<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
AND EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
Commission File Number 0-20252
Control Data Systems, Inc.
(Exact name of Registrant as Specified in Charter)
Delaware 41-1718075
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
___________
4201 Lexington Avenue North
Arden Hills, Minnesota 55126-6198
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 482-2401
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days. X Yes No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date: 13,713,205
shares of Common Stock, $0.01 par value per share, as of August 5, 1996.
<PAGE>
CONTROL DATA SYSTEMS, INC.
FORM 10-Q
June 30, 1996
INDEX
Page
Part I - Financial Information:
Consolidated Statements of Operations -
Six months ended June 30, 1996 and June 30, 1995..... 2
Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995.................. 3
Consolidated Statements of Cash Flows -
Six months ended June 30, 1996 and June 30, 1995..... 4
Notes to Consolidated Financial Statements............. 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 10
Part II - Other Information............................ 18
Signature.............................................. 19
Exhibit Index.......................................... 20
1
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONTROL DATA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUES:
Net sales and rentals.................. $ 29,594 $ 74,992 $ 66,223 $ 156,549
Services............................... 45,937 54,096 87,562 102,603
Total revenues....................... 75,531 129,088 153,785 259,152
COST OF REVENUES:
Net sales and rentals.................. 16,040 54,581 36,804 113,833
Services............................... 33,128 41,902 64,952 79,117
Total cost of revenues............... 49,168 96,483 101,756 192,950
Gross profit......................... 26,363 32,605 52,029 66,202
OPERATING EXPENSES:
Selling, general and
administrative........................ 21,675 30,386 43,084 60,558
Technical.............................. 3,174 2,137 6,434 4,475
Total operating expenses............. 24,849 32,523 49,518 65,033
Earnings from operations............. 1,514 82 2,511 1,169
OTHER INCOME (EXPENSES):
Interest expense....................... (40) (453) (152) (727)
Interest income........................ 1,231 1,592 2,438 2,978
Other income, net...................... 1,349 1,240 2,535 1,940
Total other income, net.............. 2,540 2,379 4,821 4,191
Earnings before income taxes......... 4,054 2,461 7,332 5,360
PROVISION FOR INCOME TAXES.............. 400 200 800 900
Net earnings......................... $ 3,654 $ 2,261 $ 6,532 $ 4,460
Primary earnings per common share
and common share equivalents......... $ 0.25 $ 0.18 $ 0.45 $ 0.35
Fully diluted earnings per common
share and common share equivalents... $ 0.25 $ 0.18 $ 0.45 $ 0.34
Weighted average common shares
outstanding (in thousands):
Primary.............................. 14,644 12,878 14,438 12,965
Fully diluted........................ 14,644 12,878 14,452 13,082
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
2
<PAGE>
CONTROL DATA SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
Current assets:
Cash and short-term investments................ $ 89,488 $ 84,034
Trade and other receivables.................... 77,603 85,235
Inventories.................................... 18,443 19,381
Prepaid expenses and other current assets...... 4,273 5,893
Total current assets......................... 189,807 194,543
Investments and advances......................... 128 138
Property and equipment, net...................... 16,675 16,788
Leased and data center equipment, net............ 631 693
Noncurrent trade and other receivables........... 4,761 5,187
Other noncurrent assets.......................... 10,455 10,136
Total assets................................. $ 222,457 $ 227,485
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Notes payable.................................. $ 2,295 $ 686
Accounts payable............................... 14,108 19,934
Customer advances and deferred income.......... 6,493 7,707
Accrued taxes.................................. 4,052 5,883
Accrued salaries and wages..................... 11,524 12,700
Restructure reserves, current portion.......... 10,627 16,704
Other accrued expenses......................... 31,923 32,214
Total current liabilities.................... 81,022 95,828
Deferred income taxes............................ 707 452
Restructure reserves, less current portion....... 4,454 6,412
Pension liabilities.............................. 36,978 38,944
Other noncurrent liabilities..................... 2,479 2,351
Total liabilities............................ 125,640 143,987
Stockholders' equity:
Preferred stock, par value $.01 per share,
authorized 5,000,000 shares; none issued
and outstanding.............................. - -
Common stock, par value $.01 per share,
authorized 50,000,000 shares; issued
14,811,728 and 14,249,986 shares
as of June 30, 1996 and December 31, 1995,
respectively................................. 148 143
Additional paid-in capital..................... 171,118 164,247
Retained earnings.............................. (55,841) (62,373)
Minimum pension liability adjustment........... (11,854) (11,854)
Foreign currency translation adjustment........ (2) 659
Unearned compensation - restricted stock....... (160) (213)
Unrealized gains (losses) on investments....... 58 -
Treasury stock, at cost (1,108,390 and
1,185,224 shares as of June 30, 1996 and
December 31, 1995, respectively)............. (6,650) (7,111)
Total stockholders' equity................... 96,817 83,498
Total liabilities and stockholders' equity... $ 222,457 $ 227,485
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
CONTROL DATA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1996 1995
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings ...................................... $ 6,532 $ 4,460
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation................................... 3,534 6,057
Amortization................................... 184 770
Foreign currency transaction gain.............. (1,181) (392)
Equity in losses of affiliates................. 251 476
Restructure reserves utilized.................. (6,987) (8,713)
Loss (gain) on sale of marketable securities
and other assets............................. 227 (777)
Net change in working capital items............ 148 6,744
Net change in noncurrent trade receivables..... 299 910
Net change in other noncurrent assets.......... (691) (1,462)
Other.......................................... 329 (171)
Net cash provided by operating
activities.................................. 2,645 7,902
Cash Flows from Investing Activities:
Expended for property and equipment................ (4,177) (5,608)
Expended for leased and data center equipment...... (363) (646)
Proceeds from sales of property and equipment...... 54 626
Acquisitions of businesses, net of cash provided... - (546)
Divestitures of businesses, net of cash given...... 9 -
Change in short-term investments................... (9,806) 4,178
Net cash used in investing
activities.................................. (14,283) (1,996)
Cash Flows from Financing Activities:
Borrowings under short-term financing
arrangements, net 1,643 1,695
Proceeds from issuance of common stock, net of
issuance costs................................... 5,987 539
Purchase of treasury stock......................... - (7,111)
Net cash provided by (used in) financing
activities.................................. 7,630 (4,877)
Effect of Exchange Rate Changes on Cash.............. (344) 1,038
Net change in cash and cash equivalents......... (4,352) 2,067
Cash and cash equivalents, beginning of period.. 15,188 17,277
Cash and cash equivalents, end of period........ 10,836 19,344
Short-term investments.......................... 78,652 63,960
Cash and short-term investments, end of period....... $ 89,488 $ 83,304
</TABLE>
(Continued)
4
<PAGE>
CONTROL DATA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1996 1995
<S> <C> <C>
Net Change in Working Capital Items:
Trade and other receivables........................ $ 4,128 $ 4,952
Inventories........................................ 17 435
Prepaid expenses and other current assets.......... 1,246 782
Accounts payable................................... (4,622) 8,562
Customer advances and deferred income.............. (684) (8,763)
Accrued taxes...................................... (1,611) 4,203
Accrued salaries and wages......................... (300) 179
Other accrued expenses............................. 1,974 (3,606)
Net change in working capital items............... $ 148 $ 6,744
Supplemental Disclosures of Cash Flow Information:
Cash paid (received) during the period for:
Interest paid.................................... $ 153 $ 731
Income taxes paid................................ 1,741 569
Income taxes refunded............................ (883) (6,580)
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
CONTROL DATA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements of Control Data Systems, Inc. ("Control
Data" or the "Company") include the accounts of all majority-owned
subsidiaries. All significant intercompany transactions have been
eliminated.
