so long as the total payment equals the aggregate option price for the purchased shares. For purposes of this subparagraph c, the Exercise Date shall be the date on which written notice of the option exercise is delivered to the Company. Except to the extent the sale and remittance procedure is utilized in connection with the option exercise, payment of the option price for the purchased shares must accompany such exercise notice. d. The fair market value of a share of Common Stock on any relevant date under subparagraph a, b or c above (and for all other valuation purposes under the Plan) shall be determined in accordance with the following provisions: (i) If the Common Stock is not at the time listed or admitted to trading on any stock exchange but is traded in the over-the-counter market, the fair market value shall be the mean between the highest bid and lowest asked prices (or, if such information is available, the closing selling price) of the Common Stock on the date in question in the over-the-counter market, as such prices are reported by the National Association of Securities Dealers through its Nasdaq National Market System or any successor system. If there are no reported bid and asked prices (or closing selling price) on the date in question, then the mean between the highest bid price and lowest asked price (or the closing selling price) on the last preceding date for which such quotations exist shall be determinative of fair market value. (ii) If the Common Stock is at the time listed or admitted to trading on any stock exchange, then the fair market value shall be the closing selling price per share of Common Stock on the date in question on the stock exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted on such exchange. If there is no reported sale of Common Stock on such exchange on the date in question, then the fair market value shall be the closing selling price of the Common Stock on the exchange on the last preceding date for which such quotation exists. 2. Term and Exercise of Options. Each option granted under the Plan shall be exercisable at such time or times, during such period, and for such number of shares as shall be determined by the Plan Administrator and set forth in the instrument evidencing such option. However, no option granted under this Plan shall have a term in excess of ten (10) years from the grant date. No option or stock appreciation right outstanding under the Plan shall be assignable or transferable by the optionee other than a transfer of the option by will or by the laws of descent and distribution following the optionee's death, and during the optionee's lifetime the option and all stock appreciation rights pertaining to such option shall be exercisable only by the optionee. 5 6 3. Effect of Termination of Employment. a. Should an optionee cease Service with the Company for any reason (including death or permanent disability as defined in Section 22(e)(3) of the Internal Revenue Code) while the holder of one or more outstanding options granted to such optionee under the Plan, then such option or options shall in no event remain exercisable for more than a twenty-four (24) month period (or such shorter period as is determined by the Plan Administrator and set forth in the option agreement) following the date of such cessation of Service, but under no circumstances shall any such option be exercisable after the specified expiration date of the option term. Each such option shall, during such twenty-four (24) month or shorter period, be exercisable only to the extent of the number of shares (if any) for which the option is exercisable on the date of such cessation of Service. Upon the expiration of such twenty-four (24) month or shorter period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be exercisable. b. Any option granted to an optionee under the Plan and exercisable in whole or in part on the date of the optionee's death may be subsequently exercised, but only to the extent of the number of shares (if any) for which the option is exercisable on the date of the optionee's cessation of Service (less any option shares which the Optionee may have purchased prior to death), by the personal representative of the optionee's estate or by the person or persons to whom the option is transferred pursuant to the optionee's will or in accordance with the laws of descent and distribution, provided and only if such exercise occurs prior to the earlier of (i) the expiration of the eighteen-(18) month period following the death of the optionee or (ii) the specified expiration date of the option term. Upon the occurrence of the earlier event, the option shall terminate and cease to be exercisable. c. If (i) the optionee's Service is terminated for cause (including, but not limited to, any act of dishonesty, willful misconduct, fraud or embezzlement or any unauthorized disclosure or use of confidential information or trade secrets) or (ii) the optionee makes or attempts to make any unauthorized use or disclosure of confidential information or trade secrets of the Company or its parent or subsidiary corporations, then in any such event all outstanding options granted the optionee under the Plan shall immediately terminate and cease to be exercisable. d. Notwithstanding subparagraphs a and b above, the Plan Administrator shall have complete discretion, exercisable either at the time the option is granted or at the time during which the option remains outstanding, to extend the period of time for which the option is to remain exercisable following the optionee's cessation of Service from the twenty-four (24) month or such shorter period previously established by the Plan Administrator and set forth in the option agreement to such greater period of time as the Plan Administrator shall deem appropriate; provided, however, that no option shall be exercisable after the specified expiration date of the option term and that such discretion shall not be available where the optionee has been terminated for cause. The Plan Administrator shall have similar discretion, except with respect to optionees terminated for cause, to establish as a provision applicable to the exercise of one or more options granted under the Plan that during the period of exercisability following 6 7 cessation of Service (as provided in subparagraph V.3.a or V.3.b above), the option may be exercised not only with respect to the number of shares for which it is exercisable at the time of the optionee's cessation of Service but also with respect to one or more installments of purchasable shares for which the option otherwise would have become exercisable had such cessation of Service not occurred. e. For purposes of the foregoing provisions of this Paragraph V.3, the optionee shall be deemed to be an Employee of the Company for so long as the optionee remains in the employ of the Company or one or more parent or subsidiary corporations. For purposes of the foregoing provisions of this Paragraph V.3, optionee shall be deemed to be in Service if optionee is an Employee, independent consultant or Board member of the Company, its parent or subsidiary. 