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 June 1, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-17932
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Micron Electronics, Inc.
------------------------------------
(Exact name as specified in charter)
Minnesota 41-1404301
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
900 E. Karcher Road, Nampa, Idaho 83687
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (208) 465-3434
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Indicate by check mark whether the registrant (1) has filed all
reports required to the filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
--- ---
The number of outstanding shares of the registrant's Common Stock
as of June 16, 1995 was 91,421,615.
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
MICRON ELECTRONICS, INC.
Balance Sheets
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 1, September 1,
As of 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and equivalents $ 37,179 $ 35,048
Liquid investments - 2,181
Receivables 97,364 50,797
Inventories 97,778 31,110
Deferred income taxes 13,572 1,156
Other current assets 1,911 588
-------- --------
Total current assets 247,804 120,880
Property, plant and equipment, net 51,515 30,746
Goodwill, net 13,904 -
Other assets 6,142 138
-------- --------
Total assets $319,365 $151,764
======== ========
Liabilities and shareholders' equity
Accounts payable and accrued expenses $145,484 $ 72,290
Accrued licenses and royalties 13,613 1,661
Current portion of long-term debt 1,021 1,023
-------- --------
Total current liabilities 160,118 74,974
Long-term debt 6,056 6,822
Deferred income taxes - 1,081
Other liabilities 852 718
-------- --------
Total liabilities 167,026 83,595
Commitments and contingencies
Common stock 914 550
Additional paid-in capital 58,239 14,662
Retained earnings 93,186 52,957
-------- --------
Total shareholders' equity 152,339 68,169
-------- --------
Total liabilities and shareholders'
equity $319,365 $151,764
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE>
MICRON ELECTRONICS, INC.
Statements of Operations
(Amounts in thousands, except for per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the For the nine
quarter ended months ended
------------------ ------------------
June 1, June 2, June 1, June 2,
1995 1994 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $271,477 $106,249 $596,031 $278,634
Cost of goods sold 221,695 83,494 476,732 220,475
-------- -------- -------- --------
Gross margin 49,782 22,755 119,299 58,159
Selling, general and
administrative 23,225 7,051 46,468 16,943
Research and development 585 155 1,090 398
-------- -------- -------- --------
Operating income 25,972 15,549 71,741 40,818
Interest income, net 620 168 1,199 365
-------- -------- -------- --------
Income before income taxes 26,592 15,717 72,940 41,183
Income tax provision 10,987 6,220 28,811 16,056
-------- -------- -------- --------
Net income $ 15,605 $ 9,497 $ 44,129 $ 25,127
======== ======== ======== ========
Earnings per share $ 0.17 $ 0.11 $ 0.51 $ 0.37
Number of shares used in per
share calculations 89,669 83,587 86,581 68,419
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
MICRON ELECTRONICS, INC.
Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
-------------------------
June 1, June 2,
1995 1994
- ------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 44,129 $ 25,127
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 7,317 3,116
Amortization 679 25
Change in assets and liabilities, net
of effects of merger transaction:
Increase in receivables (24,669) (17,060)
Increase in inventories (39,121) (12,872)
Increase in accounts payable and
accrued expenses 34,786 16,238
Increase (decrease) in deferred
income taxes (3,965) 569
Other (1,453) 148
-------- --------
Net cash provided by operating activities 17,703 15,291
Cash flows from investing activities
Property, plant and equipment expenditures (29,075) (12,268)
Proceeds from sale of equipment 221 468
Purchase of investments and securities (3,165) -
Proceeds from sale and maturity of investments 5,400 -
Cash acquired in merger transaction 14,060 -
Other (427) (36)
-------- --------
Net cash used for investing activities (12,986) (11,836)
======== ========
Cash flows from financing activities
Repayments of debt (767) (1,413)
Proceeds from issuance of common stock 344 4,217
Stock repurchases (882) (1)
Other (1,281) -
-------- --------
Net cash (used for) provided by financing
activities (2,586) 2,803
-------- --------
Net increase in cash and equivalents 2,131 6,258
Cash and equivalents at beginning of period 35,048 21,684
-------- --------
Cash and equivalents at end of period $ 37,179 $ 27,942
======== ========
Supplemental disclosures
Noncash investing and financing activities:
Assets acquired, net of cash and
liabilities assumed in merger
transaction $ 25,998 $ -
Treasury stock retired 882 -
Assets acquired in exchange for debt - 186
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
MICRON ELECTRONICS, INC.
Notes to Financial Statements
(Tabular dollar amounts in thousands, except for per share amounts)
1. Unaudited interim financial statements
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments, consisting solely of normal recurring
adjustments, necessary to present fairly the financial position of Micron
Electronics, Inc. and subsidiaries (the "Company") and their results of
operations and cash flows.
The accompanying unaudited financial statements and notes should be
read in conjunction with the audited financial statements and notes
thereto included in the ZEOS International, Ltd. Registration Statement
on Form S-4 and Joint Proxy Statement dated March 13, 1995 and the ZEOS
International, Ltd. Annual Report on Form 10-K for the year ended
December 31, 1994.
2. The merger
A. On April 7, 1995, Micron Computer, Inc. ("MCI") and Micron Custom
Manufacturing Services, Inc. ("MCMS"), Subsidiaries of Micron Technology,
Inc. ("MTI"), merged with and into ZEOS International, Ltd. ("ZEOS").
Pursuant to the terms of the merger, ZEOS issued approximately 82.5
million shares of its common stock in exchange for all of the outstanding
shares of MCI and MCMS and the name of the surviving corporation was
changed to Micron Electronics, Inc. ("MEI"). The merger resulted in a
change of control of approximately 89% of ZEOS wherein, assuming exercise
of all outstanding options, (a) MTI owns an approximate 79% interest in
ZEOS, and (b) the other shareholders of MCI and MCMS own an approximate
10% interest in ZEOS. The merger has been accounted for as a purchase of
ZEOS by MCI and MCMS. A new basis of accounting was established for the
assets and liabilities of ZEOS to the extent of the change of control.
The new basis reflects the allocation of the approximate $39.1 million
purchase price to the ZEOS assets and liabilities on the basis of their
fair values. Goodwill of approximately $14.6 million was recorded to the
extent the purchase price exceeded the fair value of the identifiable net
assets for which a change of control occurred. Goodwill is amortized on
a straight line basis over three years.
MEI's fiscal year is a 52 or 53 week period ending on the Thursday
closest to August 31, which is the fiscal year of the Micron entities.
Subsequent to the merger, the financial statements of MEI reflect the
combined financial position and results of operations of ZEOS, MCI and
MCMS based on the new basis of accounting for ZEOS and the historical
cost basis of MCI and MCMS. Prior to April 7, 1995, the financial
position and results of operations of MEI include only the combined
financial position and results of operations of MCI and MCMS.
The following pro forma financial information presents the results of
operations of MEI for the quarter and nine month periods ended June 1,
1995 and June 2, 1994, as if the merger had occurred at the beginning of
the periods, after giving effect to pro forma adjustments, including
amortization of goodwill, certain product and process technology costs
and related income tax effects.
<TABLE>
<CAPTION>
Quarter ended Nine Months ended
------------------- -------------------
June 1, June 2, June 1, June 2,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $307,909 $170,886 $785,050 $440,891
Gross margin 55,325 23,658 145,347 69,365
Net income 16,690 4,099 45,001 14,525
Earnings per share 0.18 0.04 0.48 0.19
</TABLE>
The pro forma financial information is provided for illustrative
purposes and is not necessarily indicative of the combined results of
operations that would have actually occurred for such periods nor does
it represent a forecast of results of operations for any future periods.
4
<PAGE>
<TABLE>
<CAPTION>
3. Receivables June 1, September 1,
1995 1994
- ------------------------------------------------------------------------
<S> <C> <C>
Trade receivables $102,614 $ 51,715
Other 1,381 1,507
Allowance for doubtful accounts (4,151) (1,760)
Allowance for returns and discounts (2,480) (665)
-------- --------
$ 97,364 $ 50,797
======== ========
4. Inventories June 1, September 1,
1995 1994
- ------------------------------------------------------------------------
Finished goods $ 12,547 $ 3,464
Work in process 10,909 4,333
Raw materials and supplies 74,322 23,313
-------- --------
$ 97,778 $ 31,110
======== ========
5. Property, plant and equipment, net June 1, September 1,
1995 1994
- ------------------------------------------------------------------------
Land $ 987 $ 987
Buildings 15,460 9,202
Equipment 65,155 33,024
Construction in progress 3,401 3,161
-------- --------
85,003 46,374
Less accumulated depreciation (33,488) (15,628)
-------- --------
$ 51,515 $ 30,746
======== ========
6. Accounts payable and accrued expense June 1, September 1,
1995 1994
- ------------------------------------------------------------------------
Accounts payable $105,265 $ 59,800
Salaries, wages and benefits 20,080 4,335
Other 20,139 8,155
-------- --------
$145,484 $ 72,290
======== ========
5
<PAGE>
7. Shareholders' equity June 1, September 1,
1995 1994
- ------------------------------------------------------------------------
Common stock:
MEI common stock, $.01 par value,
150,000,000 shares authorized,
91,421,615 shares issued and
outstanding $ 914 $ -
MCI common stock, no par value:
Class A - 7,900,000 shares
authorized, 987,500 shares
issued and outstanding - 79
Class B - 2,100,000 shares
authorized, 469,940 shares
issued and outstanding - 286
MCMS common stock, $.10 par value,
10,000,000 shares authorized,
1,849,481 shares issued and
outstanding - 185
-------- --------
$ 914 $ 550
======== ========
Additional paid-in-capital:
MEI $ 58,239 $ -
MCI - 6
MCMS - 14,656
-------- --------
$ 58,239 $ 14,662
======== ========
Retained earnings:
MEI $ 93,186 $ -
MCI - 20,959
MCMS - 31,998
-------- --------
$ 93,186 $ 52,957
======== ========
</TABLE>
8. Income taxes
During the third quarter of fiscal 1995, the Company changed its
estimate of the effective tax rate for fiscal 1995 to 39.5%. The
effective income tax rate for the nine months ended June 1, 1995 and June
2, 1994 reflects primarily the statutory federal income tax rate and the
net effect of state income taxes.
9. Earnings per share
Earnings per share is computed using the weighted average number of
common and common equivalent shares outstanding, adjusted to give effect
to the merger. Common equivalent shares result from the assumed exercise
of outstanding stock options and affect earnings per share when they have
a dilutive effect.
10. Commitments
As of June 1, 1995, the Company had commitments of approximately $6.3
million for equipment purchases and $3.6 million for the construction of
a building.
6
<PAGE>
11. Contingencies
Periodically, MEI is made aware that technology used by MEI may
infringe on product or process technology rights held by others. MEI has
accrued a liability and charged operations for the estimated costs of
settlement or adjudication of asserted and unasserted claims for
infringement prior to the balance sheet date. Management can give no
assurance that the amounts accrued are adequate and cannot estimate the
range of additional possible loss, if any, from resolution of these
uncertainties. Resolution of whether MEI has infringed on valid rights
held by others may have a material adverse effect on MEI's financial
position or results of operations, and may require material changes in
production processes and products.