Net Earnings Per Share
The net earnings per common share and common share equivalents is
computed by dividing net earnings by the weighted average number of
shares and dilutive common share equivalents outstanding during each
period. Common stock equivalents result from dilutive stock options and
warrants computed using the treasury stock method.
2. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock, Additional Paid-In Capital, Retained Earnings, and Other
Shares Additional
Outstand- Treasury Common Paid-In Retained
(Dollars and shares in thousands) ing Stock Issued Stock Capital Earnings Other* Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995......... 13,065 1,185 14,250 $ 143 $ 164,247 $ (62,373) $ (18,519) $ 83,498
Issuance of common stock under the
Employee Stock Purchase Plan....... 8 - 8 - 83 - - 83
Exercises of stock options.......... 161 - 161 1 1,195 - - 1,196
Foreign currency translation
adjustment......................... - - - - - - (261) (261)
Restricted stock award.............. - - - - - - 27 27
Change in unrealized gains
on investments.................... - - - - - - 27 27
Issuance of treasury stock.......... 77 (77) - - 889 - 461 1,350
Net earnings........................ - - - - - 2,878 - 2,878
Balance at March 31, 1996............ 13,311 1,108 14,419 144 166,414 (59,495) (18,265) 88,798
Issuance of common stock under the
Employee Stock Purchase Plan....... 7 - 7 - 117 - - 117
Exercises of stock options.......... 86 - 86 - 732 - - 732
Exercises of stock warrants......... 300 - 300 4 3,855 - - 3,859
Foreign currency translation
adjustment......................... - - - - - - (400) (400)
Restricted stock award.............. - - - - - - 26 26
Change in unrealized gains
on investments.................... - - - - - - 31 31
Net earnings........................ - - - - - 3,654 - 3,654
Balance at June 30, 1996............. 13,704 1,108 14,812 $ 148 $ 171,118 $ (55,841) $ (18,608) $ 96,817
</TABLE>
6
<PAGE>
CONTROL DATA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
JUNE 30, 1996
2. STOCKHOLDERS' EQUITY (Continued)
Common Stock, Additional Paid-In Capital, Retained Earnings, and
Other (Continued)
<TABLE>
<CAPTION>
*Other Stockholders' Equity Items
Minimum Foreign Unearned
Pension Currency Compensation- Unrealized
Liability Translation Restricted Gains on Treasury
Adjustment Adjustment Stock Investments Stock Total
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995......... $ (11,854) $ 659 $ (213) $ - $ (7,111) $ (18,519)
Foreign currency translation
adjustment......................... - (261) - - - (261)
Restricted stock award............... - - 27 - - 27
Change in unrealized gains
on investments.................... - - - 27 - 27
Issuance of treasury stock........... - - - - 461 461
Balance at March 31, 1996............ (11,854) 398 (186) 27 (6,650) (18,265)
Foreign currency translation
adjustment......................... - (400) - - - (400)
Restricted stock award............... - - 26 - - 26
Change in unrealized gains
on investments.................... - - - 31 - 31
Balance at June 30, 1996............. $ (11,854) $ (2) $ (160) $ 58 $ (6,650) $ (18,608)
</TABLE>
3. DIVESTITURES
On August 31, 1995, the Company completed the sale of five
international product distribution operations to AmeriData Technologies,
Inc. ("AmeriData"). The Company sold to AmeriData all of the issued and
outstanding capital stock of Control Data operations in Austria,
Norway, and United Kingdom (Plc). Additionally, the Company sold to
AmeriData certain assets, and AmeriData assumed certain liabilities, of
Control Data operations in Canada, Mexico, and United Kingdom (Ltd).
Effective October 31, 1995, the Company completed the sale to AmeriData
all of the issued and outstanding capital stock of the Control Data
operations in Greece and Portugal. On March 25, 1996, the Company
completed the sale to AmeriData all of the issued and outstanding
capital stock of the Control Data operations in Denmark. AmeriData
assumed all assets and liabilities of the operations in Denmark as of,
and in the normal course of business since, February 29, 1996. The
total consideration received for these divestitures was $13.7 million in
cash. Net identifiable assets and liabilities transferred to AmeriData
were $59.4 million and $48.5 million, respectively. Results of
operations, assets, and liabilities for the operations sold are included
in the Company's consolidated financial statements through the dates of
the divestitures.
7
<PAGE>
CONTROL DATA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
JUNE 30, 1996
4. RESTRUCTURING RESERVES, CURRENT AND NONCURRENT
Over the past several years the Company has been transitioning from a
developer and manufacturer of proprietary mainframe computer systems to
a software and services provider focused on enterprise integration and
product design and information services.
Cash outlays for restructuring activities in the second quarter 1996
consisted primarily of $2.1 million for severance costs, which includes
the reduction of the worldwide workforce by approximately 34
individuals, and $1.0 million for lease and other facility obligations
related to commitments under leases throughout the United States and
Europe. Other cash outlays in the second quarter 1996 accounted for
$1.1 million consisting of $0.8 million for litigation matters, and
other less significant items. Cash outlays for the first six months of
1996 totaled $7.0 million, consisting primarily of $4.0 million for
severance costs, which includes the reduction of the worldwide workforce
by approximately 51 individuals, $1.8 million for lease and other
facility obligations related to commitments under leases throughout the
United States and Europe, and other charges of $1.1 million primarily
for litigation matters. Noncash activity was associated with the sale
of operations in Denmark to AmeriData and includes the write-off of net
book value of approximately $0.8 million. For additional information
regarding this divestiture, see note 3 and the Management's Discussion
and Analysis of Financial Condition and Results of Operations.
The following table represents the Company's restructuring activities
for the first half of 1996:
<TABLE>
<CAPTION>
Asset Lease Foreign
Revaluations and Other Currency
Severance and Facility Translation
(Dollars in thousands) Costs Write-offs Obligations Adjustment Other Total
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995.. $ 15,400 $ - $ 3,131 $ - $ 4,585 $ 23,116
Noncash items................ - (854) - (276) (42) (1,172)
Reclassifications
and transfers, net.......... (75) 834 (94) - (365) 300
Translation.................. (224) 20 (51) 276 (21) -
Cash payments................ (1,870) - (812) - (196) (2,878)
Balance at March 31, 1996..... 13,231 - 2,174 - 3,961 19,366
Noncash items................ - (35) - (154) 13 (176)
Reclassifications
and transfers, net.......... (235) 35 76 - 124 -
Translation.................. (127) - (17) 154 (10) -
Cash payments................ (2,086) - (956) - (1,067) (4,109)
Balance at June 30, 1996...... $ 10,783 $ - $ 1,277 $ - $ 3,021 $ 15,081
</TABLE>
Future cash outlays for the remaining restructuring reserve of $15.1
million at June 30, 1996 are anticipated to be $8.7 million for the
remainder of 1996 and $6.4 million for 1997.