4. Stockholder Rights. An option holder shall have none of the rights of a stockholder with respect to any shares covered by the option until such individual shall have exercised the option, paid the option price and been issued a stock certificate for the purchased shares. 5. Repurchase Price. The shares of Common Stock acquired upon the exercise of options granted under the Plan may be subject to one or more repurchase rights of the Company in accordance with the following provisions: (a) The Company (or its assigns) shall have the right, exercisable upon the optionee's cessation of Service, to repurchase at the original option price any or all of the unvested shares of Common Stock previously acquired by the optionee upon the exercise of such option(s). Any such repurchase right shall be exercisable by the Company (or its assigns) upon such terms and conditions (including the establishment of the appropriate vesting schedule and other provisions of the expiration of such right in one or more installments) as the Plan Administrator may specify in the instrument evidencing such right. (b) The Plan Administrator effecting the option grants shall also have full power and authority to provide for the automatic termination of the Company's outstanding repurchase rights, in whole or in part, and thereby vest the optionees in one or more of the shares purchased or purchasable under the granted options, upon the occurrence of any Corporate Transaction specified in Article VII or any Change in Control specified in Article IX. VI. INCENTIVE OPTIONS The terms and conditions specified below shall be applicable to all Incentive Options granted under the Plan. Options which are specifically designated as "non-statutory" or "non-statutory" options when issued under the Plan shall not be subject to such terms and conditions: (a) Option Price. The option price per share of the Common Stock subject to an Incentive Option shall in no event be less than one hundred percent (100%) of the fair market value per share of Common Stock on the grant date. 7 8 (b) Dollar Limitation. The aggregate fair market value (determined as of the respective date or dates of grant) of the Common Stock for which one or more options to any Employee under this Plan (or any other option plan of the Company or its parent or subsidiary corporations) may for the first time become exercisable as an Incentive Option during any one calendar year shall not exceed the sum of $100,000. To the extent the Employee holds two or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability thereof as Incentive Options shall be applied on the basis of the order in which such options are granted. (c) Maximum Term. If the individual to whom the Incentive Option is granted is a 10% Stockholder (as defined in subparagraph V.1.b above) on the date of the option grant, then the option shall not have a term in excess of five years from the grant date, and the exercise price may not be less than 110% of fair market value. Except as modified by the preceding provisions of this Article VI, all the terms and conditions of the Plan shall be applicable to the Incentive Options granted hereunder. VII. CORPORATE TRANSACT1ON (a) In the event of one or more of the following transactions to which the Company is a party ("Corporate Transaction"): (i) a merger or acquisition in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the State of the Company's incorporation; (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company; or (iii) any reverse merger in which the Company is the surviving entity, then each option outstanding under the Plan shall automatically become exercisable, during the five (5) business day period immediately prior to the specified effective date for the Corporate Transaction, with respect to the full number of shares of Common Stock at the time subject to such option and may be exercised for all or any portion of such shares. However, an outstanding option under the Plan shall not be so accelerated if and to the extent: (i) such option is, in connection with the Corporate Transaction, either to be assumed by the successor corporation or parent thereof or be replaced with a comparable option to purchase shares of the capital stock of the successor corporation or parent thereof or (ii) the acceleration of such option would, when added to the present value of certain other payments in the nature of compensation which become due and payable to the option holder in connection with the Corporate Transaction, result in the payment to such individual of an excess parachute payment under Section 280G(b) of the Internal Revenue Code. In addition, outstanding repurchase rights under the Plan will terminate upon the Corporate Transaction, unless (i) the repurchase right is to be assigned to the successor corporation or (ii) the termination of such repurchase right would, when added to the present value of certain other payments in the nature of compensation which 8 9 become due and payable to the option holder in connection with the Corporate Transaction, result in the payment to such individual of an excess parachute payment under Section 280G(b) of the Internal Revenue Code. The existence of any such excess parachute payment shall be determined by the Plan Administrator in the exercise of its reasonable business judgment and on the basis of tax counsel provided the Company. Upon the consummation of the Corporate Transaction, all outstanding options under the Plan shall, to the extent not previously exercised or assumed by the successor corporation or its parent corporation, terminate and cease to be exercisable. (b) Each outstanding option which is assumed in connection with the Corporate Transaction or is otherwise to continue in effect shall be appropriately adjusted, immediately after such Corporate Transaction, to apply and pertain to the number and class of securities which would have been issuable, in consummation of such Corporate Transaction, to an actual holder of the same number of shares of Common Stock as are subject to such option immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to the option price payable per share, provided the aggregate option price payable for such securities shall remain the same. In addition, the class and number of securities available for issuance under the Plan following the consummation of the Corporate Transaction shall be appropriately adjusted. (c) In connection with any Corporate Transaction, the exercisability of an incentive stock option under the Federal tax laws of any accelerated option shall be subject to the applicable