<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
MICROPOLIS CORPORATION
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
PRELIMINARY COPY
MICROPOLIS CORPORATION
21211 NORDHOFF STREET
CHATSWORTH, CALIFORNIA 91311
NOTICE AND PROXY STATEMENT
FOR ACTION TO BE TAKEN BY WRITTEN CONSENT
IN LIEU OF A MEETING OF STOCKHOLDERS
To Our Stockholders:
Attached hereto is a Proxy Statement which solicits the written consent of
the Stockholders of Micropolis Corporation, a Delaware corporation (the
"Company"), to authorize and approve an amendment to the Stock Option Plan for
Executive and Key Employees of Micropolis Corporation to increase the number
of shares of Common Stock authorized for issuance thereunder from 2,400,000 to
3,150,000. This proposed amendment is described in detail in the attached
Proxy Statement.
The Board of Directors has approved this amendment and is asking for
Stockholder approval by written consent in lieu of a meeting at this time
because the newly reorganized Compensation Committee of the Board wishes to
increase the emphasis on stock options in the compensation of the executive
and key employees of the Company. Attached to the Proxy Statement as Appendix
A is the Board of Directors' Consent Resolution which provides for approval of
this amendment. The next Annual Meeting of Stockholders of Micropolis
Corporation is expected to be held in April 1996 and the Committee wishes to
be able to award additional option grants earlier.
By Order of the Board of Directors
Ericson M. Dunstan
Secretary
Chatsworth, California
September 28, 1995
In order to ensure your representation in the action to be taken by
written consent you are requested to sign and date the enclosed proxy as
promptly as possible and return it in the enclosed envelope (to which no
postage need be affixed if mailed in the United States).
<PAGE>
PRELIMINARY COPY
MICROPOLIS CORPORATION
21211 NORDHOFF STREET
CHATSWORTH, CALIFORNIA 91311
PROXY STATEMENT
FOR STOCKHOLDER ACTION BY WRITTEN CONSENT
This Proxy Statement is furnished to the Stockholders by the Board of
Directors of Micropolis Corporation, a Delaware corporation (the "Company"),
for solicitation of the written consent of Stockholders to authorize and
approve an amendment (the "Amendment") to the Stock Option Plan for Executive
and Key Employees of Micropolis Corporation to increase the number of shares
of Common Stock authorized for issuance thereunder from 2,400,000 to
3,150,000. On September 14, 1995, the Board of Directors adopted, subject to
approval by the stockholders by written consent in lieu of a meeting of
stockholders, the proposed amendment. Attached to the Proxy Statement as
Appendix A is the Board of Directors' Consent Resolution which provides for
approval of this amendment.
It is anticipated that the mailing to stockholders of this Proxy Statement
and the enclosed consent card will commence on or about September 29, 1995.
The procedure for indicating approval of this Consent Resolution is described
in detail in this Proxy Statement.
GENERAL INFORMATION
BACKGROUND
At the Company's last Annual Meeting of Stockholders on April 26, 1995, the
Company substantially changed the composition of its Board of Directors, and
during 1995 there also has been significant changes in the Company's executive
officers. In comparison to March 1995, three of the four directors are new to
such service with the Company. This new Board also elected Mr. J. Larry Smart
as President and Chief Executive Officer on July 10, 1995. Mr. Mabon, the
Company's founder and President for 18 years, subsequently resigned as
Chairman of the Board on August 18, 1995.
The Compensation Committee of the Board of Directors believes that the
incentive-based proportion of the total compensation plan for key employees
should be greater than it has been in the past, and that such incentives
should be much more closely aligned with the delivery of increased shareholder
value.
The Compensation Committee of the Board of Directors has thus reviewed all
the Company's compensation plans, has made substantial option grants to the
Company's key employees, including Mr. Smart, and has determined that
additional option shares are required to help fill key vacancies for which the
Company is presently recruiting, and/or which may occur in the normal course
of business.
VOTING SHARES AND VOTING RIGHTS
Stockholders of record at the close of business on September 7, 1995 (the
"Record Date"), are entitled to execute the Consent Resolutions. There were
15,546,879 shares of Common Stock of the Company outstanding on that date.
