<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended DECEMBER 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-5296
DIGITAL EQUIPMENT CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2226590
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
111 Powdermill Road, Maynard, Massachusetts 01754
(Address of principal executive offices) (Zip Code)
(508) 493-5111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. Number of shares of Common
Stock, par value $1, outstanding as of December 30, 1995: 153,145,214.
1
<PAGE>
DIGITAL EQUIPMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Three-Month Period Ended
----------------------------------
December 30, December 31,
1995 1994
------------- --------------
<S> <C> <C>
REVENUES
Product sales................................ $ 2,346,879 $ 1,869,993
Service and other revenues................... 1,604,498 1,603,266
------------- --------------
TOTAL OPERATING REVENUES..................... 3,951,377 3,473,259
------------- --------------
COSTS AND EXPENSES
Cost of product sales........................ 1,583,282 1,300,280
Service expense and cost of other revenues... 1,079,753 1,025,036
Research and engineering expenses............ 263,348 248,096
Selling, general and administrative expenses. 849,455 869,157
------------- --------------
Operating income............................. 175,539 30,690
Interest income.............................. 20,497 14,467
Interest expense............................. 25,741 22,568
------------- --------------
INCOME BEFORE INCOME TAXES................... 170,295 22,589
Provision for income taxes................... 21,513 3,707
------------- --------------
NET INCOME................................... 148,782 18,882
Dividend on preferred stock.................. 8,875 8,875
------------- --------------
NET INCOME APPLICABLE TO COMMON STOCK........ $ 139,907 $ 10,007
============= ==============
NET INCOME APPLICABLE PER COMMON SHARE (1)... $ 0.91 $ 0.07
============= ==============
</TABLE>
(1) Net income applicable per common share is based on the weighted
average number of common shares and common share equivalents outstanding during
the period: 154,280,589 for the three months ended December 30, 1995 and
144,998,947 for the three months ended December 31, 1994. See page 8 of this
report.
Cash dividends on common stock have never been paid by the Corporation.
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
DIGITAL EQUIPMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Six-Month Period Ended
--------------------------------
December 30, December 31,
1995 1994
-------------- --------------
<S> <C> <C>
REVENUES
Product sales................................ $ 4,165,538 $ 3,522,644
Service and other revenues................... 3,056,959 3,073,087
-------------- --------------
TOTAL OPERATING REVENUES..................... 7,222,497 6,595,731
-------------- --------------
COSTS AND EXPENSES
Cost of product sales........................ 2,839,960 2,530,946
Service expense and cost of other revenues... 2,040,660 1,973,708
Research and engineering expenses............ 519,780 535,884
Selling, general and administrative expenses. 1,583,889 1,705,524
-------------- --------------
Operating income/(loss)...................... 238,208 (150,331)
Interest income.............................. 38,024 21,493
Interest expense............................. 49,160 39,294
-------------- --------------
INCOME/(LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE.................................... 227,072 (168,132)
Provision for income taxes................... 30,119 8,059
-------------- --------------
INCOME/(LOSS) BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE............... 196,953 (176,191)
BENEFIT DUE TO CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE............... - 64,503
-------------- --------------
NET INCOME/(LOSS)............................ 196,953 (111,688)
Dividends on preferred stock................. 17,750 17,750
-------------- --------------
NET INCOME/(LOSS) APPLICABLE TO COMMON STOCK. $ 179,203 $ (129,438)
============== ==============
PER COMMON SHARE:(1)
INCOME/(LOSS) APPLICABLE BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE..... $ 1.17 $ (1.36)
BENEFIT DUE TO CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE......................... - 0.45
-------------- --------------
NET INCOME/(LOSS) APPLICABLE PER
COMMON SHARE ................................ $ 1.17 $ (0.91)
============== ==============
</TABLE>
3
<PAGE>
(1) Net income applicable per common share is based on the weighted
average number of common shares and common share equivalents outstanding during
the period: 153,002,306 for the six months ended December 30, 1995. Net loss
applicable per common share is based only on the weighted average number of
common shares outstanding during the period: 142,692,716 shares for the six
months ended December 31, 1994. See page 9 of this report.
Cash dividends on common stock have never been paid by the Corporation.
The accompanying notes are an integral part of these financial statements.
DIGITAL EQUIPMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 30, July 1,
1995 1995
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................ $ 1,494,504 $ 1,602,148
Accounts receivable, net of allowances
of $186,556 and $150,655......................... 3,536,171 3,219,082
Inventories
Raw materials.................................. 596,806 595,829
Work-in-process................................ 422,704 434,408
Finished goods................................. 1,038,579 1,023,383
-------------- --------------
Total inventories................................ 2,058,089 2,053,620
Prepaid expenses, deferred income taxes
and other current assets......................... 363,831 397,047
-------------- --------------
TOTAL CURRENT ASSETS............................. 7,452,595 7,271,897
-------------- --------------
Property, plant and equipment, at cost........... 5,205,985 5,475,727
Less accumulated depreciation.................... 3,037,830 3,207,005
-------------- --------------
Net property, plant and equipment................ 2,168,155 2,268,722
Other assets..................................... 394,724 406,533
-------------- --------------
TOTAL ASSETS..................................... $ 10,015,474 $ 9,947,152
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
DIGITAL EQUIPMENT CORPORATION
CONSOLIDATED BALANCE SHEETS (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
December 30, July 1,
1995 1995
-------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank loans and current portion
of long-term debt................................... $ 8,107 $ 14,371
Accounts payable.................................... 1,034,179 1,113,160
Income taxes payable................................ 105,917 76,757
Salaries, wages and related items................... 562,296 562,442
Deferred revenues and customer advances............. 1,025,799 1,232,050
Accrued restructuring costs......................... 293,319 492,046
Other current liabilities........................... 912,444 755,466
-------------- --------------
TOTAL CURRENT LIABILITIES........................... 3,942,061 4,246,292
-------------- --------------
Deferred income taxes............................... 4,370 16
Long-term debt...................................... 1,013,023 1,012,885
Postretirement and other postemployment
benefits............................................ 1,230,326 1,159,679
-------------- --------------
TOTAL LIABILITIES................................... 6,189,780 6,418,872
-------------- --------------
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; authorized
25,000,000 shares; 4,000,000 shares
of Series A 8-7/8% Cumulative Preferred
Stock (liquidation preference of $100.00
per share) issued and outstanding................... 4,000 4,000
Common stock, $1.00 par value; authorized
450,000,000 shares; 153,145,214 and
149,777,573 shares issued and outstanding........... 153,145 149,778
Additional paid-in capital.......................... 3,659,556 3,544,712
Retained earnings/(deficit)......................... 8,993 (170,210)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY.......................... 3,825,694 3,528,280
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......... $ 10,015,474 $ 9,947,152
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
DIGITAL EQUIPMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Six-Month Period Ended
----------------------------------
December 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss)............................ $ 196,953 $ (111,688)
Adjustments to reconcile net income/(loss) to
net cash used by operating activities:
Depreciation............................... 197,569 263,101
Amortization............................... 32,953 36,032
Gain on disposition of other assets........ (22,280) (27,398)
Other adjustments to income................ (14,338) (83,413)
(Increase)/decrease in accounts receivable. (317,089) 345,657
Increase in inventories.................... (44,051) (277,406)
(Increase)/decrease in prepaid expenses.... 22,142 (13,889)
Decrease in accounts payable............... (78,981) (248,034)
Increase/(decrease) in taxes............... 42,130 (3,848)
Increase in salaries, wages, benefits
and related items.......................... 70,501 14,684
Decrease in deferred revenues and
customer advances.......................... (196,557) (176,389)
Decrease in accrued restructuring costs.... (200,202) (462,465)
Increase in other current liabilities...... 139,811 108,656
------------- ------------
Total adjustments............................ (368,392) (524,712)
------------- ------------
Net cash flows from operating activities..... (171,439) (636,400)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property, plant and equipment.. (162,324) (182,335)
Proceeds from the disposition of net
property, plant and equipment................ 57,823 110,304
Additions to other assets.................... (34,676) (13,151)
Proceeds from the disposition of other assets 120,135 644,634
------------- ------------
Net cash flows from investing activities..... (19,042) 559,452
------------- ------------
Net cash flows from operating and
investing activities....................... (190,481) (76,948)
------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
DIGITAL EQUIPMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C>
Payments to retire debt...................... (6,623) (24,355)
Issuance of common shares.................... 107,210 70,368
Dividends on preferred stock................. (17,750) (17,750)
------------ ------------
Net cash flows from financing activities..... 82,837 28,263
------------ ------------
Net decrease in cash and cash equivalents.... (107,644) (48,685)
Cash and cash equivalents at the
beginning of the year........................ 1,602,148 1,180,863
------------ ------------
Cash and cash equivalents at end of period... $ 1,494,504 $ 1,132,178
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
DIGITAL EQUIPMENT CORPORATION
COMPUTATION OF NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Three-Month Period Ended
--------------------------------
December 30, December 31,
1995 1994
-------------- --------------
<S> <C> <C>
Net income applicable to common and
common equivalent shares......................... $ 139,907 $ 10,007
============== ==============
Weighted-average number of common shares
outstanding during the period.................... 151,334,362 143,530,877
Common stock equivalents from application
of "treasury stock" method to unexercised
and outstanding stock options.................... 2,946,227 1,468,070
-------------- --------------
Total weighted-average number of common
and common equivalent shares outstanding
during the period................................ 154,280,589 144,998,947
============== ==============
Net income applicable per common
and common equivalent share...................... $ 0.91 $ 0.07
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
DIGITAL EQUIPMENT CORPORATION
COMPUTATION OF NET INCOME/(LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Six-Month Period Ended
--------------------------------
December 30, December 31,
1995 1994
-------------- --------------
<S> <C> <C>
Net income/(loss) applicable to common and
common equivalent shares.......................... $ 179,203 $ (129,438)
============== ==============
Weighted-average number of common shares
outstanding during the period..................... 150,538,174 142,692,716
Common stock equivalents from application
of "treasury stock" method to unexercised
and outstanding stock options..................... 2,464,132 -
-------------- --------------
Total weighted-average number of common
and common equivalent shares outstanding
during the period................................. 153,002,306 142,692,716
============== ==============
Net income/(loss) applicable per common
and common equivalent share....................... $ 1.17 $ (0.91)
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
DIGITAL EQUIPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Significant Accounting Policies
The accompanying unaudited financial statements as of and for the three month
and six month periods ended December 30, 1995 and December 31, 1994 have been
prepared on substantially the same basis as the annual consolidated financial
statements, reflecting all adjustments of a normal recurring nature. In the
opinion of the Corporation, the financial statements reflect all adjustments
necessary for a fair presentation of the results for those periods and the
financial condition at those dates.
Note B - Restructuring Actions
During the first six months of fiscal 1996, restructuring actions resulted in
approximately 530 employee separations. The Corporation incurred costs of
approximately $82 million, net of postretirement benefits curtailment gains for
the first six months. Cash expenditures for employee separations were
approximately $88 million in the first six months of fiscal 1996.
During the first six months of fiscal 1996, the Corporation incurred costs of
approximately $117 million for facility closures and related actions. Proceeds
of $45 million from the sale of property, plant and equipment offset cash
expenditures of $36 million for facility closures and related actions.
The Corporation believes that the restructuring reserve balance of $293 million
is adequate to cover the remaining planned restructuring actions, the majority
of which are facilities related.
Note C - Litigation
Several purported class action lawsuits were filed against the Corporation
during the fourth quarter of fiscal 1994 alleging violations of the Federal
securities laws arising from alleged misrepresentations and omissions in
connection with the Corporation's issuance and sale of Series A 8-7/8%
Cumulative Preferred Stock and the Corporation's financial results for the
quarter ended April 2, 1994. During fiscal 1995, the lawsuits were consolidated
into three cases, which were pending before the United States District Court for
the District of Massachusetts. On August 8, 1995, the Massachusetts federal
court granted the defendants' motion to dismiss all three cases in their
entirety. On September 6, 1995, notices of appeal were filed in two of the
cases and the appeals are pending.
Note D - Interest Rate Swaps
In October 1995, $500 million face amount of interest rate swap agreements were
terminated resulting in a final payment of $17 million under the agreements.
Since such swap agreements were entered into in fiscal 1994 to manage the
Corporation's exposure to interest rate movements through fiscal 2003, the final
payment will be amortized over the remaining seven years. During the initial
years, the Corporation received net proceeds on these swap agreements.