dollar limitation of paragraph VI(c)(i). (d) The grant of options under this Plan shall in no way affect the right of the Company to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merger, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. VIII. CANCELLATION AND NEW GRANT OF OPTIONS The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected option holders, the cancellation of any or all outstanding options under the Plan and to grant in substitution therefor new options under the Plan covering the same or different numbers of shares of Common Stock but having an option price per share not less than (i) eighty-five percent (85%) of the fair market value per share of Common Stock on the new grant date, or (ii) one hundred percent (100%) of such fair market value if the new option is to be an Incentive Option or (iii) one hundred ten percent (110%) of fair market value in the case of a 10% Stockholder. IX. SURRENDER OF OPTIONS FOR CASH OR STOCK (a) One or more option holders may, upon such terms and conditions as the Plan Administrator may establish at the time of the option grant or at any time thereafter, be granted the right to surrender all or part of an unexercised option in exchange for a distribution equal in amount to the excess of (i) the fair market value (on the option surrender date) of the 9 10 number of shares in which the optionee is at the time vested under the surrendered option (or surrendered portion) over (ii) the aggregate option price payable for such shares. No surrender of an option, however, shall be effective unless it is approved by the Plan Administrator granting such right. If the surrender is so approved, then the distribution to which the option holder shall accordingly become entitled under this Article IX may be made in shares of Common Stock valued at fair market value at date of surrender, in cash, or partly in shares and partly in cash, as the Plan Administrator granting such right shall in its sole discretion deem appropriate. (b) If the surrender of the option is not approved by the Plan Administrator granting such right, then the option holder shall retain whatever rights the option holder had under the surrendered option (or surrendered portion thereof) on the date of surrender and may exercise such rights at any time prior to the later of (i) the expiration of the 5 business-day period following receipt of the rejection notice or (ii) the last day on which the option is otherwise exercisable in accordance with the terms of the instrument evidencing such option, but in no event may such rights be exercised at any time after ten (10) years from the date of the option grant. (c) Special limited stock appreciation rights may be granted by the Plan Administrator in tandem with one or more option grants made under the Plan. The grant and exercise of such rights shall be subject to the following terms and conditions: Pre-September 1, 1992 Grants. Limited rights may be granted prior to September 1, 1992 to one or more officers or directors of the Company subject to the short-swing profit restrictions of Section 16 (b) of the Securities Exchange Act of 1934 ("Section 16 Insider"). Such limited rights shall be exercisable as follows: a. Upon the occurrence of a Change in Control at a time when one or more classes of the Company's equity securities are registered under Section 12(g) of the Exchange Act, each Section 16 Insider who holds such a limited right in tandem with one or more of his/her outstanding options under the Plan may surrender those options, to the extent such options (I) have been outstanding with such limited rights for at least six (6) months and (II) are at the time exercisable for one or more shares. In exchange for each option so surrendered, the Section 16 Insider shall receive an Appreciation Distribution from the Company in an amount equal to the excess of (i) the Change in Control Price of the number of shares for which the surrendered option (or surrendered portion) is at the time exercisable over (ii) the aggregate option price payable for such shares. b. Neither the approval of the Plan Administrator granting the limited right nor the consent of the Board shall be required in connection with the exercise of such right, and the Appreciation Distribution shall be made entirely in cash. c. For purposes of such Appreciation Distribution, the following definitions shall be in effect: 10 11 Change-in-Control: the occurrence of any of the following transactions: (i) the acquisition by a person or related group of persons, other than the Company or a person that directly or indirectly controls, is controlled by or is under common control with the Company, of twenty-five percent (25%) or more of the Company's outstanding Common Stock pursuant to a tender or exchange offer which the Board does not recommend the stockholders to accept, (ii) the acquisition by a person or related group of persons, other than the Company or a person that directly or indirectly controls, is controlled by or is under common control with the Company, of fifty percent (50%) or more of the Company's outstanding Common Stock in a single transaction or in a series of related transactions (other than a Corporate Transaction), or (iii) a change in the composition of the Board such that the individuals elected to the Board at the last meeting of the stockholders at which there is not a contested election subsequently cease to comprise a majority of the Board by reason of a contested election for Board membership. Chance in Control Price: the greater of (a) the fair market value per share of Common Stock on the date of the option surrender, as determined in accordance with the normal valuation provisions of the Plan, or (b) the highest reported price per share paid in acquiring ownership of the twenty-five percent (25%) or greater interest in the Company's outstanding Common Stock in connection with the Change in Control. However, if the surrendered option is an Incentive Option, then the Change in Control Price per share of the Common Stock subject to the surrendered option shall not exceed the value per share determined under clause (a). Post-August 31, 1992 Grants. One or more Section 16 Insiders may, in the discretion of the Plan Administrator, be granted limited stock appreciation rights on or after September 1, 1992 in tandem with the option grants made to such individuals under the Plan. Any limited right so granted shall become exercisable as follows: a. Upon the occurrence of a Hostile Take-Over at a time when one or more classes of the Company's equity securities are registered under Section 12(g) of the Exchange Act, each outstanding option held by the Section 16(b) Insider with such a limited right in effect for at least six (6) months shall automatically be cancelled, to the extent such option is at the time exercisable for fully-vested shares of Common Stock. The Section 16(b) Insider shall in return be entitled to a cash distribution from the Company in an amount equal to the excess of (I) the Take-Over Price of the shares of Common Stock which are at the time vested under the cancelled option (or cancelled portion) over (II) the aggregate exercise price payable for such vested shares. The balance of the option (if any) shall continue in full force and effect in accordance with the instrument evidencing such grant. b. The cash distribution payable upon such cancellation shall be made within five (5) days following the consummation of the Hostile Take-Over. Neither the approval of the Plan Administrator nor the consent of the Board shall be required in connection with such option cancellation and cash distribution. 