Each share of the Common Stock is entitled to one vote. The approval of the
Amendment requires execution of the Consent Resolution by the holders of a
majority of the outstanding shares of the Common Stock of the Company.
The beneficial ownership of the Company's Common Stock by certain beneficial
owners and by each of the Company's directors, each of its five most highly-
compensated officers and all executive officers and directors as a group is
set forth below under "Security Ownership of Certain Beneficial Owners" and
"Security Ownership of Management."
SOLICITATION OF WRITTEN CONSENTS
Under the Company's By-Laws and Delaware law, any action which may be taken
at any annual or special meeting of the Stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent
1
<PAGE>
in writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. The matter being considered
by the Stockholders is being submitted for action by written consent, rather
than by votes cast at a meeting. Attached to this Proxy Statement as Appendix
A is the text of the Consent Resolution being submitted for Stockholder
adoption by written consent. The Consent Resolution provides for the approval
of the Amendment which is more fully described under the caption "PROPOSED
AMENDMENT TO THE STOCK OPTION PLAN FOR EXECUTIVE AND KEY EMPLOYEES OF
MICROPOLIS CORPORATION" below. The Consent Resolution will be effective on
November 3, 1995, if sufficient written consents thereto are received by that
date (the "Effective Date"). Written consents must be received by the Company
on or before November 3, 1995.
Stockholders are being requested to indicate approval of and consent to the
adoption of the Consent Resolution by executing the enclosed Consent Card and
by checking the box which corresponds to the action the Stockholder wishes to
take. FAILURE TO CHECK ANY OF THE BOXES WILL, IF THE CONSENT CARD HAS BEEN
SIGNED, CONSTITUTE APPROVAL AND CONSENT TO THE ADOPTION OF THE CONSENT
RESOLUTION. The text of the Consent Resolution has not been set out on the
Consent Card itself because of space limitations. Nevertheless, signing and
indicating approval on the Consent Card will be deemed to be written consent
to the adoption of the Consent Resolution.
Execution of the Consent Resolution by execution of the Consent Card will
constitute your approval, as a Stockholder of the Company, of the Amendment.
The discussion and description of this item in this Proxy Statement is
qualified in its entirety by reference to the full text of the Consent
Resolution. Stockholders who do not approve, and consent to the adoption, of
the Consent Resolution by execution of the Consent Card will nonetheless be
bound by the Consent Resolution if sufficient written consents are received by
the Company on or before the Effective Date to approve the Consent Resolution.
The Board of Directors requests that each Stockholder execute, date and mail
or deliver the Consent Card to D.F. King & Co., Inc., the Solicitor of the
Company, at the following address:
D.F. King & Co., Inc.
77 Water Street
New York, NY 10005-4495
An addressed envelope is provided for your convenience in returning the
Consent Card. Each Stockholder should indicate on the Consent Card the number
of shares of Common Stock which the Solicitor is voting. The Consent Card
should be returned as soon as possible for receipt no later than November 3,
1995.
The Company will pay the entire cost of the preparation and mailing of this
Proxy Statement and all other costs of this solicitation. Following the
initial mailing of this Proxy Statement, the Company and its agents may also
solicit proxies by mail, telephone, facsimile or in person; employees of the
Company who assist in such activities will not receive additional compensation
in connection therewith. D.F. King & Co., Inc. will receive approximately
$8,000 for their solicitation services.
REVOCATION OF WRITTEN CONSENTS
Any Consent Card executed and delivered by a Stockholder may be revoked by
delivering written notice of such revocation prior to the Effective Date to
the Company at the address set forth below. Consent Cards may not be revoked
after the Effective Date.
D.F. King & Co., Inc.