8
<PAGE>
CONTROL DATA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
JUNE 30, 1996
5. INVESTMENT IN METAPHASE TECHNOLOGY, INC.
In 1992, the Company and Structural Dynamics Research Corporation
established a joint venture company, Metaphase Technology, Inc.
("Metaphase"), to develop and market product data management software
worldwide. The Company owns 50% of Metaphase and accounts for this
investment on the equity basis. Following are condensed financial data
for Metaphase for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
(Dollars in thousands) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales.................. $ 2,567 $ 2,636 $ 6,719 $ 4,449
Loss before
income taxes............. (1,188) (1,325) (513) (1,556)
Net loss................... (1,176) (1,337) (501) (1,568)
June 30, December 31,
1996 1995
Current assets............. $ 2,868 $ 3,304
Noncurrent assets.......... 955 825
Current liabilities........ 5,006 4,811
Noncurrent liabilities..... 3,530 3,530
</TABLE>
9
<PAGE>
CONTROL DATA SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited)
(Dollars in millions)
Overview. Control Data Systems, Inc. is a global software and
services company dedicated to helping large organizations develop the
enterprise-wide information systems required to create, transmit,
access, and control business information. The Company focuses on the
architecture, implementation, and lifetime support of electronic
commerce, product design, and product information solutions. The
Company provides productivity enhancing solutions for customers in
government, financial services, telecommunications, and manufacturing.
The Company's software and services solutions include network design,
installation, and maintenance; application design and deployment,
particularly for electronic commerce projects; remote and on-site
systems management and outsourcing; electronic mail integration; and for
the discrete manufacturing industry, product data management ("PDM")
systems, and computer-aided design ("CAD") products or systems. To
provide its customers with leading-edge solutions the Company invests in
four major areas:
o Development of software products associated with electronic commerce
integration, PDM, and CAD.
o Training and development of its technical workforce.
o Sales and marketing of its products and services.
o Capital and operational expenditures for the fulfillment of managed
services contracts (outsourcing contracts).
The Company also has a number of suppliers and partners providing a
range of hardware and software platforms, complementary products and
services, and sales and marketing activities.
Revenues by Category
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 Change 1996 1995 Change
<S> <C> <C> <C> <C> <C> <C>
Software and services.... $ 42.9 $ 46.9 (8.5) % $ 82.8 $ 86.4 (4.2) %
Maintenance and support.. 14.2 20.5 (30.7) % 29.1 40.8 (28.7) %
Hardware products........ 18.4 61.7 (70.2) % 41.9 132.0 (68.3) %
Total revenues........ $ 75.5 $ 129.1 (41.5) % $ 153.8 $ 259.2 (40.7) %
</TABLE>
Revenues by Geography
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 Change 1996 1995 Change
<S> <C> <C> <C> <C> <C> <C>
Americas................. $ 33.3 $ 43.7 (23.8) % $ 69.6 $ 93.5 (25.6) %
Europe................... 26.3 70.0 (62.4) % 56.8 139.8 (59.4) %
Asia..................... 15.9 15.4 3.2 % 27.4 25.9 5.8 %
Total revenues........ $ 75.5 $ 129.1 (41.5) % $ 153.8 $ 259.2 (40.7) %
</TABLE>
The Company entered into transactions with AmeriData during 1995 and
1996 to divest eight of its international subsidiary operations. The
effect of these transactions on the
10
<PAGE>
CONTROL DATA SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) (Continued)
(Dollars in millions)
Company's reported results of operations is reflected in the exclusion
of the last four months of results for the five international operations
sold to AmeriData on August 31, 1995, the exclusion of the last two
months of results for the two international operations sold on October
31, 1995, and the exclusion of the results of the month of March 1996
for the international operation sold on March 25, 1996 (collectively the
"AmeriData Divestitures"). See note 3 of the Notes to Consolidated
Financial Statements for additional information regarding the AmeriData
Divestitures.
Revenues for second quarter 1996 of $75.5 million decreased 41.5%
from second quarter 1995 revenues of $129.1 million. Revenues for the
first six months of 1996 totaled $153.8 million, a decrease of 40.7%
from the $259.2 million of revenues in the first six months of 1995.
The revenue decline in the second quarter and the first six months of
1996 was due primarily to decreases in hardware products and maintenance
support sales, resulting in part from the AmeriData Divestitures. The
majority of the decrease in hardware products and maintenance and
support sales was attributable to lower revenues in the Americas and
Europe, offset by an increase in revenues in Asia. The maintenance and
support revenues decline is also due to the decrease in the number of
proprietary systems under maintenance contracts.
On a pro forma basis, revenues in the second quarter of 1996 of $75.5
million decreased 5.5% from 1995 second quarter revenues of $79.9
million. Revenues for the first six months of 1996 of $153.8 million
increased 1.0% from 1995 revenues for the comparable six month period of
$152.2 million. The revenue increase was due to an increase in software
and services, offset in part by a decline in maintenance and support and
hardware product sales. The increase in software and services and the
decrease in hardware product and maintenance and support sales reflects
the Company's continuing emphasis on software and services sales related
to its target markets of electronic commerce and PDM/CAD.
Cost of Revenues and Gross Profit
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 Change 1996 1995 Change
<S> <C> <C> <C> <C> <C> <C>
Cost of revenues........ $ 49.2 $ 96.5 (49.0) % $ 101.8 $ 193.0 (47.3) %
Percentage of revenues.. 65.2 % 74.7 % 66.2 % 74.5 %
Gross profit............ $ 26.3 $ 32.6 (19.3) % $ 52.0 $ 66.2 (21.5) %
Percentage of revenues.. 34.8 % 25.3 % 33.8 % 25.5 %
</TABLE>
Cost of revenues for second quarter 1996 decreased by 49.0% over the
comparable period in 1995. Cost of revenues for the first six months of
1996 decreased by 47.3% compared to the same period in 1995. Gross
profit margins for second quarter 1996 decreased by 19.3% as compared to
the second quarter 1995. Gross profit margins for the first six months
of 1996 decreased by 21.5% as compared to the same period in 1995. The
primary factor contributing to the cost of revenues and gross profit
margins decreases was the decline in total revenues, primarily in
hardware products and maintenance and support sales. Gross profit
margins increased to 34.9% in second quarter 1996 from 25.3% in second
quarter 1995. Gross profit margins increased to 33.8% for the first six
months of 1996 from 25.5% in the comparable period in 1995. The
increases in gross margins primarily reflect the exclusion of lower
profit margin hardware product sales associated with the AmeriData
Divestitures. On a pro forma basis, gross profit margins increased to
34.9% in second quarter 1996 from 31.0% in the comparable period in
1995. Gross profit margins increased to 33.8% for the first six months
of 1996 from 31.3% for the comparable six month period of 1995.
