<PAGE>
FORM 10-Q
---------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
________________________________________
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended July 1, 1994
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________
to ______________
Commission File Number: 0-12046
MICROPOLIS CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 95-3093858
- - ------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21211 Nordhoff Street, Chatsworth, California 91311
- - --------------------------------------------------------------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (818) 709-3300
------------------------------
Not Applicable
- - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since lastreport)
Indicate by check mark whether 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 twelve 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.
August 5, 1994: 15,176,860 shares of Common Stock, $1.00 Par Value
-------------------------------------------------------------------
<PAGE>
MICROPOLIS CORPORATION
----------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets at
July 1, 1994 and December 31, 1993 2
Condensed Consolidated Statements of
Operations for the Three Months and Six
Months Ended July 1, 1994 and
June 25, 1993 3
Condensed Consolidated Statements of
Cash Flows for the Six Months Ended
July 1, 1994 and June 25, 1993 4
Notes to Condensed Consolidated Financial
Statements 5
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 9
Item 4 Submission of Matters to a Vote of Security Holders 9
Item 6 Exhibits and Reports on Form 8-K 10
</TABLE>
-1-
<PAGE>
PART I - FINANCIAL INFORMATION
-------------------------------
MICROPOLIS CORPORATION
----------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
July 1, December 31,
1994 1993
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
- - ------
Current assets:
Cash, cash equivalents and $ 74,641 $ 86,782
short-term investments
Accounts receivable, net 50,555 48,231
Inventories 39,003 59,677
Other current assets 4,458 4,389
-------- --------
Total current assets 168,657 199,079
Property, plant and equipment, at cost, less
accumulated depreciation and amortization 45,524 48,480
Other assets 2,622 2,870
-------- --------
$216,803 $250,429
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
Current liabilities:
Accounts payable $ 26,376 36,959
Other accrued liabilities 17,718 17,697
-------- --------
Total current liabilities 44,094 54,656
6% Convertible Subordinated Debentures 75,000 75,000
Deferred income taxes 2,417 2,417
Shareholders' equity:
Preferred stock, $1.00 par value, 2,000,000
shares authorized, none issued - -
Common stock, $1.00 par value, 50,000,000
shares authorized; 15,164,500 shares issued
and outstanding (14,888,125 in 1993) 15,165 14,888
Additional paid-in capital 108,504 107,292
Accumulated deficit (28,377) (3,824)
-------- --------
Total shareholders' equity 95,292 118,356
-------- --------
$216,803 $250,429
======== ========
</TABLE>
See accompanying notes. -2-
<PAGE>
MICROPOLIS CORPORATION
----------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- -----------------------
July 1, June 25, July 1, June 25,
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 75,761 $107,519 $159,419 $202,077
Cost of sales 68,516 89,678 139,878 163,270
-------- -------- -------- --------
Gross profit 7,245 17,841 19,541 38,807
-------- -------- -------- --------
Operating expenses:
Research and development 10,577 8,649 20,878 16,422
Selling, general and
administrative 10,691 10,694 21,675 21,508
Total operating expenses 21,268 19,343 42,553 37,930
-------- -------- -------- --------
Income (loss) from operations (14,023) (1,502) (23,012) 877
Interest expense (1,256) (1,275) (2,539) (2,556)
Interest income 486 598 998 1,151
Other expense - (390) - (570)
-------- -------- -------- --------
Loss before income taxes (14,793) (2,569) (24,553) (1,098)
Credit for income taxes - ( 52) - (38)
-------- -------- -------- --------
Net loss $(14,793) $ (2,517) $(24,553) $ (1,060)
======== ======== ======== ========
Loss per share $(.99) $(.17) $(1.64) $(.07)
======== ======== ======== ========
Weighted average common and
common equivalent shares
outstanding 14,949 14,842 14,929 14,816
======== ======== ======== ========
</TABLE>
See accompanying notes. -3-
<PAGE>
MICROPOLIS CORPORATION
----------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------------
July 1, June 25,
1994 1993
---------- ----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(24,553) $ (1,060)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,911 12,727
Loss on disposal of equipment 3 21
Increase (decrease) from changes in:
Accounts receivable (2,324) (9,546)
Inventories 20,674 3,979
Other current assets (69) (1,432)
Other assets 212 206
Accounts payable and other
accrued liabilities (10,331) 15,629
-------- --------
Net cash provided by (used in) operating activities (4,477) 20,524
Cash flows from investing activities:
Proceeds from sale of equipment 83 46
Additions to property, plant and equipment (9,005) (12,997)
Net change in short-term investments 1,033 16,356
-------- --------
Net cash provided by (used in) investing activities (7,889) 3,405
Cash flows from financing activities:
Payment on capital lease obligation (231) (267)
Proceeds from sale of common stock, net 1,489 1,554
-------- --------
Net cash provided by financing activities 1,258 1,287
Net increase (decrease) in cash and equivalents (11,108) 25,216
Cash and equivalents at beginning of period 49,100 47,394
-------- --------
Cash and equivalents at end of period 37,992 72,610
Short-term investments 36,649 23,152
-------- --------
Total cash, cash equivalents, and short-term
investments $ 74,641 $ 95,762
======== ========
Supplemental cash flow information:
Interest payments $ 2,504 $ 2,524
Tax payments 2,966 400
</TABLE>
See accompanying notes. -4-
<PAGE>
MICROPOLIS CORPORATION
----------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
JULY 1, 1994
------------
(Unaudited)
NOTE 1. General
- - -----------------
The accompanying condensed consolidated financial statements have not been
audited by independent auditors but, in the opinion of the Company, such
unaudited statements include all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the consolidated financial
position as of July 1,1994 and the consolidated results of operations for the
three and six-month periods ended July 1, 1994 and June 25, 1993 and cash flows
for the six-month periods ended July 1, 1994 and June 25, 1993. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. Nevertheless, the Company believes that the disclosures in
these financial statements are adequate to make the information presented not
misleading. Interim results are not indicative of the results for the full
fiscal year.
These condensed consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1993 filed with the Securities and Exchange Commission.
NOTE 2. Inventories
- - --------------------
Inventories are stated at the lower of standard cost, which approximates
first-in, first-out, or market:
<TABLE>
<CAPTION>
July 1, December 25,
1994 1993
------- ------------
<S> <C> <C>
Raw materials and purchased parts $15,476 $18,776
Work in process 12,879 22,245
Finished goods 10,648 18,656
------- -------
$39,003 $59,677
======= =======
</TABLE>
NOTE 3. Per Share Information
- - ------------------------------
Loss per share is computed by dividing net loss by the weighted average
number of shares of common stock and applicable common stock equivalents
outstanding during the period. Primary and fully diluted earnings per share are
the same.
-5-
<PAGE>
MICROPOLIS CORPORATION
----------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
RESULTS OF OPERATIONS
- - ---------------------
Three Months Ended July 1, 1994 Compared to Three Months Ended June 25,
- - -----------------------------------------------------------------------
1993
- - ----
Net sales decreased 29.5% to $75.8 million in 1994 as compared to $107.5
million in 1993. The decrease in revenues was primarily attributable to a
decrease in shipments of 5 1/4-inch drives with capacities of 2.4 gigabytes
(GB) and below, offset in part by an increase in shipments of the Company's
3 1/2-inch drives. Limited availability of certain components contributed to the
decline in unit volumes of certain 5 1/4-inch drives during the second quarter
of 1994. OEM revenues declined by 67% in 1994 as compared to 1993 while sales
made by the Storage Systems Division increased by approximately 24%. The decline
in OEM sales is principally due to the continued decrease in shipments of the
Company's 5 1/4-inch drives. The Company's largest customer in the second
quarter of 1993 accounted for 17% of that quarter's sales. Sales to that
customer declined significantly during the third quarter of 1993. The increase
in the Storage Systems Division sales was attributable to high capacity
3 1/2-inch drives and storage subsystems products. Backlog as of July 1, 1994
was $30.7 million as compared to $57.2 million at June 26, 1993. The decline in
backlog is attributable to a decline in orders for the older 5 1/4-inch drives
with rotational speeds of 3600 rpm.