MEI is currently a party to various legal actions arising out of the
normal course of business, none of which is expected to have a material
effect on MEI's financial position or results of operations.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Micron Electronics, Inc. ("MEI" or the "Company") completed its
third fiscal quarter on June 1, 1995. On April 7, 1995, the Company was
formed through the merger of Micron Computer, Inc. ("MCI") and Micron
Custom Manufacturing Services, Inc. ("MCMS") with ZEOS International,
Ltd. ("ZEOS"). The Company's 1995 fiscal year, which corresponds with
the fiscal year of the Micron entities, is the 52 week period ending
August 31, 1995. Accordingly, the Company's results of operations are
for the quarter and nine month period ended June 1, 1995, as compared to
the results for the same periods ended June 2, 1994, and reflect the
merged operations of the Company subsequent to April 7, 1995, and the
combined results of operations of only MCI and MCMS prior thereto. All
dollar amounts presented are in thousands. The following is a summary of
the results of operations.
<TABLE>
<CAPTION>
Quarter ended Nine months ended
----------------------------------- -----------------------------------
June 1, 1995 June 2, 1994 June 1, 1995 June 2, 1994
------------ ------------ ------------ ------------
Percent Percent Percent Percent
Amount of Sales Amount of Sales Amount of Sales Amount of Sales
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $271,477 100.0% $106,249 100.0% $596,031 100.0% $278,634 100.0%
Cost of goods sold 221,695 81.7% 83,494 78.6% 476,732 80.0% 220,475 79.1%
Gross margin 49,782 18.3% 22,755 21.4% 119,299 20.0% 58,159 20.9%
Selling, general, and
administrative expenses 23,225 8.6% 7,051 6.6% 46,468 7.8% 16,943 6.1%
Net income 15,605 5.7% 9,497 8.9% 44,129 7.4% 25,127 9.0%
</TABLE>
Overview
MEI is involved in developing, marketing and supporting a broad
range of electronic computing products including: (i) developing,
marketing, manufacturing and supporting personal computers, (ii) contract
manufacturing of custom, complex printed circuit board assemblies, (iii)
recovering, testing and marketing random access memory ("RAM") components
which do not meet full industry specifications ("nonstandard RAM
components"), and (iv) assembling and marketing peripheral add-on memory
products.
MEI develops, markets, manufactures and supports a broad line of
memory intensive, high performance desktop, tower and notebook PCs and
related hardware and software products, under both the Micron and ZEOS
brand names. MEI markets its line of PCs directly to businesses,
educational institutions, government agencies and the general public
principally through advertisements in personal computer and trade
publications. MEI's lines of PCs are based primarily on the Intel
80486SX, 80486DX, 80486DX2, DX4 and Pentium microprocessors. MEI
supports its products through telephone based technical support and
factory service.
MEI manufactures custom, complex printed circuit board assemblies.
MEI provides a full range of turnkey contract manufacturing services,
including the assembly and test of complex printed circuit boards and
memory modules, design layout and product engineering, material
procurement, inventory management, quality assurance and just-in-time
delivery.
MEI's component recovery operation involves testing and grading
nonstandard RAM components obtained from MTI or purchased from other
semiconductor manufacturers to their highest functional level and
identifying cost effective applications for such components. MEI markets
nonstandard RAM components for a wide variety of applications such as PCs
and peripherals, telephone answering machines, electronic games, laser
printers, facsimile machines and cellular telephones. MEI has also been
able to utilize nonstandard RAM components in the manufacture of complex
circuit board assemblies for selected original equipment manufacturers
("OEM") customers in the manufacture of selected peripheral add-on memory
products for third party resellers and OEMs.
MEI also develops and markets a line of peripheral add-on memory
products. Currently, the line includes a range of peripheral add-on
modules. Certain memory modules are manufactured utilizing only full
specification RAM components while other memory modules are primarily
comprised of nonstandard RAM components. All MEI memory modules are
designed to meet full industry functionality standards. MEI memory
modules are used in a variety of applications, including PCs, answering
machines, laser printers, electronic games and other digital electronic
systems.
8
<PAGE>
Pro Forma Results of Operations
The following discussion and analysis presents the results of
operations of MEI for the quarters and nine month periods ended June 1,
1995, and June 2, 1994, on a pro forma basis as if the merger had
occurred at the beginning of the periods, after giving effect to pro
forma adjustments, including amortization of goodwill, certain product
and process technology costs, and related income tax effects. Due to the
significance of the merger, the Company believes that discussion and
analysis of pro forma basis results of operations provides a more
meaningful comparison than discussion and analysis on an actual basis
which, prior to the merger, includes only the operations of MCI and MCMS.
The pro forma information presented is not necessarily indicative of
results that would have occurred had the merger actually taken place at
the beginning of the periods.
The following is a summary of the pro forma results of operations.
<TABLE>
<CAPTION>
Quarter ended Nine months ended
----------------------------------- -----------------------------------
June 1, 1995 June 2, 1994 June 1, 1995 June 2, 1994
------------ ------------ ------------ ------------
Percent Percent Percent Percent
Amount of Sales Amount of Sales Amount of Sales Amount of Sales
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pro forma net sales $307,909 100.0% $170,886 100.0% $785,050 100.0% $440,891 100.0%
Pro forma cost of
goods sold 252,584 82.0% 147,228 86.2% 639,703 81.5% 371,526 84.3%
Pro forma gross margin 55,325 18.0% 23,658 13.8% 145,347 18.5% 69,365 15.7%
Pro forma selling,
general and
administrative expenses 27,598 9.0% 16,607 9.7% 70,899 9.0% 44,496 10.1%
Pro forma net income 16,690 5.4% 4,099 2.4% 45,001 5.7% 14,525 3.3%
</TABLE>
Pro forma net sales for the Company's separate product lines are as follows:
<TABLE>
<CAPTION>
Quarter ended Nine months ended
----------------------------------- -----------------------------------
June 1, 1995 June 2, 1994 June 1, 1995 June 2, 1994
------------ ------------ ------------ ------------
Percent Percent Percent Percent
Amount of Sales Amount of Sales Amount of Sales Amount of Sales
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PC systems $191,034 62.0% $ 92,675 54.2% $503,718 64.2% $233,234 52.9%
Peripheral add-on
memory products 47,895 15.6% 38,484 22.5% 117,328 14.9% 107,799 24.4%
Contract manufacturing 50,425 16.4% 32,573 19.1% 114,843 14.6% 82,863 18.8%
Component recovery 18,555 6.0% 7,154 4.2% 49,161 6.3% 16,995 3.9%
-------- -------- -------- -------- -------- -------- -------- --------
Total pro forma net
sales $307,909 100.0% $170,886 100.0% $785,050 100.0% $440,891 100.0%
</TABLE>
<TABLE>
<CAPTION>
Quarter ended Nine months ended
----------------------------------- -----------------------------------
June 1, 1995 % Change June 2, 1994 June 1, 1995 % Change June 2, 1994
------------ -------- ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Pro forma net sales $307,909 80.2% $170,886 $785,050 78.1% $440,891
</TABLE>
Pro forma net sales for the quarter and nine month period ended June
1, 1995 were higher than pro forma net sales for the comparable periods
in 1994, primarily as a result of an increase in the number of desktop PC
systems sold, higher overall selling prices for PC systems, higher
contract manufacturing sales, higher component recovery sales and higher
sales of peripheral add-on memory products.
Unit sales of PC systems for the quarter and nine month period ended
June 1, 1995 increased approximately 120% and 119%, respectively, in
comparison to the quarter and nine month period ending June 2, 1994, as
a result of an approximate 126% and 138% increase, respectively, in unit
sales of desktop PC systems, offset in part by approximately 28% and 24%
decreases, respectively, in unit sales of notebook PC systems. The
increase in unit sales of desktop PC systems was due primarily to a
significant increase in unit sales of Micron brand PC systems and to a
lesser extent an increase in unit sales of ZEOS brand PC systems. The
Company believes that unit sales of the Company's Micron brand PC systems
increased as a result of an increase in
9
<PAGE>
name recognition and market acceptance and competitive pricing. Sales of
Micron and ZEOS brand PC systems benefited generally from continued strong
demand in the market for PC products.
The Company continues to evaluate a range of PC product strategies
to take advantage of both the Micron and ZEOS brand names. Until the
Company's various product line strategies are fully defined, including
the coordination of marketing strategies, the sharing of research and
development efforts and the coordination and potential integration of
overall product lines, the Company may face confusion in the marketplace
regarding its PC products. Subsequent to the merger date, sales of ZEOS
brand PC systems have trended downward. The Company believes this
decline is due, in part, to a recent decline in the number of trade
magazine awards received by ZEOS brand PC systems, substantial overlap
with and competition from the Company's Micron brand product line and
seasonal factors. Confusion in the marketplace regarding the Company's PC
product lines could result in a substantial decrease in the Company's
unit sales which would have a material adverse effect on the Company's
results of operations.
Higher overall average selling prices of PC systems resulted
principally from a shift within the desktop PC product lines from 486
microprocessor based systems to relatively higher priced Pentium
microprocessor based systems, and to a lesser extent, from a shift in the
notebook product line from an older, lower priced subnotebook line to the
line of Meridian notebook PC systems.
Fluctuations in the Company's net sales from quarter to quarter can
be expected and may be attributable to a number of factors, including
without limitation the timing of new product introductions, seasonal
cycles commonly seen in the computer industry, the impact of product
reviews and industry awards, changes in product mix and product pricing,
fluctuating component costs and industry competition. As a result, the
operating results for any particular period are not necessarily
indicative of the results of any future period.
Contract manufacturing sales were higher primarily due to increased
manufacturing capacity obtained through the addition of a new surface
mount technology ("SMT") line at the Company's Boise facility and the
upgrading of the Company's existing production lines in response to an
increase in demand for its services from OEM customers as well as a
significant increase in demand for module products manufactured for
Micron Technology, Inc. ("MTI"). Additionally, two SMT lines were
installed at the Company's new Durham, North Carolina facility which
began operations in April, 1995, bringing the Company's total number of
SMT lines to eight. Production from the North Carolina facility
accounted for only approximately 5% of the Company's contract
manufacturing sales for the quarter ended June 1, 1995. Modules
manufactured for MTI have increased as a percentage of contract
manufacturing sales to approximately 14% in both the quarter and nine
month period ended, June 1, 1995 compared to 10% and 11%, respectively,
for the same periods in 1994. The Company's contract manufacturing
operations rely on sales to a relatively limited number of customers. In
the quarter and nine month period ended June 1, 1995, six customers,
including MTI, accounted for 76% and 68%, respectively, of the Company's
contract manufacturing sales. The Company expects sales to MTI to
increase which could result in a higher percentage of total net sales
attributable to MTI.