11
<PAGE>
CONTROL DATA SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) (Continued)
(Dollars in millions)
Operating Expenses
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 Change 1996 1995 Change
<S> <C> <C> <C> <C> <C> <C>
Selling, general and
administrative........ $ 21.7 $ 30.3 (28.4) % $ 43.1 $ 60.5 (28.8) %
Percentage of revenues.. 28.7 % 23.5 % 28.0 % 23.3 %
Technical............... $ 3.1 $ 2.2 40.9 % $ 6.4 $ 4.5 42.2 %
Percentage of revenues.. 4.1 % 1.7 % 4.2 % 1.7 %
</TABLE>
Selling, general and administrative (SG&A). The decrease in SG&A
expense is due to the downsizing actions taken by the Company over the
past year and the exclusion of operating expenses associated with the
operations sold in the AmeriData Divestitures. On a pro forma basis,
the divested operations had lower SG&A expense to revenue ratios and the
exclusion of these operations would raise the Company's SG&A expense to
revenue percentage.
Technical. The increase in technical expense is a result of higher
spending on electronic commerce products and services, one of the
Company's targeted markets.
Nonoperating Income
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 Change 1996 1995 Change
<S> <C> <C> <C> <C> <C> <C>
Nonoperating income.... $ 2.5 $ 2.4 4.2 % $ 4.8 $ 4.2 14.3 %
Percentage of revenues. 3.3 % 1.9 % 3.1 % 1.6 %
</TABLE>
Interest expense. Interest expense decreased in second quarter and the
first six months of 1996 from the same periods in 1995 primarily as a
result of lower average daily short-term borrowings due in part to the
AmeriData Divestitures.
Interest income. Interest income decreased in second quarter and the
first six months of 1996 versus the comparable periods in 1995 due to
lower average interest rate yields.
Other income, net. Other income increased by $0.1 million and $0.6
million, respectively, in the second quarter 1996 and the first six
months of 1996 versus the comparable periods in 1995. The increase in
the first six months of 1996 is attributable to a favorable foreign
currency exchange gain of $1.2 million in the first six months of 1996
versus a $0.2 million gain in the comparable period in 1995, and a gain
of $0.4 million in 1995 for the sale of land versus none in the
comparable period in 1996.
Provision for Income Taxes
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Provision for Income Taxes.. $ 0.4 $ 0.2 $ 0.8 $ 0.9
Percentage of revenues...... 0.5 % 0.2 % 0.5 % 0.3 %
</TABLE>
The provision for income taxes in second quarter and the first six
months of 1996 and the comparable periods in 1995 relates primarily to
foreign income taxes on the earnings of the Company's foreign
subsidiaries and foreign withholding taxes on certain United States
income.
12
<PAGE>
CONTROL DATA SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) (Continued)
(Dollars in millions)
Net Earnings and Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(Earnings per share in dollars) June 30, June 30, June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net earnings................ $ 3.6 $ 2.3 $ 6.5 $ 4.5
Percentage of revenues...... 4.8 % 1.8 % 4.2 % 1.7 %
Earnings per share:
Primary.................... $ 0.25 $ 0.18 $ 0.45 $ 0.35
Fully diluted.............. $ 0.25 $ 0.17 $ 0.45 $ 0.34
</TABLE>
Net earnings for second quarter and the first six months of 1996
increased by $1.3 million and $2.0 million, respectively, from the
comparable periods in 1995. The earnings increase is primarily
attributable to lower operating expenses, higher nonoperating income,
and a lower provision for income taxes. Also contributing to higher
earnings in second quarter and the first six months of 1996 versus the
comparable periods of 1995 is the exclusion of lower profit margin
hardware product sales, operating expenses, and interest expenses
associated with the operations sold in the AmeriData Divestitures.
Operating results for the six months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
Outlook
The following factors, among others, should be considered in
evaluating the Company's outlook.
General. The Company participates in the systems integration segment of
the information systems and services market. Equipment manufacturers,
large consulting firms, and traditional systems integrators also compete
in this market segment. There are many smaller firms also active in
this market segment with no one firm having a dominant position. Many
of the companies in this market segment offer outsourcing and other
types of long term agreements with their customer base. The result of
these types of activities is to develop a backlog of business that
creates a certain predictable revenue base in future periods. As the
Company is just beginning to build a base of these types of arrangements
as part of its electronic commerce offerings, revenue predictability is
currently difficult, and continuing quarterly volatility of earnings can
be expected.
Revenues. The Company expects total revenues to decrease in 1996 from
1995 due in part to the divestitures of certain international operations
sold to AmeriData. However, 1996 revenues should increase from 1995
revenues on a pro forma basis. Continued growth in software and
services sales and increased outsourcing revenues associated with its
managed services activities are expected to provide the basis for this
growth. Revenue levels in 1996 could be impacted by the Company's
business transition and narrowed focus, as well as by the acquisition of
additional businesses or divestiture of existing operations.
Cost of revenues. The Company's cost of revenues as a percentage of
total revenues decreased in the second quarter and first six months of
1996 from the comparable periods in 1995. Gross profit margins as a
percentage of total revenues increased in the second quarter and first
six months of 1996 from the comparable periods in 1995. Cost of
revenues as a percentage of revenues is expected to decline in 1996 and
gross margins as a percentage of revenues are expected to increase in
1996 due in part to the divestitures of certain international
operations, whose revenue mix primarily consisted of lower profit margin
hardware products. Due to varying gross profit margins of different
types of product sales and varying gross profit margins of specific
large projects quarter to quarter, total gross profit margins in 1996
could be volatile.
13
<PAGE>
CONTROL DATA SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) (Continued)
(Dollars in millions)
Selling, general and administrative expenses. SG&A expenses declined in
the second quarter and first six months of 1996 from the comparable
periods in 1995 due primarily to restructuring actions taken and the
divestitures of certain international operations. SG&A expenses are
expected to decrease in 1996 from 1995. However, on a pro forma basis,
SG&A expenses will likely increase in 1996 as the Company expands its
sales activities related to its PDM/CAD and electronic commerce
businesses.
Technical expenses. Technical spending increased in the second quarter
and first six months of 1996 versus the comparable periods in 1995.
This increase is primarily attributable to higher spending on electronic
commerce products and services. Technical spending is expected to
increase in 1996 from 1995 due primarily to higher spending on
electronic commerce products and services, one of the Company's targeted
markets.
Income tax rate. In total, the Company has $106.3 million of gross
deferred tax assets at December 31, 1995 which can be used to offset
taxes on future earnings. While the Company maintains significant
operations outside the United States, a number of these operations also
have deferred tax assets as of December 31, 1995 resulting from lower
than expected 1994 earnings, caused in part by the worldwide
restructuring activity. In the long term this will significantly reduce
the Company's tax expense. However, given the wide geographical
dispersion of the Company's operations the overall effective tax rate
will be volatile. The gross deferred tax assets of $106.3 million at
December 31, 1995 decreased by $8.4 million in the first quarter of 1996
due to the sale of Denmark operations to AmeriData.
Foreign exchange. A large percentage of the Company's revenues, costs,
and expenses are transacted in currencies other than the U.S. dollar.
As a result, the Company's financial results are subject to foreign
exchange rate fluctuations.
Other. See Notes to Consolidated Financial Statements regarding other
factors concerning the Company.
Financial condition
The Company's cash and short-term investments totaled $89.5 million
at June 30, 1996 representing 40.2% of total assets. Total cash and
short-term investment balances increased by $5.5 million from the
corresponding December 31, 1995 balances. The primary factors for the
increase were positive net cash flow of $6.5 million for net earnings,
which reflects earnings after depreciation and amortization of $3.5
million, the issuance of Common Stock of $6.0 million, and an increase
in short-term borrowings of $1.6 million, partially offset by
restructuring payments of $7.0 million, capital expenditures of $4.5
million, and a foreign currency transaction gain of $1.2 million. The
AmeriData Divestitures, through the elimination of certain hardware
distribution activities, significantly reduced the Company's investment
in inventory and the associated risk of obsolescence associated with
that inventory.