77 Water Street
New York, NY 10005-4495
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information, as of June 30, 1995,
with respect to those known by the Company to be beneficial owners of more
than five percent (5%) of the outstanding shares of the Company's Common
Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
------------------- -------------------- --------
<S> <C> <C>
Ryback Management Corporation(1) 1,980,500 13.7%
7711 Carondelet Avenue
Box 16900
St. Louis, Missouri 63105
State of Wisconsin Investment Board 1,466,000 9.6%
P.O. Box 7842
Madison, Wisconsin 53707
First Pacific Advisors 1,035,000 7.5%
11400 West Olympic Boulevard
Suite 1200
Los Angeles, California 90064
Richard C. Perry 1,150,000 5.9%
2635 Century Parkway, N.E.
Suite 1000
Atlanta, Georgia 30345
</TABLE>
--------
(1) Shares held in a fiduciary capacity by Ryback Management Corporation
and/or Lindner Fund, Inc. as of June 30, 1995. Amount beneficially owned:
1,427,300 shares held by Linder Fund, Inc., and 553,200 shares managed by
Ryback Management Corporation.
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SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding ownership of the
Company's Common Stock as of July 31, 1995 by Directors, by each of the named
Executive Officers and by all Executive Officers and Directors as a group:
<TABLE>
<CAPTION>
STOCK
TOTAL OPTIONS TOTAL
UNEXERCISED EXERCISEABLE COMMON AMOUNT OF
STOCK WITHIN 60 STOCK BENEFICIAL PERCENT
NAME OPTIONS DAYS(3) OWNED(1) OWNERSHIP(3)(4)(5) OF CLASS
---- ----------- ------------ -------- ------------------ --------
<S> <C> <C> <C> <C> <C>
DIRECTORS
J. Larry Smart......... 380,000 -- -- -- --
Ericson M. Dunstan..... 70,000 10,000 59,250 65,250 *
Chriss W. Street....... 30,000 -- 26,700 26,700 *
S. Kenneth Kannappan... 30,000 -- -- -- --
Stuart P. Mabon(1)..... 83,334 83,334 246,000 329,334 2.1%
EXECUTIVE OFFICERS(2)
Taroon C. Kamdar....... 125,000 59,000 -- 59,000 *
All Executive Officers
and Directors as a
Group (11 persons, in-
cluding those named).. 936,334 191,334 349,741 541,075 3.4%
</TABLE>
--------
*Less than 1%.
(1) Mr. Mabon resigned from the Board of Directors on August 18, 1995.
(2) Pursuant to applicable regulations of the Securities and Exchange
Commission, information is presented with respect to certain individuals
who were executive officers as of the end of the Company's last fiscal
year. Information regarding the security ownership of the following named
executive officers at the end of the previous fiscal year is not
presented, because such individuals are no longer executive officers of
the Company, and the Company does not have access to their share
beneficial ownership records: Joel A. Appelbaum, Nigel C. McLeod, Dale J.
Bartos.
(3) Information with respect to beneficial ownership is based on information
furnished to the Company by each person included in this table. Except as
indicated in the notes to the table, each stockholder included in the
table has sole voting and dispositive power with respect to the shares
shown to be beneficially owned by the stockholder.
(4) All of the stockholders included in this table reside in California.
California has community property laws under which the spouse of a
stockholder in whose name securities are registered may be entitled to
share in the management of their community property which may include the
right to vote or dispose of the shares.
(5) Includes installments of options to purchase shares of Common Stock that
were exercisable on, or within 60 days after, July 31, 1995.
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COMPENSATION OF DIRECTORS
Each director who is not an officer of the Company is paid a retainer fee of
$3,000 per quarter, an attendance fee of $2,000 per Board meeting attended,
and a daily attendance fee of $1,000 for all committee meetings attended.
In October 1987, the Board of Directors adopted the Stock Option Plan for
Directors of Micropolis Corporation (the "Directors Plan") which was approved
by the Stockholders of the Company in April 1988. As of June 30, 1995, there
were options outstanding to purchase an aggregate of 201,667 shares of Common
Stock. At the close of business on the date of each annual meeting of the
Stockholders of the Company, each Director of the Company, who is not an
employee of the Company or of any affiliate of the Company and who is
reelected or continuing as a Director, is automatically granted an option to
purchase 10,000 shares of the Company's Common Stock. In addition, when a
person is initially elected to the Board, at an annual meeting of stockholders
or at any other time, each such new Director who is not an employee of the
Company or of any affiliate of the Company is automatically granted an option
to purchase 30,000 shares of the Company's Common Stock. Options under the
Directors Plan have an exercise price equal to the fair market value of the
shares covered by the option on the date of grant, have a term of five years
and become exercisable in three equal annual installments commencing one year
after the date of grant.