10
<PAGE>
Note E - Accounts Receivable Securitization Program
In October 1995, the Corporation's French subsidiary entered into a one-year
agreement with a major financial institution allowing it to sell an undivided
ownership interest in a designated pool of trade accounts receivable (the
"Receivables") to a group of investors for proceeds of up to 450 million French
francs (approximately $72 million based on exchange rates at December 30, 1995).
Commitment fees under the agreement are immaterial. As of February 12, 1996, no
interests in the Receivables had been sold.
Note F - Divestments
At the end of the second quarter of fiscal 1996, the Corporation transferred its
learning services business to Welsh, Carson, Anderson & Stowe for proceeds of
approximately $80 million. Approximately 600 employees will transfer with this
business.
Note G - Pension Plan
In December 1995, the Board of Directors approved an amendment to the
Corporation's U.S. pension plan effective March 1, 1996. Pursuant to the
amendment to the plan, the defined pension benefits will be based on an account
balance comprised of a percentage of pay for each year of service and interest
credited on the cumulative balance, whereas the current plan defined benefit is
calculated based on a percentage of the employee's earnings during service to
the Corporation.
On the effective date of the amendment, the vested and accumulated benefit
obligations of the pension plan will more closely approximate the projected
benefit obligation. The plan amendment is not expected to have a material
effect on the consolidated statement of operations or the consolidated balance
sheet. There is no cash flow impact from the implementation of the amendment to
the plan.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
As an aid to understanding the Corporation's operating results, the
following tables indicate the percentage relationships of income and
expense items included in the statements of operations for the most recent
quarter and six-month period ended December 30, 1995 and the corresponding
quarter and six-month period ended December 31, 1994 of the preceding fiscal
year and the percentage changes in those items for such periods.
Components of total costs of operating revenues are shown as percentages of
their related revenues.
<TABLE>
<CAPTION>
Income and Expense Items
as a Percentage of
Total Operating Revenues (a)
------------------------------------------------
Three-Month Period Ended Six-Month Period Ended
------------------------ ----------------------
Dec. 30, Dec. 31, Dec. 30, Dec. 31,
Income and expense items 1995 1994 1995 1994
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Product sales 59.4% 53.8% 57.7% 53.4%
Service and other revenues 40.6% 46.2% 42.3% 46.6%
---------- ---------- --------- ---------
Total operating revenues 100.0% 100.0% 100.0% 100.0%
Cost of product sales 67.5% 69.5% 68.2% 71.8%
Service expense and cost
of other revenues 67.3% 63.9% 66.8% 64.2%
Total cost of operating
revenues 67.4% 66.9% 67.6% 68.3%
Research and engineering
expenses 6.7% 7.1% 7.2% 8.1%
Selling, general and
administrative expenses 21.5% 25.0% 21.9% 25.9%
---------- ---------- --------- ---------
Operating income/(loss) 4.4% 0.9% 3.3% (2.3%)
Interest income 0.5% 0.4% 0.5% 0.3%
Interest expense 0.7% 0.6% 0.7% 0.6%
Income/(loss) before income
taxes and cumulative
effect of change in
accounting principle 4.3% 0.7% 3.1% (2.5%)
Provision for income taxes 0.5% 0.1% 0.4% 0.1%
---------- ---------- --------- ---------
Income/(loss) before
cumulative effect of
change in accounting
principle 3.8% 0.5% 2.7% (2.7%)
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Benefit due to cumulative
effect of change in
accounting principle - - - 1.0%
---------- ---------- --------- ---------
Net income/(loss) 3.8% 0.5% 2.7% (1.7%)
Dividends on preferred
stock 0.2% 0.3% 0.2% 0.3%
---------- ---------- --------- ---------
Net income/(loss)
applicable to
common stock 3.5% 0.3% 2.4% (2.0%)
========== ========== ========= =========
</TABLE>
Note (a): Percentage of operating revenues may not be additive due to rounding.
13
<PAGE>
<TABLE>
<CAPTION>
Percentage Increases/
(Decreases)
-------------------------------
Three-Month Six-Month
Period Ended Period Ended
Dec. 30, 1995 Dec. 30, 1995
vs. vs.
Income and Expense Items Dec. 31, 1994 Dec. 31, 1994
- - ------------------------------------------- -------------- --------------
<S> <C> <C>
Product sales 25.5% 18.3%
Service and other revenues 0.1% (0.5%)
Total operating revenues 13.8% 9.5%
Cost of product sales 21.8% 12.2%
Service expense and cost of other
revenues 5.3% 3.4%
Total cost of operating revenues 14.5% 8.3%
Research and engineering expenses 6.1% (3.0%)
Selling, general and administrative
expenses (2.3%) (7.1%)
Operating income/(loss) 100+% 100+%
Interest income 41.7% 76.9%
Interest expense 14.1% 25.1%
Income/(loss) before income taxes and
cumulative effect of change in
accounting principle 100+% 100+%
Provision for income taxes 100+% 100+%
Income/(loss) before cumulative effect
of change in accounting principle 100+% 100+%
Cumulative effect of change in
accounting principle N/M N/M
Net income/(loss) 100+% 100+%
Dividends on preferred stock 0% 0%
Net income/(loss) applicable
to common stock 100+% 100+%
</TABLE>
N/M = Not meaningful
14
<PAGE>
REVENUES
Total operating revenues for the first six months of fiscal 1996 were $7.2
billion, up 10% from the comparable period last year. Total operating revenues
included product sales of $4.2 billion and service and other revenues of $3.0
billion. Operating revenues from customers outside of the United States were
$4.7 billion and $4.2 billion for the first six months of fiscal 1996 and 1995,
respectively, representing 64% of total operating revenues for the respective
periods.
Total operating revenues for the second quarter of fiscal 1996 were $4.0
billion, up 14% from the comparable quarter last year. Total operating revenues
included product sales of $2.4 billion and service and other revenues of $1.6
billion. Operating revenues from customers outside of the United States were
$2.6 billion and $2.3 billion for the second quarter of fiscal 1996 and 1995,
respectively, representing 65% of total operating revenues for the respective
periods.
Product sales for the first six months and the second quarter of fiscal 1996
were up 18% and 26%, respectively, from the comparable periods last year, due
principally to increased demand for Alpha-based systems and Intel-based personal
computers. Adjusted for divestments, product sales for the first six months and
the second quarter increased 26% and 30% compared with the same periods last
year. Continued increased demand for the Corporation's UNIX-based offerings and
server products and increased acceptance of the Corporation's Windows NT-based
products contributed to the growth in Alpha-based systems revenues in the first
six months and the second quarter of fiscal 1996. Demand for the Corporation's
networks and storage subsystem products during the first six months and the
second quarter of fiscal 1996 also continued to strengthen compared with the
same periods of fiscal 1995.
For both the first six months and the second quarter of fiscal 1996, Alpha-based
systems revenues represented 25% of product sales, up from 20% and 21%,
respectively, for the same periods last year. Revenues from Intel-based
personal computers represented 28% and 29% of product sales for the first six
months and the second quarter, respectively, up from 24% and 26% for the
comparable periods last year. For both the first six months and the second
quarter, VAX systems revenues represented 5% of product sales, compared with 12%
for the same periods last year, as the Corporation nears the end of a major
product transition. Revenues from the Corporation's other product businesses,
including storage subsystems, networks and software, represented 42% and 41% of
product sales for the first six months and the second quarter, respectively,
compared with 44% and 41% for the comparable periods last year.
Service and other revenues for the first six months and the second quarter of
fiscal 1996 were essentially flat compared with the same periods of fiscal
1995. The components of the Corporation's service revenues reflect the
continuing change in the Corporation's service business. While VAX systems
maintenance revenues were down slightly, the decline was offset by significant
growth in the Corporation's newer multivendor services, network integration
services and Alpha systems maintenance and support business. Revenues from
systems integration and other consulting services were essentially flat compared
with the same periods last year.
15
<PAGE>
EXPENSES AND PROFIT MARGINS
Product gross margin for the first six months and the second quarter of fiscal
1996 was 32% and 33%, respectively, up from 28% and 30%, respectively, for the
comparable periods last year. The increase in product gross margin was due
principally to a favorable product mix and volume, driven by increased Alpha
product sales, and for the first six months, the effect of divestments.
Service gross margin was 33% of service and other revenues for both the first
six months and the second quarter of fiscal 1996 compared with 36% for the same
periods last year. The decline in service gross margin was due principally to a
continuing shift in the mix of service revenues toward lower-margin multivendor
service offerings.
Research and engineering (R&E) expenses totaled $520 million for the first six
months of fiscal 1996, down 3% from $536 million for the same period last year
due principally to the effect of divestments in fiscal 1995. R&E expenses for
the second quarter of fiscal 1996 were $263 million, up 6% from $248 million for
the second quarter of fiscal 1995. The Corporation believes that its level of
R&E spending as a percentage of total operating revenues is appropriate to
support current operations and to maintain competitive market-driven product
offerings.
Selling, general and administrative (SG&A) expenses decreased 7% to $1.6 billion
for the first six months of fiscal 1996 from $1.7 billion for the comparable
period a year ago. For the second quarter of fiscal 1996, SG&A expenses totaled
$849 million, down 2% from $869 million for the second quarter of fiscal 1995.
The decreases in SG&A expenses were due principally to restructuring actions
taken in fiscal 1995, the majority of which occurred in the first half of the
year, and the effects of divestments. These reductions were offset by increased
variable costs associated with higher revenue levels.
At the end of fiscal 1994, the Corporation approved a restructuring plan
intended to achieve a more competitive cost structure. While certain
restructuring actions remain to be implemented during the current fiscal year
and beyond, the Corporation expects to meet the objectives of the plan. The
total estimated cost of planned restructuring actions remains unchanged (see
Note B).
Employee population decreased by 600 from the end of fiscal 1995 to
approximately 61,100, and by 4,500 from the end of the second quarter of fiscal
1995.
The net effect of currency exchange rate movements on revenues was slightly
positive in the first six months and the second quarter of fiscal 1996 compared
with the first six months and the second quarter of fiscal 1995. This effect
was offset substantially by the effects of currency exchange rate movements on
non-dollar denominated costs and by competitive responses to market conditions
resulting from currency fluctuations.
Interest income for the first six months and the second quarter of fiscal 1996
was $38 million and $20 million, respectively, compared with $21 million and $14
million for the comparable periods last year, reflecting significantly higher
cash balances and interest rates. Interest expense for the first six months and
the second quarter was $49 million and $26 million, respectively, compared with
$39 million and $23 million for the comparable periods of fiscal 1995. For the
first six months, interest expense related to interest rate swap agreements was
approximately $2 million, compared with a reduction of interest expense of
approximately $2 million for the first six months of fiscal 1995 (see Note D).
16
<PAGE>
Income tax expense for the first six months and the second quarter of fiscal
1996 was $30 million and $22 million, respectively, compared with $8 million and
$4 million for the same periods of fiscal 1995. Income tax expense reflects
several factors, including income taxes provided for profitable operations,
benefits taken from net operating loss carryforwards and an inability to
recognize currently certain non-U.S. tax benefits from operating losses.
In December 1995, the Corporation entered into a Memorandum of Understanding
with Cirrus Logic, Inc. ("Cirrus Logic") to establish a semiconductor
manufacturing relationship to produce wafers at the Corporation's facility in
Hudson, Massachusetts. Under the proposed arrangement, which is subject to the
execution of definitive agreements, Cirrus Logic would provide leased equipment
to increase production capacity at the facility. The Corporation would be
required to supply, and Cirrus Logic obligated to purchase, a minimum number of
wafers during the multi-year term of the proposed arrangement.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 123 - Accounting for Stock-Based
Compensation. SFAS No. 123 encourages, but does not require, companies to
recognize compensation costs for all stock-based compensation arrangements using
a fair value method of accounting. The Corporation has not decided if it will
adopt the recognition principles of SFAS No. 123, nor has it determined the
impact of such adoption on the Corporation's consolidated results of operations
or its financial statement disclosures. The adoption of SFAS No. 123 will have
no cash flow impact on the Corporation.
AVAILABILITY OF FUNDS TO SUPPORT CURRENT AND FUTURE OPERATIONS AND SPENDING FOR
OPERATIONS.
Cash and cash equivalents totaled $1.5 billion at the end of the second quarter
of fiscal 1996, down from $1.6 billion at the end of fiscal 1995.