Stockholders' equity increased by $13.3 million in the first six
months of 1996. The increase is primarily due to net earnings of $6.5
million, the issuance of Common Stock and treasury stock of $6.0 million
and $1.4 million, respectively, offset in part by a foreign currency
translation adjustment of $0.7 million.
As of June 30, 1996, the Company has available up to $16.1 million in
credit facilities in certain international subsidiaries (primarily short-
term notes and overdraft facilities under bank lines of credit), as well
as a domestic credit arrangement which provides up to $10.0 million in
unsecured short-term credit.
14
<PAGE>
CONTROL DATA SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) (Continued)
(Dollars in millions)
The Company has $15.1 million of restructure obligations as of June
30, 1996, $8.7 million of which are expected to be cash outlays for the
remainder of 1996, primarily for severance costs, lease and other
obligations related to excess facilities, and litigation costs.
Restructuring payments will extend into 1997 to satisfy various long-
term real estate obligations and severance issues. The Company believes
that it can finance this cash requirement through a combination of
existing cash reserves, cash flow from operations, asset sales, and its
borrowing capacity. To the extent it may be necessary to supplement
these sources of cash, the Company could seek financing from strategic
investors and through future debt or equity financing in the public or
private markets. The ability of the Company to borrow money or to sell
debt or equity securities will depend on its results of operations,
financial condition, and business prospects, as well as conditions then
prevailing in the computer industry and the relevant capital markets.
Except for the historical information contained within the
Management's Discussion and Analysis of Financial Condition and Results
of Operations, the accompanying consolidated financial statements, and
the Notes to Consolidated Financial Statements, the matters reflected in
this quarterly report as expectations, plans, future estimates and the
like are forward looking statements that involve risks and uncertainties
including: business conditions and growth in the general economy and
electronic messaging market; volatility in gross margins as the
Company's revenues and product mix change; additional restructuring
actions or charges as the Company continues to evolve in its rapidly
changing industry; competitive factors, such as alternative messaging,
PDM and CAD products and price pressures; availability of skilled
personnel in various geographic areas; acceptance of the outsourcing of
corporate messaging infrastructures; the success of the Company's
business partners in sales and marketing activities; and other factors
discussed herein.
The following tables represent pro forma results for the second
quarter and first six months of 1996 and 1995. The 1995 second quarter
and first six months pro forma results are based on the elimination of
certain international operations, sold to AmeriData, located in Austria,
Canada, Greece, Mexico, Norway, Portugal, and United Kingdom, and for
the period following February 28, 1995, Denmark. The business type
information is presented based on the 1996 organization structure of the
Company. Certain 1995 revenues and costs have been reclassified to
conform to the 1996 structure (unaudited).
1996/1995 Pro Forma Revenues and Gross Profits for 2nd Quarter
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 Pro Forma 1995
2nd Quarter Percentage 2nd Quarter
REVENUES As Reported Change As Reported Pro Forma
<S> <C> <C> <C> <C>
Software and services.... $ 42,908 11.6 % $ 46,938 $ 38,437
Maintenance and support.. 14,208 (8.5) % 20,506 15,527
Hardware products........ 18,415 (29.0) % 61,644 25,925
Total revenues....... $ 75,531 (5.5) % $ 129,088 $ 79,889
Gross profit............. $ 25,666 6.4 % $ 32,605 $ 24,787
REVENUE DISTRIBUTION
Software and services.... 56.8% 36.4% 48.1%
Maintenance and support.. 18.8% 15.9% 19.4%
Hardware products........ 24.4% 47.7% 32.5%
Total revenues....... 100.0% 100.0% 100.0%
Gross profit............. 34.9% 25.3% 31.0%
</TABLE>
15
<PAGE>
CONTROL DATA SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) (Continued)
1996/1995 Pro Forma Revenues and Gross Profits Year-to-Date
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 Pro Forma 1995
Year-to-Date Percentage Year-to-Date
REVENUES As Reported Change As Reported Pro Forma
<S> <C> <C> <C> <C>
Software and services.... $ 82,771 21.1 % $ 86,402 $ 68,350
Maintenance and support.. 29,072 (8.0) % 40,778 31,616
Hardware products........ 41,942 (19.8) % 131,972 52,272
Total revenues....... $ 153,785 1.0 % $ 259,152 $ 152,238
Gross profit............. $ 52,029 9.1 % $ 66,202 $ 47,693
REVENUE DISTRIBUTION
Software and services.... 53.8% 33.4% 44.9%
Maintenance and support.. 18.9% 15.7% 20.8%
Hardware products........ 27.3% 50.9% 34.3%
Total revenues....... 100.0% 100.0% 100.0%
Gross profit............. 33.8% 25.5% 31.3%
</TABLE>
1996 2nd Quarter Revenues and Gross Profits by Business Type
<TABLE>
<CAPTION>
(Dollars in thousands) Product
Enterprise Design and
Integration Information Technical
REVENUES Services Services Services Total
<S> <C> <C> <C> <C>
Software and services.... $ 28,742 $ 10,461 $ 3,705 $ 42,908
Maintenance and support.. - - 14,208 14,208
Hardware products........ 12,325 5,830 260 18,415
Total revenues....... $ 41,067 $ 16,291 $ 18,173 $ 75,531
Gross profit............. 29.3% 44.3% 39.3% 34.9%
</TABLE>
1995 2nd Quarter Pro Forma Revenues and Gross Profits by Business Type
<TABLE>
<CAPTION>
(Dollars in thousands) Product
Enterprise Design and
Integration Information Technical
REVENUES Services Services Services Total
<S> <C> <C> <C> <C>
Software and services.... $ 21,908 $ 9,767 $ 6,762 $ 38,437
Maintenance and support.. - - 15,527 15,527
Hardware products........ 18,615 6,588 722 25,925
Total revenues....... $ 40,523 $ 16,355 $ 23,011 $ 79,889
Gross profit............. 22.2% 48.3% 34.4% 31.0%
</TABLE>
16
<PAGE>
CONTROL DATA SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited) (Continued)
1996 Year-to-Date Revenues and Gross Profits by Business Type
<TABLE>
<CAPTION>
(Dollars in thousands) Product
Enterprise Design and
Integration Information Technical
REVENUES Services Services Services Total
<S> <C> <C> <C> <C>
Software and services.... $ 49,730 $ 25,451 $ 7,590 $ 82,771
Maintenance and support.. - - 29,072 29,072
Hardware products........ 28,867 11,412 1,663 41,942
Total revenues....... $ 78,597 $ 36,863 $ 38,325 $ 153,785
Gross profit............. 26.6% 45.1% 37.9% 33.8%
</TABLE>
1995 Year-to-Date Pro Forma Revenues and Gross Profits by Business Type
<TABLE>
<CAPTION>
(Dollars in thousands) Product
Enterprise Design and
Integration Information Technical
REVENUES Services Services Services Total
<S> <C> <C> <C> <C>
Software and services.... $ 40,358 $ 17,476 $ 10,516 $ 68,350
Maintenance and support.. - - 31,616 31,616
Hardware products........ 38,312 12,605 1,355 52,272
Total revenues....... $ 78,670 $ 30,081 $ 43,487 $ 152,238
Gross profit............. 23.9% 46.3% 34.5% 31.3%
</TABLE>
17
<PAGE>
PART II
OTHER INFORMATION
ITEM 4 Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of the Registrant's stockholders was
held on May 15, 1996.