11 12 c. For purposes of such option cancellation and cash distribution, the following definitions shall be in effect: A Hostile Take-Over shall be deemed to occur in the event (i) any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of twenty-five percent (25%) or more of Company's outstanding Common Stock pursuant to a tender or exchange offer made directly to the Company's stockholders which the Board does not recommend such stockholders to accept and (ii) more than fifty percent (50%) of the securities so acquired in such tender or exchange offer are accepted from holders other than Company officers and directors participating in this Plan or the 1989 Nonemployee Director Stock Option Plan. The Take-Over Price per share shall be deemed to be equal to the greater of (i) the fair market value per share on the option cancellation date, as determined pursuant to the normal valuation provisions of the Plan, or (ii) the highest reported price per share paid in effecting such Hostile Take-Over. However, if the cancelled option is an Incentive Option, then the Take-Over Price per share of the Common Stock subject to the cancelled option shall not exceed the value per share determined under clause (i). X. LOANS OR GUARANTEES OF LOANS The Plan Administrator may assist any optionee (including any officer or director) in the exercise of one or more options granted by such Plan Administrator to such optionee under the Plan by (a) authorizing the extension of a loan to such optionee from the Company, (b) permitting the optionee to pay the option price for the purchased Common Stock in installments over a period of years or (c) authorizing a guarantee by the Company of a third-party loan to the optionee. The terms of any loan, installment method of payment or guarantee (including the interest rate and terms of repayment) will be established by the Plan Administrator in its sole discretion. Loans, installment payments and guarantees may be granted without security or collateral (other than to optionees who are consultants or independent contractors, in which event the loan must be adequately secured by collateral other than the purchased shares), but the maximum credit available to the optionee shall not exceed the sum of (i) the aggregate option price payable for the purchased shares (less the par value of those shares), plus (ii) any Federal and State income and employment tax liability incurred by the optionee in connection with the exercise of the option. XI. SPECIAL TAX WITHHOLDING ELECTION The Plan Administrator may, in its discretion and in accordance with the provisions of this Article XI and such supplemental rules as the Plan Administrator may from time to time adopt, provide any or all holders of the non-statutory options granted by such Plan Administrator under the Plan with the right to use shares of the Common Stock in satisfaction of the Federal and State income and employment tax withholding liability incurred by such holders 12 13 in connection with the exercise of their options (the "Withholding Taxes"). Such right may be provided to any such option holder in either or both of the following formats: 1. Stock Withholding: The holder of the non-statutory option may be provided with the election to have the Company withhold, from the shares of Common Stock otherwise issuable upon the exercise of such non-statutory option, a portion of such shares with an aggregate fair market value equal to the designated percentage (up to 100% as specified by the option holder) of the applicable Withholding Taxes. Any such stock withholding election shall be subject to the following terms and conditions: (i) The election must be made on or before the date the amount of the Federal and State income and employment tax liability incurred by the option holder in connection with the exercise of the option is determined (the "Tax Determination Date"). (ii) The election shall be irrevocable. (iii) The election shall be subject to the approval of the Plan Administrator, and none of the shares of Common Stock for which the option is exercised shall be withheld in satisfaction of the Withholding Taxes incurred in connection with such exercise except to the extent the Plan Administrator approves the election. (iv) The shares of Common Stock withheld pursuant to the election shall be valued at fair market value on the Tax Determination Date in accordance with the valuation procedures of the Plan. (v) In no event may the number of shares requested to be withheld exceed in value the dollar amount of Withholding Taxes incurred by the option holder in connection with the exercise of the nonqualified option. If the stock withholding election is to be made by a Section 16 Insider, then the following limitations, in addition to the preceding provisions of this Article XI, shall also be applicable: (i) The election shall not become effective at any time prior to the expiration of the six (6)-month period measured from the later of the grant date of the non-statutory option to which such election pertains or the actual grant date of the stock withholding election, and no shares shall accordingly be withheld in connection with any Tax Determination Date which occurs before the expiration of such six (6)-month period. (ii) The election must be effected in accordance with either of the following guidelines: - The election must be made six (6) months or more prior to the Tax Determination Date, or 13 14 - The exercise of such election and the exercise of the non-statutory option to which it relates must occur concurrently within a quarterly "window" period. Quarterly window periods shall begin on the third (3rd) business day following the date of public release of each quarterly or annual summary statement of the Company's sales and earnings and end on the earlier of the twelfth (12th) business day following such release date or the Tax Determination Date. (iii) The six (6)-month period specified in clauses (i) and (ii) shall not be applicable in the event of the option holder's death or disability. 