Cost of sales as a percent of sales increased to 90.4% in 1994 from 83.4%
in 1993 resulting in a gross margin of 9.6% as compared to 16.6% in 1993. The
decrease in margin was the result of a larger mix of lower margin 3 1/2-inch
drives versus high margin 5 1/4-inch drives and significant price erosion in the
3 1/2-inch products.
Research and development expenses increased to 14.0% of sales in 1994 as
compared to 8.0% in 1993. The percentage increase is the result of lower sales
and an increase in spending of $1.9 million. The increase in spending was a
result of research and development on the Company's high capacity 3 1/2-inch
drives, greater than 3.6 GB 5 1/4-inch drives, subsystem products and research
and development on new disk substrates performed at Tulip Memory Systems.
Selling, general and administrative expenses were 14.1% of sales in 1994
as compared to 9.9% in 1993. The percentage increase is primarily the result of
lower sales.
Interest expense was $1.3 million in 1994 (1.7% of sales) which is
comparable to the same period a year ago. Interest income was $486,000 as
compared to $598,000 in 1993 as a result of lower cash balances.
As a result of the above, loss before income taxes was $14.8 million in
1994 as compared to a loss of $2.6 million in 1993. The Company's income tax
provision benefits from the tax holiday afforded the Company's Singapore
operation, which will remain in effect through August 1999. The tax holiday
afforded the Company's Thailand operation expired December 1993. The effect on
net income and earnings per share of the income tax exemptions in Singapore and
Thailand as compared to income taxes at the maximum statutory rates were
approximately $933,000 and $.06 and $1.9 million and $.13 for the second quarter
of 1994 and 1993, respectively. The expiration of the tax holiday in Thailand
has not had a material effect on the results of operations in 1994. Net loss
for 1994 was $14.8 million compared to net loss of $2.5 million in 1993.
-6-
<PAGE>
In addition to the Company's core high-capacity drive business, the Company
expects to continue to invest in engineering and sales and marketing for several
new value-added subsystem products which began to generate limited revenue
during the second quarter of 1994. In the near term, however, the Company's
core drive business is operating in very competitive market segments. The
Company expects that this, together with the current level of operating expenses
which are required to develop and support the new drive and subsystem products,
will result in a continued loss in the third quarter. The amount of the loss
will be dependent upon the successful ramp of production in the above mentioned
new disk drive and subsystem products, among other factors.
Six Months Ended July 1, 1994 Compared to Six Months Ended June 25,
- - -------------------------------------------------------------------
1993
- - ----
Net sales decreased 21.1% to $159.4 million in 1994 as compared to $202.1
million in 1993. The decrease in revenues was primarily attributable to a
decrease in shipments of 5 1/4-inch drives with capacities of 2.4 gigabytes and
below, offset in part by an increase in shipments of the Company's 3 1/2-inch
drives. OEM revenues declined by 61% in 1994 as compared to 1993 while sales
made by Storage Systems Division increased by approximately 28%. The decline in
OEM sales is principally due to the continued decrease in shipments of the
Company's 5 1/4-inch drives. The increase in Storage Systems Division sales was
attributable to high capacity 3 1/2-inch drives and storage subsystems products.
Overall bookings for the first six months of 1994 decreased by 30% from those in
1993 principally due to a decline in orders for the older 5 1/4-inch drives with
rotational speeds of 3600 rpm.
Cost of sales as a percent of sales increased to 87.7% in 1994 from 80.8%
in 1993 resulting in a gross margin of 12.3% as compared to 19.2% in 1993. The
decrease in margin was the result of a larger mix of lower margin 3 1/2-inch
drives versus high margin 5 1/4-inch drives.
Research and development expenses increased to 13.1% of sales in 1994 as
compared to 8.1% in 1993. The percentage increase is the result of lower sales
and an increase in spending of $4.5 million. The increase in spending was a
result of research and development on the Company's high capacity 3 1/2-inch
drives, greater than 3.6 GB 5 1/4-inch drives, subsystem products and research
and development on new disk substrates performed at Tulip Memory Systems.
Selling, general and administrative expenses were 13.6% of sales in 1994
as compared to 10.6% in 1993. The percentage increase is primarily the result
of lower sales.
Interest expense was $2.5 million in 1994 (1.6% of sales) which is
comparable to the same period a year ago. Interest income was $998,000 as
compared to $1.2 million in 1993 as a result of lower cash balances.
As a result of the above, loss before income taxes was $24.6 million in
1994 as compared to $1.1 million in 1993. The Company's income tax provision
benefits from the tax holiday afforded the Company's Singapore operation, which
will remain in effect through August 1999. The tax holiday afforded the
Company's Thailand operation expired December 1993. The effect on net income
and earnings per share of the income tax exemptions in Singapore and Thailand
as compared to income taxes at the maximum statutory rates were approximately
$2.0 million and $.13 and $4.3 million and $.30 for the first six months of 1994
and 1993, respectively. The expiration of the tax holiday in Thailand has not
had a material effect on the results of operations in 1994. Net loss for 1994
was $24.6 million compared to a net loss of $1.1 million in 1993.
-7-
<PAGE>
Liquidity and Capital Resources
- - -------------------------------
Cash, cash equivalents and short-term investments decreased to $74.6
million as of July 1, 1994 from $86.8 million as of December 31, 1993. Net cash
used in operations of $4.5 million includes a reduction in inventories of $20.7
million due principally to decreased work in process and finished goods
inventory levels. Accounts payable and other accrued liabilities decreased by
$10.3 million from the fourth quarter of 1993 due to decreased inventory
receipts and due to an income tax payment made during the second quarter of
1994. The income tax payment was made as a result of an examination by the
Internal Revenue Service for tax years 1986 through 1990. The amount of the
payment (approximately $3 million), had no impact on current operations.
The Company's capital expenditures in the first half of 1994 were $9.0
million as compared to $10.6 million in 1993. Capital expenditures related
primarily to equipment and tooling to support the 3 1/2-inch form factor. The
Company currently anticipates that its 1994 capital spending will be slightly
lower than 1993 and will be principally for equipment and tooling required for
the Company's new products.
The Company has a $33 million credit facility. The availability under the
facility is a function of the level of eligible receivables and borrowings which
are secured by substantially all of the Company's assets. The amount available
under the facility as of July 1, 1994 was $18.2 million (of which $3 million is
reserved for an outstanding standby letter of credit).
The Company believes that cash on hand, internally generated funds and the
credit facility will provide sufficient capital resources to finance operations,
fund planned capital expenditures and pay interest on outstanding debt for the
next twelve months.
-8-
<PAGE>
PART II - OTHER INFORMATION
----------------------------
MICROPOLIS CORPORATION
----------------------
Item 1. Legal Proceedings
-----------------
During the second quarter of 1994, the Company settled the appeal of a
single shareholder who had appealed the previous settlement of a class
action lawsuit filed on January 30, 1989 against the Company and
certain of its executive officers and directors. The settlement had no
material effect on the Company's financial position or the results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
a) The Annual Meeting of Stockholders of Micropolis Corporation was
held on April 27, 1994.
b) Matters voted on at the meeting and votes cast on each matter
were as follows:
. The stockholders voted to re-elect the four encumbant directors as
follows:
<TABLE>
<CAPTION>
Nominee For Withhold
------- --- --------
<S> <C> <C>
Stuart Mabon 10,562,808 72,133
Ericson M. Dunstan 10,562,917 72,024
J. Burgess Jamieson 10,562,917 72,024
Theodore Smith 10,562,917 72,024
</TABLE>
There were no broker non-votes in the election of directors.
. The shareholders approved an amendment to the Micropolis Corporation
Employee Stock Purchase Plan to increase the number of shares of
Common Stock authorized for issuance thereunder from 600,000 to
1,400,000.
<TABLE>
<CAPTION> Broker
For Against Abstain non-votes
--- ------- -------- ---------
<S> <C> <C> <C>
5,279,561 1,682,483 218,263 3,454,634
</TABLE>
. The shareholders approved the grant of additional options to three
directors of the Company in April 1993 under the Stock Option Plan
for Directors of Micropolis Corporation.