Component recovery sales were higher as a result of increases in
both unit sales and overall average selling prices. Unit sales increased
approximately 98% and 87%, respectively, in the quarter and nine month
period ended June 1, 1995 compared to the same periods in 1994, primarily
due to increased availability of nonstandard RAM components and an
increase in production capacity resulting primarily from the addition of
new test and burn-in equipment. Overall average selling prices were
higher primarily due to a shift in the product mix to higher priced
nonstandard RAM components and continued strong industry-wide demand for
semiconductor memory products. Significant competition in the area of
component recovery is beginning to develop both from semiconductor memory
manufacturers who conduct such operations in-house and from independent
component recovery operations. Increased competition could result in
both price reductions and a decline in the supply of nonstandard RAM
components available for recovery by the Company.
Unit sales of peripheral add-on memory products declined
approximately 19% and 38% in the quarter and nine month period ended
June 1, 1995, respectively, compared to the same periods in 1994, but the
average memory density per module increased approximately 25% and 15%
for the quarter and nine month period ended June 1, 1995, respectively,
compared to the same periods in 1994. Overall average selling prices of
peripheral add-on memory products increased approximately 70% and 86% for
the quarter and nine month period ended June 1, 1995, respectively,
compared to the same periods in 1994, due principally to the increase in
the average memory density per module
A substantial portion of the nonstandard RAM components used in the
Company's component recovery and peripheral add-on memory module
operations was obtained from MTI. Unless the Company is able to obtain
significant quantities of nonstandard RAM components from alternative
sources, the Company's component recovery and peripheral add-on memory
module operations will be limited by the volume of nonstandard RAM
components supplied by MTI. MTI's operating results are favorably
affected by improvements in device yields throughout its semiconductor
manufacturing processes and, accordingly, MTI seeks continuous
improvements of such yields. Significant yield improvements as a
consequence of product design advances,
10
<PAGE>
enhancements of manufacturing processes or other factors could result in
a significant reduction in the availability of nonstandard RAM components
from MTI. Significant reduction in the availability of nonstandard RAM
components from MTI would have a material adverse effect on the Company's
operating results.
<TABLE>
<CAPTION>
Quarter ended Nine months ended
----------------------------------- -----------------------------------
June 1, 1995 % Change June 2, 1994 June 1, 1995 % Change June 2, 1994
------------ -------- ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Pro forma cost of
goods sold $252,584 71.6% $147,228 $639,703 72.2% $371,526
Gross margin percentage 18.0% 13.8% 18.5% 15.7%
<t/table>
Pro forma gross margins were $55,325 and $145,347, respectively, for
the quarter and nine month period ended June 1, 1995, compared to $23,658
and $69,365, respectively, for the same periods in 1994. The Company's
overall gross margin percentage was higher for the third quarter of 1995
as compared to the third quarter of 1994, primarily due to an adjustment
of $5.7 million relating to the reduction of certain ZEOS brand PC
related inventories to their net realizable values in March 1994. The
Company's gross margin percentages continued to be favorably impacted by
the relatively high gross margin percentage realized on component
recovery sales and the relatively high gross margin realized on
peripheral add-on memory product sales. Increased acceptance of
nonstandard RAM components in the market could result in an increase in
the sale of these components by semiconductor manufacturers. In such
event, pricing for such components may decline. The Company continues to
experience significant pressure on its gross margin percentage from
extensive competition in the PC industry and consumer expectations of
more powerful PC systems at lower prices. Many of the Company's
competitors have substantially greater resources and purchasing power
than the Company. Although the Company has begun to realize some
material cost reductions following the merger, the Company's inability to
purchase components at prices comparable to those of the leading PC
manufacturers limits the Company's ability to compete on the basis of
price in its PC business without adversely affecting its gross margin
percentage. The Company believes that its gross margin percentage
realized from its PC operations is less than that realized by the leading
PC manufacturers. In the event sales of PC systems increase as a
percentage of total net sales, the Company's overall gross margin
percentage will be adversely affected.
</TABLE>
<TABLE>
<CAPTION>
Quarter ended Nine months ended
----------------------------------- -----------------------------------
June 1, 1995 % Change June 2, 1994 June 1, 1995 % Change June 2, 1994
------------ -------- ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Pro forma selling,
general and
administrative expenses $ 27,598 66.2% $ 16,607 $ 70,899 59.3% $ 44,496
Percent of net sales 9.0% 9.7% 9.0% 10.1%
</TABLE>
Pro forma selling, general and administrative expenses increased in
absolute dollars but decreased as a percentage of net sales in the
quarter and nine month period ended June 1, 1995, compared to the
corresponding periods in 1994. The increase in absolute dollars was
primarily due to higher levels of personnel costs, advertising costs and
credit card processing fees associated with the increase in net sales of
the Company's PC systems as a percentage of total net sales. Goodwill of
approximately $14.6 million was recorded in connection with the merger
and is amortized on a straight line basis over three years (approximately
$1.2 million per quarter).
<TABLE>
<CAPTION>
Quarter ended Nine months ended
----------------------------------- -----------------------------------
June 1, 1995 % Change June 2, 1994 June 1, 1995 % Change June 2, 1994
------------ -------- ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Pro forma income tax
provision $ 10,897 307.2% $ 2,676 $ 29,381 209.8% $ 9,483
</TABLE>
The Company's pro forma effective tax rate of 39.5% for all periods
presented reflects primarily the federal statutory income tax rate and
the net effect of state taxes.
Liquidity and Capital Resources
The Company has satisfied its liquidity and capital resource
requirements through a combination of operating profits, short-term bank
borrowings, extended credit terms with suppliers and advance deposits
from customers, and equity and convertible debt financing by ZEOS. As of
June 1, 1995, the Company had cash and equivalents of $37.2 million,
representing an increase of $2.1 million compared to September 1, 1994.
The increase resulted primarily from cash flows from operations and $14.1
million of cash aquired in the merger, offset by property,
plant and equipment purchases of $29.1 million. The significant
increase in receivables, inventories, accounts payable and accrued
expenses since September 1, 1994 was primarily a result of increased
sales and the merger.
11
<PAGE>
As of June 1, 1995, the Company had $7.1 million in indebtedness
remaining on a ten-year loan from MTI and had no outstanding bank
borrowings. The Company's principal sources of liquidity at June 1, 1995
consisted of cash and equivalents, supplier credit lines and a revolving
line of credit agreement with a commercial lender, providing for cash
advances and letters of credit up to a maximum of $10 million at any one
time. The line of credit agreement will expire on September 30, 1995, if
not extended or renegotiated.
The Company is required to make guaranteed royalty payments under
certain agreements and periodically enters into minimum purchase
commitments with certain of its suppliers.
The Company expects that its working capital requirements will
continue to increase through 1995 and beyond. The Company believes that
currently available cash and equivalents, funds generated from operations
and further expansion of terms with trade creditors will be sufficient to
fund its operations through the end of 1995. However, maintaining an
adequate level of working capital through the end of 1995 and thereafter
will depend in part on the success of the Company's products in the
marketplace, the relative profitability of those products, continued
availability of RAM components at favorable pricing and the Company's
ability to control operating expenses. It is anticipated that the
Company will enter into a replacement revolving credit facility to
provide for the working capital requirements of the Company. The
Company may seek or require additional financing for growth
opportunities, including any expansion that the Company may undertake
internally, through strategic acquisitions or partnerships or through
expansion to alternative manufacturing sites. There can be no assurance
that any such financings will be available on terms acceptable to the
Company.
Certain Factors
The success of the Company will depend to a large extent on its
continuing relationship with MTI, including the continuation of various
favorable business arrangements between MTI and the Company. MTI owns
approximately 80% of the outstanding Common Stock of the Company. In
addition, four of the eight directors of the Company are directors of
MTI, including Steven R. Appleton, Chairman and Chief Executive Officer
of MTI. MTI has the power to control the outcome of substantially all
matters requiring shareholder approval, including the election of
directors, and has the ability to control the management and affairs of
the Company. MTI's equity ownership has the effect of making certain
corporate actions impossible without its support. Because of MTI's
significant share ownership, only a limited percentage of the Company's
outstanding Common Stock is expected to be traded in the public market
unless MTI sells shares into the public market. In addition, in the
event that MTI is unwilling to allow the reduction of its percentage of
ownership, the combined Company may be unable to complete an equity
financing and could be forced to forego certain other corporate
opportunities.
A substantial majority of the Company's nonstandard components are
obtained from MTI. These components are acquired from MTI pursuant to a
revenue sharing agreement which terminates in September 1997. Under this
agreement, MTI is required to deliver to the Company all of the
nonstandard RAM components produced at MTI's operations; however, there
can be no assurance that MTI will continue to produce sufficient
quantities of nonstandard RAM components to maintain the Company's
component recovery operation at its existing level. The revenue sharing
agreement may be amended or modified by written consent of the Company
and MTI. By virtue of MTI's control position, MTI may be able to dictate
future modification of the terms of agreement. Under a voting agreement
entered into as part of the merger, MTI has agreed that it will not, in
any event, amend or modify the terms of the revenue sharing agreement
prior to April 7, 1996. Termination or renegotiation of the key terms of
the revenue sharing agreement could have a material adverse effect on the
Company's operating results.
The Company purchases a substantial portion of its full
specification RAM components used in its operations from MTI on a
purchase order basis with market terms and conditions. It is
anticipated that the Company will continue to purchase full specification
RAM components from MTI. A number of factors could affect MTI's ability
or willingness to make full specification RAM components available to the
Company, including a disruption of MTI's wafer processing, significant
yield losses and strategic and general business considerations. There
can be no assurance that MTI will provide the Company with a sufficient
volume of full specification RAM components to meet customer demand for
PC systems, contract assembly services, peripheral add-on memory products
or other products to be added to the Company's product offering.
High volumes of quality components are required for the manufacture
of PC systems. Any industry shortage or other supply constraint, of any
key component could affect the Company's ability to ship products on
schedule or at expected gross margins. Additionally, the Company is
unable to purchase components at costs comparable to those of the leading
PC manufacturers. From time to time, the Company may also experience
obsolescence of components maintained in inventory. Inventory
obsolescence results from, among other things, the fast pace of technological
developments in components used in personal computers as well as
12
<PAGE>
the short product life cycles of personal computer products.
There can be no assurance that the Company will be able to effectively
manage inventory levels so as to avoid the adverse effects of inventory
obsolescence.
Competition in the PC industry is based primarily upon
performance, price, quality, service and support. The PC industry is
highly competitive and has been characterized by intense pricing
pressure, rapid technological advances in hardware and software, frequent
introduction of new products and low gross margin percentages and
declining product prices. The Company must therefore introduce many new
products each year and continue to price its products competitively.
Failure by the Company to make specific product transitions or to
accurately forecast its market demand for product mix may adversely
affect the Company's results of operations.