Net cash used for operating activities was $171 million for the first six months
of fiscal 1996, due principally to increased accounts receivable related to
revenue generated at the end of the second quarter, partially attributable to
component supply delays. Cash expenditures for restructuring activities were
$79 million, net of proceeds of approximately $45 million from the sale of
property, plant and equipment. The Corporation currently estimates that cash
expenditures for restructuring actions for the second half of fiscal 1996 will
be approximately $150 million to $200 million (see Note B).
Net cash used for investing activities was $19 million for the first six months
of fiscal 1996, due principally to capital spending, offset by proceeds from the
disposition of other assets (see Note F) and the sale of property, plant and
equipment.
Net cash generated from financing activities was $83 million for the first six
months of fiscal 1996, due principally to the issuance of stock under the
Corporation's employee stock purchase plans, offset by the payment of dividends
on preferred stock and the reduction of debt.
The Corporation's need for, cost of and access to funds are dependent on future
operating results, as well as conditions external to the Corporation. The
Corporation historically has maintained a conservative capital structure, and
believes that its current cash position and its sources of and access to capital
are adequate to support current and future operations.
17
<PAGE>
FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Corporation or statements made by
its employees may contain "forward-looking" information, as that term is defined
in the Private Securities Litigation Reform Act of 1995 (the "Act"). The
Corporation cautions investors that there can be no assurance that actual
results or business conditions will not differ materially from those projected
or suggested in such forward-looking statements as a result of various factors,
including but not limited to the following:
- - -- The Corporation's future operating results are dependent on its ability to
develop, produce and market new and innovative products and services. There are
numerous risks inherent in this complex process, including rapid technological
change and the requirement that the Corporation bring to market in a timely
fashion new products and services which meet customers' changing needs.
- - -- Historically, the Corporation has generated a disproportionate amount of its
operating revenues toward the end of each quarter, making precise prediction of
revenues and earnings particularly difficult and resulting in risk of variance
of actual results from those forecast at any time. In addition, the
Corporation's operating results historically have varied from fiscal period to
fiscal period; accordingly, the Corporation's financial results in any
particular fiscal period are not necessarily indicative of results for future
periods.
- - -- The Corporation offers a broad variety of products and services to customers
around the world. Changes in the mix of products and services comprising
revenues could cause actual operating results to vary from those expected.
- - -- The Corporation's success is partly dependent on its ability to successfully
predict and adjust production capacity to meet demand, which is partly dependent
upon the ability of external suppliers to deliver components at reasonable
prices and in a timely manner; capacity or supply constraints, as well as
purchase commitments, could adversely affect future operating results.
- - -- The Corporation operates in a highly competitive environment and in a highly
competitive industry, which include significant competitive pricing pressures
and intense competition for skilled employees.
- - -- The Corporation offers its products and services directly and through
indirect distribution channels. Changes in the financial condition of, or the
Corporation's relationship with, distributors and other indirect channel
partners, could cause actual operating results to vary from those expected.
- - -- The Corporation does business worldwide in over 100 countries. Global
and/or regional economic factors and potential changes in laws and regulations
affecting the Corporation's business, including without limitation, currency
exchange rate fluctuations, changes in monetary policy and tariffs, and federal,
state and international laws regulating the environment, could impact the
Corporation's financial condition or future results of operations.
- - -- The market price of the Corporation's securities could be subject to
fluctuations in response to quarter to quarter variations in operating results,
changes in analysts' earnings estimates, market conditions in the information
technology industry, as well as general economic conditions and other factors
external to the Corporation.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10(a) - Digital Equipment Corporation 1990 Equity Plan, as amended.
10(b) - Digital Equipment Corporation 1995 Equity Plan, as amended.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Corporation during the period
covered by this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIGITAL EQUIPMENT CORPORATION
(Registrant)
By /s/ Vincent J. Mullarkey
________________________________
Vincent J. Mullarkey
Vice President, Finance and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
February 12, 1996
19
<PAGE>
EXHIBIT 10(A)
DIGITAL EQUIPMENT CORPORATION
1990 EQUITY PLAN
SECTION 1 -- PURPOSE
The Digital Equipment Corporation 1990 Equity Plan (the "Plan") is intended to
advance the interests of Digital Equipment Corporation (the "Company") and its
stockholders by improving the Company's ability to attract and retain Employees
who are in a position to make substantial contributions to the successful
management and growth of the Company and its subsidiaries and to stimulate the
personal involvement of these Employees in the fortunes of the Company, thereby
encouraging their continued service with the Company and its subsidiaries.
Accordingly, the Company may, from time to time, grant to such Employees as may
be selected in the manner provided in the Plan, options to purchase shares of
Stock of the Company, stock appreciation rights, awards of Stock of the Company
and awards of stock units (collectively, the "Awards"), all on the terms and
conditions hereinafter established.
SECTION 2 -- ADMINISTRATION
The Plan shall be administered by a committee appointed by the Board of
Directors of the Company (the "Committee"), which shall consist of not fewer
than three members of the Company's Board of Directors. The Board of Directors
may from time to time remove members from or add members to the Committee, and
vacancies on the Committee, howsoever caused, shall be filled by the Board of
Directors. All members of the Committee must be disinterested persons within the
meaning of Rule 16b-3 or any successor provision ("Rule 16b-3") under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), if required for
compliance with Rule 16b-3. The Committee shall select one of its members as
Chairman and shall hold meetings at such times and places as it may determine.
Acts by a majority of the Committee or acts reduced to or approved in writing by
a majority of the Committee shall be the valid acts of the Committee. Any
authority or power granted in the Plan to the Committee shall also be deemed to
be granted to the Board of Directors, and any action permitted to be taken or
determination permitted to be made by the Committee may also be taken or made by
the Board of Directors; provided, however, that to the extent required by Rule
16b-3 with respect to specific grants of Awards, such power or authority shall
only reside in and such actions or determinations shall only be made by an
administrator or administrators in compliance with Rule 16b-3. The Board of
Directors may also establish a committee of one or more members of the Company's
Board of Directors who are also officers of the Company for the pur- poses of
administering grants of Awards under the Plan to Employees who are not subject
to the provisions of Section 16 of the 1934 Act. If such a committee is
established, it shall have all the power and authority of the Committee under
the Plan with respect to such Awards.
The Committee shall have full authority to interpret the Plan, to grant
waivers of Plan restrictions and to adopt such rules, regulations and guidelines
for carrying out the Plan as it may deem necessary or proper, all of which
powers shall be executed in the best interests of the Company and in keeping
with the purposes of the Plan. Such powers shall include, but shall not be
limited to, the power to modify or amend the Plan and to adopt such procedures,
subplans and the like as may be necessary to comply with provisions of the laws
of other countries in which the Company or any subsidiary of the Company may
operate in order to assure the viability of Awards granted under the Plan and to
enable Employees employed in such other countries to receive advantages and
benefits under the Plan and consistent with such laws.
Subject to the provisions of the Plan, the Committee shall have the authority
to select the Employees who are eligible to participate in the Plan, to
determine the Awards to be granted to each Employee, to determine the time or
times when Awards shall be exercisable or when restrictions, conditions and
<PAGE>
contingencies shall lapse and to establish any other restrictions, conditions
and contingencies on Awards in addition to those prescribed by the Plan. The
Committee shall also prescribe the form of agreements or other instruments under
the Plan and the legends, if any, to be affixed to the certificates representing
shares of Stock to be issued. The Committee shall have the authority to grant
Awards singly, in combination or in tandem.
The determinations of the Committee in the administration of the Plan shall be
final and conclusive unless otherwise determined by the Board of Directors. No
member of the Board of Directors or the Committee shall be liable for any action
or determination made in good faith with respect to the Plan.
SECTION 3 -- SHARES OF STOCK SUBJECT TO THE PLAN
The shares of stock available for issuance under the Plan shall be authorized
but unissued shares of the Company's Common Stock or previously issued shares of
the Company's Common Stock reacquired by the Company in any manner and held in
its treasury ("Stock"). No fractional shares of Stock shall be delivered under
the Plan. Subject to adjustment as provided in Section 7.9 below, the maximum
number of shares of Stock available for the grant of Awards under the Plan from
the date of its adoption by the Board of Directors until June 29, 1991, shall be
the maximum number of shares of Stock available for issuance under the Company's
1985 Restricted Stock Option Plan (the "1985 Plan") as of the date of approval
of the Plan by the Company's stockholders. Subject to adjustment as provided in
Section 7.9 below, the maximum num- ber of shares of Stock available for the
grant of Awards under the Plan for each fiscal year subsequent to the fiscal
year ending on June 29, 1991, but prior to the beginning of the fiscal year
commencing on June 29, 1996, shall be one and one-half percent (1 1/2%) of the
total number of issued shares of the Company's Common Stock (including treasury
shares) as of the first day of such fiscal year. Such maximum number of shares
shall be increased in any fiscal year by the number of shares of Stock available
for the grant of Awards hereunder in the previous fiscal year or years but not
covered by Awards granted hereunder in such fiscal year or years since the
adoption of the Plan. Notwithstanding any other provision of the Plan, in no
event shall more than five million (5,000,000) shares of Stock be cumulatively
available for the issuance of Stock pursuant to ISOs granted under the Plan, or
shall more than five million (5,000,000) shares of Stock be cumulatively
available for grant pursuant to Restricted Stock Awards, Unrestricted Stock
Awards and Stock Unit Awards. Regardless of whether Stock Unit Awards and Stock
Appreciation Rights are settled for shares of Stock or cash, the number of
shares of Stock to which a Stock Unit Award or Stock Appreciation Right relates
shall be subtracted from the maximum number of shares available for the grant of
Awards under the Plan. Regardless of whether a Stock Unit Award is settled for
shares of Stock or cash, the number of shares of Stock to which a Stock Unit
Award relates shall be subtracted from the cumulative aggregate number of shares
available for grant pursuant to Restricted Stock Awards, Unrestricted Stock
Awards and Stock Unit Awards. Notwithstanding the foregoing, any dividend or
dividend equivalent paid or credited to an Employee in shares of Stock or Stock
Units pursuant to Sections 5.3(b) or 5.4(b) below shall not be subtracted from
the maximum number of shares available for the grant of Awards under the Plan or
the cumulative aggregate number of shares available for grant pursuant to
Restricted Stock Awards, Unrestricted Stock Awards and Stock Unit Awards.
Shares of Stock issued under the Plan shall be subject to the terms,
restrictions, conditions and contingencies specified in the Plan and to such
other terms, restrictions, conditions and contingencies as the Committee may
provide. Further, shares of Stock subject to Awards that expire unexercised or
are forfeited, terminated, canceled (in whole or in part), or in any other
manner are not issued to an Employee (except shares of Stock that are not issued
to an Employee pursuant to Awards settled in cash in lieu thereof), shall become
available immediately for the future grant of Awards under the Plan.
SECTION 4 -- ELIGIBILITY
Awards may be granted under the Plan only to Employees of the Company or of a
subsidiary of the Company. The term "Employees" shall include officers as well
as all other employees of the Company or
<PAGE>
of a subsidiary of the Company. Members of the Committee and members of the
Board of Directors who are not Employees of the Company or of a subsidiary of
the Company shall not be eligible to participate in the Plan. Awards may be
granted to the same Employee on more than one occasion.
SECTION 5 -- TYPES OF AWARDS
SECTION 5.1 OPTIONS.
(a) Definition of Options. An "Option" is an Award entitling the recipient
upon exercise of the Option to purchase Stock at a specified price for a
specified period of time. Both "incentive stock options", as defined in Section
422A of the Internal Revenue Code of 1986, as amended (the "Code"), or any
successor provision, and Options that are not incentive stock options ("Non-
Qualified Options"), may be granted under the Plan. Any Option intended to
qualify as an incentive stock option is referred to in the Plan as an "ISO".
Instruments evidencing ISOs shall contain such terms and conditions as are
required under applicable provisions of the Code.
(b) Exercise Price. The exercise price of an Option shall be determined by
the Committee subject to the following rules:
(1) The exercise price of a Non-Qualified Option shall not be less than the
lesser of (i) 50% of the Fair Market Value per share of the Stock on the date
the Option is granted or (ii) the book value per share of the Stock as of the
end of the fiscal year of the Company immediately preceding the date of such
grant.
(2) The exercise price of an ISO shall not be less than 100% of the Fair
Market Value per share of the Stock on the date the Option is granted.