<TABLE>
<CAPTION> Broker
For Against Abstain non-votes
--- ------- -------- ---------
<S> <C> <C> <C>
6,384,337 564,667 215,285 3,470,652
</TABLE>
. The shareholders approved an amendment to the Stock Option Plan for
Directors of Micropolis Corporation to increase the number of shares
of Common Stock authorized for issuance thereunder from 200,000 to
300,000 and provide for the automatic granting of future options
under this plan.
<TABLE>
<CAPTION> Broker
For Against Abstain non-votes
--- ------- -------- ---------
<S> <C> <C> <C>
6,561,975 379,629 222,685 3,470,652
</TABLE>
-9-
<PAGE>
. The shareholders approved an amendment to the Stock Option Plan for
Executive and Key Employees of Micropolis Corporation to increase the
number of shares authorized for issuance thereunder from 2,000,000 to
2,400,000, and to make directors who are employees of the Company
eligible to receive options under this plan.
Broker
For Against Abstain non-votes
--- ------- ------- ---------
4,523,216 2,438,458 218,663 3,454,604
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
--------
10.44 *Amendment to the Micropolis Corporation Employee Stock
Purchase Plan.
10.45 *Amended and Restated Stock Option Plan for Independent
Directors of Micropolis Corporation.
10.46 *Stock Option Plan for Executive and Key Employees of
Micropolis Corporation, as amended.
*Management contract or compensatory plan or arrangement required to be filed as
an Exhibit to the Form 10-Q Report pursuant to Item 6 (a).
b) Reports on Form 8-K
-------------------
No report on Form 8-K has been filed during the quarter for which
this report is filed.
-10-
<PAGE>
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, on August 12, 1994.
MICROPOLIS CORPORATION
By s/Stuart P. Mabon
-----------------------------------
Stuart P. Mabon
Chairman of the Board, President
and Chief Executive Officer
By s/Dale J. Bartos
-----------------------------------
Dale J. Bartos
Senior Vice President - Finance and
Chief Financial Officer
-11-
<PAGE>
EXHIBIT 10.44
AMENDMENT TO THE
MICROPOLIS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
Section 3 of the Micropolis Corporation Employee Stock Purchase Plan is hereby
amended by substituting the following for the language in Subsection 3 in its
entirety.
"Subject to the provisions of Paragraph 11 (relating to adjustment upon changes
in stock), the stock which may be sold pursuant to options granted under the
Plan shall not exceed in the aggregate 1,400,000 shares of the authorized no par
value Common Stock of the Company (the "Stock")."
<PAGE>
Exhibit 10.45
AMENDED AND RESTATED
STOCK OPTION PLAN
FOR INDEPENDENT DIRECTORS
OF
MICROPOLIS CORPORATION
Micropolis Corporation, a corporation organized under the laws of the State
of Delaware, in order to amend its existing Stock Option Plan for Directors,
hereby adopts this Amended and Restated Stock Option Plan for Independent
Directors of Micropolis Corporation. The purposes of this Plan are as follows:
(1) To further the growth, development and financial success of the Company
by providing additional incentives to its independent Directors who have a major
share of the responsibility for the management of the Company's business by
assisting them to become owners of common stock of the Company and thus to
benefit directly from its growth, development and financial success.
(2) To enable the Company to obtain and retain the services of the type of
independent directors considered essential to the long-range success of the
Company by providing and offering them an opportunity to become owners of common
stock of the Company.
RECITALS
--------
A. In October 1987 the Board of Directors of the Company adopted and
approved a Stock Option Plan for Directors of the Company, which Plan was
approved by the stockholders of the Company in April 1988. As amended, with the
approval of the stockholders of the Company, the Plan now covers 200,000 shares
of common stock of the Company; options for 115,000 shares are presently
outstanding, approved by stockholders and covered by presently available shares
under the Plan; and 25,000 shares have been issued upon exercise of options
under the Plan. Upon approval by stockholders of (i) the addition of 100,000
shares under the Plan, and (ii) options covering an additional 90,000 shares
(granted by the Board on April 28, 1993, subject to stockholder approval),
options covering 205,000 shares will be outstanding and 70,000 shares would be
available for future option grant. The Plan now provides that all option grants
are subject to stockholder approval and all directors of the Company are
eligible for option grants under the Plan.
B. The Board of Directors deems it desirable and in the best interests of
the Company and its stockholders to provide for the automatic granting of future
options under the Plan, to increase the number of shares available for the
granting of options under the Plan from 200,000 to 300,000, and to permit the
grant of options under the Plan only to directors who are not
<PAGE>
employees of the Company, all upon the terms and conditions set forth herein and
subject to the approval of such amendments by the stockholders of the Company at
the 1994 annual meeting of stockholders.
ARTICLE I
DEFINITIONS
-----------
Whenever the following terms are used in this Plan, they shall have the
meaning specified below unless the context clearly indicates to the contrary.
The masculine pronoun shall include the feminine and neuter and the singular
shall include the plural, where the context so indicates.
Section 1.1 - Board
- - ----------- -----
"Board" shall mean the Board of Directors of the Company.
Section 1.2 - Company
- - ----------- -------
"Company" shall mean Micropolis Corporation. In addition, "Company" shall
mean any corporation assuming, or issuing new stock options in substitution for,
Options outstanding under the Plan.
Section 1.3 - Director
- - ----------- --------
"Director" shall mean a member of the Board who is not an employee of the
Company or of any "affiliate" of the Company as that term is defined by
Regulation 405 under the Securities Act.
Section 1.4 - Exchange Act
- - ----------- ------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
Section 1.5 - Option
- - ----------- ------
"Option" shall mean an option to purchase common stock of the Company,
granted under the Plan.
Section 1.6 - Optionee
- - ----------- --------
"Optionee" shall mean a Director to whom an Option is granted under the
Plan.
Section 1.7 - Parent Corporation
- - ----------- ------------------
"Parent Corporation" shall mean any corporation in an unbroken chain of
corporations ending with the Company if each of
<PAGE>
the corporations other than the Company then owns stock possessing 50% or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
Section 1.8 - Plan
- - ----------- ----
"Plan" shall mean the Amended and Restated Stock Option Plan for
Independent Directors of Micropolis Corporation and, unless the context requires
otherwise, the Stock Option Plan for Directors of Micropolis Corporation, as in
effect on October 5, 1993.
Section 1.9 - Rule 16b-3
- - ----------- ----------
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act as
such Rule may be amended in the future.
Section 1.10 - Secretary
- - ------------ ---------
"Secretary" shall mean the Secretary of the Company.
Section 1.11 - Securities Act
- - ------------ --------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.12 - Termination of Directorship
- - ------------ ---------------------------
"Termination of Directorship" shall mean the time when Optionee ceases to
be a director of the Company or any Parent Corporation for any reason,
including, but not by way of limitation, a termination by resignation, failure
to be elected, death or retirement. The Board, in its absolute discretion,
shall determine the effect of all other matters and questions relating to
Termination of Directorship.
ARTICLE II
SHARES SUBJECT TO PLAN
----------------------
Section 2.1 - Shares Subject to Plan
- - ----------- ----------------------
The shares of stock subject to Options shall be shares of the Company's
$1.00 par value Common Stock (the "Common Stock"). The aggregate number of such
shares which may be issued upon exercise of Options shall not exceed 300,000.
Section 2.2 - Unexercised Options
- - ----------- -------------------
If any Option expires or is cancelled without having been fully exercised,
the number of shares subject to such Option but as to which such Option was not
exercised prior to its
<PAGE>
expiration or cancellation may again be optioned hereunder, subject to the
limitations of Section 2.1.
Section 2.3 - Changes in Company's Shares
- - ----------- ---------------------------
In the event that the outstanding shares of Common Stock of the Company are
hereafter changed into or exchanged for a different number or kind of shares or
other securities of the Company, or of another corporation, by reason of
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, stock dividend or combination of shares, appropriate adjustments shall
be made by the Board in the number and kind of shares for the purchase of which
Options may be granted, including adjustments of the limitations in Section 2.1
on the maximum number and kind of shares which may be issued on exercise of
Options.