The Company's contract manufacturing customers generally require
short delivery cycles and quick turnaround for contract manufacturing
services. As the Company's OEM customers react to variations in demand
for their product and adjust their purchase orders to the Company, the
Company is exposed to the risk of being subject to noncancelable purchase
orders with its suppliers and to inventory risk for raw materials, work
in process and finished goods. OEM order fluctuations and deferrals have
had an adverse effect on the Company's contract manufacturing operations
in the past and there can be no assurance that the Company will not
experience such adverse effects in the future. The Company's contract
manufacturing operations rely on sales to a relatively limited number of
customers. The Company has no long term agreements with any of its
contract manufacturing customers, including MTI, which require such
customers to purchase contract manufacturing services from the Company.
Should any of the Company's key contract manufacturing customers reduce
in any material respect their purchases of the Company's contract
manufacturing services, there can be no assurance that the Company could
obtain alternative business on a timely basis, which could have a
material adverse effect on the Company's business and operating results.
In this regard, in the first quarter of 1995, the Company's contract
manufacturing sales were adversely affected by a significant decline in
orders from Radius.
Periodically, MEI is made aware that the technology used by MEI may
infringe on product or process technology rights held by others. MEI has
accrued a liability and charged operations for the estimated costs of
settlement or adjudication of asserted and unasserted claims for
infringement prior to the balance sheet date. Management can give no
assurance that the amounts accrued are adequate and cannot estimate the
range of additional possible loss, if any, from resolution of these
uncertainties. Resolution of whether MEI has infringed on valid rights
held by others may have a material adverse effect on MEI's financial
position or results of operations, and may require material changes in
production processes and products. Additionally, the inability of the
Company to license technology, when required, from third parties, at
rates comparable to those obtained by its competitors could have an
adverse impact on the Company's ability to remain competitive and to
maintain its gross margin.
Several states have enacted legislation which would require out-of-
state direct marketers to collect and remit sales and use taxes based
on certain limited contacts with the state. Taxation authorities in
certain states have solicited information from time to time from the
Company to determine whether the Company has sufficient contacts with
such states as would require payment and collection and remittance of
sales and use taxes in those states. In the event that the Company is
required to pay or collect and remit sales and use taxes in states where
the Company is not currently paying or collecting and remitting such taxes,
the future operating results and financial condition of the Company
could be materially and adversely affected.
13
<PAGE>
Part II. OTHER INFORMATION
Item 2. Changes in Securities
Effective upon the closing of the Merger, the Company's Articles of
Incorporation were amended in order to change the name of the Company to
"Micron Electronics, Inc." and to increase the number of authorized
shares of capital stock from a total of 15,000,000 shares to a total of
150,000,000 shares. In addition, effective immediately prior to the
closing of the Merger, all outstanding shares of ZEOS' $3.00 Convertible
Cumulative Preferred Stock, Series A were redeemed by ZEOS.
Item 4. Submission of Matters to a Vote of Security Holders
On April 6, 1995, at separate special meetings of shareholders of
ZEOS, MCI and MCMS, the shareholders of ZEOS, MCI and MCMS approved the
Merger Agreement dated October 30, 1994, as amended, among ZEOS, MCI and
MCMS (the "Merger Agreement") and the merger of MCI and MCMS with and
into ZEOS.
The shareholders of ZEOS voted as follows with respect to the
approval of the Merger Agreement and the Merger:
For: 4,578,561 shares
Against: 49,905 shares
Abstentions: 54,865 shares
The shareholders of MCI Class A common stock voting separately as a
class voted as follows with respect to the approval of the Merger
Agreement and the Merger:
For: 987,500 shares
Against: - shares
Abstentions: - shares
The shareholders of MCI Class B common stock voting separately as a
class voted as follows with respect to the approval of the Merger
Agreement and the Merger:
For: 443,000 shares
Against: 50 shares
Abstentions: - shares
The shareholders of MCI class A and MCI class B common stock voting
together voted as follows with respect to the approval of the Merger
Agreement and the Merger:
For: 1,430,500 shares
Against: 50 shares
Abstentions: - shares
The shareholders of MCMS voted as follows with respect to the
approval of the Merger Agreement and the Merger:
For: 1,827,779 shares
Against: 350 shares
Abstentions: - shares
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) The following are filed as a part of this report:
Exhibit
Number Description of Exhibit
- ------- ----------------------
10.35 1995 Stock Option Plan
10.36 1995 Employee Stock Purchase Plan
10.37 Executive Bonus Plan
11 Statement regarding computation of per share
earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
(i) On April 13, 1995, the Company filed a report
on Form 8-K which included information
regarding a change in control of the Company
(Item 1), information regarding a change in
the Company's certifying accountant (Item 4),
certain financial statements and pro forma
financial information (Item 7) and
information regarding a change in the
Company's fiscal year (Item 8).
(ii) On April 21, 1995, the Company filed a report
on Form 8-K which announced the resignation
of Steven R. Appleton as the Company's
Chairman, Chief Executive Officer and
President and the appointment of Joseph M.
Daltoso as the Company's Chairman, Chief
Executive Officer and President (Item 5).
15
<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.
Micron Electronics, Inc.
------------------------------------------
(Registrant)
Dated: June 29, 1995 /s/ T. Erik Oaas
------------------------------------------
T. Erik Oaas, Vice President, Finance, and
Chief Financial Officer (Principal
Financial and Accounting Officer)
16
Exhibit 10.35
MICRON ELECTRONICS, INC.
1995 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock
Option Plan are:
* to attract, motivate and retain experienced and qualified
personnel for positions of substantial responsibility,
* to provide additional incentive to Employees and
Consultants, and
* to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at
the time of grant.
2. Definitions. As used herein, the following definitions
shall apply:
(a) "Administrator" means the Board or any of its
Committees as shall be administering the Plan, in accordance with
Section 4 of the Plan.
(b) "Applicable Laws" means the legal requirements
relating to the administration of stock option plans under
Minnesota corporate and securities laws and the Code.
(c) "Board" means the Board of Directors of the
Company.
(d) "Change in Control" means (i) the acquisition by any
person or entity of securities of Micron Electronics, Inc. such that
such person or entity, directly, indirectly or beneficially, acting
alone or in concert, (A) owns or controls more of the combined voting
power of all classes of voting securities of Micron Electronics, Inc.
than does Micron Technology, Inc. and (B) owns or controls more than
twenty percent (20%) of the combined voting power of all classes of
voting securities of Micron Electronics, Inc.; or (ii) the acquisition
by any person or entity, directly, indirectly or beneficially, acting
alone or in concert, of more than thirty-five percent (35%) of the
common stock of Micron Technology, Inc. outstanding at any time.
(e) "Code" means the Internal Revenue Code of 1986, as
amended.
(f) "Committee" means a Committee appointed by the
Board in accordance with Section 4 of the Plan.
(g) "Common Stock" means the Common Stock of the
Company.
(h) "Company" means Micron Electronics, Inc., a
Minnesota corporation.
(i) "Consultant" means any person, including an
advisor, engaged by the Company or a Parent or Subsidiary to
render services and who is compensated for such services. The
term "Consultant" shall not include Directors who are paid only a
director's fee by the Company or who are not compensated by the
Company for their services as Directors.
(j) "Continuous Status as an Employee or Consultant"
means that the employment or consulting relationship with the
Company, any Parent, or Subsidiary, is not interrupted or
terminated. Continuous Status as an Employee or Consultant shall
not be considered interrupted in the case of (i) any leave of
absence approved by the Company or (ii) transfers between
locations of the Company or between the Company, its Parent, any
Subsidiary, or any successor. A leave of absence approved by the
Company shall include sick leave, military
1
<PAGE>
leave, or any other personal leave approved by an authorized
representative of the Company. For purposes of Incentive Stock
Options, no such leave may exceed 90 days, unless reemployment upon
expiration of such leave is guaranteed by statute or contract. If
reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any
Incentive Stock Option held by the Optionee shall cease to be treated
as an Incentive Stock Option and shall be treated for tax purposes as
a Nonstatutory Stock Option.
(k) "Director" means a member of the Board.
(l) "Disability" means total and permanent disability
as defined in Section 22(e)(3) of the Code.
(m) "Employee" means any person, including Officers
and Directors, employed by the Company or any Parent or
Subsidiary of the Company. Neither service as a Director nor
payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(n) "Exchange Act" means the Securities Exchange Act
of 1934, as amended.
(o) "Fair Market Value" means, as of any date, the
value of Common Stock determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national market system including
without limitation the Nasdaq National Market of the National
Association of Securities Dealers, Inc. Automated Quotation
("Nasdaq") System, the Fair Market Value of a Share of Common
Stock shall be the average closing sales price for such stock (or
the closing bid, if no sales were reported) as quoted on such
exchange or system (or the exchange with the greatest volume of
trading in the Common Stock) for the five (5) business days
preceding the day of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is quoted on the over-the-
counter market or is regularly quoted by a recognized securities
dealer, but selling prices are not reported, the Fair Market
Value of a Share of Common Stock shall be the mean between the
high bid and low asked prices for the Common Stock on the last
market trading day prior to the day of determination, as reported
in The Wall Street Journal or such other source as the
Administrator deems reliable;
(iii) In the absence of an established market
for the Common Stock, the Fair Market Value shall be determined
in good faith by the Administrator.
(p) "Incentive Stock Option" means an Option intended
to qualify as an incentive stock option within the meaning of
Section 422 of the Code and the regulations promulgated
thereunder.
(q) "Nonstatutory Stock Option" means an Option not
intended to qualify as an Incentive Stock Option.
(r) "Notice of Grant" means a written notice
evidencing certain terms and conditions of an individual Option
grant. The Notice of Grant is subject to the terms and
conditions of the Option Agreement.
(s) "Officer" means a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and
the rules and regulations promulgated thereunder.
(t) "Option" means a stock option granted pursuant to
the Plan.
2
<PAGE>
(u) "Option Agreement" means a written agreement
between the Company and an Optionee evidencing the terms and
conditions of an individual Option grant. The Option Agreement
is subject to the terms and conditions of the Plan.
(v) "Option Exchange Program" means a program whereby
outstanding options are surrendered in exchange for options with
a lower exercise price.
(w) "Optioned Stock" means the Common Stock subject to
an Option.
(x) "Optionee" means an Employee or Consultant who
holds an outstanding Option.
(y) "Parent" means a "parent corporation", whether now
or hereafter existing, as defined in Section 424(e) of the Code.
(z) "Plan" means this 1995 Stock Option Plan.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act
or any successor to Rule 16b-3, as in effect when discretion is
being exercised with respect to the Plan.
(bb) "Share" means a share of the Common Stock, as
adjusted in accordance with Section 11 of the Plan.
(cc) "Subsidiary" means a "subsidiary corporation",
whether now or hereafter existing, as defined in Section 424(f)
of the Code. In the case of an Option that is not intended to
qualify as an Incentive Stock Option, the term "Subsidiary" shall
also include any other entity in which the Company, or any Parent
or Subsidiary of the Company, has a significant ownership
interest.