EXECUTIVE COMPENSATION
CHIEF EXECUTIVE OFFICER 1995 COMPENSATION
The Company has an Employment Agreement with Mr. Smart effective July 10,
1995 which provides for annual salary of $350,000, a cash bonus program
requiring the achievement of certain key objectives, and the grant of an
option to purchase 350,000 shares of the Company's Common Stock, pursuant to
the Stock Option Plan for Executive and Key Employees of Micropolis
Corporation.
CASH AND OTHER COMPENSATION
The following table and accompanying notes show, for the Chief Executive
Officer and the other four most highly-compensated executive officers of the
Company for 1994, the compensation paid by the Company and its subsidiaries to
such persons for services in all capacities during 1994 and the preceding two
fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- ------------
OTHER OPTIONS
NAME AND ANNUAL GRANTED ALL OTHER
PRINCIPAL POSITION YEAR SALARY(5) BONUS COMPENSATION(6) (SHARES) COMPENSATION(7)
------------------ ---- --------- ------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Stuart P. Mabon, 1994 $292,136 $ -- $ -- 20,000 $11,798
President and Chairman 1993 296,871 22,860 -- 50,000 3,933
of the Board(1) 1992 273,321 127,940 -- -- 13,711
Taroon C. Kamdar, 1994 200,044 25,000 2,060 25,000 48,075
President, Asia 1993 203,410 91,170 2,612 -- --
Pacific Division 1992 175,032 219,406 6,318 10,000 4,364
Nigel C. Macleod, 1994 162,925 89,333 -- 5,000 --
Vice President-- 1993 157,993 32,000 -- -- --
Engineering(2) 1992 53,658 -- -- 30,000 --
Joel A. Appelbaum, 1994 165,421 50,000 -- 60,000 --
Executive
Vice President--Sales
and Marketing(3)
Dale J. Bartos, Senior 1994 185,484 15,000 -- 15,000 --
Vice President-- 1993 189,051 9,525 -- -- --
Finance and Chief 1992 179,072 71,644 -- 7,000 4,364
Financial Officer(4)
</TABLE>
--------
(1) Mr. Smart was elected by the Board of Directors to the position of
President and Chief Executive Officer on July 10, 1995; Mr. Mabon later
resigned as the Company's Chairman.
(2) Bonus amounts for Mr. Macleod in 1993 and 1994 are in accordance with his
employment contract with the Company dated August 10, 1992. Mr. MacLeod
resigned from the Company on July 28, 1995.
5
<PAGE>
(3) Mr. Appelbaum resigned from the Company on March 2, 1995.
(4) Mr. Bartos resigned from the Company on March 17, 1995.
(5) Includes amounts contributed by each person named through salary reduction
under the Micropolis Corporation Employee Savings and Retirement Plan (the
"Section 401(k) Plan"). The 1993 salary year included 53 weeks.
(6) Amounts represent reimbursement during the fiscal year for the payment of
taxes.
(7) Amounts for Mr. Mabon include payoff of accrued vacation of $11,798,
$3,933 and $9,347 in 1994, 1993 and 1992, respectively. Amounts for Mr.
Kamdar include cash payment of $48,075 relating to his overseas
assignment. Amounts in 1992 include the Company's contributions of $4,364
to the Section 401(k) Plan on behalf of Mr. Mabon, Mr. Kamdar and Mr.
Bartos.
The Company has a severance pay agreement with Mr. Kamdar and had a
severance pay agreement with Mr. Appelbaum which provide for payments to such
persons in the event their employment is terminated by the Company for reasons
other than cause. At December 30, 1994, the aggregate commitments pursuant to
the agreements were approximately $100,000 and $200,000 for Mr. Kamdar and Mr.
Appelbaum, respectively. The commitment to Mr. Kamdar is for six months base
salary and performance bonus. The commitment for Mr. Appelbaum during his
first year of employment was for one year base salary. After his first year of
employment, the commitment to Mr. Appelbaum was for six months base salary.