ARTICLE III
GRANTING OF OPTIONS
-------------------
Section 3.1 - Eligibility
- - ----------- -----------
Each Director of the Company or of any corporation which is then a Parent
Corporation shall be eligible to receive Options at the times and in the manner
set forth in Section 3.3.
Section 3.2 - Tax Status of Stock Options
- - ----------- ---------------------------
Options granted under the Plan do not qualify as "incentive stock options"
under Section 422 of the Internal Revenue Code of 1986.
Section 3.3 - Granting of Options
- - ----------- -------------------
Each person who then is reelected or continuing as a Director automatically
shall be granted an Option to purchase 5,000 shares of Common Stock (subject to
adjustment as provided in Section 2.3) at the close of business on the date of
each annual meeting of the stockholders of the Company, subject to stockholder
approval of the material amendments to the Plan (as set forth in Recital B) at
the 1994 annual meeting of stockholders. In addition, subject to such
stockholder approval, when a person is initially elected to the Board, at an
annual meeting of stockholders or at any other time, each such new Director
automatically shall be granted an Option to purchase 20,000 shares of Common
Stock (subject to adjustment as provided in Section 2.3) at the close of
business on the date of his or her election to the Board.
<PAGE>
ARTICLE IV
TERMS OF OPTIONS
----------------
Section 4.1 - Option Agreement
- - ----------- ----------------
Each Option shall be evidenced by a written Stock Option Agreement, which
shall be executed by the Optionee and an authorized officer of the Company and
which shall contain such terms and conditions as the Board shall determine,
consistent with the Plan.
Section 4.2 - Option Price
- - ----------- ------------
(a) The price of the shares of Common Stock subject to each Option shall be
equal to 100% of the fair market value of such shares on the date such Option is
granted.
(b) For purposes of the Plan, the fair market value of a share of the
Common Stock as of a given grant date shall be: (i) the closing price of a
share of the Common Stock on the principal exchange on which shares of the
Common Stock are then trading, if any, on the day immediately preceding such
grant date, or, if shares were not traded on the day immediately preceding such
grant date, then on the next preceding trading day during which a sale occurred;
or (ii) if the Common Stock is not traded on an exchange but is quoted on NASDAQ
or a successor quotation system, (1) the last sales price (if the Common Stock
is then listed as a National Market Issue under the NASD National Market System)
or (2) the mean between the closing representative bid and asked prices (in all
other cases) for the Common Stock on the day immediately preceding such grant
date as reported by NASDAQ or such successor quotation system; or (iii) if the
Common Stock is not publicly traded on an exchange and not quoted on NASDAQ or a
successor quotation system, the mean between the closing bid and asked prices
for the Common Stock, on the day immediately preceding such grant date, as
determined in good faith by the Board; or (iv) if the Common Stock is not
publicly traded, the fair market value established by the Board acting in good
faith.
Section 4.3 - Commencement of Exercisability
- - ----------- ------------------------------
(a) No Option may be exercised in whole or in part during the first year
after such Option is granted.
(b) Options shall become exercisable in cumulative annual installments of
33 1/3% of the number of shares covered by the Option on each of the first,
second and third anniversaries of the date of Option grant. The term of each
Option shall be five years.
<PAGE>
(c) No portion of an Option which is unexercisable at Termination of
Directorship shall thereafter become exercisable.
Section 4.4 - Expiration of Options
- - ----------- ---------------------
No Option may be exercised to any extent by anyone after the first to occur
of the following events:
(i) The expiration of five years from the date the Option was
granted; or
(ii) The expiration of three months from the date of the
Optionee's Termination of Directorship for any reason other than such
Optionee's death unless the Optionee dies within said three-month period;
or
(iii) The expiration of one year from the date of the Optionee's
death.
Section 4.5 - Consideration
- - ----------- -------------
In consideration of the granting of the Option, the Optionee shall agree,
in the written Stock Option Agreement, to serve as a Director of the Company
until the next annual meeting of the stockholders of the Company or a Parent
Corporation. Nothing in this Plan or in any Stock Option Agreement hereunder
shall confer upon any Optionee any right to continue as a Director of the
Company or any Parent Corporation.
Section 4.6 - Adjustments in Outstanding Options
- - ----------- ----------------------------------
In the event that the outstanding shares of the stock subject to Options
are changed into or exchanged for a different number or kind of shares of the
Company or other securities of the Company by reason of merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend or
combination of shares, the Board shall make an appropriate and equitable
adjustment in the number and kind of shares as to which all outstanding Options,
or portions thereof then unexercised, shall be exercisable, to the end that
after such event the Optionee's proportionate interest shall be maintained as
before the occurrence of such event. Such adjustment in an outstanding Option
shall be made without change in the total price applicable to the Option or the
unexercised portion of the Option (except for any change in the aggregate price
resulting from rounding-off of share quantities or prices) and with any
necessary corresponding adjustment in Option price per share. Any such
adjustment made by the Board shall be final and binding upon all Optionees, the
Company and all other interested persons.
<PAGE>
Section 4.7 - Merger, Consolidation, Acquisition, Liquidation or Dissolution
- - ----------- --------------------------------------------------------------
In its absolute discretion, and on such terms and conditions as it
deems appropriate, the Board may provide by the terms of any Option that such
Option cannot be exercised after the merger or consolidation of the Company with
or into another corporation, the acquisition by another corporation or person of
all or substantially all of the Company's assets or 80% or more of the Company's
then outstanding voting stock or the liquidation or dissolution of the Company;
and if the Board so provides, it may, in its absolute discretion and on such
terms and conditions as it deems appropriate, also provide, either by the terms
of such Option or by a resolution adopted prior to the occurrence of such
merger, consolidation, acquisition, liquidation or dissolution, that, for some
period of time prior to such event, such Option shall be exercisable as to all
shares covered thereby, notwithstanding anything to the contrary in Section
4.3(a) or Section 4.3(b).
ARTICLE V
EXERCISE OF OPTIONS
-------------------
Section 5.1 - Person Eligible to Exercise
- - ----------- ---------------------------
During the lifetime of the Optionee, only he may exercise an Option
granted to him, or any portion thereof. After the death of the Optionee, any
exercisable portion of an Option may, prior to the time when such portion
becomes unexercisable under Section 4.4 or Section 4.7, be exercised by his
personal representative or by any person empowered to do so under the deceased
Optionee's will or under the then applicable laws of descent and distribution.
Section 5.2 - Partial Exercise
- - ----------- ----------------
At any time and from time to time prior to the time when an
exercisable Option or exercisable portion thereof become unexercisable under
Section 4.4 or Section 4.7, such Option or portion thereof may be exercised in
whole or in part; provided, however, that the Company shall not be required to
issue fractional shares.
Section 5.3 - Manner of Exercise
- - ----------- ------------------
An exercisable Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or his office of all of the
following prior to the time when such Option or such portion becomes
unexercisable under Section 4.4 or Section 4.7:
<PAGE>
(a) Notice in writing signed by the Optionee or other person then
entitled to exercise such Option or portion, stating that such Option or
portion is exercised, such notice complying with any applicable rules
established by the Board; and
(b) Full payment (in cash or by check) for the shares with respect to
which such Option or portion is thereby exercised; and
(c) Such representations and documents as the Board, in its absolute
discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act and any other federal or state
securities laws or regulations. The Board may, in its absolute discretion,
also take whatever additional actions it deems appropriate to effect such
compliance including, without limitation, placing legends on share
certificates and issuing stop-transfer orders to transfer agents and
registrars; and
(d) In the event that the Option or portion thereof shall be exercised
pursuant to Section 5.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the
Option or portion thereof.
Section 5.4 - Conditions to Issuance of Stock Certificates
- - ----------- --------------------------------------------
The shares of stock issuable and deliverable upon the exercise of an
Option, or any portion thereof, may be either previously authorized but unissued
shares or issued shares which have then been reacquired by the Company. The
Company shall not be required to issue or deliver any certificate or
certificates for shares of stock purchased upon the exercise of any Option or
portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental
regulatory body, which the Board shall, in its absolute discretion, deem
necessary or advisable; and
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Board shall, in its absolute
discretion, determine to be necessary or advisable; and
<PAGE>
(d) The payment to the Company of all amounts which it is required to
withhold, if any, under federal, state or local law in connection with the
exercise of the Option; and
(e) The lapse of such reasonable period of time following the exercise
of the Option as the Board may establish from time to time for reasons of
administrative convenience.