(c) Duration of Options. The Committee shall determine the latest date on
which an ISO or a Non-Qualified Option may be exercised; provided, however, that
the latest date on which an ISO may be exercised shall be no later than the date
that is ten years after the date the ISO was granted.
(d) Exercise of Options. Subject to the applicability of Section 7.3 below,
an Option shall become exercisable at such time or times, and on such
conditions, as the Committee may specify. The Committee may at any time
accelerate the time at which all or any part of an Option may be exercised.
An Employee electing to exercise an Option shall give written or electronic
notice to the Company of the election and of the number of shares of Stock that
the Employee elects to acquire, accompanied by any documents or instruments
required by the Company and payment in full for the Stock purchased, together
with provision for the amount of any taxes due in respect of the sale and issue
thereof. The Employee shall receive certificates for shares of Stock purchased
or may elect to receive statements of ownership instead.
(e) Payment for Stock. Stock purchased by an Employee upon exercise of an
Option may be paid for in any legal manner so specified by the Committee,
including the following methods, which may be used in combination if specified
by the Committee:
(1) In cash or by check, bank draft or money order payable to the order of
the Company.
(2) Through the delivery of an assignment to the Company of a sufficient
amount of the proceeds from the sale of the Stock acquired upon exercise to
pay for all of the Stock acquired upon exercise and an authorization to the
broker or selling agent to pay that amount to the Company, which sale shall be
by the Employee's direction at the time of exercise, provided that such method
does not result in a violation of applicable law. This method of payment may
not be used to purchase shares of Restricted Stock as to which the
restrictions, conditions and contingencies have not already lapsed.
<PAGE>
(3) Through the delivery of an amount of previously acquired shares of
Stock having in the aggregate a Fair Market Value equal to the exercise price,
provided that such method is consistent with applicable tax laws, policies and
eligibility criteria established by the Committee. Employees may further apply
the Stock acquired upon such exercise to satisfy the exercise price for
additional Stock.
(f) Special Rules for ISOs. ISOs shall not be granted to (i) employees of any
subsidiary of the Company with respect to which the Company does not satisfy the
ownership requirements set forth in Section 425(f) of the Code, or (ii) officers
who are not employees of the Company or of any subsidiary of the Company. In
addition, the following special rules shall apply to ISOs:
(1) Consistent with Section 422A of the Code and any associated
regulations, notices or other official pronouncements of general
applicability, to the extent that the aggregate Fair Market Value (determined
as of the date of grant) of the shares of Stock with respect to which ISOs are
exercisable for the first time by the holder of an Option during any calendar
year (under all plans of the Company and its subsidiaries) exceeds $100,000,
such Option shall not be treated as an ISO. Nothing in this special rule shall
be construed as limiting the exercisability of any Option unless the Committee
provides for a limitation at the time of grant.
(2) An Employee holding an ISO shall agree to notify the Company in writing
immediately after he or she makes a disqualifying disposition of any Stock
acquired pursuant to the exercise of an ISO. A "disqualifying disposition" is
any disposition (including any sale) of Stock before the later of (i) two
years after the date the Employee was granted the ISO or (ii) one year after
the date the Employee acquired Stock by exercising the ISO. If the Employee
has died before the Stock is sold, these holding period requireMents do not
apply and no disqualifying disposition can occur thereafter.
(g) Conversion of ISOs. The Committee may in its discretion take such actions
as may be necessary to convert the holder's outstanding ISOs (or any
installments or portions of installments thereof) into Non-Qualified Options
regardless of whether such holder is an Employee at the time of such conversion.
At the time of such conversion of an ISO, the Committee (with the consent of the
holder of the Option) may impose such conditions on the exercise of the
resulting Non-Qualified Options as it may determine, provided that such
conditions shall not be inconsistent with the Plan. Nothing in the Plan shall be
deemed to give any holder of an ISO the right to have ISOs converted into Non-
Qualified Options, and no such conversion shall occur until and unless the
Committee takes appropriate action. The Committee, with the consent of the
holder of an outstanding ISO, may also terminate any portion of such ISO.
SECTION 5.2 STOCK APPRECIATION RIGHTS.
(a) Description of Stock Appreciation Rights. A "Stock Appreciation Right"
is an Award entitling the recipient upon exercise of the Right to receive an
amount, in cash or Stock, or a combination thereof (at the Committee's
discretion), determined in whole or in part by reference to appreciation in the
Fair Market Value of the Company's Common Stock. A Stock Appreciation Right
entitles the Employee to receive, with respect to each share of Stock to which
the Right relates, the excess of (1) the Fair Market Value of a share of the
Company's Common Stock on the date of exercise over (2) the Award price per
Right as determined by the Committee in accordance with the provisions of
Section 5.2(b) below.
(b) Other Terms and Conditions of Stock Appreciation Rights. Subject to the
applicability of Section 7.3 below, a Stock Appreciation Right shall become and
remain exercisable, at such time or times and subject to such restrictions,
conditions and contingencies as the Committee may prescribe. Subject to the
applicability of Section 7.3 below, the Committee may at any time accelerate the
time at which all or any part of the Right may be exercised. The Award price per
Right of a Stock Appreciation Right shall not be less than the lesser of (i) 50%
of the Fair Market Value of a share of the Company's Common Stock on the date
the Right is granted or (ii) the book value per share of the Company's Common
Stock as of the end of the fiscal year of the Company immediately preceding the
date of such grant. An Employee electing to exercise a Stock Appreciation Right
must give written or electronic notice to the Company of the election,
<PAGE>
accompanied by any documents or instruments required by the Company, together
with provision for the amount of any taxes due with respect thereto.
SECTION 5.3 RESTRICTED AND UNRESTRICTED STOCK.
(a) Definition of Restricted Stock Awards. A "Restricted Stock Award"
entitles the recipient to acquire shares of Restricted Stock subject to the
restrictions against disposition and the obligation of resale described in
paragraph (c) below, and such other restrictions, conditions and contingencies
as determined by the Committee, for the par value per share of the Stock, or, in
the case of shares of Stock delivered from the Company's treasury, without any
payment to the Company, if consistent with applicable state law. The Committee
may determine that the price, if any, to be paid by an Employee for the shares
of Stock subject to a Restricted Stock Award has been satisfied by past services
rendered by such Employee pursuant to Section 7.12 below. The Committee may
provide that such other restrictions, conditions and contingencies be related to
personal performance, corporate performance or any other category of performance
deemed by the Committee to be important to the success of the Company or any of
its subsidiaries. The provisions of Restricted Stock Awards need not be the same
with respect to each recipient of such an Award.
(b) Rights as a Stockholder. An Employee who receives Restricted Stock
pursuant to a grant of a Restricted Stock Award and upon payment in full of the
par value per share of Restricted Stock, if required, or pursuant to the
exercise of an Option or Stock Appreciation Right will have all the rights of a
stockholder with respect to the Restricted Stock, including voting and dividend
rights, subject to the restrictions described in paragraph (c) below and any
other restrictions, conditions and contingencies imposed by the Committee at the
time of grant. The Committee may require that dividends be paid in additional
shares of Restricted Stock or in Stock Units.
(c) Restrictions and Obligations of Resale. "Restricted Stock" is Stock
subject to the following restrictions against disposition and obligation of
resale to the Company. Restricted Stock shall not be sold, transferred, or
otherwise disposed of and shall not be pledged or otherwise hypothecated, except
as provided in the Plan. (Any such sale, transfer or other disposition, or any
pledge or other hypothecation shall hereinafter be referred to as a
("disposition".) In the event of the termination of employment for any reason
other than the reasons specified in Sections 6.1, 6.2, 6.3 and 6.4 below,
Restricted Stock shall, except as provided in the Plan, be offered for resale to
the Company at its original acquisition price or forfeited to the Company if no
price was paid.
(d) Lapsing of Restrictions. Subject to the applicability of Section 7.3
below, the restrictions against disposition and the obligation of resale to the
Company of Restricted Stock shall lapse as the Committee shall determine, and
such terms shall be incorporated into and be made a part of the Award
instrument. Subject to the applicability of Section 7.3 below, the Committee may
at any time accelerate the time at which the restrictions against disposition
and the obligation of resale to the Company on all or any part of the shares of
Restricted Stock shall lapse.
(e) Resale and Forfeiture Mechanics. In the event of a termination of
employment for any reason other than the reasons specified in Sections 6.1, 6.2,
6.3 and 6.4 below, shares of Restricted Stock as to which the restrictions
against disposition and the obligation of resale to the Company have not lapsed
shall be delivered to the Company within 30 days following such termination of
employment. Within 60 days following a timely delivery of such shares, the
Company will compensate the Employee (at the original acquisition price, if any)
for such number of shares as the Company elects to purchase and will return to
the Employee any shares not so purchased. Any shares of Restricted Stock
returned to the Employee will thereafter be free of the restrictions against
disposition and the obligation of resale to the Company under the Plan. Shares
of Restricted Stock that are not delivered to the Company within 30 days
following the termination of employment shall remain subject to the restrictions
against disposition and the obligation of resale to the Company, and such
restrictions and obligation shall not lapse as otherwise provided in the Plan or
in the Award instrument. Shares of Restricted Stock represented by statements of
ownership shall
<PAGE>
be deemed to have been delivered to the Company on the date of termination of
employment. Nothing in this Section 5.3 shall require the Company to repurchase
Restricted Stock issued under the Plan.
(f) Notice of Election. Any Employee making an election under Section 83(b)
of the Code with respect to any share of Restricted Stock must provide a copy
thereof to the Company within 30 days of the filing of such election with the
Internal Revenue Service.
(g) Other Awards Settled with Restricted Stock. The Committee may, at the
time any Award described in this Section 5 is granted, provide that any or all
of the Stock delivered or issuable pursuant to the Award will be Restricted
Stock. Any provision for the lapse of the restrictions against disposition and
the obligation of resale to the Company may apply with respect to Restricted
Stock issuable upon settlement of an Award whether or not the Award has been
settled in whole or in part as of the date of lapse.
(h) Unrestricted Stock Awards. Subject to the applicability of Section 7.3
below, the Committee may, in its sole discretion, sell or transfer to any
eligible Employee shares of Stock free of the restrictions against disposition
and the obligation of resale to the Company under the Plan, for the par value
per share of the Stock ("Unrestricted Stock Award"), or, in the case of shares
of Stock delivered from the Company's treasury, without any payment to the
Company, if consistent with applicable state law. The Committee may determine
that the price, if any, to be paid by an Employee for the shares of Stock
subject to an Unrestricted Stock Award has been satisfied by past services
rendered by such Employee pursuant to Section 7.12 below. Any Employee who
receives an Unrestricted Stock Award will have all the rights of a stockholder,
including voting and dividend rights.
SECTION 5.4 STOCK UNITS.
(a) Description of Stock Unit Awards. A "Stock Unit Award" entitles the
recipient to receive, without payment, "Stock Units" in the form of phantom
shares of Stock, which are valued at the Committee's discretion in whole or in
part by reference to, or otherwise based on the Fair Market Value of the
Company's Common Stock.
(b) Other Terms and Conditions of Stock Units. Stock Units shall have such
other terms and conditions as the Committee shall determine and shall be
settleable in shares of Stock or cash, or any combination thereof, at the
discretion of the Committee. Subject to the provisions of the Plan, the
Committee shall have authority to determine the Employees of the Company and its
subsidiaries to whom and the time or times at which Stock Unit Awards shall be
made and all other restrictions, conditions and contingencies of such Awards.
The Committee may provide that such restrictions, conditions and contingencies
be related to personal performance, corporate performance or any other category
of performance deemed by the Committee to be important to the success of the
Company or any of its subsidiaries. An Employee who receives Stock Units may be
given rights to dividend equivalents, subject to any conditions imposed by the
Committee at the time of grant. The Committee may provide that any such dividend
equivalents be paid in cash, in shares of Stock or in additional Stock Units.
The provisions of Stock Unit Awards need not be the same with respect to each
recipient of such an Award. Subject to the applicability of Section 7.3 below,
the Committee may at any time accelerate the time at which any restrictions,
conditions and contingencies on Stock Units shall lapse.
SECTION 6 -- TERMINATION OF
EMPLOYMENT
SECTION 6.1 DEATH OF EMPLOYEE.