(b) Proxies for the Annual Meeting were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934, there
was no solicitation in opposition to management's nominees, and
the following persons were elected directors of the Registrant
to serve until the next annual meeting of stockholders and
until their successors shall have been duly elected and
qualified:
<TABLE>
<CAPTION>
Nominee Number of Votes For Number of Votes Withheld
<S> <C> <C>
W. Donald Bell 11,430,024 608,251
Grant A. Dove 11,428,560 609,715
Marcelo A. Gumucio 11,429,276 608,999
W. Douglas Hajjar 11,431,843 606,432
Keith A. Libbey 11,306,153 732,122
James E. Ousley 11,430,564 607,711
</TABLE>
(c) At the Annual Meeting, the stockholders approved the
appointment of KPMG Peat Marwick LLP as the Company's
independent auditors for the current fiscal year by a vote of
11,969,607 For, 55,791 Against, 12,877 Abstentions and no
broker nonvotes.
(d) At the Annual Meeting, the stockholders approved the
amendments to the 1992 Equity Incentive Plan increasing the
number of shares reserved, authorizing additional payment
methods upon option exercise, and clarifying provisions
protecting participants upon certain corporate transactions by
a vote of 8,782,209 For, 3,184,347 Against, 48,681 Abstentions
and no broker nonvotes.
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 The Registrant's 1992 Equity Incentive Plan
(as amended through May 15, 1996)
11 Computation of Earnings per Common Share
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
18
<PAGE>
SIGNATURE
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 hereunto duly authorized.
CONTROL DATA SYSTEMS, INC.
Registrant
Date: August 9, 1996 /s/ J. F. KILLORAN
J. F. Killoran
Vice President and Chief Financial Officer
(Principal Accounting Officer)
19
<PAGE>
EXHIBIT INDEX
EXHIBITS FILED AS ITEM 6 TO THE QUARTERLY REPORT OF CONTROL DATA
SYSTEMS, INC. ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1996.
(10.1) The Registrant's 1992 Equity Incentive Plan (as amended through
May 15, 1996)
(11) Computation of Earnings Per Common Share
(27) Financial Data Schedule
<PAGE>
APPENDIX
CONTROL DATA SYSTEMS, INC.
1992 EQUITY INCENTIVE PLAN
(AS AMENDED THROUGH MAY 15, 1996)
ARTICLE I - INTRODUCTION
1.01 Purpose. The purpose of the 1992 Equity Incentive Plan (the
Plan) is to advance the interests of Control Data Systems, Inc.
and its stockholders by affording officers and other key
employees of the Corporation and its Subsidiaries, upon whose
judgment, initiative and efforts the Corporation and its
Subsidiaries largely depend for the successful conduct of their
business, a proprietary interest in the growth and performance of
the Corporation.
ARTICLE II - DEFINITIONS
2.01 "Affiliate" means a Parent or Subsidiary of the Corporation.
2.02 "Award" means the grant of any form of Incentive Stock Option,
Nonqualified Stock Option, Restricted Stock Award, or any number
of Performance Units, whether granted singly, in combination or
in tandem, to a Plan Participant pursuant to the Plan on such
terms, conditions and limitations as the Committee may establish
in order to fulfill the objectives of the Plan.
2.03 "Award Agreement" means the agreement executed by the Corporation
or its Subsidiary and a Participant that sets forth the terms,
conditions and limitations applicable to the Award.
2.04 "Board" means, at any particular time, the then duly elected and
acting directors of the Corporation.
2.05 "Committee" means the Compensation Committee of the Board (or any
successor to such Committee), which shall consist solely of two
or more directors who shall be appointed by and serve at the
pleasure of the Board. Each of the members of the Committee
shall be a "disinterested person" as defined in Rule 16b-3, or
any successor provision, as then in effect, of the General Rules
and Regulations under the Securities Exchange Act of 1934, as
amended. As of the Effective Date of the Plan, a "disinterested
person" under Rule 16b-3 generally means a director who, among
other things, has not been, at any time within one year prior to
his or her appointment to the Committee (or, if shorter, during
the period beginning with the initial registration of the
1
<PAGE>
Corporation's equity securities under Section 12 of the
Securities Exchange Act of 1934, as amended, and ending with the
director's appointment to the Committee), and who will not be,
while serving on such Committee, granted or awarded options under
the Plan or under any other plan of the Corporation or any of its
Affiliates which entitle participants to acquire stock, stock
options, stock appreciation rights or similar rights that have an
exercise or conversion privilege or a value derived from equity
securities issued by the Corporation or the Affiliate, except to
the extent permitted by Rule 16b-3, and except for the
Nonqualified Stock Options granted to Outside Directors pursuant
to Article VIII.
Notwithstanding anything in this Section 2.05 to the contrary,
until such date as the Board elects to comply with the Section
16(b) rules issued by the Securities and Exchange Commission on
February 8, 1991, the Committee shall consist of at least three
directors who have not been and shall not be eligible to receive
options under the Plan or any other plan of the Corporation or
its Affiliates as required by former Rule 16b-3, except to the
extent permitted by such former Rule 16b-3 and except for the
Nonqualified Stock Options granted to Outside Directors pursuant
to Article VIII.
2.06 "Corporation" means Control Data Systems, Inc., a Delaware
corporation, and any successor in interest by way of
consolidation, operation of law, merger or otherwise.
2.07 "Date of Grant" means the date an Award is approved by resolution
of the Committee, or such later date as may be specified in such
resolution; provided, however, that for Nonqualified Stock
Options granted to Outside Directors pursuant to Article VIII,
the "Date of Grant" shall be the date specified in Section 8.01.
2.08 "Effective Date" means the date the Plan is adopted by the Board
under Section 14.01 of Article 14 of the Plan.
2.09 "Eligible Employee" means those key employees and officers of the
Corporation or a Subsidiary upon whose judgment, initiative and
efforts the Corporation and its Subsidiaries largely depend for
the successful conduct of their business.
2.10 "Fair Market Value" means, with respect to shares of Stock on any
applicable date:
(a) If the Stock is reported in the national
market system or is listed upon an established exchange
or exchanges, the closing price of such Stock in such
national market system or on such stock
2
<PAGE>
exchange or exchanges on the applicable date or,
if no sale of such Stock shall have occurred on that
date, the next preceding date on which there was such a
reported sale; or
(b) If the Stock is not so reported in the
national market system or listed upon an exchange, the
mean between the "bid" and "asked" prices quoted by a
recognized specialist in the Stock on the applicable
date or, if there are no quoted "bid" and "asked"
prices on such date, on the next preceding date for
which there are such quotes; or
(c) If the Stock is not publicly traded as of the
applicable date, the Fair Market Value of the Stock on
the applicable date as determined by the Committee by
applying principals of valuation, and the Committee
shall have full authority and discretion in
establishing the Fair Market Value.