STOCK OPTIONS
In October 1987, the Board of Directors adopted the Stock Option Plan for
Executive and Key Employees of Micropolis Corporation (the "Option Plan"). The
Option Plan was approved by stockholders in April 1988. The Option Plan is
administered by the Compensation Committee of the Board of Directors of the
Company. Under the Option Plan, full-time employees of the Company and of any
subsidiary of the Company are eligible to receive grants of non-qualified
stock options and incentive stock options (as defined in Section 422 of the
Internal Revenue Code (the "Code")). Further information about the Option Plan
is contained in the section entitled "Proposed Amendment to the Stock Option
Plan for Executive and Key Employees of Micropolis Corporation."
The following table sets forth information regarding stock options granted
in 1994 to each of the named executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
GRANT DATE
PRESENT
INDIVIDUAL GRANTS VALUE(4)
---------------------------------------------------------------- ---------------
% OF TOTAL
OPTIONS
OPTIONS GRANTED GRANTED TO EXERCISE EXPIRATION
NAME (SHARES)(3) EMPLOYEES PRICE DATE 5% 10%
---- --------------- ---------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Stuart P. Mabon. 20,000 4.2% $5.625 10/9/95 $ -- $ --
Taroon C.
Kamdar......... 25,000 5.2% $5.625 2/16/99 $38,852 $85,853
Nigel C. Mac-
leod(1)........ 5,000 1.0% $5.625 Expired $ -- $ --
Joel A. Appel-
baum(2)........ 60,000 12.6% $5.625 Expired $ -- $ --
Dale J. Bar-
tos(2)......... 15,000 3.1% $5.625 Expired $ -- $ --
</TABLE>
--------
(1) Mr. Macleod acquired 1,000 shares of Common Stock on exercise on July 31,
1995. His remaining options expired unexercised.
(2) Options expired unexercised.
(3) The per share exercise price of all options granted is the fair market
value of the Company's Common Stock on the date of grant. Options have a
term of five years and become exercisable in three to five equal
installments, each of which accrues at the end of each year after the
grant date except for the fifth installment, which accrues 60 days before
the expiration date.
(4) The potential realizable value is calculated from the exercise price per
share, assuming the market price of the Company's Common Stock appreciates
in value at the stated percentage rate from the date of grant to the
expiration date. Actual gains, if any, are dependent on the future market
price of the Common Stock.
6
<PAGE>
The following table sets forth information regarding stock option exercises
and year-end stock option values for each of the named executive officers for
1994.
OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUES AT DECEMBER 30, 1994
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED 'IN-THE-MONEY'
STOCK OPTIONS STOCK OPTIONS(1)
------------------------- -------------------------
SHARES
ACQUIRED VALUE
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stuart P. Mabon......... -- -- 66,667 53,333 $79,201 $143,359
Taroon C. Kamdar........ -- -- 41,500 43,500 $41,615 $ 98,741
Nigel C. Macleod........ -- -- 12,000 23,000 $ 5,256 $ 24,449
Joel A. Appelbaum....... -- -- -- 60,000 -- $198,780
Dale J. Bartos.......... 18,000 $95,634 17,800 24,200 $14,171 $ 56,100
</TABLE>
--------
(1) Market value of underlying Common Stock on date of exercise or fiscal
year-end, minus the option exercise price. The share price as of December
30, 1994 was $8.938.
On February 25, 1993, as an inducement to his employment, the Company loaned
Mr. Macleod the $180,000 to facilitate his relocation to Southern California.
As of December 30, 1994, $120,000 was outstanding on the loan. The loan was
free of interest during Mr. Macleod's employment by the Company and after such
time interest accrues at 9% per annum. The loan is secured by Mr. Macleod's
home in Southern California.
PROPOSED AMENDMENT TO THE STOCK OPTION PLAN
FOR EXECUTIVE AND KEY EMPLOYEES
OF MICROPOLIS CORPORATION
The Stockholders of the Company will be asked to approve an amendment to the
Stock Option Plan for Executive and Key Employees of Micropolis Corporation
("Option Plan"). The Option Plan was adopted by the Board of Directors in
October 1987 and approved by the stockholders in April 1988. The proposed
amendment will increase from 2,400,000 to 3,309,247 the number of shares
authorized for issuance on exercise of options under the Option Plan. The
terms of the proposed amendment were approved by the Board of Directors at a
meeting of the Board on September 14, 1995.