If an Employee dies while employed by the Company or any subsidiary of the
Company, or upon the death of an Employee after termination of employment
described in Sections 6.2, 6.3 and 6.4 below, the following rules shall apply:
<PAGE>
(a) Each Option and Stock Appreciation Right held by the Employee immediately
prior to his or her death shall become fully exercisable and may be exercised
only until one year after his or her death (whether or not this period ends
after expiration of the exercise period specified in the Award instrument,
except that the exercise period of any ISO shall not be extended by this
paragraph but rather shall be limited as provided in Section 5.1(c) above) by
the Employee's executor or administrator, or if not so exercised, by the
legatees or distributees of his or her estate or by such other person or persons
to whom the Employee's rights under such Option or Stock Appreciation Right
shall pass by will or by the applicable laws of descent and distribution.
(b) Each share of Restricted Stock and each Stock Unit covered by an Award
held by the Employee immediately prior to his or her death will immediately
become free of all restrictions, conditions and contingencies thereon.
SECTION 6.2 DISABILITY OF EMPLOYEE.
If an Employee ceases to be employed by the Company or any subsidiary of the
Company by reason of his or her permanent and total disability, as determined by
the Committee, the following rules shall apply:
(a) Each Option and Stock Appreciation Right held by the Employee when his or
her employment ends shall become fully exercisable and shall continue to be
exercisable in accordance with the terms set forth in the Award instrument
relating to such Award or upon such other terms as shall be determined by the
Committee, unless otherwise provided in the Award instrument.
(b) Each share of Restricted Stock and each Stock Unit covered by an Award
held by the Employee when his or her employment ends will immediately become
free of all restrictions, conditions and contingencies thereon, unless otherwise
provided in the Award instrument.
SECTION 6.3 RETIREMENT WITH THE CONSENT OF THE COMPANY PRIOR TO AGE 65.
If an Employee ceases to be employed by the Company or any subsidiary of the
Company by reason of his or her retirement with the consent of the Company prior
to age 65, as determined by the Committee, the Employee's rights with respect to
Awards held by him or her as of such retirement date shall be as set forth in
the Award instrument relating to such Award. For purposes of this Section 6.3,
"retirement with the consent of the Company prior to age 65" shall be retirement
prior to age 65 in accordance with policies, rules and eligibility criteria
established by the Committee, including without limitation, those related to
inimical conduct and association with a competitor. Retirement, including early
retirement, under any pension plan of the Company or any subsidiary of the
Company shall not by itself constitute retirement with the consent of the
Company for purposes of the Plan.
SECTION 6.4 TERMINATION OF EMPLOYMENT AT AGE 65 OR AFTER.
If an Employee ceases to be employed by the Company or any subsidiary of the
Company by reason of his or her termination of employment without cause at age
65 or after, then the following rules shall apply:
(a) Each Option and Stock Appreciation Right held by the Employee when his or
her employment ends shall become fully exercisable and shall continue to be
exercisable in accordance with the terms set forth in the Award instrument
relating to such Award or upon such other terms as shall be determined by the
Committee, unless otherwise provided in the Award instrument.
(b) Each share of Restricted Stock and each Stock Unit covered by an Award
held by the Employee when his or her employment ends will immediately become
free of all restrictions, conditions and contingencies thereon, unless otherwise
provided in the Award instrument.
<PAGE>
SECTION 6.5 OTHER TERMINATION OF EMPLOYMENT.
If an Employee ceases to be employed by the Company or any subsidiary of the
Company for any reason other than the reasons specified in Sections 6.1, 6.2,
6.3 and 6.4 above, the following rules shall apply:
(a) Each Option and Stock Appreciation Right held by the Employee that is
unexercised when his or her employment ends shall expire upon such termination
of employment, unless otherwise agreed to in writing by the Committee.
(b) Each share of Restricted Stock held by the Employee on which all
restrictions, conditions and contingencies have not lapsed shall be offered for
resale to the Company in accordance with Section 5.3 above, and each Stock Unit
as to which all restrictions, conditions and contingencies have not lapsed shall
be forfeited, unless otherwise agreed to in writing by the Committee.
SECTION 6.6 COMMITTEE DETERMINATIONS.
Any question as to (a) whether there has been a termination of employment, (b)
the acquisition price of shares of Stock, (c) the existence of "cause", (d)
whether there has occurred a "permanent and total disability," or (e) whether
there has occurred a retirement "with the consent of the Company" shall be
determined by the Committee, and its determination of such question shall be
final.
SECTION 7 -- GENERAL PROVISIONS
SECTION 7.1 TERM AND AMENDMENT.
Unless earlier terminated by the Board of Directors, the Plan shall terminate
on December 31, 1995, and no Awards shall be granted under the Plan after such
date; provided, however, that Awards payable or requiring exercise which are
granted on or before this date shall remain payable or exercisable in accordance
with their respective terms after the termination of the Plan; and provided,
further that the authority of the Committee to take actions with respect to any
such Awards as contemplated herein shall extend beyond termination of the Plan.
The Board of Directors may at any time terminate the Plan or suspend the grant
of Awards under the Plan. The Board of Directors may at any time amend the Plan
or any outstanding Award for any lawful purpose; provided, that no amendment,
without the approval of the Company's stockholders, shall increase the maximum
number of shares of Stock that may be issued under the Plan or issued in the
aggregate pursuant to the certain Awards listed in Section 3 above (except as
permitted by the last paragraph of Section 3 above and Section 7.9 below); and
provided, further that no amendment, without the approval of the Company's
stockholders (where such approval is necessary to satisfy then-applicable
requirements of federal securities laws, the Code or rules of any stock exchange
on which the Company's Common Stock is listed), shall extend the period during
which Awards may be granted under the Plan or amend the eligibility provisions
of Sections 4 and 5.1(f) above.
SECTION 7.2 NON-TRANSFERABILITY OF AWARDS.
(a) No Award (other than Stock or cash transferred to an Employee under the
Plan without restrictions) may be transferred other than by will or by the laws
of descent and distribution, and during an Em- ployee's lifetime an Award
requiring exercise may be exercised only by him or her (or in the event of
incapacity, the person or persons properly appointed to act on his or her
behalf).
(b) Notwithstanding anything contained herein to the contrary, in the event an
Employee terminates his or her employment and retains Awards pursuant to
Sections 6.3 or 6.4 above to assume a position with
<PAGE>
a governmental, charitable or educational institution, the Committee, in its
sole discretion and provided such arrangement is in accordance with applicable
law, may authorize a third party, including but not limited to a "blind" trust,
acceptable to the applicable governmental, charitable or educational
institution, the Employee and the Committee, to act on behalf and for the
benefit of such Employee with respect to such Awards.
SECTION 7.3 HOLDING PERIODS.
Any equity security, as defined in the 1934 Act or the rules and regulations
promulgated thereunder, offered pursuant to an Award under the Plan may not be
sold for at least six months after acquisition thereof, and any derivative
security, as defined in the 1934 Act or in the rules and regulations promulgated
thereunder, offered pursuant to an Award under the Plan may not be exercised for
at least six months after acquisition thereof, except, in either case, in the
event of the disability or death of the holder thereof. The foregoing provision
shall apply automatically only to grants of Awards to Employees subject to the
provisions of Section 16 of the 1934 Act or the rules and regulations
promulgated thereunder. The Committee shall have the authority to provide that
such holding periods also apply to other Employees. Should any provision of this
paragraph require modification or be unnecessary to comply with the requirements
of Rule 16b-3, the Committee may waive such provision and/or amend this Plan to
add to or modify the provisions hereof accordingly.
SECTION 7.4 DOCUMENTATION OF AWARDS.
Awards shall be evidenced by written instruments prescribed by the Committee
from time to time. The instruments may be in the form of agreements to be
executed by both the Employee and the Company or certificates, letters or
similar instruments, which need not be executed by the Employee but acceptance
of which will evidence agreement to the terms of the Award.
SECTION 7.5 RIGHTS AS A STOCKHOLDER.
Except as specifically provided by the Plan, the receipt of an Award will not
give an Employee rights as a stockholder; the Employee will obtain such rights,
subject to any limitations imposed by the Plan or the Award instrument, upon
actual receipt of Stock.
SECTION 7.6 CONDITIONS ON DELIVERY OF STOCK.
The Company will not be obligated to deliver any Stock pursuant to the Plan or
to remove any restrictions from Stock previously delivered under the Plan until
(a) all restrictions, conditions and contingencies of the Award have been
satisfied or removed, (b) in the opinion of the Company's counsel, all
applicable federal and state laws and regulations have been complied with and
(c) all other legal matters in connection with the issuance and delivery of such
Stock have been approved by the Company's counsel.
SECTION 7.7 TAX WITHHOLDING.
The Company will withhold from any cash payment made pursuant to an Award an
amount sufficient to satisfy all federal, state and local withholding tax
requirements (the "withholding tax requirements"). In the case of an award
pursuant to which stock may be delivered, the Committee will have the right to
require that the Employee or other appropriate person remit to the Company an
amount sufficient to satisfy the withholding tax requirements or make other
arrangements satisfactory to the Committee with regard to such requirements
prior to the delivery of the Stock. If and to the extent that withholding is
required, the Committee may permit the Employee or other appropriate person to
elect, at the time and in the manner as the Committee provides, to have the
Company hold back from the Stock to be delivered, or to deliver to the Company,
Stock having a value calculated to satisfy the withholding tax requirements.
<PAGE>
If at the time an ISO is exercised the Committee determines that the Company
could be subject to withholding tax requirements with respect to a disposition
of the Stock received upon exercise, the Committee may require as a condition of
exercise that the person exercising the ISO agree to give security as the
Committee deems adequate to meet the potential liability of the Company for the
withholding tax requirements and to augment that security from time to time in
any amount reasonably deemed necessary by the Committee to preserve the adequacy
of the security.
SECTION 7.8 DEFERRAL OF PAYMENTS.
The Committee may in its sole discretion, upon the request of an Employee
holding an Award, defer the date on which any payment of cash or Stock under
such an Award shall be made. The Committee may also establish rules and
procedures for the crediting of interest on deferred cash payments and dividends
or dividend equivalents for deferred payments denominated in Stock or Stock
Units. The Committee shall assure that any deferral complies with applicable
requirements of the Code. Any deferral, whether requested by the Employee or
specified in the Award instrument or otherwise by the Committee, may be subject
to forfeiture in accordance with terms established by the Committee.
SECTION 7.9 ADJUSTMENTS IN THE EVENT OF CERTAIN TRANSACTIONS.
(a) In the event of a stock dividend, stock split or combination of shares,
recapitalization or other change in the Company's capitalization, or other
distribution with respect to holders of the Company's Common Stock other than
normal cash dividends, the Board of Directors shall make appropriate adjustments
to the maximum number of shares of Stock that may be delivered under the Plan
and to the maximum number of shares of Stock that may be issued pursuant to
certain Awards as set forth in Section 3 above.
(b) In any event referred to in paragraph (a) the Board of Directors shall
also make any appropriate adjustments to the number and kind of shares of Stock
subject to Awards then outstanding or subsequently granted, any exercise or
purchase prices relating to Awards and any other provisions of Awards affected
by such change. The Board of Directors may also make adjustments to take into
account material changes in law or in accounting practices or principles,
mergers, consolidations, acquisitions, dispositions, repurchases or similar
corporate transactions, or any other event, if it is determined by the Board of
Directors that adjustments are appropriate to avoid distortion in the operation
of the Plan, but no such adjustments other than those required by law may
adversely affect the rights of any Employee (without the Employee's consent)
under any Award previously granted.
(c) Any adjustments made pursuant to paragraphs (a) or (b) with respect to
ISOs shall be made only after the Board of Directors, after consulting with the
Company's counsel, determines whether such adjustments would constitute a
"modification" of the ISOs (as that term is defined in Section 425 of the Code)
or would otherwise cause any adverse tax consequences for the holders of the
ISOs. If the Board of Directors determines that such adjustments to be made with
respect to ISOs would constitute a modification of the ISOs, it may refrain from
making such adjustments.
SECTION 7.10 EMPLOYMENT RIGHTS.
Neither the adoption of the Plan nor the grant of Awards shall confer upon any
person any right to continued employment with the Company or any subsidiary of
the Company or affect in any way the right of the Company or any subsidiary of
the Company to terminate an employment relationship at any time. Except as
specifically provided by the Committee, the Company shall not be liable for the
loss of existing or potential profit in Awards granted under the Plan in the
event of termination of an employment relationship even if the termination is in
violation of an obligation of the Company or any subsidiary of the Company to
the Employee.