Section 5.5 - Rights as Stockholders
- - ----------- ----------------------
The holders of Options shall not be, nor have any of the rights or
privileges of, stockholders of the Company in respect of any shares purchasable
upon the exercise of any part of an Option unless and until certificates
representing such shares have been issued by the Company to such holders.
ARTICLE VI
ADMINISTRATION
--------------
Section 6.1 - Duties and Powers of the Board
- - ----------- ------------------------------
It shall be the duty of the Board to conduct the general
administration of the Plan in accordance with its provisions. The Board shall
have the power to interpret the Plan and the Options and to adopt such rules for
the administration, interpretation and application of the Plan as are consistent
therewith and to interpret, amend or revoke any such rules.
Section 6.2 - Majority Rule
- - ----------- -------------
The Board shall act by a majority of its members in office. The Board
may act either by vote at a meeting or by a memorandum or other written
instrument signed by a majority of the Board.
Section 6.3 - Compensation; Professional Assistance; Good Faith Actions
- - ----------- ---------------------------------------------------------
Members of the Board shall receive no additional compensation for
their services under the Plan. All expenses and liabilities incurred by members
of the Board in connection with the administration of the Plan shall be borne by
the Company. The Board may employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Board and the Company shall be
entitled to rely upon the advice, opinions or valuations of any such persons.
All actions taken and all interpretations and determinations made by the Board
in good faith shall be final and binding upon all Optionees, the Company and all
other interested persons. No member of the Board shall be personally liable for
<PAGE>
any action, determination or interpretation made in good faith with respect to
the Plan or the Options, and all members of the Board shall be fully protected
by the Company in respect to any such action, determination or interpretation.
ARTICLE VII
OTHER PROVISIONS
----------------
Section 7.1 - Options Not Transferable
- - ----------- ------------------------
No Option or interest or right therein or part thereof shall be liable
for the debts, contracts or engagements of the Optionee or his successors in
interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether such
disposition be voluntary or involuntary or by operation of law by judgment,
levy, attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy), and any attempted disposition thereof shall be null and
void and of no effect; provided, however, that nothing in this Section 7.1 shall
prevent transfers by will or by the applicable laws of descent and distribution.
Section 7.2 - Amendment, Suspension or Termination of the Plan
- - ---------- ------------------------------------------------
(a) The Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time by the Board. However,
without approval of the Company's stockholders given within 12 months before or
after the action by the Board, no action of the Board may, except as provided in
Section 2.3, increase the limit imposed in Section 2.1 on the maximum number of
shares which may be issued on exercise of Options, modify the eligibility
requirements of Section 3.1, reduce the Option price requirements of Section
4.2(a), change the exercisability provisions of Section 4.3 or extend the limit
imposed in Section 7.2(d) on the period during which Options may be granted.
Neither the amendment, suspension nor termination of the Plan shall, without the
consent of the holder of the Option, alter or impair any rights or obligations
under any Option theretofore granted. Notwithstanding the foregoing, the Plan
shall not be amended more than once every six months other than to comport with
changes in the Internal Revenue Code, the Employee Retirement Income Security
Act or the rules thereunder.
(b) The Plan is intended to conform to the extent necessary with all
provisions of the Securities Act and the Exchange Act and any and all
regulations and rules promulgated by the Securities and Exchange Commission
thereunder, including without limitation Rule 16b-3. Notwithstanding anything
herein to the contrary, the Plan shall be administered, and Options shall be
<PAGE>
granted and may be exercised, only in such a manner as to conform to such laws,
rules and regulations. To the extent permitted by applicable law, the Plan and
Options granted hereunder shall be deemed amended to the extent necessary to
conform to such laws, rules and regulations.
(c) All adjustments in the number and kind of shares covered by the
Plan and outstanding Options thereunder, and in the exercise price of
outstanding Options, shall be made if, and in the same manner as, such
adjustments are made to the Company's Stock Option Plan for Executive and Key
Employees, or any successor to said plan, and to non-qualified stock options
outstanding under said plan or successor plan.
(d) No Option may be granted during any period of suspension nor after
termination of the Plan, and in no event may any Option be granted under the
Plan after October 28, 1997.
Section 7.3 - Approval of Plan Amendments by Stockholders
- - ----------- -------------------------------------------
The material amendments to the Plan (as set forth in Recital B) will
be submitted for the approval of the Company's stockholders at the 1994 annual
meeting of stockholders. If such approval is not obtained, such amendments to
the Plan shall have no force or effect. Options may be granted prior to such
stockholder approval, subject to such stockholder approval. Any Options so
granted shall provide that if such approval is not obtained, the Options shall
be void and of no further force or effect.
Section 7.4 - Effect of Plan Upon Other Option and Compensation Plans
- - ----------- -------------------------------------------------------
The adoption of this Plan shall not affect any other compensation or
incentive plans in effect for Directors of the Company. Nothing in this Plan
shall be construed to limit the right of the Company to grant or assume options
otherwise than under this Plan in connection with any proper corporate purpose,
including, but not by way of limitation, the grant or assumption of options in
connection with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation, firm or
association. Neither the adoption of this Plan by the Board on October 6, 1993
nor its subsequent approval by the Company's stockholders shall have any effect
upon previously granted Options or the terms of the written grant of such
Options.
Section 7.5 - Titles
- - ----------- ------
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of the Plan.
<PAGE>
Exhibit 10.46
STOCK OPTION PLAN
FOR EXECUTIVE AND KEY EMPLOYEES
OF
MICROPOLIS CORPORATION
Micropolis Corporation, a corporation organized under the laws of the State
of Delaware, has previously adopted this Stock Option Plan for Executive and Key
Employees of Micropolis Corporation, and wishes to amend the Plan to provide for
the granting of options hereunder to directors of the Company who are also
employees and to make certain other minor changes to the Plan which are deemed
desirable. The purposes of this Plan are as follows:
(1) To further the growth, development and financial success of the
Company by providing additional incentives to certain of its executive and other
key Employees who have been or will be given responsibility for the management
or administration of the Company's business affairs, by assisting them to become
owners of the Company's Common Stock and thus to benefit directly from its
growth, development and financial success.
(2) To enable the Company to obtain and retain the services of the type of
professional, technical and managerial employees considered essential to the
long-range success of the Company by providing and offering them an opportunity
to become owners of the Company's Common Stock under options, including options
that are intended to qualify as "incentive stock options" under Section 422 of
the Code.
ARTICLE I
DEFINITIONS
-----------
Whenever the following terms are used in this Plan, they shall have the
meaning specified below unless the context clearly indicates to the contrary.
The masculine pronoun shall include the feminine and neuter and the singular
shall include the plural, where the context so indicates.
Section 1.1 - Board
- - ----------- -----
"Board" shall mean the Board of Directors of the Company.
Section 1.2 - Code
- - ----------- ----
"Code" shall mean the Internal Revenue Code of 1986, as amended.
<PAGE>
Section 1.3 - Committee
- - ----------- ---------
"Committee" shall mean the Compensation Committee of the Board, appointed
as provided in Section 6.1.
Section 1.4 - Company
- - ----------- -------
"Company" shall mean Micropolis Corporation. In addition, "Company" shall
mean any corporation assuming, or issuing new employee stock options in
substitution for, Incentive Stock Options, outstanding under the Plan, in a
transaction to which Section 424(a) of the Code applies.
Section 1.5 - Director
- - ----------- --------
"Director" shall mean a member of the Board.
Section 1.6 - Employee
- - ----------- --------
"Employee" shall mean any employee (as defined in accordance with the
regulations and revenue rulings then applicable under Section 3401(c) of the
Code) of the Company, or of any corporation which is then a Parent Corporation
or a Subsidiary, whether such employee is so employed at the time this Plan is
adopted or becomes so employed subsequent to the adoption of this Plan.