The principal features of the Option Plan are summarized below, but the
summary is qualified in its entirety by reference to the Option Plan itself.
Copies of the Option Plan can be obtained by making written request of the
Company's Secretary.
GENERAL
The Option Plan authorizes the granting of "incentive stock options," as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and non-qualified stock options. The Option Plan is not subject to
the provisions of the Employee Retirement Income Security Act of 1974
("ERISA") and is not a qualified plan under Section 401(a) of the Code.
Proceeds received by the Company from the sale of the Company's Common Stock
pursuant to the exercise of options will be used for general corporate
purposes. The purposes of the Option Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to certain key employees of the Company or any parent or
subsidiary of the Company which now exists or hereafter is organized or
acquired by or acquires the Company, and to promote the success of the
Company.
Options granted under the Option Plan are evidenced by written Stock Option
Agreements between the optionee and the Company. Each person receiving an
option under the Option Plan is required by the terms of
7
<PAGE>
the Option Plan (as consideration for the option and as an inducement to the
Company to grant the option) to agree in writing that he will remain in the
employ of the Company or one of its subsidiaries for a period of at least one
year following the date the option is granted, without, however, obligating
the Company or its subsidiaries to continue the employment relationship with
the optionee during such period. Stock Option Agreements evidencing options
granted under the Option Plan must be consistent with the Option Plan but need
not contain identical provisions.
SHARES SUBJECT TO THE OPTION PLAN
A maximum of 3,309,247 shares of the Company's Common Stock may be issued
upon exercise of options granted under the Option Plan, subject to the
approval of the amendment to the Option Plan by the Stockholders. Subject to
such overall limitation, there is no restriction as to the maximum number of
options that may be granted to any optionee or as to the maximum number of
shares which may be issued to any optionee, except that the aggregate fair
market value of the stock (determined as of the date of grant) with respect to
which incentive stock options are exercisable for the first time by any
optionee during any calendar year (under the Option Plan and all other
incentive stock option plans of the Company and its subsidiaries) shall not
exceed $100,000. The Option Plan provides for appropriate adjustments in the
number and kind of shares subject to the Option Plan and to outstanding
options in the event of a stock split, stock dividend or certain other similar
changes in the Company's Common Stock and in the event of a merger,
consolidation or certain other types of recapitalizations.
As a condition to the grant of an option, an optionee may be required to
surrender for cancellation some or all of the unexercised options previously
granted to him under the Option Plan. Options conditioned upon such surrender
may have a lower or higher option price than the option price of the
surrendered option, may cover the same (or a lesser or greater) number of
shares as the surrendered option and may contain such other terms as may be
determined without regard to the terms of the surrendered option.
In the event options granted under the Option Plan expire or terminate, the
unpurchased shares of Common Stock covered thereby will become available for
the grant of additional options.
PARTICIPATION IN THE OPTION PLAN
The Compensation Committee has determined that additional shares authorized
for issuance on exercise of options under the Option Plan are required to help
fill key vacancies for which the Company is presently recruiting and the
Compensation Committee intends to make such option grants a meaningful portion
of the compensation of these new employees.
Any executive or other key employee of the Company and of any subsidiary of
the Company (a total of approximately 378 employees out of a total of 1,965 as
of July 31, 1995) is eligible for participation in the Option Plan, including
any employee who is a director of the Company. No option may be granted to any
employee who owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or its subsidiaries.
ADMINISTRATION OF THE OPTION PLAN
The Option Plan is administered by the Compensation Committee of the Board
of Directors of the Company. The Committee is authorized to determine which
individuals are executive or key employees, to select from among such
individuals the persons to whom options should be granted, to determine the
number of shares to be subject to such options, to designate whether options
should be incentive or non-qualified stock options and to establish the terms
and conditions of such options consistent with the Option Plan. The Committee
is also authorized to adopt, amend and rescind rules relating to the
administration of the Option Plan and to interpret the terms of options. The
costs of administering the Option Plan are paid by the Company.