SECTION 7.11 FAIR MARKET VALUE.
<PAGE>
For purposes of the Plan, "Fair Market Value" of a share of Stock on any date
will be the average of the high and low selling prices of the Company's Common
Stock in the New York Stock Exchange Composite Transactions Index as of the last
business day for which prices are available prior to such date.
SECTION 7.12 PAST SERVICES AS CONSIDERATION.
If, pursuant to an Award under the Plan, an Employee purchases or receives
Stock under an Award for a price equal to the par value of the Stock, the
Committee may determine that such price has been satisfied by past services
rendered by the Employee.
SECTION 7.13 CHANGE IN CONTROL.
(a) In order to maintain Employees' rights in the event of any Change in
Control of the Company, the Board of Directors (as constituted on the date the
Award is granted or as constituted immediately prior to the Change in Control)
may, in its sole discretion, as to any Award, either on the date an Award is
granted or any time thereafter, take any one or more of the following actions:
(1) Provide for the acceleration of any time periods relating to the
exercise or realization of or lapse of restrictions, conditions and
contingencies under any Award so that the Award may be exercised or realized
in full on or before a date fixed by the Board of Directors.
(2) Provide for the purchase of any Award, upon the Employee's request, for
an amount of cash equal to the amount that could have been obtained upon the
exercise of the Award or realization of the Employee's rights thereunder had
the Award been currently exercisable or payable.
(3) Make such adjustment to any Award then outstanding as the Board of
Directors deems appropriate to reflect the Change in Control.
(4) Cause any Award then outstanding to be assumed, or new rights
substituted therefor, by the acquiring or surviving corporation after the
Change in Control.
The Committee may, in its discretion, include further provisions and limitations
relating to the Change in Control in any Award instrument as it may deem
equitable and in the best interests of the Company.
Notwithstanding anything to the contrary in this Section 7.13 (unless
otherwise specifically provided in the Award Agreement at the time an Award is
granted), upon any Change in Control of the Corporation, any time periods or
conditions or contingencies relating to the exercise or realization of, or lapse
of restrictions under, any Award shall be automatically accelerated (or waived)
so that the Award may be exercised or realized in full; provided that, in the
event of a Change in Control that is intended to qualify for pooling of
interests accounting treatment, the foregoing provisions of this paragraph shall
be of no force and effect if implementation of such provisions would preclude
the Change in Control from so qualifying and, in such event, the Committee shall
take whatever action it deems appropriate to enable holders of Awards to realize
a substantially similar economic result as would have been realized by
acceleration of Awards but without precluding the Change in Control from
qualifying as a pooling of interests.
(b) A "Change in Control" is defined to mean any of the following events:
(1) The acquisition by any person (including a group, within the meaning of
Sections 13(d)(3) or 14(d)(2) of the 1934 Act), other than the Company or any
subsidiary of the Company, of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the 1934 Act) of 20% or more of the combined voting
power of the Company's outstanding voting securities.
<PAGE>
(2) The first purchase under a tender offer or exchange offer, other than
an offer by the Company or any subsidiary of the Company, pursuant to which
shares of the Company's Common Stock have been purchased.
(3) During any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company
cease for any reason to constitute at least a majority thereof, unless the
election or the nomination for election by stockholders of the Company of each
new Director was approved by a vote of at least two-thirds of the Directors
then still in office who were Directors at the beginning of the period.
(4) Approval by stockholders of the Company of a merger, consolidation,
liquidation or dissolution of the Company, or the sale of all or substantially
all of the assets of the Company.
SECTION 7.14 APPROVALS.
Anything in the Plan to the contrary notwithstanding, the effectiveness of the
Plan and of the grant of all Awards is subject to, and the Plan and the Awards
granted under it shall be of no force and effect unless and until, and no Awards
granted shall in any way vest or become exercisable unless and until the
approval of the Plan by the affirmative vote of a majority of the shares of the
Company's Common Stock present in person or by proxy and entitled to vote at a
meeting of stockholders at which the Plan is presented for approval. In the
event that such approval has not been received on or before August 13, 1991, the
Plan and any Awards granted shall be null and void, and upon the occurrence of
the approval, the Plan and the Awards shall become effective as of the date of
the Board of Directors' approval of the Plan. The Company's obligation to sell
and deliver shares of Stock under the Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of the Stock.
SECTION 7.15 SUCCESSORS AND ASSIGNS.
The Plan shall be binding upon all successors and assigns of an Employee
receiving an Award under the Plan, including, without limitation, the estate of
any such Employee and the executors, administrators or trustees of such estate,
and any receiver, trustee in bankruptcy or representative of the creditors of
any such Employee.
SECTION 7.16 1985 PLAN
Upon approval of the Plan by the Company's stockholders, the authority to
grant additional options under the Company's 1985 Plan shall expire. Options
granted pursuant to the 1985 Plan shall remain exercisable at the times and in
the manner specified in the option agreements relating to the 1985 Plan or in
accordance with such other terms and conditions as the Committee shall
determine.
SECTION 7.17 GOVERNING LAW
The Plan and all determinations made and related actions taken by the
Committee, to the extent not otherwise governed by the Code or the securities
laws of the United States, shall be governed by the laws of the Commonwealth of
Massachusetts and shall be construed accordingly.
<PAGE>
SECTION 7.18 DEFINITIONS
As used in the Plan, the following terms shall have the following meanings:
<TABLE>
<CAPTION>
SECTION IN WHICH
TERM TERM IS DEFINED
------------------------ -----------------
<S> <C>
"Awards" Section 1
"Change in Control" Section 7.13(b)
"Code" Section 5.1(a)
"Committee" Section 2
"Company" Section 1
"Employee" Section 4
"Fair Market Value" Section 7.11
"ISO" Section 5.1(a)
"1985 Plan" Section 3
"1934 Act" Section 2
"Non-Qualified Option" Section 5.1(a)
"Option" Section 5.1(a)
"Plan" Section 1
"Restricted Stock" Section 5.3(c)
"Restricted Stock
Award" Section 5.3(a)
"Rule 16b-3" Section 2
"Stock" Section 3
"Stock Appreciation
Right" Section 5.2(a)
"Stock Units" Section 5.4(a)
"Stock Unit Award" Section 5.4(a)
"Unrestricted Stock
Award" Section 5.3(h)
</TABLE>
<PAGE>
EXHIBIT 10(B)
DIGITAL EQUIPMENT CORPORATION
1995 EQUITY PLAN
SECTION 1 -- PURPOSE
The Digital Equipment Corporation 1995 Equity Plan (the "Plan") is intended to
advance the interests of Digital Equipment Corporation (the "Corporation") and
its stockholders by providing equity-based incentives to better align the
interests of key employees with those of stockholders, and to attract, retain
and motivate such employees.
SECTION 2 -- ADMINISTRATION
The Plan shall be administered by a committee appointed by the Board of
Directors of the Corporation (the "Committee"), which shall consist of not fewer
than two members of the Corporation's Board of Directors. All members of the
Committee must be "disinterested administrators" within the meaning of Rule 16b-
3 or any successor provision ("Rule 16b-3") under the Securities Exchange Act of
1934, as amended (the "1934 Act") and "outside directors" within the meaning of
Section 162(m) or any successor provision of the Internal Revenue Code of 1986,
as amended (the "Code"), if required for compliance with Rule 16b-3 or Section
162(m) of the Code, as the case may be. Any authority or power granted in the
Plan to the Committee shall also be deemed to be granted to the Board of
Directors, and any action permitted to be taken or determination permitted to be
made by the Committee may also be taken or made by the Board of Directors;
provided, however, that to the extent required by Rule 16b-3 and/or Section
162(m) of the Code with respect to specific grants of Awards, such power or
authority shall only reside in and such actions or determinations shall only be
made by an administrator or administrators in compliance with Rule 16b-3 or
Section 162(m) of the Code, as the case may be. The Board of Directors may also
establish a committee of one or more members of the Corporation's Board of
Directors who are also officers of the Corporation for the purposes of
administering grants of Awards under the Plan to Employees who are not subject
to the provisions of Section 16 of the 1934 Act. If such a committee is
established, it shall have all the power and authority of the Committee under
the Plan with respect to such Awards.
Subject to the provisions of the Plan, the Committee shall have the authority
to select the Employees who are eligible to participate in the Plan, to
determine the Awards to be granted to each Employee, to determine the time or
times when Awards shall be exercisable or when re- strictions, conditions and
contingencies shall lapse, to establish any other restrictions, conditions and
contingencies on Awards in addition to those prescribed by the Plan and to
determine whether any Option granted shall be an ISO or a Non-Qualified Option.
The Committee shall also prescribe the form of agreements or other instruments
under the Plan and the legends, if any, to be affixed to the certificates
representing shares of Stock to be issued.
The Committee shall have full authority to interpret the Plan, to grant
waivers of Plan restrictions, to amend the provisions of Award instruments and
to adopt such rules, regulations and guidelines for carrying out the Plan as it
may deem necessary or proper, all of which powers shall be executed in the best
interests of the Corporation and in keeping with the purposes of the Plan. Such
powers shall include, but shall not be limited to, the power to modify or amend
the Plan and to adopt such procedures, subplans and the like as may be necessary
to comply with provisions of the laws of other countries in which the
Corporation or any subsidiary of the Corporation may operate in order to assure
the viability of Awards granted under the Plan and to enable Employees employed
in such other countries to receive advantages and benefits under the Plan and
consistent with such laws.
<PAGE>
The determinations of the Committee in the administration of the Plan shall be
final and conclusive unless otherwise determined by the Board of Directors.
SECTION 3 -- SHARES OF STOCK SUBJECT TO THE PLAN
(a) Shares Available for Issuance. The shares of stock available for issuance
under the Plan shall be authorized but unissued shares of the Corporation's
Common Stock or previously issued shares of the Corporation's Common Stock
reacquired by the Corporation in any manner and held in its treasury ("Stock").
No fractional shares of Stock shall be delivered under the Plan.
(b) Maximum Number of Shares Available for Issuance. Subject to adjustment as
provided in Section 7.7 below, the maximum number of shares of Stock available
for the grant of Awards under the Plan from the date of its adoption by the
Board of Directors until June 29, 1996, shall be the maximum number of shares of
Stock available for issuance under the Corporation's 1990 Equity Plan (the "1990
Plan") as of the date of approval of the Plan by the Corporation's stockholders,
plus any shares of Stock subject to Awards under the 1990 Plan that expire
unexercised or are forfeited, terminated, canceled (in whole or in part) or in
any other manner are not issued to an Employee at any time. Subject to
adjustment as provided in Section 7.7 below, the maximum number of shares of
Stock available for the grant of Awards under the Plan for each fiscal year
subsequent to the fiscal year ending on June 29, 1996, but prior to the
beginning of the fiscal year commencing on June 28, 1998, shall be two percent
(2%) of the total number of issued shares of the Corporation's Common Stock
(including treasury shares) as of the first day of such fiscal year. Such
maximum number of shares shall be increased in any fiscal year by the number of
shares of Stock available for the grant of Awards hereunder in the previous
fiscal year or years but not covered by Awards granted hereunder in such fiscal
year or years since the adoption of the Plan, plus any shares of Stock subject
to Awards under the 1990 Plan or the Plan that expire unexercised or are
forfeited, terminated, canceled (in whole or in part), or in any other manner
are not issued to an Employee, plus any shares of Stock tendered to the
Corporation as full or partial payment for the exercise of any Option under the
1990 Plan or the Plan and the payment of any withholding taxes arising
therefrom.
(c) Limitations on Issuance. Notwithstanding any other provision of the Plan,
in no event shall more than 5,000,000 shares of Stock be cumulatively available
for the issuance of Stock pursuant to ISO's granted under the Plan, nor shall
more than 1,000,000 shares of Stock be cumulatively available for grant pursuant
to Restricted Stock Awards, Unrestricted Stock Awards and Stock Unit Awards.
Notwithstanding any other provision of the Plan, no Employee may be granted in
any fiscal year beginning with the fiscal year commencing July 2, 1995, in the
aggregate, Awards relating to, in the aggregate, more than one million
(1,000,000) shares of Stock. In all events, determinations under the preceding
sentence shall be made in a manner that is consistent with Section 162(m) of the
Code and the regulations promulgated thereunder.