2. Stock Delivery: The Plan Administrator may, in its discretion, provide the holder of the non-statutory option with the election to deliver, at the time the non-statutory option is exercised, one or more shares of Common Stock already held by such individual with an aggregate fair market value equal to the designated percentage (up to 100% as specified by the option holder) of the Withholding Taxes incurred by such individual in connection with such option exercise. Any such stock delivery election shall be subject to the following terms and conditions: (i) The election must be made on or before the date the amount of the Federal and State income and employment tax liability incurred by the option holder in connection with the exercise of the option is determined (the "Tax Determination Date"). (ii) The election shall be irrevocable. (iii) The election shall be subject to the approval of the Plan Administrator, and none of the delivered shares of Common Stock shall be accepted in satisfaction of the Withholding Taxes incurred in connection with the option exercise except to the extent the election is approved by the Plan Administrator. (iv) The shares of Common Stock delivered in satisfaction of such Withholding Taxes shall be valued at fair market value on the Tax Determination Date in accordance with the valuation procedures of the Plan. (v) In no event may the number of delivered shares exceed in value the dollar amount of Withholding Taxes incurred by the option holder in connection with the exercise of the non-statutory option. Any stock delivery election made by an individual who is at the time a Section 16 Insider shall not be subject to any of the special limitations which would otherwise be applicable to such individual in connection with the exercise of the stock withholding election specified above. 14 15 XII. AMENDMENT OF THE PLAN The Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects whatsoever; provided, however, that no such amendment or modification shall, without the consent of the holders, adversely affect rights and obligations with respect to options at the time outstanding under the Plan. In addition, the Board shall not, without the approval of the Company's stockholders, (i) increase the maximum number of shares issuable under the Plan, except for permissible adjustments under paragraph IV(b), or (ii) materially modify the eligibility requirements for the grant of options under the Plan. XIII. EFFECTIVE DATE AND TERM OF PLAN (a) The restated Plan was adopted by the Board in August 1987, and approved by the Company's stockholders in February 1988, as a consolidation of the Company's 1982 Incentive Stock Option Plan and 1982 Supplemental Stock Option Plan. The Plan supersedes those two plans and serves as their successor. The Plan was restated in October 1988, and amended in November 1990, November 1991, February 1995, and February 1996, to increase the number of shares issuable under the Plan by 750,000, 1,000,000, 1,400,000 1,000,000 and 1,400,000 shares, respectively. The October 1988 restatement, November 1990, November 1991, December 1993 and February 1996 amendments were approved by the Company's stockholders in February 1989, February l991, February l992, February 1994 and March 1996, respectively. The Plan was restated on January 13, 1998 to increase the number of shares issuable thereunder, to extend the term of the Plan and to delete obsolete provisions and the restatement was approved by the stockholders on March 10, 1998. (b) The Plan Administrator may, within the scope of its administrative functions under the Plan, grant stock options and stock appreciation rights under the Plan at any time after the date the Plan was initially adopted and prior to the date the Plan is to terminate in accordance with paragraph (e) below. (c) The Plan was restated by the Board effective July 30, 1992 to bring the Plan in compliance with the applicable requirements of revised SEC Rule 16b-3, as amended May 1, 1991, under the Securities Exchange Act of 1934. Such restatement shall apply only to options granted under the Plan from and after the July 30, 1992 effective date. Each option (together with any related stock appreciation rights) issued and outstanding under the Plan immediately prior to such effective date shall continue to be governed by the terms and conditions of the Plan (and the instrument evidencing such option) as in effect on the date such option was previously granted, and nothing in the July 30, 1992 restatement shall be deemed to affect or otherwise modify the rights or obligations of the holders of such options with respect to the acquisition of shares thereunder or the exercise of their outstanding stock appreciation rights. (d) The sale and remittance procedure authorized for the exercise of outstanding options shall be available for all options granted under the Plan from and after July 30, 1992 and for all non-statutory options exercised under the Plan on or after May 1, 1991. The Primary Committee may also allow such procedure to be utilized in connection with one or more disqualifying dispositions of incentive stock option shares effected on or after May 1, l991. 15 16 (e) Unless sooner terminated in accordance with Article VII, the Plan shall terminate upon the earlier of (i) January 12, 2008 or (ii) the date on which all shares available for issuance under the restated Plan shall have been issued or cancelled pursuant to the exercise, surrender or cancellation of the options granted hereunder. If the date of termination is determined under clause (i) above, then any options outstanding on such date (together with any stock appreciation rights pertaining to such options) shall not be affected by the termination of the Plan and shall continue to have force and effect in accordance with the provisions of the instruments evidencing such options (or related stock appreciation rights). (f) Options may be granted under this Plan to purchase shares of Common Stock in excess of the number of shares then available for issuance under the Plan, provided (i) an amendment to increase the maximum number of shares issuable under the Plan is adopted by the Board prior to the initial grant of any such option and is thereafter submitted to the Company's stockholders for approval and (ii) each option so granted is not to become exercisable, in whole or in part, at any time prior to the obtaining of such stockholder approval. XIV. USE OF PROCEEDS Any cash proceeds received by the Company from the sale of shares pursuant to options granted under the Plan shall be used for general corporate purposes. XV. REGULATORY APPROVALS The implementation of the Plan, the granting of any option hereunder, and the issuance of Common Stock upon the exercise or surrender of any such option shall be subject to the Company's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the options granted under it and the Common Stock