EXERCISE OF OPTIONS
Options under the Option Plan are exercisable in installments in such
amounts (which may be cumulative) as the Committee shall provide in the terms
of each Stock Option Agreement. Subject to the following, the expiration date,
maximum number of shares purchasable, the conditions to exercise and the other
provisions of individual Stock Option Agreements are established by the
Committee at the time of grant. Option terms may
8
<PAGE>
not exceed ten years. No option may be exercised in whole or in part during
the first six months after such option is granted. No portion of an option
which is unexercisable upon the termination of employment of the optionee for
any reason shall thereafter become exercisable.
Generally, and subject to the terms of the optionee's individual Stock
Option Agreement, options which are exercisable upon a termination of an
optionee's employment with the Company or its subsidiaries expire 30 days
following such termination. However, options may be exercised within one year
after an optionee becomes permanently and totally disabled and, in the event
the optionee's employment is terminated by reason of his death or in the event
the optionee dies within 30 days following his termination, the option may be
exercised within one year after death by the executors or administrators of
the optionee's estate or his successors by will or the laws of descent and
distribution.
The exercise prices of options are fixed by the Committee, but may not be
less than 100% of the fair market value of the Company's Common Stock on the
date of grant. To exercise an option, the optionee must deliver to the Company
a written notice of exercise and full payment in cash of the exercise price
for the shares as to which the option is being exercised (with the consent of
the Committee, shares of the Company's Common Stock owned by the optionee or
issuable upon exercise of the option, valued at fair market value, may also be
used to make all or part of such payment).
ASSIGNMENT
No option granted under the Option Plan may be assigned or transferred by
the optionee except upon death. During the lifetime of the optionee, the
option may only be exercised by him.
MERGER OR CONSOLIDATION
In its absolute discretion, and on such terms and conditions as it deems
appropriate, the Committee may provide by the terms of any Stock Option
Agreement that such option cannot be exercised after the merger or
consolidation of the Company with or into another corporation, the acquisition
by another person or entity of all or substantially all of the Company's
assets or 80% or more of its outstanding voting stock, or the dissolution or
liquidation of the Company. The Committee may also provide (subject to certain
limitations relating to incentive stock options under the Code as discussed
above) either by the terms of a Stock Option Agreement or by resolution
adopted prior to the occurrence of such merger, consolidation, acquisition,
liquidation or dissolution, that, for some period prior to such event, such
option shall be exercisable as to all shares covered thereby.
TERM OF OPTION PLAN AND AMENDMENTS
The Option Plan expires on October 28, 1997 unless sooner terminated by the
Board of Directors. The Board may at any time amend or otherwise modify,
suspend or terminate the Option Plan, except that any amendment which would
(i) increase the number of shares for which options may be granted (except
pursuant to adjustments provided for in the Option Plan); (ii) change the
standards for eligibility for participants; (iii) reduce the minimum price for
which options may be granted; or (iv) extend the period during which the
Option Plan is in effect, must be approved by the stockholders.
OPTIONS OUTSTANDING UNDER THE OPTION PLAN
As of July 31, 1995 (subject to the approval of the amendment to the Option
Plan by the stockholders), there were options outstanding to purchase an
aggregate of 1,619,460 shares of Common Stock and there were 753,931 shares
available for future grant under the Option Plan. The market value of the
shares of Common Stock represented by options outstanding under the Option
Plan was $10,728,923 as of July 31, 1995. No options may be granted under the
Option Plan to purchase in excess of 2,400,000 shares of Common Stock unless
the stockholders of the Company approve the amendment to the Option Plan.
FEDERAL INCOME TAX CONSEQUENCES
The Federal income tax discussion set forth below is intended for general
information only. State and local income tax consequences are not discussed,
and may vary from locality to locality.
9
<PAGE>
Non-Qualified Stock Options. For Federal income tax purposes, the recipient
of non-qualified stock options granted under the Option Plan will not realize
taxable income upon the grant of the option, nor will the Company then be
entitled to any deduction. Generally, upon exercise of non-qualified stock
options the optionee will realize ordinary income and, subject to Section
162(m) of the Code, the Company will be entitled to a deduction in an amount
equal to the difference between the option exercise price and the fair market
value of the stock at the date of exercise. The Company will be required to
withhold taxes on the ordinary income realized by an optionee upon exercise of
non-qualified stock options in order to be entitled to the tax deduction. An
optionee's basis for the stock for purposes of determining his gain or loss on
his subsequent disposition of the shares generally will be the fair market
value of the stock on the date of exercise of the non-qualified stock option.