2.11 "Incentive Stock Option" means an option to purchase Stock
awarded to a Participant under Article VI of this Plan that
qualifies as an Incentive Stock Option within the meaning of
Internal Revenue Code Section 422.
2.12 "Internal Revenue Code" means the Internal Revenue Code of 1986,
as amended from time to time, and the regulations thereunder.
2.13 "Nonqualified Stock Option" means an option to purchase Stock
awarded to a Participant under Article VII or to an Outside
Director under Article VIII of this Plan but which does not
qualify as an Incentive Stock Option.
2.14 "Outside Director" means a member of the Board who is not an
employee of the Corporation or any of its Affiliates.
2.15 "Parent" means a corporation as defined in Internal Revenue Code
Section 424(e) applying such Section 424(e) by treating the
Corporation as the employer corporation.
2.16 "Participant" means an Eligible Employee to whom an Award has
been made under the Plan.
2.17 "Performance Goal" means with respect to a Performance Unit
Award, a specified initial or cumulative business objective not
related to any equity security of the Corporation, the
satisfaction of which shall be a condition precedent to the
vesting of all or a portion of that Performance Unit Award.
3
<PAGE>
2.18 "Performance Period" means with respect to a Performance Unit
Award, the designated period set forth in an Award Agreement over
which the Performance Units may vest.
2.19 "Performance Unit" means a unit having a cash equivalent value
determined by the Committee on the basis of achievement by the
Corporation, by a specified Subsidiary, or by a specified
operating unit within the Corporation or Subsidiary of business
objectives which shall be set forth in the terms of an Award
Agreement and which shall not be related to any equity security
of the Corporation.
2.20 "Plan" means the Control Data Systems, Inc. 1992 Equity Incentive
Plan, as set forth herein, as the same may be from time to time
amended.
2.21 "Replacement Option" means a Nonqualified Stock Option or an
Incentive Stock Option granted under this Plan to replace a
nonqualified stock option or an incentive stock option that had
been previously granted under the Control Data Corporation 1980
Stock Option Plan or the Control Data Corporation 1990 Long-Term
Incentive Plan.
2.22 "Restricted Stock Award" means shares of Stock awarded to a
Participant under Article IX of this Plan.
2.23 "Section 16(b) Participant" means a Participant who is subject to
the provisions of Section 16(b), or any successor provision, of
the Securities Exchange Act of 1934, as amended (the "1934 Act").
2.24 "Stock" means the Corporation's Common Stock, par value $0.01 per
share.
2.25 "Subsidiary" means a corporation as defined in Internal Revenue
Code Section 424(f) applying such Section 424(f) by treating the
Corporation as the employer corporation.
2.26 "Transaction Date" means, for purposes of Section 8.01, the
Effective Date defined in the Transfer Agreement entered into by
the Corporation and Ceridian Corporation (formerly Control Data
Corporation) ("Ceridian") pursuant to which Ceridian will
transfer and assign to the Corporation certain assets and
properties in exchange for the Corporation's assumption of
certain liabilities and obligations of Ceridian and the
Corporation's issuance of shares of its Stock to Ceridian.
2.27 "Year" means a calendar year.
4
<PAGE>
ARTICLE III - ADMINISTRATION
3.01 Administration. Except for those matters expressly reserved to
the Board pursuant to any provisions of the Plan, and except for
all matters relating to the grant of Nonqualified Stock Options
to Outside Directors pursuant to Article VIII, the Committee
shall have full responsibility for administration of the Plan,
which responsibility shall include, but shall not be limited to,
the following:
(a) The Committee shall review and approve any
and all Awards to be made to Eligible Employees
recommended by the management of the Corporation or its
Subsidiaries in accordance with and subject to the
provisions of the Plan;
(b) The Committee shall, subject to the
provisions of the Plan, establish, adopt and revise
such rules and procedures for administering the Plan,
shall prescribe the form of the Award Agreements (which
may vary from Participant to Participant) evidencing
each Award, and shall make all other determinations as
it may deem necessary or advisable for the
administration of the Plan;
(c) With the exception of the Nonqualified Stock
Options granted to Outside Directors pursuant to
Article VIII, the Committee shall, subject to the
provisions of the Plan, determine the number and type
of Awards and all terms and conditions that shall apply
to such Awards, including, but not limited to, the
Performance Goals, the Performance Period and the
formula for the valuation of Performance Units in
connection with the Performance Unit Awards. The
Committee may, in its discretion, consider the
recommendations of the management of the Corporation or
its Subsidiaries when determining such terms and
conditions for such Awards.
(d) The Committee shall have the exclusive
authority to interpret the provisions of the Plan, and
each such interpretation or determination shall be
conclusive and binding for all purposes and on all
persons, including, but not limited to, the Corporation
and its Subsidiaries, the stockholders of the
Corporation and its Subsidiaries, the Committee and
each of its members thereof, the directors, officers
and employees of the Corporation and its Subsidiaries,
and the Participants and the respective successors-in-
interest of all of the foregoing;
5
<PAGE>
(e) The Committee shall keep minutes of its
meetings regarding the Plan and shall provide copies to
the Board.
(f) With respect to the Replacement Options, the
Committee shall exercise its discretion to provide that
the terms and conditions of such Replacement Options
are the same as under the Control Data Corporation 1980
Stock Option Plan or the Control Data Corporation 1990
Long-Term Incentive Plan to the extent required by the
Personnel Agreement entered into by Ceridian
Corporation (formerly Control Data Corporation) and the
Corporation in connection with the transaction
described in Section 2.26.
3.02 Options Granted to Outside Directors. The Board shall have full
responsibility for administering all matters relating to the
grant of Nonqualified Stock Options to Outside Directors pursuant
to Article VIII of this Plan. No person who is not a
"disinterested person" as defined in Rule 16b-3, or any successor
provision, as then in effect, of the General Rules and
Regulations under the Securities Exchange Act of 1934, as
amended, shall have any discretion over decisions relating to
Article VIII of the Plan that would cause the Plan to fail the
requirements of Section 16(b), or any successor provision, of the
Securities Exchange Act of 1934, as amended.
ARTICLE IV - STOCK SUBJECT TO PLAN
4.01 Number. The total number of shares of Stock available for grants
to Participants directly or indirectly under all forms of Awards
under the Plan shall not exceed Three Million Two Hundred
Thousand (3,200,000) shares, except to the extent adjustments are
made pursuant to Section 4.03 of the Plan. Shares of Stock to be
awarded may be either treasury or authorized but unissued shares.
During any Year, no Participant shall be granted Incentive or
Nonqualified Stock Options for the purchase of more than 300,000
shares of Stock.
4.02 Unused Shares. In the event a Restricted Stock Award, an
Incentive Stock Option Award or a Nonqualified Stock Option Award
granted under the Plan for any reason expires or is terminated
prior to the exercise thereof, the shares of Stock allocable to
the unexercised portion of such Restricted Stock Award, Incentive
Stock Option or Nonqualified Stock Option shall continue to
become available for grants of Restricted Stock Awards, Incentive
Stock Options or Nonqualified Stock Options under the Plan.