3. Stock Subject to the Plan. Subject to the provisions
of Section 11 of the Plan, the maximum aggregate number of Shares
which may be optioned and sold under the Plan is 5,000,000
Shares. The Shares may be authorized, but unissued, or
reacquired Common Stock.
If an Option expires or becomes unexercisable without having
been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject
thereto shall become available for future grant or sale under the
Plan (unless the Plan has terminated); provided, however, that
Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future
distribution under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. If permitted
by Rule 16b-3, the Plan may be administered by different bodies
with respect to (i) Directors, (ii) Officers who are not
Directors, and (iii) Employees who are neither Directors nor
Officers.
(ii) Administration With Respect to Employees
Subject to Section 16(b). With respect to Option grants made to
Employees who are also Officers or Directors subject to Section
16(b) of the Exchange Act, the Plan shall be administered by (A)
the Board, if the Board may administer the Plan in compliance
with the rules governing a plan intended to qualify as a
discretionary plan under Rule 16b-3, or (B) a committee
designated by the Board to administer the Plan, which committee
shall be constituted to comply with the rules governing a plan
intended to qualify as a discretionary plan under Rule 16b-3.
Once appointed, such committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of the Committee and
appoint additional members, remove members (with or without
cause) and substitute new members, fill vacancies (however
caused), and remove all members of the
3
<PAGE>
Committee and thereafter directly administer the Plan, all to the
extent permitted by the rules governing a plan intended to qualify
as a discretionary plan under Rule 16b-3.
(iii) Administration With Respect to Other
Persons. With respect to Option grants made to Employees or
Consultants who are neither Directors nor Officers of the
Company, the Plan shall be administered by (A) the Board or (B) a
committee designated by the Board, which committee shall be
constituted to satisfy Applicable Laws. Once appointed, such
Board may increase the size of the Committee and appoint
additional members, remove members (with or without cause) and
substitute new members, fill vacancies (however caused), and
remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by Applicable
Laws.
(b) Powers of the Administrator. Subject to the
provisions of the Plan, and in the case of a Committee, subject
to the specific duties delegated by the Board to such Committee,
the Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the
Common Stock, in accordance with Section 2(o) of the Plan;
(ii) to select the Consultants and Employees to
whom Options may be
granted hereunder;
(iii) to determine whether and to what extent
Options are granted hereunder;
(iv) to determine the number of shares of Common
Stock to be covered by each Option granted hereunder;
(v) to approve forms of agreement for use under
the Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted
hereunder. Such terms and conditions include, but are not
limited to, the exercise price, the time or times when Options
may be exercised (which may be based on performance criteria),
any vesting acceleration or waiver of forfeiture restrictions,
and any restriction or limitation regarding any Option or the
shares of Common Stock relating thereto, based in each case on
such factors as the Administrator, in its sole discretion, shall
determine;
(vii) to reduce the exercise price of any
Option to the then current Fair Market Value if the Fair Market
Value of the Common Stock covered by such Option shall have
declined since the date the Option was granted;
(viii) to construe and interpret the terms of
the Plan and awards granted pursuant to the Plan;
(ix) to prescribe, amend, and rescind rules and
regulations relating to the Plan, including rules and regulations
relating to sub-plans established for the purpose of qualifying
for preferred tax treatment under foreign tax laws;
(x) to modify or amend each Option (subject to
Section 14(c) of the Plan), including the discretionary authority
to extend the post-termination exercisability period of Options
longer than is otherwise provided for in the Plan;
(xi) to authorize any person to execute on behalf
of the Company any instrument required to effect the grant of an
Option previously granted by the Administrator;
(xii) to institute an Option Exchange Program; and
4
<PAGE>
(xiii) to make all other determinations deemed
necessary or advisable for administering the Plan.
(c) Effect of Administrator's Decision. The
Administrator's decisions, determinations, and interpretations
shall be final and binding on all Optionees and any other holders
of Options.
5. Eligibility. Nonstatutory Stock Options may be granted
to Employees and Consultants. Incentive Stock Options may be
granted only to Employees. If otherwise eligible, an Employee or
Consultant who has been granted an Option may be granted
additional Options.
6. Limitations.
(a) Each Option shall be designated in the Notice of
Grant as either an Incentive Stock Option or a Nonstatutory Stock
Option. However, notwithstanding such designations, to the
extent that the aggregate Fair Market Value of Shares subject to
an Optionee's Incentive Stock Options granted by the Company or
any Parent or Subsidiary, which become exercisable for the first
time during any calendar year (under all plans of the Company or
any Parent or Subsidiary) exceeds $100,000, such excess Options
shall be treated as Nonstatutory Stock Options. For purposes of
this Section 6(a), Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair
Market Value of the Shares shall be determined as of the time of
grant.
(b) Neither the Plan nor any Option shall confer upon
an Optionee any right with respect to continuing the Optionee's
employment or consulting relationship with the Company, nor shall
they interfere in any way with the Optionee's right or the
Company's right to terminate such employment or consulting
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of
Options to Employees:
(i) No Employee shall be granted, in any fiscal
year of the Company, Options to purchase more than 250,000
Shares; provided, however, that in the fiscal year in which an
employee commences employment with the Company, options granted
to such employee shall be limited to 500,000 Shares in such
fiscal year. The purchase price per Share payable by an Optionee
upon exercise of each Option intended to qualify under Section
162(m) of the Code shall be equal to the fair market value of the
Company's Common Stock on the date of grant.
(ii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's
capitalization as described in Section 11.
(iii) If an Option is canceled in the same
fiscal year of the Company in which it was granted (other than in
connection with a transaction described in Section 11), the
canceled Option will be counted against the limit set forth in
Section 6(c)(i). For this purpose, if the exercise price of an
Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Option. The term of each Option shall be
stated in the Notice of Grant; provided, however, that in the
case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be
provided in the Notice of Grant. Moreover, in the case of an
Incentive Stock Option granted to an Optionee who, at the time
Incentive Stock Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of
grant or such shorter term as may be provided in the Notice of
Grant.
5
<PAGE>
8. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for
the Shares to be issued pursuant to exercise of an Option shall
be determined by the Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time
the Incentive Stock Option is granted, owns stock representing
more than ten percent (10%) of the voting power of all classes of
stock of the Company or Parent or Subsidiary, the per Share
exercise price shall be no less than 110% of the Fair Market
Value per Share on the date of grant.
(B) granted to any Employee other than an
Employee described in paragraph (A) immediately above, the per
Share exercise price shall be no less than 100% of the Fair
Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option,
the per Share exercise price shall be determined by the
Administrator. The per Share exercise price of Nonstatutory
Stock Options intended to qualify under Section 162(m) of the
Code shall be no less than 100% of the Fair Market Value per
Share on the date of grant.
(b) Waiting Period and Exercise Dates. At the time an
Option is granted, the Administrator shall fix the period within
which the Option may be exercised and shall determine any
conditions which must be satisfied before the Option may be
exercised. In doing so, the Administrator may specify that an
Option may not be exercised until the completion of a service
period.
(c) Form of Consideration. The Administrator shall
determine the acceptable form of consideration for exercising an
Option, including the method of payment. In the case of an
Incentive Stock Option, the Administrator shall determine the
acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares
acquired upon exercise of an option, have been owned by the
Optionee for more than six months on the date of surrender, and
(B) have a Fair Market Value on the date of surrender equal to
the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) delivery of a properly executed exercise
notice together with such other documentation as the
Administrator and the broker, if applicable, shall require to
effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price;
(vi) a reduction in the amount of any Company
liability to the Optionee, including any liability attributable
to the Optionee's participation in any Company-sponsored deferred
compensation program or arrangement;
(vii) any combination of the foregoing methods
of payment; or
(viii) such other consideration and method of
payment for the issuance of Shares to the extent permitted by
Applicable Laws.
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9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder.
Any Option granted hereunder shall be exercisable according to
the terms of the Plan and at such times and under such conditions
as determined by the Administrator and set forth in the Option
Agreement.
An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed exercised when the
Company receives: (i) written notice of exercise (in accordance
with the Option Agreement) from the person entitled to exercise
the Option, and (ii) full payment for the Shares with respect to
which the Option is exercised. Full payment may consist of any
consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan.
Shares issued upon exercise of an Option shall be issued in the
name of the Optionee or, if requested by the Optionee, in the
name of the Optionee and his or her spouse. Until the stock
certificate evidencing such Shares is issued (as evidenced by the
appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or
receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be
issued) such stock certificate, either in book entry form or in
certificate form, promptly after the Option is exercised. No
adjustment will be made for a dividend or other right for which
the record date is prior to the date the Shares are issued,
except as provided in Section 11 of the Plan.
Exercising an Option in any manner shall decrease
the number of Shares thereafter available, both for purposes of
the Plan and for sale under the Option, by the number of Shares
as to which the Option is exercised.
(b) Termination of Employment or Consulting
Relationship. Upon termination of an Optionee's Continuous
Status as an Employee or Consultant, other than upon the
Optionee's death or Disability, the Optionee may exercise his or
her Option, but only within such period of time as is specified
in the Notice of Grant, and only to the extent that the Optionee
was entitled to exercise it as the date of termination (but in no
event later than the expiration of the term of such Option as set
forth in the Notice of Grant). In the absence of a specified
time in the Notice of Grant, the Option shall remain exercisable
for 30 days following the Optionee's termination of Continuous
Status as an Employee or Consultant. If, at the date of
termination, the Optionee is not entitled to exercise his or her
entire Option, the Shares covered by the unexercisable portion of
the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(c) Disability of Optionee. In the event that an
Optionee's Continuous Status as an Employee or Consultant
terminates as a result of the Optionee's Disability, the Optionee
may exercise his or her Option at any time within twelve (12)
months from the date of such termination, but only to the extent
that the Optionee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of the
term of such Option as set forth in the Notice of Grant). If, at
the date of termination, the Optionee does not exercise his or
her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option
with respect to the shares covered by the exercisable portion of
the Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to
the Plan.
(d) Death of Optionee. In the event of the death of
an Optionee, the Option may be exercised at any time within
twelve (12) months following the date of death (but in no event
later than the expiration of the term of such Option as set forth
in the Notice of Grant), by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent that the Optionee was
entitled to exercise the Option at the date of death. If, at the
time of death, the Optionee was not entitled to exercise his or
her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If,
after death, the Optionee's estate or a person who acquired the
right to exercise the Option
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by bequest or inheritance does not exercise the Option within the
time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(e) Rule 16b-3. Options granted to individuals
subject to Section 16 of the Exchange Act must comply with the
applicable provisions of Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required
thereunder to qualify for the maximum exemption from Section 16
of the Exchange Act with respect to Plan transactions.
(f) Suspension. Any Optionee who is also a
participant in the Retirement at Micron or Micron Electronics
Retirement at Micron Section 401(k) Plan (each a "RAM Plan" and
together the "RAM Plans") and who requests and receives a
hardship distribution from any RAM Plan, is prohibited from
making, and must suspend, for a period of twelve (12) months
thereafter, his or her elective contributions and employee
contributions including, without limitation to the foregoing, the
exercise of any Option granted from the date of receipt by that
employee of the hardship distribution from any RAM Plan.