Incentive Stock Options. There is no taxable income to an employee when an
incentive stock option is granted to him or when that option is exercised;
however, generally the amount by which the fair market value of the shares at
the time of exercise exceeds the option price will be included in the
optionee's alternative minimum taxable income upon exercise unless the stock
acquired is not transferable or is subject to a substantial risk of
forfeiture, in which case no amount is included in alternative minimum taxable
income until the stock is transferable or there is no longer a substantial
risk of forfeiture. If stock received on exercise of an incentive stock option
is disposed of in the same year the option was exercised, and the amount
realized is less than the stock's fair market value at the time of exercise,
the amount includible in alternative minimum taxable income does not exceed
the amount realized on the sale or exchange of the stock, less the taxpayer's
basis in such stock. Gain realized by an optionee upon sale of stock issued on
exercise of an incentive stock option is taxable as long-term capital gain,
and no tax deduction is available to the Company, unless the optionee disposes
of the shares within two years after the date of grant of the option or within
one year of the date the shares were transferred to the optionee. In such
event the difference between the option exercise price and the fair market
value of the shares on the date of the option's exercise will be taxed at
ordinary income rates, and, subject to Section 162(m) of the Code, the Company
will be entitled to a deduction to the extent the employee must recognize
ordinary income.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The affirmative vote of a majority of the shares outstanding on the Record
Date is required to approve the adoption of this amendment. The Board of
Directors has adopted the amendment and recommends a vote FOR approval of the
amendment to the Option Plan which increases the number of shares authorized
for issuance upon exercise of options granted under the Option Plan from
2,400,000 to 3,150,000.
ALL STOCKHOLDERS ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ACCOM-
PANYING CONSENT CARD IN THE ENCLOSED ENVELOPE.
ERICSON M. DUNSTAN
Secretary
DATED: September 28, 1995
10
<PAGE>
APPENDIX A
CONSENT RESOLUTION
WHEREAS an amendment to the Stock Option Plan for Executive and Key
Employees of Micropolis Corporation to increase the aggregate number of shares
of the Corporation's authorized but unissued Common Stock that may be issued
upon exercise of options granted thereunder from 2,400,000 to 3,150,000 was
approved by the Board of Directors of Micropolis Corporation on September 14,
1995, and the Board of Directors has directed that such amendment be submitted
to the stockholders of the Corporation for their approval or disapproval with
the recommendation of the Board of Directors to the stockholders that they
approve such amendment.
A-1
<PAGE>
PRELIMINARY COPY
THIS CONSENT IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
MICROPOLIS CORPORATION
CONSENT CARD FOR ACTION BY WRITTEN CONSENT OF STOCKHOLDERS
TO BE EFFECTIVE NOVEMBER 3, 1995
Proposed Consent Resolution approving amendment to the Stock Option Plan for
Executive and Key Employees of Micropolis Corporation.
FOR [_] AGAINST [_] ABSTAIN [_]
(continued and to be signed on other side)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE ABOVE PROPOSAL.
FAILURE TO CHECK ANY OF THE BOXES WILL, IF THIS CONSENT CARD HAS BEEN SIGNED
AND DATED, CONSTITUTE APPROVAL OF AND CONSENT TO THE ADOPTION OF THE CONSENT
RESOLUTION.
-------------- ----------------
Consent Card Number of
Number Shares
Dated: ......................, 1995
-----------------------------------
-----------------------------------
(Signature(s) of Stockholder(s))
(NOTE--Please sign exactly as your
name or names appear on the label.
If more than one name appears, all
persons so designated should sign.
When signing in a representative
capacity, please give your full
title.)
Please return promptly in the enclosed envelope,
which requires no postage if mailed in the U.S.A.
DO NOT FOLD, STAPLE OR MUTILATE
<PAGE>
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 3,150,000.
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.
* * * *