(d) Dividends. Notwithstanding the foregoing, any dividend or dividend
equivalent paid or credited to an Employee in shares of Stock or Stock Units
pursuant to Sections 5.4(b) or 5.5 below shall not be subtracted from the
maximum number of shares available for the grant of Awards under the Plan or the
cumulative aggregate number of shares available for grant pursuant to Restricted
Stock Awards, Unrestricted Stock Awards and Stock Unit Awards.
(e) Expiration, Forfeiture, Cancellation or Settlement in Cash. Shares of
Stock subject to Awards that expire unexercised or are forfeited, terminated,
canceled (in whole or in part), or in any other manner are not issued to an
Employee (including shares of Stock that are not issued to an Employee pursuant
to Awards settled in cash in lieu thereof), shall become available immediately
for the future grant of Awards under the Plan.
SECTION 4 -- ELIGIBILITY
<PAGE>
Awards may be granted under the Plan only to Employees of the Corporation or
of a subsidiary of the Corporation. The term "Employees" shall include officers
as well as all other employees of the Corporation or of a subsidiary of the
Corporation. Members of the Committee and members of the Board of Directors who
are not Employees of the Corporation or of a subsidiary of the Corporation shall
not be eligible to participate in the Plan. Awards may be granted to the same
Employee on more than one occasion.
SECTION 5 -- TYPES OF AWARDS
5.1 AUTHORITY.
The Committee shall have the authority to grant Awards singly, in combination
or in tandem. The term "Awards" includes options, stock appreciation rights,
awards of Stock of the Corporation and awards of stock units or phantom shares
of stock, all on the terms and conditions hereinafter established.
5.2 OPTIONS.
(a) Definition of Options. An "Option" is an Award entitling the recipient
upon exercise of the Option to purchase Stock at a specified price for a
specified period of time. Both "incentive stock options" ("ISO's"), as defined
in Section 422 of the Code, or any successor provision, and Options that are not
incentive stock options ("Non-Qualified Options"), may be granted under the
Plan. Instruments evidencing ISO's shall contain such terms and conditions as
are required under applicable provisions of the Code.
(b) Exercise Price. The Committee shall determine the exercise price of an
Option which shall not be less than 100% of the Fair Market Value per share of
the Stock on the date the Option is granted. For purposes of the Plan, "Fair
Market Value" of a share of Stock on a given date will be the average of the
high and low selling prices of the Corporation's Common Stock in the New York
Stock Exchange Composite Transactions Index on such date, or if not a business
day, as of the last business day for which prices are available prior to such
date.
(c) Duration of Options. The Committee shall determine the latest date on
which an Option may be exercised which shall be no later than the date that is
ten years after the date the Option was granted.
(d) Exercise of Options. Subject to the applicability of Section 7.3 below,
an Option shall become exercisable at such time or times, and on such
conditions, as the Committee may specify. The Committee may at any time
accelerate the time at which all or any part of an Option may be exercised.
An Employee electing to exercise an Option shall give written or electronic
notice to the Corporation or its agent of the election and of the number of
shares of Stock that the Employee elects to acquire, accompanied by any
documents or instruments required by the Corporation or its agent and payment in
full for the Stock purchased, together with provision for the amount of any
taxes due in respect of the sale and issue thereof.
(e) Payment for Stock. Stock purchased by an Employee upon exercise of an
Option may be paid for in any legal manner so specified by the Committee,
including the following methods, which may be used in combination if specified
by the Committee:
(1) In cash or by check, bank draft or money order payable to the order of
the Corporation.
(2) If permitted by applicable law, through the delivery of an assignment
to the Corporation of a sufficient amount of the proceeds from the sale of
unrestricted Stock acquired upon exercise to pay for
<PAGE>
all of the Stock so acquired and any tax withholding obligation resulting from
such exercise; and an authorization to the broker or selling agent to pay that
amount to the Corporation.
(3) Through the delivery of an amount of previously acquired shares of
unrestricted Stock having in the aggregate a Fair Market Value equal to the
exercise price, provided that such method is consistent with applicable tax
laws, policies and eligibility criteria established by the Committee.
Employees may further apply the Stock acquired upon such exercise to satisfy
the exercise price for additional Stock.
With respect to ISO's, acceptable methods of payment for stock upon exercise
of an Option shall be set forth in the Award instrument granting the applicable
ISO.
(f) Special Rules for ISO's. The aggregate Fair Market Value (determined as
of the date of grant) of the shares of Stock covered by ISO's granted under this
Plan or any other equity plan of the Corporation and its subsidiaries, that
becomes exercisable for the first time by the Employee in any calendar year
shall not exceed $100,000. Nothing in this special rule shall be construed as
limiting the exercisability of any Option unless the Committee provides for a
limitation at the time of grant.
5.3 STOCK APPRECIATION RIGHTS.
(a) Description of Stock Appreciation Rights. A "Stock Appreciation Right"
("SAR") is an Award entitling the recipient upon exercise of the Right to
receive an amount, in cash or Stock, or a combination thereof (at the
Committee's discretion), equal to the appreciation, if any, in the Fair Market
Value of a share of the Corporation's Common Stock from the date of the grant of
the SAR to the date of its payment or settlement.
(b) Other Terms and Conditions of Stock Appreciation Rights. The Award price
per SAR shall not be less than the Fair Market Value of a share of the
Corporation's Common Stock on the date the SAR is granted. An Employee electing
to exercise a Stock Appreciation Right must give written or electronic notice to
the Corporation or its agent of the election, accompanied by any documents or
instruments required by the Corporation or its agent, together with provision
for the amount of any taxes due with respect thereto.
5.4 RESTRICTED AND UNRESTRICTED STOCK.
(a) Definition of Restricted Stock Awards. A "Restricted Stock Award" entitles
the recipient to acquire shares of Restricted Stock subject to such
restrictions, conditions and contingencies as may be determined by the Committee
in its sole discretion.
(b) Rights as a Stockholder. At the discretion of the Committee, an Employee
who receives Restricted Stock will have all the rights of a stockholder with
respect to the Restricted Stock, including voting and dividend rights, subject
to the restrictions described in paragraph (c) below and any other restrictions,
conditions and contin- gencies imposed by the Committee at the time of grant.
The Committee may require that dividends be paid in additional shares of
Restricted Stock or in Stock Units.
(c) Restrictions and Obligations of Resale. "Restricted Stock" is Stock
subject to restrictions against disposition as specified by the Committee in the
Award instrument and may not be sold, transferred, or otherwise disposed of, and
shall not be pledged or otherwise hypothecated, except as provided in the Award
instrument. Except as otherwise provided in the Award instrument, in the event
of termination of employment for any reason other than as specified in Section
6.1 or 6.2, Restricted Stock shall be forfeited to the Corporation, except that
it shall be offered for resale to the Corporation at its original acquisition
price if the Restricted Stock was issued for monetary consideration.
<PAGE>
(d) Other Awards Settled with Restricted Stock. The Committee may, at the
time any Award described in this Section 5 is granted, provide that any or all
of the Stock delivered or issuable pursuant to the Award will be Restricted
Stock.
(e) Unrestricted Stock Awards. The Committee may, in its sole discretion,
award to any eligible Employee unrestricted shares of Stock under the Plan
("Unrestricted Stock Award"). Any Employee who receives an Unrestricted Stock
Award will have all the rights of a stockholder, including voting and dividend
rights.
(f) Price of Restricted and Unrestricted Stock. Grants of Restricted Stock
and Unrestricted Stock shall be made at such purchase price as the Committee
shall determine in its sole discretion, and may be issued for no monetary
consideration, subject to applicable state law.
5.5 STOCK UNITS.
(a) A "Stock Unit Award" entitles the recipient to receive, without payment,
"Stock Units" in the form of phantom shares of stock which are valued at the
Committee's discretion in whole or in part by reference to, or otherwise based
on, the Fair Market Value of the Corporation's Common Stock.
(b) An Employee who receives Stock Units may be given rights to dividend
equivalents, subject to any conditions imposed by the Committee at the time of
grant. The Committee may provide that any such dividend equivalents be paid in
cash, in shares of stock or in additional Stock Units.
5.6 PERFORMANCE CRITERIA.
The Committee in its discretion may grant Awards contingent on satisfaction of
performance criteria established by the Committee consistent with Section 162(m)
of the Code. Such performance criteria shall be based on level of revenue,
operating income, profit after tax, earnings per share, cash flow, return on
equity or return on assets. The Committee may select one criterion or multiple
criteria, and the measurement may be based on Corporation or business unit
performance, or on comparative performance with that of other companies or units
thereof.
The Committee in its discretion may also grant Awards contingent on
satisfaction of performance criteria other than those specified in the paragraph
above.
SECTION 6 -- TERMINATION OF EMPLOYMENT
6.1 DEATH OR DISABILITY OF EMPLOYEE.
Unless otherwise specified in the Award instrument, if an Employee (i) dies
while employed by the Corporation or any subsidiary of the Corporation (or upon
the death of an Employee after termination of employment), or (ii) ceases to be
employed by the Corporation or any subsidiary by reason of his or her permanent
and total disability ("Disability"), as determined by the Committee, the
following rules shall apply:
(a) Each Option and Stock Appreciation Right held by the Employee immediately
prior to his or her death shall become fully exercisable and may be exercised
only until one year after his or her death (whether or not this period ends
after expiration of the exercise period specified in the Award instrument, but
in the case of an ISO, in no event later than the expiration of the ISO under
its original terms) by the Employee's executor or administrator, or if not so
exercised, by the legatees or distributees of his or her estate or by such other
person or persons to whom the Employee's rights under such Option or Stock
Appreciation Right shall pass by will or by the applicable laws of descent and
distribution.
<PAGE>
(b) Each Option and Stock Appreciation Right held by the Employee when his or
her employment ends due to Disability shall become fully exercisable and shall
continue to be exercisable in accordance with the terms set forth in the Award
instrument relating to such Award.
(c) Each share of Restricted Stock and each Stock Unit covered by an Award
held by the Employee immediately prior to his or her death or Disability will
immediately become free of all restrictions, conditions and contingencies
thereon.
6.2 RETIREMENT.
If an Employee ceases to be employed by the Corporation or any subsidiary of
the Corporation by reason of his or her retirement at or after age 55, the
Employee's rights with respect to Awards held by him or her as of such
retirement date shall be as set forth in the Award instrument relating to each
such Award. Retirement, including early retirement, under any pension plan of
the Corporation or any subsidiary of the Corporation shall not by itself
constitute retirement for purposes of the Plan.
6.3 TERMINATION OF EMPLOYMENT.
Unless otherwise provided in the Award instrument, if an Employee ceases to be
employed by the Corporation or any subsidiary of the Corporation for any reason
other than the reasons specified in Sections 6.1 and 6.2 above, the following
rules shall apply:
(a) Each Option and Stock Appreciation Right held by the Employee that is
unexercised when his or her employment ends shall expire upon such termination
of employment.
(b) Each share of Restricted Stock held by the Employee on which all
restrictions, conditions and contingencies have not lapsed shall be forfeited or
offered for resale to the Corporation in accordance with Section 5.4 above, and
each Stock Unit as to which all restrictions, conditions and contingencies have
not lapsed or been performed shall be forfeited.
6.4 COMMITTEE DETERMINATIONS.
Any question as to whether there has been a retirement, Disability or
termination of employment shall be determined by the Committee, and its
determination of such question shall be final.
SECTION 7 -- GENERAL PROVISIONS
7.1 TERM AND AMENDMENT.
Unless earlier terminated by the Board of Directors, the Plan shall terminate
on December 31, 1998, and no Awards shall be granted under the Plan after such
date; provided, however, that Awards payable or requiring exercise which are
granted on or before this date shall remain payable or exercisable in accordance
with their respective terms after the termination of the Plan; and provided,
further that the authority of the Committee to take actions with respect to any
such Awards as contemplated herein shall extend beyond termination of the Plan.
The Board of Directors may at any time terminate the Plan or suspend the grant
of Awards under the Plan. The Board of Directors may at any time amend the Plan
or any outstanding Award for any lawful purpose; provided, that no amendment,
without the approval of the Corporation's stockholders, shall increase the
maximum number of shares of Stock that may be issued under the Plan or issued in
the aggregate pursuant to the certain Awards listed in Section 3 above (except
as permitted by the last paragraph of Section 3 above and Section 7.7 below);
and provided, further, that no amendment, without the approval of the
Corporation's stockholders (where such approval is necessary to satisfy then-
applicable
<PAGE>
requirements of federal securities laws, the Code or rules of any
stock exchange on which the Corporation's Common Stock is listed), shall extend
the period during which Awards may be granted under the Plan or amend the
eligibility provisions of Section 4 above.