10. Non-Transferability of Options. An Option may not be
sold, pledged, assigned, hypothecated, transferred, or disposed
of in any manner other than by will or by laws of descent or
distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
11. Adjustments Upon Changes in Capitalization,
Dissolution, Merger, or Asset Sale.
(a) Changes in Capitalization. Subject to any
required action by the shareholders of the Company, the number of
shares of Common Stock covered by each outstanding Option, and
the number of issued shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options
have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the
price per share of Common Stock covered by each such outstanding
Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock or any other
increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities
of the Company shall not be deemed to have been "effected without
receipt of consideration." Such adjustment shall be made by the
Board, whose determination in that respect shall be final,
binding, and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject
to an Option.
(b) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, to the extent
that an Option has not been previously exercised, it will
terminate immediately prior to the consummation of such proposed
action. The Board may, in the exercise of its sole discretion in
such instances, declare that any Option shall terminate as of a
date fixed by the Board and give each Optionee the right to
exercise his or her Option as to all or any part of the Optioned
stock, including Shares as to which the Option would not
otherwise be exercisable.
(c) Merger or Asset Sale. In the event of a merger of
the Company with or into another corporation, or the sale of
substantially all of the assets of the Company, other than in
either such case, a Change in Control, each outstanding Option
may be assumed or an equivalent option or right may be
substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In lieu of such
assumption or substitution, or in the event the successor
corporation does not assume the Option or substitute an
equivalent option or right, the Administrator may provide for the
Optionee to have the right to exercise the Option as to all or a
portion of the Optioned Stock, including Shares as to which it
would not otherwise be exercisable. If the Administrator makes
an Option exercisable in lieu of assumption or substitution in
the event of a merger or sale of assets, the Administrator shall
notify the Optionee that the Option shall be fully exercisable
for a period of thirty (30) days from the date of such notice,
and the Option will terminate upon the expiration of such period.
For the purposes of this paragraph, the Option shall be
considered assumed if, following the merger or sale of assets, the
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<PAGE>
option or right confers the right to purchase, for each Share
of Optioned Stock subject to the Option immediately prior to the
merger or sale of assets, the consideration (whether stock, cash,
or other securities or property) received in the merger or sale
of assets by holders of Common Stock for each Share held on the
effective date of the transaction (and if holders were offered a
choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided,
however, that if such consideration received in the merger or
sale of assets was not solely common stock of the successor
corporation or its Parent, the Administrator may, with the
consent of the successor corporation, provide for the
consideration to be received upon the exercise of the Option, for
each Share of Optioned Stock subject to the Option, to be solely
common stock of the successor corporation or its Parent equal in
fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
(d) Change in Control. In the event of a Change in
Control, the unexercised portion of the Option shall become
immediately exercisable, to the extent such acceleration does not
disqualify the Plan, or cause an Incentive Stock Option to be
treated as a Nonstatutory Stock Option without the consent of the
Optionee.
12. Date of Grant. The date of grant of an Option shall
be, for all purposes, the date on which the Administrator makes
the determination granting such Option, or such other later date
as is determined by the Administrator. Notice of the
determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
13. Term of Plan. Subject to Section 18 of the Plan, the
Plan shall become effective upon the earlier to occur of its
adoption by the Board or its approval by the shareholders of the
Company as described in Section 18 of the Plan. It shall
continue in effect for a term of ten (10) years from the
effective date unless terminated earlier under Section 14 of the
Plan.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any
time amend, alter, suspend, or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain
shareholder approval of any Plan amendment to the extent
necessary and desirable to comply with Rule 16b-3 or with Section
422 of the Code (or any successor rule or statute or other
applicable law, rule, or regulation, including the requirements
of any exchange or quotation system on which the Common Stock is
listed or quoted). Such shareholder approval, if required, shall
be obtained in such a manner and to such a degree as is required
by the applicable law, rule, or regulation.
(c) Effect of Amendment or Termination. No amendment,
alteration, suspension, or termination of the Plan shall impair
the rights of any Optionee, unless mutually agreed otherwise
between the Optionee and the Administrator, which agreement must
be in writing and signed by the Optionee and the Company.
15. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such
Option and the issuance and delivery of such Shares shall comply
with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the Exchange
Act, the rules and regulations promulgated thereunder, Applicable
Laws, and the requirements of any stock exchange or quotation
system upon which the Shares may then be listed or quoted, and
shall be further subject to the approval of counsel for the
Company with respect to such compliance.
(b) Investment Representations. As a condition to the
exercise of an Option, the Company may require the person
exercising such Option to represent and warrant at the time of
any such exercise that the
9
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Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required.
16. Liability of Company.
(a) Inability to Obtain Authority. The inability of
the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company's counsel
to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such
requisite authority shall not have been obtained.
(b) Grants Exceeding Allotted Shares. If the Optioned
Stock covered by an Option exceeds, as of the date of grant, the
number of Shares which may be issued under the Plan without
additional shareholder approval, such Option shall be void with
respect to such excess Optioned Stock, unless shareholder
approval of an amendment sufficiently increasing the number of
shares subject to the Plan is timely obtained in accordance with
Section 14(b) of the Plan.
17. Reservation of Shares. The Company, during the term of
this Plan, will at all times reserve and keep available such
number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
18. Shareholder Approval. Continuance of the Plan shall be
subject to approval by the shareholders of the Company within
twelve (12) months before or after the date the Plan is adopted.
Such shareholder approval shall be obtained in the manner and to
the degree required under applicable federal and Minnesota law.
Rev 5/22/95
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Exhibit 10.36
MICRON ELECTRONICS, INC.
1995 EMPLOYEE STOCK PURCHASE PLAN
The following constitutes the provisions of the 1995
Employee Stock Purchase Plan of Micron Electronics, Inc.:
1. Purpose. The purpose of the Plan is to provide
employees of the Company and its Designated Subsidiaries with an
opportunity to purchase Common Stock of the Company through
accumulated payroll deductions. It is the intention of the
Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as
amended. The provisions of the Plan shall, accordingly, be
construed so as to extend and limit participation in a manner
consistent with the requirements of that section of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the
Company.
(b) "Code" shall mean the Internal Revenue Code of
1986, as amended.
(c) "Common Stock" shall mean the Common Stock of the
Company.
(d) "Company" shall mean Micron Electronics, Inc., a
Minnesota corporation, and subject to Section 21 below, its
successors and assigns and any of its Designated Subsidiaries.
(e) "Compensation" with respect to any Employee means
such Employee's wages, salaries, fees for professional services
and other amounts received for personal services actually
rendered in the course of employment with the Company or its
Designated Subsidiaries to the extent that the amounts are
includible in gross income (including, but not limited to,
commissions paid to salesmen, compensation for services on the
basis of a percentage of profits, tips, and bonuses).
Compensation shall exclude (a)(1) contributions made by
the employer to a plan of deferred compensation to the extent
that, the contributions are not includible in the gross income of
the Employee for the taxable year in which contributed, (2)
employer contributions made on behalf of an Employee to a
simplified employee pension plan described in Code Section 408(k)
to the extent such contributions are excludable from the
Employee's gross income, (3) any distributions from a plan of
deferred compensation; (b) amounts realized from the exercise of
a non-statutory stock option, or when restricted stock (or
property) held by an Employee either becomes freely transferable
or is no longer subject to substantial risk of forfeiture; (c)
amounts realized from the sale, exchange or other disposition of
stock acquired under a qualified stock option; (d) other amounts
which receive special tax benefits, such as premiums for group-
term life insurance (but only to the extent that the premiums are
not includible in the gross income of the employee), or
contributions made by the employer (whether or not under a salary
reduction agreement) towards the purchase of any annuity contract
described in Code Section 403(b) (whether or not the
contributions are actually excludable from the Employee's gross
income); (e) reimbursements or other expense allowances; (f)
fringe benefits (cash and noncash); (g) moving expenses; and (h)
welfare benefits.
(f) "Continuous Status as an Employee" shall mean the
absence of any interruption or termination of service as an
Employee. Continuous Status as an Employee shall not be
considered interrupted in the case of a leave of absence agreed
to in writing by the Company, provided that such leave is for a
period of not more than 90 days or reemployment upon the
expiration of such leave is guaranteed by contract or statute.
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(g) "Designated Subsidiaries" shall mean the
Subsidiaries which have been designated by the Board from time to
time in its sole discretion as eligible to participate in the
Plan.
(h) "Employee" shall mean any person, including an
officer, whose customary employment on a continuous basis is more
than twenty (20) hours per week and more than five (5) months in
a calendar year by the Company.
(i) "Enrollment Date" shall mean the first day of each
Offering Period.
(j) "Exercise Date" shall mean the last day of each
Offering Period.
(k) "Offering Period" shall mean a period of six (6)
months.
(l) "Plan" shall mean this Employee Stock Purchase
Plan.
(m) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held
by the Company or a Subsidiary, whether or not such corporation
now exists or is hereafter organized or acquired by the Company
or a Subsidiary.
3. Eligibility.
(a) Any Employee as defined in Section 2 who has been
continuously employed by the Company for at least one (1)
consecutive month and who shall be employed by the Company on a
given Enrollment Date shall be eligible to participate in the
Plan.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the
Plan (i) if, immediately after the grant, such Employee (or any
other person whose stock would be attributed to such Employee
pursuant to Section 425(d) of the Code) would own stock and/or
hold outstanding options to purchase stock possessing five
percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any subsidiary of
the Company, or (ii) which permits his rights to purchase stock
under all employee stock purchase plans (described in Section 423
of the Code) of the Company and its subsidiaries to accrue at a
rate which exceeds twenty-five thousand dollars ($25,000) of fair
market value of such stock (determined at the time such option is
granted) for a calendar year in which such option is outstanding
at any time.
4. Offering Periods. The Plan shall be implemented by
consecutive Offering Periods with the first Offering Period
commencing on or about July 1, 1995, and ending on December 31,
1995. Thereafter, Offering Periods shall commence on January 1
and July 1 of each year, and continue thereafter until terminated
in accordance with Section 20 hereof. Subject to the shareholder
approval requirements of Section 20, the Board of Directors of
the Company shall have the power to change the duration of
offering periods with respect to future offerings if such change
is announced at least fifteen (15) days prior to the scheduled
beginning of the first offering period to be affected.
5. Participation.
(a) An eligible Employee may become a participant in
the Plan by completing a subscription agreement authorizing
payroll deductions in the form of Exhibit A to this Plan and
filing it with the Company's Stock Administration office at least
ten (10) business days prior to the applicable Enrollment Date,
unless a different time for filing the subscription agreement is
set by the Board for all eligible Employees with respect to a
given Offering Period.