issued pursuant to it. 16 EX-10.2.6 4 1989 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN 1 SEEQ TECHNOLOGY INCORPORATED 1989 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN (As Amended January 13, 1998) ARTICLE I GENERAL PROVISIONS PURPOSES OF THE PLAN This 1989 Nonemployee Director Stock Option Plan (the "Plan") is intended to promote the interests of SEEQ Technology Incorporated, a Delaware corporation (the "Corporation"), by offering nonemployee members of the Board of Directors the opportunity to participate in a special stock option program designed to provide them with significant incentives to remain in the service of the Corporation. ELIGIBILITY A. Each nonemployee member of the Corporation's Board of Directors (the "Board") shall be eligible to receive automatic option grants pursuant to the provisions of Article II below. B. Except for the automatic option grants to be made pursuant to the provisions of Article II below, nonemployee Board members shall not be eligible to receive any additional option grants or stock issuances under this Plan or any other stock plan of the Corporation or its Parent or Subsidiary corporations. STOCK SUBJECT TO THE PLAN A. The stock issuable under the Plan shall be shares of the Corporation's common stock ("Common Stock"). Such shares may be made available from authorized but unissued shares of Common Stock or shares of Common Stock reacquired by the Corporation. The aggregate number of issuable shares shall not exceed 300,000 shares, subject to adjustment from time to time in accordance with subparagraph D below. B. Should an option expire or terminate for any reason prior to exercise in full, the shares subject to the portion of the option not so exercised shall be available for subsequent option grants under this Plan. In the event that shares issued under the Plan are reacquired by the Company pursuant to any forfeiture provision, or right of repurchase , such shares shall again be available for subsequent option grants under the Plan. Shares subject to any option canceled in accordance with the automatic cancellation provisions of the Plan and all share issuances under the Plan shall reduce on a share-for-share basis the number of shares of 2 Common Stock available for subsequent option grants under the Plan. In addition, should the exercise price of any outstanding option under the Plan be paid through the delivery of existing shares of Common Stock, the number of shares of Common Stock available for subsequent option grants under the Plan shall not be reduced by the gross number of shares of Common Stock for which the option is exercised, but by the net number of shares actually issued to the option holder. C. Should the total number of shares at the time available for grant under the Plan not be sufficient for the automatic grants to be made at that particular time to the nonemployee Board members, then the available shares shall be allocated proportionately among all the automatic grants to be made at that time. D. In the event any change is made to the Common Stock issuable under the Plan by reason of any stock split, stock dividend, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without receipt of consideration, then appropriate adjustments will be made to (i) the aggregate number and/or class of shares of Common Stock available for issuance under the Plan, (ii) the number of shares of Common Stock to be made the subject of each subsequent automatic grant and (iii) the number and/or class of shares of Common Stock purchasable under each outstanding option and the exercise price payable per share in order to prevent the dilution or enlargement of benefits thereunder. VALUATION For purposes of establishing the option price and for all other valuation purposes under the Plan, the Fair Market Value per share of the Common Stock on any relevant date shall be determined in accordance with the following rules: A. If the Common Stock is not at the time listed or admitted to trading on any national securities exchange but is traded on the Nasdaq National Market, then the fair market value shall be the closing selling price per share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers, Inc. on the Nasdaq National Market. If there is no reported closing selling price for the Common Stock on the date in question, then the closing selling price on the last preceding date for which such quotation exists shall be determinative of fair market value. B. If the Common Stock is at the time listed or admitted to trading on any national securities exchange, then the fair market value shall be the closing selling price per share of Common Stock on the date in question on the securities exchange serving as the primary market for the Common Stock as such price is officially quoted on such exchange. If there is no reported sale of Common Stock on such exchange on the date in question, then the fair market value shall be the closing selling price on the exchange on the last preceding date for which such quotation exists. 2 3 PARENT AND SUBSIDIARY CORPORATIONS A. A corporation shall be deemed to be a Parent of the Corporation if it is one of the corporations (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each such corporation (other than the Corporation) owns, at the time of determination, stock possessing fifty (50) percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. B. A corporation shall be deemed to be a Subsidiary of the Corporation if it is one of the corporations (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each such corporation (other than the last corporation in the unbroken chain) owns, at the time of determination, stock possessing fifty (50) percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. For purposes of the Corporate Transaction provisions of the Plan, the term "Subsidiary" shall also include any partnership, joint venture or other business entity of which the Corporation owns, directly or indirectly through another subsidiary corporation, more than a fifty percent (50%) interest in voting power, capital or profits. 