7.2 NON-TRANSFERABILITY OF AWARDS.
(a) Except to the extent permitted by Rule 16b-3 and as otherwise provided in
the Award instrument, no Award (other than Stock or cash transferred to an
Employee under the Plan without restrictions) may be transferred other than by
will or by the laws of descent and distribution, and during an Employee's
lifetime an Award requiring exercise may be exercised only by him or her (or in
the event of incapacity, the person or persons properly appointed to act on his
or her behalf).
(b) Notwithstanding anything contained herein to the contrary, in the event an
Employee terminates his or her employment to assume a position with a
governmental, charitable or educational institution, the Committee, in its sole
discretion and provided such arrangement is in accordance with applicable law,
may authorize a third party, including but not limited to a "blind" trust,
acceptable to the applicable governmental, charitable or educational
institution, the Employee and the Committee, to act on behalf and for the
benefit of such Employee with respect to any Awards.
7.3 DOCUMENTATION OF AWARDS.
Awards shall be evidenced by written instruments which shall describe the
Award and the terms and conditions thereof. The granting of an Award may be
subject to, and conditioned upon, the Employee's execution of any Award
instrument required by the Committee. Each Award instrument shall contain such
provisions as the Committee shall determine in its sole discretion. The
instruments may be in the form of agreements to be executed by both the Employee
and the Corporation or certificates, letters or similar instruments, which need
not be executed by the Employee but acceptance of which will evidence agreement
to the terms of the Award.
7.4 RIGHTS AS A STOCKHOLDER.
Except as specifically provided in the Plan, the receipt of an Award will not
give an Employee rights as a stockholder; the Employee will obtain such rights,
subject to any limitations imposed by the Plan or the Award instrument, upon
actual receipt of Stock.
7.5 TAX WITHHOLDING.
The Corporation will withhold from any cash payment made pursuant to an Award
an amount sufficient to satisfy all federal, state and local withholding tax
requirements (the "withholding tax requirements").
In the case of an Award delivered in Stock, the Committee will have the right
to require that the Employee or other appropriate person remit to the
Corporation an amount sufficient to satisfy the withholding tax requirements or
make other arrangements satisfactory to the Committee with regard to such
requirements prior to the event giving rise to such withholding tax requirement.
If and to the extent that withholding is required, the Committee may permit the
Employee or other appropriate person to elect, at the time and in the manner as
the Committee provides, to have the Corporation hold back from the Stock to be
delivered, or to deliver to the Corporation, Stock having a value calculated to
satisfy the withholding tax requirements.
7.6 DEFERRAL OF PAYMENTS.
The Committee may, in its sole discretion, either in the terms of an Award
instrument or upon the request of an Employee holding an Award, defer the date
on which any payment of cash or Stock under
<PAGE>
such an Award shall be made. The Committee may also establish rules and
procedures for the crediting of interest on deferred cash payments and dividends
or dividend equivalents for deferred payments denominated in Stock or Stock
Units. Any deferral, whether requested by the Employee or specified in the Award
instrument or otherwise by the Committee, may be subject to forfeiture in accor-
dance with terms established by the Committee.
7.7 ADJUSTMENTS IN THE EVENT OF CERTAIN TRANSACTIONS.
(a) In the event of a stock dividend, stock split or combination of shares,
recapitalization or other change in the Corporation's capitalization, or other
distribution with respect to holders of the Corporation's Common Stock other
than normal cash dividends, the Committee shall make appropriate adjustments to
the maximum number of shares of Stock that may be delivered under the Plan and
to the maximum number of shares of Stock that may be issued pursuant to certain
Awards, all as set forth in Section 3 above.
(b) In any event referred to in paragraph (a), the Committee shall also make
any appropriate adjustments to the number and kind of shares of Stock subject to
Awards then outstanding or subsequently granted, any exercise or purchase prices
relating to Awards and any other provisions of Awards affected by such change.
The Committee may also make adjustments to take into account material changes in
law or in accounting practices or principles, mergers, consolidations,
acquisitions, dispositions, repurchases or similar corporate transactions, or
any other event, if it is determined by the Committee that adjustments are
appropriate to avoid distortion in the operation of the Plan.
(c) Any adjustments made pursuant to paragraphs (a) or (b) with respect to
ISO's shall be made only after the Committee, after consulting with the
Corporation's counsel, determines whether such adjustments would constitute a
"modification" of the ISO's (as that term is defined in Section 422 of the Code)
or would otherwise cause any adverse tax consequences for the holders of the
ISO's. If the Committee determines that such adjustments to be made with respect
to ISO's would constitute a modification of the ISO's, it may refrain from
making such adjustments.
7.8 EMPLOYMENT RIGHTS.
Neither the adoption of the Plan nor the grant of Awards shall confer upon any
person any right to continued employment with the Corporation or any subsidiary
of the Corporation or affect in any way the right of the Corporation or any
subsidiary of the Corporation to terminate an employment relationship at any
time. Except as specifically provided by the Committee, the Corporation shall
not be liable for the loss of existing or potential profit in Awards granted
under the Plan in the event of termination of an employment relationship even if
the termination is in violation of an obligation of the Corporation or any
subsidiary of the Corporation to the Employee.
7.9 CHANGE IN CONTROL.
(a) In order to maintain Employees' rights in the event of any Change in
Control of the Corporation, the Board of Directors (as constituted on the date
the Award is granted or as constituted immediately prior to the Change in
Control) may, in its sole discretion, as to any Award, either on the date an
Award is granted or any time thereafter, take any one or more of the following
actions:
(1) Provide for the acceleration of any time periods relating to the
exercise or realization of or lapse of restrictions, conditions and
contingencies under any Award so that the Award may be exercised or realized
in full on or before a date fixed by the Board of Directors.
(2) Provide for the purchase of any Award, upon the Employee's request, for
an amount of cash equal to the amount that could have been obtained upon the
exercise of the Award or realization of the Employee's rights thereunder had
the Award been currently exercisable or payable.
<PAGE>
(3) Make such adjustment to any Award then outstanding as the Board of
Directors deems appropriate to reflect the Change in Control.
(4) Cause any Award then outstanding to be assumed, or new rights
substituted therefor, by the acquiring or surviving corporation after the
Change in Control.
Subject to this Section 7.9, the Committee may, in its discretion, include
further provisions and limitations relating to the Change in Control in any
Award instrument as it may deem equitable and in the best interests of the
Corporation.
Notwithstanding anything to the contrary in this Section 7.9 (unless otherwise
specifically provided in the Award Agreement at the time an Award is granted),
upon any Change in Control of the Corporation, any time periods or conditions or
contingencies relating to the exercise or realization of, or lapse of
restrictions under, any Award shall be automatically accelerated (or waived) so
that the Award may be exercised or realized in full; provided that, in the event
of a Change in Control that is intended to qualify for pooling of interests
accounting treatment, the foregoing provisions of this paragraph shall be of no
force and effect if implementation of such provisions would preclude the Change
in Control from so qualifying and, in such event, the Committee shall take
whatever action it deems appropriate to enable holders of Awards to realize a
substantially similar economic result as would have been realized by
acceleration of Awards but without precluding the Change in Control from
qualifying as a pooling of interests.
(b) A "Change in Control" is defined to mean any of the following events:
(1) The acquisition by any person (including a group, within the meaning of
Sections 13(d)(3) or 14(d)(2) of the 1934 Act), other than the Corporation or
any subsidiary of the Corporation, of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the 1934 Act) of 20% or more of the combined
voting power of the Corporation's outstanding voting securities.
(2) The first purchase under a tender offer or exchange offer, other than
an offer by the Corporation or any subsidiary of the Corporation, pursuant to
which shares of the Corporation's Common Stock have been purchased.
(3) During any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Corporation
cease for any reason (other than death or disability) to constitute at least a
majority thereof, unless the election or the nomination for election by
stockholders of the Corporation of each new Director was approved by a vote of
at least two-thirds of the Directors then still in office who were Directors
at the beginning of the period.
(4) Approval by stockholders of the Corporation of a merger, consolidation,
liquidation or dissolution of the Corporation, or the sale of all or
substantially all of the assets of the Corporation.
7.10 APPROVALS.
Anything in the Plan to the contrary notwithstanding, the effectiveness of the
Plan and of the grant of all Awards is subject to, and the Plan and the Awards
granted under it shall be of no force and effect unless and until, and no Awards
granted shall in any way vest or become exercisable, unless and until the Plan
is approved by the affirmative vote of a majority of the shares of the
Corporation's Common Stock present in person or by proxy and entitled to vote at
a meeting of stockholders at which the Plan is presented for approval. The date
the Plan is approved by the stockholders of the Corporation shall be the
Effective Date of the Plan. The Effective Date must occur within one year after
approval of the Plan by the Board of Directors. Any grant of an Award prior to
the approval by the stockholders of the Corporation shall be void if such
approval is not obtained. The Corporation's obligation to sell and deliver
shares of
<PAGE>
Stock under the Plan is subject to the approval of any governmental authority
required in connection with the authorization, issuance or sale of the Stock.
7.11 SUCCESSORS AND ASSIGNS.
The Plan shall be binding upon all successors and assigns of an Employee
receiving an Award under the Plan, including, without limitation, the estate of
any such Employee and the executors, administrators or trustees of such estate,
and any receiver, trustee in bankruptcy or representative of the creditors of
any such Employee.
7.12 1990 PLAN.
Upon approval of the Plan by the Corporation's stockholders, the authority to
grant additional Awards under the Corporation's 1990 Plan shall expire. Awards
granted pursuant to the 1990 Plan shall remain outstanding and exercisable and
subject to the Award instruments relating thereto, or in accordance with such
other terms and conditions as the Committee shall determine.
7.13 GOVERNING LAW.
The Plan and all determinations made and related actions taken by the Commit-
tee or the Board of Directors, to the extent not otherwise governed by the Code
or the securities laws of the United States, shall be governed by the laws of
the Commonwealth of Massachusetts and shall be construed accordingly.
7.14 DEFINITIONS.
As used in the Plan, the following terms shall have the following meanings:
<TABLE>
<CAPTION>
SECTION IN WHICH
TERM TERM IS DEFINED
------------------------ ----------------
<S> <C>
"Awards" Section 5.1
"Change in Control" Section 7.9(b)
"Code" Section 2
"Committee" Section 2
"Corporation" Section 1
"Disability" Section 6.1
"Employee" Section 4
"Fair Market Value" Section 5.2(b)
"ISO" Section 5.2(a)
"1990 Plan" Section 3(b)
"1934 Act" Section 2
"Non-Qualified Option" Section 5.2(a)
"Option" Section 5.2(a)
"Plan" Section 1
"Restricted Stock" Section 5.4(c)
"Restricted Stock
Award" Section 5.4(a)
"Rule 16b-3" Section 2
"SAR" Section 5.3(a)
"Stock" Section 3(a)
"Stock Appreciation
Right" Section 5.3(a)
"Stock Units" Section 5.5(a)
"Stock Unit Award" Section 5.5(a)
"Unrestricted Stock
Award" Section 5.4(e)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE CORPORATION FOR THE 6 MONTHS ENDED
DECEMBER 30, 1995
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-START> JUL-02-1995
<PERIOD-END> DEC-30-1995
<CASH> 1,494,504
<SECURITIES> 0
<RECEIVABLES> 3,722,727
<ALLOWANCES> 186,556
<INVENTORY> 2,058,089
<CURRENT-ASSETS> 7,452,595
<PP&E> 5,205,985
<DEPRECIATION> 3,037,830
<TOTAL-ASSETS> 10,015,474
<CURRENT-LIABILITIES> 3,942,061
<BONDS> 1,013,023
0
4,000
<COMMON> 153,145
<OTHER-SE> 3,668,549
<TOTAL-LIABILITY-AND-EQUITY> 10,015,474
<SALES> 4,165,538
<TOTAL-REVENUES> 7,222,497
<CGS> 2,839,960
<TOTAL-COSTS> 4,880,620
<OTHER-EXPENSES> 2,103,669
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,160
<INCOME-PRETAX> 227,072
<INCOME-TAX> 30,119
<INCOME-CONTINUING> 196,953
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 196,953
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0
</TABLE>