Section 1.7 - Exchange Act
- - ----------- ------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
Section 1.8 - Incentive Stock Option
- - ----------- ----------------------
"Incentive Stock Option" shall mean an Option which qualifies under Section
422 of the Code and which is designated as an Incentive Stock Option by the
Committee.
Section 1.9 - Non-Qualified Option
- - ----------- --------------------
"Non-Qualified Option" shall mean an Option which is not an Incentive Stock
Option and which is designated as a Non-Qualified Option by the Committee.
Section 1.10 - Officer
- - ------------ -------
"Officer" shall mean an officer of the Company, as defined in Rule 16a-1(f)
under the Exchange Act, as such Rule may be amended in the future.
<PAGE>
Section 1.11 - Option
- - ------------ ------
"Option" shall mean an option to purchase Common Stock of the Company,
granted under the Plan. "Options" includes both Incentive Stock Options and
Non-Qualified Options.
Section 1.12 - Optionee
- - ------------ --------
"Optionee" shall mean an Employee to whom an Option is granted under the
Plan.
Section 1.13 - Parent Corporation
- - ------------ ------------------
"Parent Corporation" shall mean any corporation in an unbroken chain of
corporations ending with the Company if each of the corporations other than the
Company then owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
Section 1.14 - Plan
- - ------------ ----
"Plan" shall mean this Stock Option Plan for Executive and Key Employees of
Micropolis Corporation.
Section 1.15 - Rule 16b-3
- - ------------ ----------
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act, as
such Rule may be amended in the future.
Section 1.16 - Secretary
- - ------------ ---------
"Secretary" shall mean the Secretary of the Company.
Section 1.17 - Securities Act
- - ------------ --------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.18 - Subsidiary
- - ------------ ----------
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
Section 1.19 - Termination of Employment
- - ------------ -------------------------
"Termination of Employment" shall mean the time when the employee-employer
relationship between the Optionee and the
<PAGE>
Company, a Parent Corporation or a Subsidiary is terminated for any reason, with
or without cause, including, but not by way of limitation, a termination by
resignation, discharge, death or retirement, but excluding terminations where
there is a simultaneous reemployment by the Company, a Parent Corporation or a
Subsidiary. The Committee, in its absolute discretion, shall determine the
effect of all other matters and questions relating to Termination of Employment,
including, but not by way of limitation, the question of whether a Termination
of Employment resulted from a discharge for good cause, and all questions of
whether particular leaves of absence constitute Terminations of Employment;
provided, however, that, with respect to Incentive Stock Options, a leave of
absence shall constitute a Termination of Employment if, and to the extent that,
such leave of absence interrupts employment for the purposes of Section
422(a)(2) of the Code and the then applicable regulations and revenue rulings
under said Section.
ARTICLE II
SHARES SUBJECT TO PLAN
----------------------
Section 2.1 - Shares Subject to Plan
- - ----------- ----------------------
The shares of stock subject to Options shall be shares of the Company's
$1.00 par value Common Stock. The aggregate number of such shares which may be
issued upon exercise of Options shall not exceed 2,400,000.
Section 2.2 - Unexercised Options
- - ----------- -------------------
If any Option expires or is cancelled without having been fully exercised,
the number of shares subject to such Option but as to which such Option was not
exercised prior to its expiration or cancellation may again be optioned
hereunder, subject to the limitations of Section 2.1.
Section 2.3 - Changes in Company's Shares
- - ----------- ---------------------------
In the event that the outstanding shares of Common Stock of the Company are
hereafter changed into or exchanged for a different number or kind of shares or
other securities of the Company, or of another corporation, by reason of
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, stock dividend or combination of shares, appropriate adjustments shall
be made by the Committee in the number and kind of shares for the purchase of
which Options may be granted, including adjustments of the limitations in
Section 2.1 on the maximum number and kind of shares which may be issued on
exercise of Options.
<PAGE>
ARTICLE III
GRANTING OF OPTIONS
-------------------
Section 3.1 - Eligibility
- - ----------- -----------
Any executive or other key Employee of the Company or of any corporation
which is then a Parent Corporation or a Subsidiary shall be eligible to be
granted Options, except as provided in Section 3.2.
Section 3.2 - Qualification of Incentive Stock Options
- - ----------- ----------------------------------------
No Incentive Stock Option shall be granted unless such Option, when
granted, qualifies as an "incentive stock option" under Section 422 of the Code.
Section 3.3 - Granting of Options
- - ----------- -------------------
(a) The Committee shall from time to time, in its absolute discretion:
(i) Determine which Employees are executive or other key
Employees and select from among the executive or other key Employees
(including those to whom Options have been previously granted under the
Plan) such of them as in its opinion should be granted Options; and
(ii) Determine the number of shares to be subject to such Options
granted to such selected executive or other key Employees, and determine
whether such Options are to be Incentive Stock Options or Non-Qualified
Options; and
(iii) Determine the terms and conditions of such Options,
consistent with the Plan.
(b) Upon the selection of an executive or other key Employee to be
granted an Option, the Committee shall instruct the Secretary to issue such
Option and may impose such conditions on the grant of such Option as it deems
appropriate. Without limiting the generality of the preceding sentence, the
Committee may, in its discretion and on such terms as it deems appropriate,
require as a condition on the grant of an Option to an Employee that the
Employee surrender for cancellation some or all of the unexercised Options which
have been previously granted to him. An Option the grant of which is
conditioned upon such surrender may have an option price lower (or higher) than
the option price of the surrendered Option, may cover the same (or a lesser or
greater) number of shares as the surrendered Option, may contain such other
terms as the Committee deems appropriate and shall be exercisable in accordance
with its terms, without regard to the
<PAGE>
number of shares, price, option period or any other term or condition of the
surrendered Option.
ARTICLE IV
TERMS OF OPTIONS
----------------
Section 4.1 - Option Agreement
- - ----------- ----------------
Each Option shall be evidenced by a written Stock Option Agreement, which
shall be executed by the Optionee and an authorized Officer of the Company and
which shall contain such terms and conditions as the Committee shall determine,
consistent with the Plan. Stock Option Agreements evidencing Incentive Stock
Options shall contain such terms and conditions as may be necessary to qualify
such Options as "incentive stock options" under Section 422 of the Code.
Section 4.2 - Option Price
- - ----------- ------------
(a) The price of the shares subject to each Option shall be set by the
Committee; provided, however, that the price per share shall be not less than
100% of the fair market value of such shares on the date such Option is granted;
provided, further, that, in the case of an Incentive Stock Option, the price per
share shall not be less than 110% of the fair market value of such shares on the
date such Option is granted in the case of an individual then owning (within the
meaning of Section 424(d) of the Code) more than 10% of the total combined
voting power of all classes of stock of the Company, any Subsidiary or any
Parent Corporation.
(b) For purposes of the Plan, the fair market value of a share of the
Company's Common Stock as of a given date shall be: (i) the closing price of a
share of the Company's Common Stock on the principal exchange on which shares of
the Company's Common Stock are then trading, if any, on the day previous to such
date, or, if shares were not traded on the day previous to such date, then on
the next preceding trading day during which a sale occurred; or (ii) if such
Common Stock is not traded on an exchange but is quoted on NASDAQ or a successor
quotation system, (1) the last sales price (if the Company's Common Stock is
then listed as a National Market Issue under the NASD National Market System) or
(2) the mean between the closing representative bid and asked prices (in all
other cases) for the Company's Common Stock on the day previous to such date as
reported by NASDAQ or such successor quotation system; or (iii) if such Common
Stock is not publicly traded on an exchange and not quoted on NASDAQ or a
successor quotation system, the mean between the closing bid and asked prices
for the Company's Common Stock, on the day previous to such date, as determined
in good faith by the Committee; or (iv) if the Company's Common Stock is not
publicly traded, the
<PAGE>
fair market value established by the Committee acting in good faith.
Section 4.3 - Commencement of Exercisability
- - ----------- ------------------------------
(a) No Option may be exercised in whole or in part during the first six
months after such Option is granted or such longer period as may be provided in
the terms of any individual Option.