3 4 ARTICLE II AUTOMATIC GRANT PROGRAM GRANT DATES A. Each individual who was serving as a nonemployee member of the Board on November 8, 1989 was automatically awarded, on such date, a nonstatutory option to purchase 20,000 shares of Common Stock. Commencing with the 1991 Annual Meeting and continuing in effect for each subsequent Annual Meeting of the Corporation's stockholders, each individual who is at the time reelected as a nonemployee member of the Board shall receive an additional grant under the Plan for 10,000 shares. An individual who is first elected or appointed as a nonemployee Board member at any time after the 1990 Annual Meeting shall receive his/her initial automatic grant for 20,000 shares at the time of his/her initial election or appointment to the Board and shall be eligible for subsequent 10,000 share grants commencing with the second Annual Meeting following the date of his/her initial election or appointment as a nonemployee Board member. B. In no event shall any nonemployee Board member be eligible to receive an initial 20,000-share option grant or any 10,000-share annual option grants under the Plan if such individual has been appointed or elected to the Board pursuant to any contractual or other right or arrangement. TERMS AND CONDITIONS OF GRANT Each option granted in accordance with the automatic grant provisions of this Article II shall be evidenced by an instrument in the form of the prototype non-statutory stock option agreement and restricted stock purchase agreement attached to the Plan as Exhibits A and B. Accordingly, each such automatic grant shall be subject to the following terms and conditions: 1. Option Price. The option price per share shall be one hundred percent (100%) of the Fair Market Value per share of Common Stock on the automatic grant date. 2. Term and Exercisability of Options. (a) Each option granted on or after March 10, 1998 under the initial automatic grant shall become exercisable in twenty-four (24) equal monthly installments from the date of the Annual Stockholder Meeting at which it is granted. Each option granted on or after March 10, 1998 under the annual automatic grant shall become exercisable in twelve (12) equal monthly installments from the date of the Annual Stockholders Meeting at which it is granted. The option shall thereafter remain so exercisable until the expiration or sooner termination of the option term. 4 5 (b) Upon the non-employee Board member's cessation of Board service for reason of death or permanent disability, all of the automatic options granted shall become fully exercisable. For all relevant purposes under this Article II, disability shall mean the optionee's inability, by reason of any physical or mental injury or illness expected to result in death or to be of continuous duration of twelve (12) consecutive months or more, to perform his/her normal and usual duties as a Board member. (c) Each granted option shall have a maximum term of ten (10) years measured from the automatic grant date. 3. Exercise of Option. Upon exercise of the option, the option price for the purchased shares shall become immediately payable in one of the alternate forms specified below: (a) cash or cash equivalents (such as a personal check payable to the Corporation's order); or (b) shares of Common Stock held by the optionee for the requisite period necessary to avoid a charge to the Corporation's reported earnings and valued at Fair Market Value on the date of exercise; or (c) full payment through a special sale and remittance procedure pursuant to which the Optionee is to provide irrevocable written instructions (i) to a Corporation-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, an amount sufficient to cover the aggregate option price payable for the purchased shares and (ii) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction; or (d) any combination of the foregoing so long as the total payment equals the aggregate option price for the purchased shares. 4. Nontransferability. During the lifetime of the optionee, the option, together with any stock appreciation right pertaining to such option, shall be exercisable only by the optionee and shall not be assignable or transferable by the optionee other than a transfer of the option by will or by the laws of descent and distribution following the optionee's death. 5. Effect of Termination of Board Membership. (a) Should an optionee cease to be a member of the Board for any reason (other than death) prior to the expiration of one or more automatic grants under this Article II, then each such grant shall remain exercisable, for any shares of Common Stock for which the option is exercisable or in which the optionee is vested at the time of cessation of 5 6 Board membership, for a three (3) month period following the date of such cessation of Board membership. (b) Should an optionee cease to be a member of the Board by reason of optionee's death, then any outstanding automatic grant held by the optionee at the time of death may be subsequently exercised, for any or all of the option shares, by the personal representative of the optionee's estate or by the person or persons to whom the option is transferred pursuant to the optionee's will or in accordance with the laws of descent and distribution. Any such exercise must, however, occur within twelve (12) months after the date of the optionee's death. (c) In no event shall any automatic option grant remain exercisable after the specified expiration date of the ten (10)-year option term. Upon the expiration of the applicable exercise period specified in subparagraphs a and b above or (if earlier) upon the expiration of the ten (10) year option term, the option shall terminate and cease to be exercisable. 6. Stockholder Rights. An option holder shall have none of the rights of a stockholder with respect to any shares covered by the automatic grant until such individual shall have exercised the option, paid the option price and been issued a stock certificate for the purchased shares. CORPORATE TRANSACTION In the event of one or more of the following transactions ("Corporate Transaction"): 1. a merger or acquisition in which the Corporation is not the surviving entity, except for a transaction the principal purpose of which is to change the State of the Corporation's incorporation; 2. the sale, transfer or other disposition of all or substantially all of the assets of the Corporation to any entity other than a Subsidiary of the Corporation; or 3. any reverse merger in which the Corporation is the surviving entity but in which fifty (50) percent or more of the Corporation's outstanding voting stock is transferred to holders different from those who held the stock immediately prior to such merger; then each automatic option grant at the time outstanding under this Article II Program and not otherwise at the time fully exercisable shall automatically accelerate and become immediately exercisable for any or all of the shares subject to the option, and any unvested shares at that time outstanding under the Plan or otherwise issuable pursuant to outstanding option grants under the Plan will immediately vest in full. Immediately following the consummation of such Corporate Transaction, all outstanding options under this Article II 6 7 shall terminate and cease to be exercisable, except to the extent assumed by the successor corporation (or its parent company). CHANGE IN CONTROL A. In the event there should occur a Change in Control (as defined below), then each automatic option grant at the time outstanding under the Plan and not otherwise at the time fully exercisable shall automatically accelerate and