(b) Payroll deductions for a participant shall commence on
the first payroll following the Enrollment Date and shall end on
the last payroll in the Offering Period to which such
authorization is applicable, unless sooner terminated by the
participant as provided in Section 11.
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6. Payroll Deductions.
(a) At the time a participant files his or her
subscription agreement, he or she shall elect to have payroll
deductions made on each payday during the Offering Period at a
rate that is not less than one percent (1%) and not greater than
twenty percent (20%) of the Compensation, and the aggregate of
such payroll deductions during the Offering Period shall not
exceed twenty percent (20%) of his or her aggregate Compensation
during said Offering Period.
(b) All payroll deductions made by a participant shall
be credited to his or her account under the Plan. A participant
may not make any additional payments into such account.
(c) A participant may discontinue his or her
participation in the Plan as provided in Section 11, or may
decrease, but not increase, the rate of payroll deductions during
the Offering Period (within the limits of Section 6(a)) by
completing or filing with the Company's a new subscription
agreement authorizing a change in payroll deduction rate. The
change in rate shall be effective with the first full payroll
period following ten (10) business days after the Company's
receipt of the new subscription agreement. A participant's
subscription agreement shall remain in effect for successive
Offering Periods unless revised as provided herein or terminated
as provided in Section 11.
(d) Notwithstanding the foregoing, to the extent
necessary to comply with Section 423(b)(8) of the Code and
Section 3(b) herein, a participant's payroll deductions may be
decreased to 0% at such time during any Offering Period which is
scheduled to end during the current calendar year that the
aggregate of all payroll deductions accumulated with respect to
such Offering Period and any other Offering Period ending within
the same calendar year equal $21,250. Payroll deductions shall
recommence at the rate provided in such participant's
subscription agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 11.
(e) A participant in this Plan, who is also a
participant in the Retirement at Micron or Micron Electronics
Retirement at Micron Section 401(k) Plan (each a "RAM Plan" and
together the "RAM Plans") and who requests and receives a
hardship distribution from any RAM Plan, is prohibited from
making, and must suspend, for a period of twelve (12) months
thereafter, his or her elective contributions and employee
contributions including, without limitation to the foregoing, any
payroll deduction made pursuant to the terms of this Plan from
the date of receipt by that employee of the hardship distribution
from any RAM Plan.
7. Grant of Option.
(a) On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period
shall be granted an option to purchase on each Exercise Date
during such Offering Period up to a number of shares of the
Company's Common Stock determined by dividing such Employee's
payroll deductions accumulated prior to such Exercise Date and
retained in the participant's account as of the Exercise Date by
the lower of (i) eighty-five percent (85%) of the fair market
value of a share of the Company's Common Stock on the Enrollment
Date or (ii) eighty-five percent (85%) of the fair market value
of a share of the Company's Common Stock on the Exercise Date;
provided that such purchase shall be subject to the limitations
set forth in Sections 3(b) and 13 hereof. Exercise of the option
shall occur as provided in Section 8, unless the participant has
withdrawn pursuant to Section 11, and shall expire on the last
day of the Offering Period. Fair market value or a share of the
Company's Common Stock shall be determined as provided in Section
7(b) herein. Notwithstanding anything to the contrary set forth
herein, the maximum number of shares which any Employee may
purchase on any Exercise Date shall not exceed 5,000 shares.
(b) The option price per share of the shares offered
in a given Offering Period shall be the lower of: (i) 85% of the
fair market value of a share of the Common Stock of the Company
on the Enrollment Date; or (ii) 85% of the fair market value of a
share of the Common Stock of the Company on the Exercise Date.
The fair market value of the Company's Common Stock on a given
date shall be determined by the Board in its
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<PAGE>
discretion; provided, however, that where there is a public market
for the Common Stock the fair market value per share shall be the
average closing sales price on the Nasdaq National Market five (5)
business days preceding such date, as reported in The Wall Street
Journal.
8. Exercise of Option. Unless a participant withdraws from
the Plan as provided in Section 11, his or her option for the
purchase of shares will be exercised automatically on the
Exercise Date of the Offering Period, and the maximum number of
full shares subject to option will be purchased for him or her at
the applicable option price with the accumulated payroll
deductions in his account. The shares purchased upon exercise of
an option hereunder shall be deemed to be transferred to the
participant on the Exercise Date. During his or her lifetime, a
participant's option to purchase shares hereunder is exercisable
only by such participant.
9. Restrictions on Transfer of Shares. Shares purchased
upon exercise of a participant's option may not be transferred by
the participant for a period of one (1) year from the Exercise
Date. This transfer restriction shall be earlier terminated in
the event of a participant's permanent disability or death, or
upon the involuntary transfer of the shares due to divorce,
judicial declaration of insolvency or bankruptcy or other form of
involuntary transfer.
10. Delivery. Immediately following the Exercise Date of
each Offering Period, unless a participant requests the issuance
of a certificate representing the participant's shares, the
Company shall promptly record the participant's full shares in
book entry form. Upon request from a participant, or upon the
involuntary transfer of a participant's shares, the Company shall
arrange for the delivery to the participant of a certificate
representing the full shares purchased. Certificates issued
which are subject to the transfer restriction shall bear a legend
in a conspicuous place referencing the restriction. Any cash
remaining to the credit of a participant's account under the
Purchase Plan after a purchase by the participant of shares at
the termination of each Offering Period, which is insufficient to
purchase a full share of Common Stock, shall be returned to said
participant or retained in the participant's account for the
subsequent Offering Period, as determined by the Company as to
all participants for a given Offering Period.
11. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than
all the payroll deductions credited to such participant's account
under the Plan at any time prior to the Exercise Date of the
Offering Period by giving written notice to the Company's in the
form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account will be paid to him or
her promptly after receipt of the notice of withdrawal and the
participant's option for the current Offering Period will be
automatically terminated, and no further payroll deductions for
the purchase of shares will be made during the Offering Period.
If a participant withdraws from an Offering Period, payroll
deductions will not resume at the beginning of the succeeding
Offering Period unless the participant delivers to the Company a
new subscription agreement as described in Section 5(a).
(b) Upon termination of the participant's Continuous
Status as an Employee prior to the Exercise Date of the Offering
Period for any reason, including retirement or death, the payroll
deductions credited to such participant's account will be
returned to him or her or, in the case of his or her death, to
the person or persons entitled thereto under Section 15, and such
participant's option will be automatically terminated.
(c) In the event an Employee fails to remain in
Continuous Status as an Employee of the Company for at least
twenty (20) hours per week during the Offering Period in which
the Employee is a participant, he or she will be deemed to have
elected to withdraw from the Plan and the payroll deductions
credited to his or her account will be returned to him or her and
the option terminated.
(d) A participant's withdrawal from an Offering Period
will not have any effect upon his or her eligibility to
participate in a succeeding Offering Period or in any similar
plan which may hereafter be adopted by the Company.
12. Interest. No interest shall accrue on the payroll
deductions of a participant in the Plan.
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13. Stock.
(a) The maximum number of shares of the Company's
Common Stock which shall be made available for sale under the
Plan shall be 2,500,000 shares, subject to adjustment upon
changes in capitalization of the Company as provided in Section
19. If the total number of shares which would otherwise be
subject to options granted pursuant to Section 7(a) hereof on the
Enrollment Date of an Offering Period exceeds the number of
shares then available under the Plan (after deduction of all
shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of the
shares remaining available for option grant in as uniform a
manner as shall be practicable and as it shall determine to be
equitable. In such event, the Company shall give written notice
of such reduction of the number of shares subject to the option
to each participant affected thereby and shall similarly reduce
the rate of payroll deductions, if necessary.
(b) The participant will have no interest or voting
right in shares covered by his or her option until such option
has been exercised.
(c) Shares to be delivered to a participant under the
Plan will be registered in the name of the participant or, if
requested by the participant, in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the
Board or a committee of members of the Board appointed by the
Board. The administration, interpretation or application of the
Plan by the Board or its committee shall be final, conclusive and
binding upon all participants. Members of the Board who are
eligible Employees are permitted to participate in the Plan,
provided that:
(a) Members of the Board who are eligible to
participate in the Plan may not vote on any matter affecting the
administration of the Plan or the grant of any option pursuant to
the Plan.
(b) If a Committee is established to administer the
Plan, no member of the Board who is eligible to participate in
the Plan may be a member of the Committee.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from
the participant's account under the Plan in the event of such
participant's death subsequent to the end of the Offering Period
but prior to delivery to him of such shares and cash. In
addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's
account under the Plan in the event of such participant's death
prior to the Exercise Date of the Offering Period.
(b) Such designation of beneficiary may be changed by
the participant at any time by written notice. In the event of
the death of a participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of
such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the
participant, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its
discretion, may deliver such shares and/or cash to the spouse or
to any one or more dependents or relatives of the participant, or
if no spouse, dependent or relative is known to the Company, then
to such other person as the Company may designate.
16. Transferability of Rights. Neither payroll deductions
credited to a participant's account nor any rights with regard to
the exercise of an option or to receive shares under the Plan may
be assigned, transferred, pledged or otherwise disposed of in any
way (other than by will, the laws of descent and distribution or
as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition
shall be without effect, except that the Company may treat such
act as an election to withdraw funds in accordance with Section
11.
5
<PAGE>
17. Use of Funds. All payroll deductions received or held
by the Company under the Plan may be used by the Company for any
corporate purpose, and the Company shall not be obligated to
segregate such payroll deductions.
18. Reports. Individual statements of accounts will be
maintained for each participant in the Plan. Statements of
account will be given to participating Employees; on no less than
an annual basis, promptly following the Exercise Date, which
statements will set forth the amounts of payroll deductions, the
per share purchase price, the number of shares purchased and the
remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization. Subject to
any required action by the shareholders of the Company, the
number of shares of Common Stock covered by each option under the
Plan which has not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under the
Plan but have not yet been placed under option (collectively, the
"Reserves"), as well as the price per share of Common Stock
covered by each option under the Plan which has not yet been
exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other
increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities
of the Company shall not be deemed to have been "effected without
receipt of consideration." Such adjustment shall be made by the
Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no
issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject
to an option.
The Board may, if it so determines in the exercise of its
sole discretion, also make provision for adjusting the Reserves,
as well as the price per share of Common Stock covered by each
outstanding option, in the event that the Company effects one or
more reorganizations, recapitalizations, rights offerings or
other increases or reductions of shares of its outstanding Common
Stock, and in the event of the Company being consolidated with or
merged into any other corporation.
20. Amendment or Termination. The Board of Directors of
the Company may at any time terminate or amend the Plan. Except
as provided in Section 19, no such termination can affect options
previously granted, nor may an amendment make any change in any
option theretofore granted which adversely affects the rights of
any participant, nor may an amendment be made without prior
approval of the shareholders of the Company (obtained in the
manner described in Section 23) if such amendment would:
(a) Increase the number of shares that may be issued
under the Plan;
(b) Change the designation of the employees (or class
of employees) eligible for participation in the Plan; or
(c) Materially increase the benefits which may accrue
to participants under the Plan.