(b) Subject to the provisions of Sections 4.3(a), 4.3(c), 4.3(d) and 7.3,
Options shall become exercisable at such times and in such installments (which
may be cumulative) as the Committee shall provide in the terms of each
individual Option; provided, however, that by a resolution adopted after an
Option is granted the Committee may, on such terms and conditions as it may
determine to be appropriate, and subject to Section 4.3(c) and Section 7.3,
accelerate the time at which such Option or any portion thereof may be
exercised.
(c) No portion of an Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
(d) Notwithstanding any other provision of this Plan, in the case of an
Incentive Stock Option, the aggregate fair market value (determined at the time
the Incentive Stock Option is granted) of the shares of the Company's stock with
respect to which "incentive stock options" (within the meaning of Section 422 of
the Code) are exercisable for the first time by the Optionee during any calendar
year (under the Plan and all other incentive stock option plans of the Company,
any Subsidiary and any Parent Corporation) shall not exceed $100,000.
Section 4.4 - Expiration of Options
- - ----------- ---------------------
(a) No Option may be exercised to any extent by anyone after the first to
occur of the following events:
(i) The expiration of ten years from the date the Option was
granted; or
(ii) With respect to an Incentive Stock Option in the case of an
Optionee owning (within the meaning of Section 424(d) of the Code), at the
time the Incentive Stock Option was granted, more than 10% of the total
combined voting power of all classes of stock of the Company, any
Subsidiary or any Parent Corporation, the expiration of five years from the
date the Incentive Stock Option was granted; or
(iii) Except in the case of any Optionee who is disabled (within
the meaning of Section 22(e)(3) of the Code), the expiration of three
months from the date of the
<PAGE>
Optionee's Termination of Employment for any reason other than such
Optionee's death unless the Optionee dies within said three-month period;
or
(iv) In the case of an Optionee who is disabled (within the
meaning of Section 22(e)(3) of the Code), the expiration of one year from
the date of the Optionee's Termination of Employment for any reason other
than such Optionee's death unless the Optionee dies within said one-year
period; or
(v) The expiration of one year from the date of the Optionee's
death.
(b) Subject to the provisions of Section 4.4(a), the Committee shall
provide, in the terms of each individual Option, when such Option expires and
becomes unexercisable; and (without limiting the generality of the foregoing)
the Committee may provide in the terms of individual Options that said Options
expire 30 days following a Termination of Employment for any reason.
Section 4.5 - Consideration
- - ----------- -------------
In consideration of the granting of an Option, the Optionee shall agree, in
the written Stock Option Agreement, to remain in the employ of the Company, a
Parent Corporation or a Subsidiary for a period of at least one year after the
Option is granted. Nothing in this Plan or in any Stock Option Agreement
hereunder shall confer upon any Optionee any right to continue in the employ of
the Company, any Parent Corporation or any Subsidiary or shall interfere with or
restrict in any way the rights of the Company, its Parent Corporations and its
Subsidiaries, which are hereby expressly reserved, to discharge any Optionee at
any time for any reason whatsoever, with or without cause.
Section 4.6 - Adjustments in Outstanding Options
- - ----------- ----------------------------------
In the event that the outstanding shares of the stock subject to Options
are changed into or exchanged for a different number or kind of shares of the
Company or other securities of the Company by reason of merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend or
combination of shares, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares as to which all outstanding Options,
or portions thereof then unexercised, shall be exercisable, to the end that
after such event the Optionee's proportionate interest shall be maintained as
before the occurrence of such event. Such adjustment in an outstanding Option
shall be made without change in the total price applicable to the Option or the
unexercised portion of the Option (except for
<PAGE>
any change in the aggregate price resulting from rounding-off of share
quantities or prices) and with any necessary corresponding adjustment in Option
price per share; provided, however, that, in the case of Incentive Stock
Options, each such adjustment shall be made in such manner as not to constitute
a "modification" within the meaning of Section 424(h)(3) of the Code. Any such
adjustment made by the Committee shall be final and binding upon all Optionees,
the Company and all other interested persons.
Section 4.7 - Merger, Consolidation, Acquisition, Liquidation or Dissolution
- - ----------- --------------------------------------------------------------
In its absolute discretion, and on such terms and conditions as it deems
appropriate, the Committee may provide by the terms of any Option that such
Option cannot be exercised after the merger or consolidation of the Company with
or into another corporation, the acquisition by another corporation or person of
all or substantially all of the Company's assets or 80% or more of the Company's
then outstanding voting stock or the liquidation or dissolution of the Company;
and if the Committee so provides, it may, in its absolute discretion and on such
terms and conditions as it deems appropriate, also provide, either by the terms
of such Option or by a resolution adopted prior to the occurrence of such
merger, consolidation, acquisition, liquidation or dissolution, that, for some
period of time prior to such event, such Option shall be exercisable as to all
shares covered thereby, notwithstanding anything to the contrary in Section
4.3(a), Section 4.3(b), Section 4.3(d) and/or any installment provisions of such
Option, but subject to Section 7.3.
ARTICLE V
EXERCISE OF OPTIONS
-------------------
Section 5.1 - Person Eligible to Exercise
- - ----------- ---------------------------
During the lifetime of the Optionee, only he may exercise an Option (or any
portion thereof) granted to him. After the death of the Optionee, any
exercisable portion of an Option may, prior to the time when such portion
becomes unexercisable under the Plan or the applicable Stock Option Agreement,
be exercised by his personal representative or by any person empowered to do so
under the deceased Optionee's will or under the then applicable laws of descent
and distribution.
Section 5.2 - Partial Exercise
- - ----------- ----------------
At any time and from time to time prior to the time when any exercisable
Option or exercisable portion thereof becomes unexercisable under the Plan or
the applicable Stock Option Agreement, such Option or portion thereof may be
exercised in whole or in part; provided, however, that the Company shall not be
<PAGE>
required to issue fractional shares and the Committee may, by the terms of the
Option, require any partial exercise to be with respect to a specified minimum
number of shares.
Section 5.3 - Manner of Exercise
- - ----------- ------------------
An exercisable Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Secretary or his office of all of the following prior
to the time when such Option or such portion becomes unexercisable under the
Plan or the applicable Stock Option Agreement:
(a) Notice in writing signed by the Optionee or other person then entitled
to exercise such Option or portion, stating that such Option or portion is
exercised, such notice complying with all applicable rules established by the
Committee; and
(b) Full payment (in cash or by check) for the shares with respect to
which such Option or portion is thereby exercised; and
(c) The payment (in cash or by check) to the Company (or other employer
corporation) of all amounts which it is required to withhold under federal,
state or local law in connection with the exercise of the Option; with the
consent of the Committee, (i) shares of the Company's Common Stock owned by the
Optionee duly endorsed for transfer or (ii) subject to the timing requirements
of Section 5.4, shares of the Company's Common Stock issuable to the Optionee
upon exercise of the Option, valued in accordance with Section 4.2(b) at the
date of Option exercise, may be used to make all or part of such payment; and
(d) Such representations and documents as the Committee, in its absolute
discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act and any other federal or state
securities laws or regulations. The Committee may, in its absolute discretion,
also take whatever additional actions it deems appropriate to effect such
compliance including, without limitation, placing legends on share certificates
and issuing stop-transfer orders to transfer agents and registrars; and
(e) In the event that the Option or portion thereof shall be exercised
pursuant to Section 5.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the Option
or portion thereof.
Section 5.4 - Certain Timing Requirements
- - ----------- ---------------------------
Shares of the Company's Common Stock issuable to the Optionee upon exercise
of the Option may be used to satisfy the tax withholding consequences of such
exercise only (i) during the
<PAGE>
period beginning on the third business day following the date of release of the
quarterly or annual summary statement of sales and earnings of the Company and
ending on the twelfth business day following such date or (ii) pursuant to an
irrevocable written election by the Optionee to use shares of the Company's
Common Stock issuable to the Optionee upon exercise of the Option to pay the
withholding taxes (subject to the approval of the Committee) made at least six
months prior to the payment of such withholding taxes.