become fully exercisable for any or all of the shares at the time subject to such option, and any unvested shares at that time outstanding under the Plan or otherwise issuable pursuant to outstanding option grants under the Plan will immediately vest in full. B. In addition, each option which has been outstanding for at least six months will be automatically canceled on the tenth business day following the Change in Control, in exchange for a cash payment from the Corporation equal to the excess of (i) the fair market value on the date of cancellation of the shares of Common Stock for which the canceled option is at the time exercisable, whether or not such shares are otherwise at the time vested, over (ii) the option price payable for such shares. For purposes of determining the amount payable to an optionee upon cancellation of the option, the fair market value of the shares for which the canceled option is exercisable will be deemed to be equal to the greater of the Fair Market Value per share on the date of cancellation or, if applicable, the highest reported price per share paid by the tender offeror in effecting the Change in Control. C. A Change in Control shall be deemed to occur should (i) a person or related group of persons, other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with the Corporation, acquire twenty-five percent (25%) or more of the outstanding Common Stock pursuant to a tender or exchange offer which the Board does not recommend the stockholders to accept or should (ii) a change in the composition of the Board occur such that the individuals elected to the Board at the last stockholder meeting at which there is not a contested election subsequently cease to comprise a majority of the Board by reason of a contested election for Board membership. RESERVATION OF RIGHTS The automatic grants in effect under this Article II shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. 7 8 ARTICLE III MISCELLANEOUS PROVISIONS AMENDMENT OF THE PLAN The Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects whatsoever; provided, however, that in no event shall any amendments or modifications be made to the Plan which (i) alter rights and obligations with respect to options at the time outstanding under the Plan without the optionee's consent, or (ii) require stockholder approval without obtaining stockholder approval to the extent required by law for any such amendments. EFFECTIVE DATE AND TERM OF PLAN A. The Plan became effective on the date of its adoption by the Board. The Plan was amended on January 13, 1998 to increase the number of shares issuable, to simplify the vesting schedules, to extend the term, and to delete obsolete provisions. The amendment was approved by the stockholders at the 1998 Annual Meeting. B. The Plan shall terminate upon the earliest to occur of (i) January 12, 2008, (ii) the date on which all shares available for issuance under the Plan shall have been issued pursuant to the exercise of the automatic grants made hereunder or (iii) the date on which all outstanding options are cashed out in connection with the Change in Control provisions of the Plan. If the date of termination is determined under clause (i) or (ii) above, then any option grants or unvested shares outstanding on such date shall not be affected by the termination of the Plan and shall continue to have force and effect in accordance with the provisions of the instruments evidencing such grants or issuances. CASH PROCEEDS Any cash proceeds received by the Corporation from the sale of shares pursuant to the automatic grants made under the Plan shall be used for general corporate purposes. REGULATORY APPROVALS The implementation of the Plan, the granting of any option hereunder, and the issuance of Common Stock upon the exercise of any such option shall be subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the options granted under it and the Common Stock issued pursuant to it. NO IMPAIRMENT OF RIGHTS Nothing in this Plan or any automatic grant made pursuant to the Plan shall be construed or interpreted so as to affect adversely or otherwise impair the Corporation's right to 8 9 remove any Optionee from service on the Board at any time in accordance with the provisions of applicable law. 9 10 ARTICLE IV SPECIAL ONE-TIME OPTION GRANTS SPECIAL GRANTS On the date of the 1996 Annual Stockholders Meeting, a special one-time option grant shall be made to the following nonemployee Board members: an option grant for 40,000 shares of Common Stock to the Corporation's Chairman of the Board, Mr. Alan V. Gregory, and an option for 10,000 shares of Common Stock to the other eligible nonemployee Board member who has not been appointed to the Board pursuant to any contractual or other right or arrangement, Mr. Charles C. Harwood. These special one-time grants were approved by the stockholders at the 1996 Annual Meeting. TERMS AND CONDITIONS OF SPECIAL GRANT Each option granted in accordance with the provisions of this Article IV shall be subject to the following terms and conditions and shall be evidenced by a stock option agreement incorporating such terms and conditions: 1. Option Price. The option price per share shall be one hundred percent (100%) of the Fair Market Value per share of Common Stock on the grant date. 2. Term and Exercisability of Options. (a) Each option shall become exercisable for any or all of the option shares upon the optionee's completion of six (6) months of Board service measured from the grant date. (b) Each option shall have a maximum term of ten (10) years measured from the grant date. 3. Repurchase Rights. Any unvested shares of Common Stock purchased upon the exercise of an Article IV grant shall be subject to repurchase by the Corporation, at the original option price paid per share, upon the optionee's cessation of Board membership for any reason other than death or disability prior to his completion of one (1) year of Board service measured from the grant date. 4. Nontransferability. During the lifetime of the optionee, the option, together with any stock appreciation right pertaining to such option, shall be exercisable only by the optionee and shall 10 11 not be assignable or transferable by the optionee other than a transfer of the option by will or by the laws of descent and distribution following the optionee's death. 5. Remaining Terms and Provisions. All the remaining terms and provisions of the special one-time option grants to be made pursuant to this Article IV shall be the same as those in effect for the automatic option grants made pursuant to the Article II Program. 11 EX-27.1 5 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS SEP-30-1998 MAR-31-1998 10,286 0 5,590 0 4,330 22,572 13,892 8,919 30,420 5,344 3,491 0 0 307 21,278 30,420 7,880 7,880 4,442 4,442 0 0 80 1,005 32 973 0 0 0 973 0.03 0.03
-----END PRIVACY-ENHANCED MESSAGE-----