21. Dissolution, Merger or Asset Sale. In the event of the
proposed dissolution or liquidation of the Company, the Offering
Period will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Board. In
the event of a proposed sale of all or substantially all of the
assets of the Company, or the Merger of the Company with or into
another corporation, each option under the Plan shall be assumed
or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor
corporation, unless the Board determines, in the exercise of its
sole discretion and in lieu of such assumption or substitution,
to shorten the Offering Periods then in progress by setting a new
Exercise Date (the "New Exercise Date"). If the Board shortens
the Offering Periods then in progress in lieu of assumption or
substitution in the event of a merger or sale of assets, the
Board shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise Date, that the Exercise
Date for his option has been changed to the New Exercise Date and
that his option will be exercised automatically on the New
Exercise Date, unless prior
6
<PAGE>
to such date he has withdrawn from the Offering Period as provided
in Section 11 hereof. For purposes of this paragraph, an option
granted under the Plan shall be deemed to be assumed if, following
the sale of assets or merger, the option confers the right to
purchase, for each share of Common Stock subject to the option
immediately prior to the sale of assets or merger, the consideration
(whether stock, cash or other securities or property) received in the
sale of assets or merger by holders of Common Stock for each share of
Common Stock held on the effective date of the transaction (and if such
holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the
outstanding shares of Common Stock); provided, however, that if
such consideration received in the sale of assets or merger was
not solely common stock of the successor corporation or its
parent (as defined in Section 424(e) of the Code), the Board may,
with the consent of the successor corporation, provide for the
consideration to be received upon exercise of the option to be
solely common stock of the successor corporation or its parent
equal in fair market value to the per share consideration
received by holders of Common Stock and the sale of assets or
merger.
22. Notices. All notices or other communications by a
participant to the Company under or in connection with the Plan
shall be deemed to have been duly given when received in the form
specified by the Company at the location, or by the person,
designated by the Company for the receipt thereof. Unless
changed by the Company, all such Notices or other communications
shall be directed to the Company's Stock Administration
Department.
23. Shareholder Approval. Continuance of the Plan shall be
subject to approval by the shareholders of the Company within
twelve months before or after the date the Plan is adopted. If
such shareholder approval is obtained at a duly held
shareholders' meeting, it may be obtained by the affirmative vote
of the holders of a majority of the shares of the Company present
or represented and entitled to vote thereon, which approval shall
be (i) solicited substantially in accordance with Section 14(a)
of the Securities Act of 1934, as amended (the "Act") and the
rules and regulations promulgated thereunder, or (ii) solicited
after the Company has furnished in writing to the holders
entitled to vote substantially the same information concerning
the Plan as that which would be required by the rules and
regulations in effect under Section 14(a) of the Act at the time
such information is furnished.
In the case of shareholder approval by written consent,
it must be obtained by the unanimous written consent of all
shareholders of the Company, or by written consent of a smaller
percentage of shareholders but only if the Board determines, on
the basis of advice of the Company's legal counsel, that the
written consent of such a smaller percentage of shareholders will
comply with all applicable laws and will not adversely affect the
qualifications of the Plan under Section 423 of the Code.
24. Conditions Upon Issuance of Shares. Shares shall not
be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant
thereto shall comply with all applicable provisions of law,
domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, and the Act, the rules and
regulations promulgated thereunder, and the requirements of any
stock exchange or national market system upon which the shares
may then be listed, and shall be further subject to the approval
of counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the
Company may require the person exercising such option to
represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is
required by any of the aforementioned applicable provisions of
law.
25. Term of Plan. The Plan shall become effective upon the
earlier to occur of its adoption by the Board of Directors or its
approval by the shareholders of the Company as described in
Section 23. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20.
Rev 5/22/95
7
Exhibit 10.37
MICRON ELECTRONICS, INC.
EXECUTIVE BONUS PLAN
1. PURPOSE
The Micron Electronics, Inc. Executive Bonus Plan (the "Bonus
Plan") is designed to attract, retain, and reward highly
qualified executives who are important to the Company's success
and to provide incentives relating directly to the financial
performance and long-term growth of the Company.
2. DEFINITIONS
(a) Bonus - The cash incentive awarded to an Executive Officer
or Key Employee pursuant to the terms and conditions of the Bonus
Plan.
(b) Board - The Board of Directors of Micron Electronics, Inc.
(c) Change in Control - (i) The acquisition by any person or
entity of securities of Micron Electronics, Inc. such that such
person or entity, directly, indirectly or beneficially, acting
alone or in concert, (A) owns or controls more of the combined
voting power of all classes of voting securities of Micron
Electronics, Inc. than does Micron Technology, Inc. and (B) owns
or controls more than twenty percent (20%) of the combined voting
power of all classes of voting securities of Micron Electronics,
Inc.; or (ii) the acquisition by any person or entity, directly,
indirectly or beneficially, acting alone or in concert, of more
than thirty-five percent (35%) of the common stock of Micron
Technology, Inc. outstanding at any time.
(d) Code - The Internal Revenue Code of 1986, as amended.
(e) Committee - The Compensation Committee of the Board, or
such other committee of the Board that is designated by the Board
to administer the Bonus Plan, in compliance with requirements of
Section 162(m) of the Code.
(f) Company - Micron Electronics, Inc. and any other
corporation in which Micron Electronics, Inc., controls, directly
or indirectly, fifty percent (50%) or more of the combined voting
power of all classes of voting securities.
(g) Executive - An Executive Officer or Key Employee of the
Company.
(h) Executive Officer - Any officer of the Company subject to
the reporting requirements of Section 16 of the Securities and
Exchange Act of 1934 (the "Exchange Act").
(i) Key Employee - Any employee of the Company as may be
designated by the Committee for this Bonus Plan.
3. ELIGIBILITY
Only Executives are eligible for participation in the Bonus
Plan.
4. ADMINISTRATION
Awards of bonuses under the Bonus Plan shall be based on one
or more of the following performance goals: (i) net income, (ii)
earnings per share, (iii) return on equity, (iv) gross margin,
(v) return on assets, (vi) net sales, (vii) new products, (viii)
expansion of facilities, (ix) customer satisfaction (x) asset
management or (xi) debt management. The Committee shall
administer the Bonus Plan and shall have full power and authority
to construe, interpret, and administer the Bonus Plan necessary
to comply with the requirements of Section 162(m)
1
<PAGE>
of the Code. The Committee's decisions shall be final, conclusive,
and binding upon all persons. The Committee shall certify in writing
prior to commencement of payment of the bonus that the performance
goal or goals under which the bonus is to be paid has or have been
achieved. The Committee in its sole discretion has the authority
to reduce the amount of a bonus otherwise payable to an Executive
upon attainment of the performance goal established for a fiscal
year provided that a reduction in the amount of one Executive's
bonus does not result in an increase in the amount of any other
Executive's bonus. Promptly after the beginning of a fiscal
year, the Committee shall: (i) determine the performance
criteria; (ii) determine the Executives eligible to participate
in the Bonus Plan for the fiscal year; and (iii) determine the
method for computing the amount of bonus payable to each
Executive if the performance goal is achieved.
The maximum bonus amount that can be paid to any Executive
with respect to any one fiscal year cannot exceed the greater of
$2,000,000 or two percent (2%) of the Company's consolidated
after-tax net profits. Bonus amounts shall be paid within 90
days after the close of the Company's fiscal year unless the
Committee elects to defer the payout of the bonus amount over a
period of time not to exceed five (5) years. Payout of a bonus
over an extended period may, at the discretion of the Committee,
be subject to and conditioned upon the continuation of an
Executive's employment with the Company and the profitability of
the Company in the year paid. Unpaid bonuses can be canceled at
the discretion of the Committee.
In the event of a Change in Control, any bonuses awarded but
not yet paid under the Bonus Plan shall be immediately payable.
If the Executive ceases to be employed by the Company or by any
of its subsidiaries, any unpaid bonuses shall be paid in
accordance with the Executive's termination agreement, and as
otherwise determined by the Committee.
The Committee may amend, modify, suspend, or terminate the
Bonus Plan for the purpose of meeting or addressing any changes
in legal requirements or for any other purpose permitted by law.
The Committee will seek shareholder approval of any amendment
determined to require shareholder approval or advisable under the
regulations of the Internal Revenue Service or other applicable
law or regulation.
5. NONASSIGNABILITY
No Bonus or any other benefit under the Bonus Plan shall be
assignable or transferable by the participant during the
participant's lifetime except as otherwise approved by the
Committee.
6. NO RIGHT TO CONTINUED EMPLOYMENT
Nothing in the Bonus Plan shall confer upon any employee any
right to continue in the employ of the Company or shall interfere
with or restrict in any way the right of the Company to discharge
an employee at any time for any reason whatsoever, with or
without good cause.
7. EFFECTIVE DATE
The Bonus Plan shall be deemed effective as of April 7, 1995.
Rev 5/22/95
2
Exhibit 11
MICRON ELECTRONICS, INC.
Computation of Per Share Earnings
(Amounts in thousands, except for per share amounts)
<TABLE>
<CAPTION>
Quarter ended Nine Months ended
------------------- -------------------
June 1, June 2, June 1, June 2,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PRIMARY
Weighted average shares
outstanding 88,521 83,587 85,469 68,419
Stock options using average
market price 1,148 - 1,112 -
-------- -------- -------- --------
Total shares 89,669 83,587 86,581 68,419
======== ======== ======== ========
Net income $ 15,605 $ 9,497 $ 44,129 $ 25,127
Per share amount $ 0.17 $ 0.11 $ 0.51 $ 0.37
FULLY DILUTED
Weighted average shares
outstanding 88,521 83,587 85,469 68,419
Stock options using
greater of average or
ending market price 1,157 - 1,120 -
-------- -------- -------- --------
Total shares 89,678 83,587 86,589 68,419
======== ======== ======== ========
Net income $ 15,605 $ 9,497 $ 44,129 $ 25,127
Per share amount $ 0.17 $ 0.11 $ 0.51 $ 0.37
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the accompanying financial statements and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> JUN-1-1995
<CASH> 37,179
<SECURITIES> 0
<RECEIVABLES> 103,995
<ALLOWANCES> 6,631
<INVENTORY> 97,778
<CURRENT-ASSETS> 247,804
<PP&E> 85,003
<DEPRECIATION> 33,488
<TOTAL-ASSETS> 319,365
<CURRENT-LIABILITIES> 160,118
<BONDS> 6,056
<COMMON> 914
0
0
<OTHER-SE> 151,425
<TOTAL-LIABILITY-AND-EQUITY> 319,365
<SALES> 596,031
<TOTAL-REVENUES> 596,031
<CGS> 476,732
<TOTAL-COSTS> 476,732
<OTHER-EXPENSES> 47,558
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,199)
<INCOME-PRETAX> 72,940
<INCOME-TAX> 28,811
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,129
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.51
</TABLE>