Section 5.5 - Conditions to Issuance of Stock Certificates
- - ----------- --------------------------------------------
The shares of stock issuable and deliverable upon the exercise of an
Option, or any portion thereof, may be either previously authorized but unissued
shares or issued shares which have then been reacquired by the Company. The
Company shall not be required to issue or deliver any certificate or
certificates for shares of stock purchased upon the exercise of any Option or
portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body,
which the Committee shall, in its absolute discretion, deem necessary or
advisable; and
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The payment to the Company (or other employer corporation) of all
amounts which it is required to withhold under federal, state or local law in
connection with the exercise of the Option; and
(e) The lapse of such reasonable period of time following the exercise of
the Option as the Committee may establish from time to time for reasons of
administrative convenience.
Section 5.6 - Rights as Shareholders
- - ----------- ----------------------
The holders of Options shall not be, nor have any of the rights or
privileges of, shareholders of the Company in respect of any shares purchasable
upon the exercise of any part of an Option
<PAGE>
unless and until certificates representing such shares have been issued by the
Company to such holders.
Section 5.7 - Transfer Restrictions
- - ----------- ---------------------
Unless otherwise approved in writing by the Committee, no shares acquired
upon exercise of any Option by any Officer may be sold, assigned, pledged,
encumbered or otherwise transferred until at least six months have elapsed from
(but excluding) the date that such Option was granted. The Committee, in its
absolute discretion, may impose such other restrictions on the transferability
of the shares purchasable upon the exercise of an Option as it deems
appropriate. Any such other restriction shall be set forth in the respective
Stock Option Agreement and may be referred to on the certificates evidencing
such shares. The Committee may require the Employee to give the Company prompt
notice of any disposition of shares of stock, acquired by exercise of an
Incentive Stock Option, within two years from the date of granting such Option
or one year after the transfer of such shares to such Employee. The Committee
may direct that the certificates evidencing shares acquired by exercise of an
Incentive Stock Option refer to such requirement to give prompt notice of
disposition.
ARTICLE VI
ADMINISTRATION
--------------
Section 6.1 - Compensation Committee
- - ----------- ----------------------
The Compensation Committee shall consist of two or more Directors,
appointed by and holding office at the pleasure of the Board, each of whom is a
"disinterested person" as defined by Rule 16b-3. Appointment of Committee
members shall be effective upon acceptance of appointment. Committee members
may resign at any time by delivering written notice to the Board. Vacancies in
the Committee shall be filled by the Board.
Section 6.2 - Duties and Powers of Committee
- - ----------- ------------------------------
It shall be the duty of the Committee to conduct the general administration
of the Plan in accordance with its provisions. The Committee shall have the
power to interpret the Plan and the Options and to adopt such rules for the
administration, interpretation and application of the Plan as are consistent
therewith and to interpret, amend or revoke any such rules. Any such
interpretations and rules in regard to Incentive Stock Options shall be
consistent with the basic purpose of the Plan to grant "incentive stock options"
within the meaning of Section 422 of the Code. The Board shall have no right to
exercise any of the rights or duties of the Committee under the Plan.
<PAGE>
Section 6.3 - Majority Rule
- - ----------- -------------
The Committee shall act by a majority of its members in office. The
Committee may act either by vote at a meeting or by a memorandum or other
written instrument signed by a majority of the Committee.
Section 6.4 - Compensation; Professional Assistance; Good Faith Actions
- - ----------- ---------------------------------------------------------
Members of the Committee shall receive such compensation for their services
as members as may be determined by the Board. All expenses and liabilities
incurred by members of the Committee in connection with the administration of
the Plan shall be borne by the Company. The Committee may employ attorneys,
consultants, accountants, appraisers, brokers or other persons. The Committee,
the Company and its Officers and Directors shall be entitled to rely upon the
advice, opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon all Optionees, the Company and all other interested
persons. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
the Options, and all members of the Committee shall be fully protected by the
Company in respect to any such action, determination or interpretation.
ARTICLE VII
OTHER PROVISIONS
----------------
Section 7.1 - Options Not Transferable
- - ----------- ------------------------
No Option or interest or right therein or part thereof shall be liable for
the debts, contracts or engagements of the Optionee or his successors in
interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether such
disposition be voluntary or involuntary or by operation of law by judgment,
levy, attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy), and any attempted disposition thereof shall be null and
void and of no effect; provided, however, that nothing in this Section 7.1 shall
prevent transfers by will or by the applicable laws of descent and distribution.
Section 7.2 - Amendment, Suspension or Termination of the Plan
- - ----------- ------------------------------------------------
The Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time
<PAGE>
by the Committee. However, without approval of the Company's shareholders given
within 12 months before or after the action by the Committee, no action of the
Committee may, except as provided in Section 2.3, increase any limit imposed in
Section 2.1 on the maximum number of shares which may be issued on exercise of
Options, materially modify the eligibility requirements of Section 3.1, reduce
the minimum Option price requirements of Section 4.2(a) or extend the limit
imposed in this Section 7.2 on the period during which Options may be granted or
amend or modify the Plan in a manner requiring shareholder approval under Rule
16b-3. Neither the amendment, suspension nor termination of the Plan shall,
without the consent of the holder of the Option, impair any rights or
obligations under any Option theretofore granted. No Option may be granted
during any period of suspension nor after termination of the Plan, and in no
event may any Option be granted under this Plan after October 28, 1997.
Section 7.3 - Approval of Plan Amendment by Shareholders
- - ----------- ------------------------------------------
This Plan was initially approved by the Company's stockholders on April 26,
1988. Amendments to this Plan increasing the number of shares authorized
hereunder were duly approved by the Company's stockholders on May 18, 1989, May
15, 1991 and April 28, 1993. The only amendment provided herein which requires
stockholder approval is the amendment to Section 3.1, which permits Directors
who are Employees to receive Options under the Plan. Such amendment shall be
submitted to stockholders for approval at the 1994 Annual Meeting of
Stockholders. Options may be granted to Employee-Directors prior to such
stockholder approval; provided, however, that such Options shall not be
exercisable prior to the time when said amendment is approved by the
stockholders; provided, further, that if such approval is not obtained at said
meeting, all Options previously granted under the Plan to Employee-Directors
shall thereupon be cancelled and become null and void. The Company shall take
such actions with respect to the Plan as may be necessary to satisfy the
requirements of Rule 16b-3(b).
Section 7.4 - Effect of Plan Upon Other Option and Compensation Plans
- - ----------- -------------------------------------------------------
This Plan, including the amendment to Section 3.1, shall not affect any
other compensation or incentive plans in effect for the Company, any Parent
Corporation or any Subsidiary. Nothing in this Plan shall be construed to limit
the right of the Company, any Parent Corporation or any Subsidiary (a) to
establish any other forms of incentives or compensation for employees of the
Company, any Parent Corporation or any Subsidiary or (b) to grant or assume
options otherwise than under this Plan in connection with any proper corporate
purpose, including, but not by way of limitation, the grant or assumption of
options in connection with the acquisition by purchase, lease, merger,
consolidation or
<PAGE>
otherwise, of the business, stock or assets of any corporation, firm or
association.
Section 7.5 - Titles
- - ----------- ------
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of the Plan.
Section 7.6 - Conformity to Securities Laws
- - ----------- -----------------------------
The Plan is intended to conform to the extent necessary with all provisions
of the Securities Act and the Exchange Act and any and all regulations and rules
promulgated by the Securities and Exchange Commission thereunder, including
without limitation Rule 16b-3. Notwithstanding anything herein to the contrary,
the Plan shall be administered, and Options shall be granted and may be
exercised, only in such a manner as to conform to such laws, rules and
regulations. To the extent permitted by applicable law, the Plan and Options
granted hereunder shall be deemed amended to the extent necessary to conform to
such laws, rules and regulations.
* * * *
I hereby certify that the foregoing Plan was duly approved, and the
amendments therein adopted, by the Board of Directors of Micropolis Corporation
on September 16, 1993.
Executed on this 16th day of September, 1993.
_____________________________
Secretary
I hereby certify that the material amendment to the foregoing Plan was duly
approved by the stockholders of Micropolis Corporation on ________________,
1994.
Executed on this ______ day of ____________, 1994.
_____________________________
Secretary