6
<PAGE>
4.03 Capital Adjustments. In the event of an increase or decrease in
the number of shares of Stock or in the event the Stock is
changed into or exchanged for a different number or kind of
shares of stock or other securities of the Corporation or of
another corporation by reason of a reorganization, merger,
consolidation, divestiture (including a spin-off), liquidation,
recapitalization, reclassification, stock dividend, stock split,
combination of shares, rights offering or any other change in the
corporate structure or shares of the Corporation, the Board (or,
if the Corporation is not the surviving corporation in any such
transaction, the board of directors of the surviving
corporation), in its sole discretion, shall adjust the number and
kind of securities subject to and reserved under the Plan and, to
prevent the dilution or enlargement of rights of Participants and
Outside Directors, shall adjust the number and kind of securities
subject to outstanding Awards and, where applicable, the option
price per share for such securities. Additional shares which may
be credited to such outstanding Awards shall be subject to the
same restrictions that apply to the securities with respect to
which the adjustment relates.
Notwithstanding the foregoing or any other provision in this Plan
to the contrary, and subject to Section 11.04 of Article XI, in
the event of a sale by the Corporation of substantially all of
its assets and the consequent discontinuance of its business or
in the event of a merger, consolidation, exchange,
reorganization, reclassification, extraordinary dividend,
divestiture (including a spin-off) or liquidation of the
Corporation (collectively referred to as a "transaction"), the
Board may, in its sole discretion, provide for none, one or more
of the following, or may take such other action as it deems
appropriate:
(a) That all outstanding Incentive Stock Options and
Nonqualified Stock Options shall become exercisable in full;
(b) That this Plan shall terminate and that all outstanding
Incentive Stock Options and Nonqualified Stock Options not
exercised prior to a date specified by the Board (which date
shall give Participants a reasonable period of time in which
to exercise such Options prior to the effectiveness of such
transaction) shall be cancelled;
(c) That this Plan shall continue with respect to the
exercise of Incentive Stock Options and Nonqualified Stock
Options which were outstanding as of the date of Board's
adoption of the plan for such transaction and, if
applicable, provide Participants and Outside Directors the
right to exercise their respective Options as to an
equivalent number of shares of stock of any corporation
succeeding the Corporation by reason of such transaction;
7
<PAGE>
(d) That Participants and Outside Directors holding
outstanding Incentive Stock Options and Nonqualified Stock
Options shall receive, with respect to each share of Stock
subject to such Options, as of the effective date of any
such transaction, cash in an amount equal to the excess of
the Fair Market Value of such Stock on the date immediately
preceding the effective date of such transaction over the
option price per share of such Options; provided that the
Board may, in lieu of such cash payment, distribute to such
Participants and Outside Directors shares of Stock of the
Corporation or shares of stock of any corporation succeeding
the Corporation by reason of such transaction, such shares
having a value equal to the cash payment provided by this
Section 4.03(d);
(e) That all restrictions on the transferability of shares
subject to Restricted Stock Awards shall lapse;
(f) That, to the extent Performance Units granted under
Article X have vested prior to the effective date of the
transaction as the Committee, in its sole discretion, shall
determine, Participants shall receive payment for the value
of such Performance Units as provided in Sections 10.03 and
10.04;
provided, however, that the Board may restrict the rights of, or
the applicability of this Section 4.03 to, Section 16(b)
Participants or Outside Directors to the extent necessary to
comply with the requirements of Section 16(b), or any successor
provision, of the Securities Exchange Act of 1934, as amended.
The grant of an Award pursuant to the Plan shall not limit in any
way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes in its capital or
business structure or to merge, exchange or consolidate or to
dissolve, liquidate, sell or transfer all or any part of its
business or assets.
ARTICLE V - PARTICIPATION
5.01 Participants. Participants in the Plan shall be those Eligible
Employees who, in the judgment of the Committee, following
recommendation by management of the Corporation or its
Subsidiaries, have performed, are performing or during the period
of their Award will perform, vital services in the management,
operation and development of the Corporation or its Subsidiaries,
and have significantly contributed, are significantly
contributing or are expected to significantly contribute to the
achievement of long-term corporate objectives. Participants may
be granted from time to time one or more
8
<PAGE>
Restricted Stock Awards, Performance Units, Incentive Stock
Options, or Nonqualified Stock Options; provided, however, that
the grant of each Award shall be separately approved by the
Committee; and, provided further, that the receipt of one such
Award shall not result in the automatic receipt of any other
Award. Upon determination by the Committee that an Award is to
be granted to a participant, an Award Agreement shall be executed
by the Corporation and by such Participant, specifying the terms,
conditions, rights and duties related thereto.
5.02 Outside Directors. Outside Directors shall be eligible to
participate in the Plan only to the extent provided in Article
VIII, and the Committee shall not exercise any discretion with
respect to such eligibility.
ARTICLE VI - INCENTIVE STOCK OPTIONS
6.01 Grant of Incentive Stock Options. In accordance with the
provisions of the Plan, the Committee shall approve, following
recommendation by management of the Corporation or its
Subsidiaries, the Eligible Employees to whom Incentive Stock
Options shall be granted. The Committee shall determine the
number of shares to be subject to each Incentive Stock Option,
the time at which such Option shall be granted, whether such
Option shall be granted in exchange for the cancellation and
termination of a previously granted Incentive Stock Option under
the Plan or otherwise, the extent to which an Incentive Stock
Option may be exercisable upon the Participant's termination of
employment, which may differ depending upon the reason for such
termination, the manner in which an Incentive Stock Option may be
exercised and the form of the Award Agreement that shall evidence
each Incentive Stock Option. Except as otherwise provided in
this Article VI, the Committee shall determine the terms,
conditions and other provisions of each Award Agreement, which
may vary from Participant to Participant and which may contain
such limitations and restrictions as shall be necessary to ensure
that such Option will be considered an Incentive Stock Option as
defined in Internal Revenue Code Section 422 or to conform to any
change therein. Each Participant shall enter into an Award
Agreement with the Corporation with respect to the grant of each
Incentive Stock Option.
6.02 Option Price. To the extent required to qualify the Option as an
Incentive Stock Option under Internal Revenue Code Section 422,
the option price per share shall not be less than one hundred
percent (100%) of the Fair Market Value of one share of Stock as
of the Date of Grant except that, if a Participant owns stock
possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation or its
9
<PAGE>
Affiliate, the option price per share shall not be less than one
hundred ten percent (110%) of the Fair Market Value of one share
of Stock as of the Date of Grant.
6.03 Duration and Exercise of Options.
(a) Duration of Incentive Stock Options. The
period during which an Incentive Stock Option granted
under the Plan may be exercised shall be established by
the Committee, and shall be set forth in the Award
Agreement, but in no event shall any Incentive Stock
Option be exercisable during a term of more than ten
(10) years after the Date of Grant; provided, however,
that if a Participant owns stock possessing more than
ten percent (10%) of the total combined voting power of
all classes of stock of the Corporation or its
Affiliate, the Incentive Stock Option shall be
exercisable during a period of not more than five (5)
years after the Date of Grant.
(b) Exercisability of Incentive Stock Options.
(1) The Committee shall have discretion
to determine when an Incentive Stock Option
becomes exercisable and may provide that the
Incentive Stock Option shall become exercisable in
installments. If the Participant does not
purchase in any year the full number of shares
which the Participant is entitled to purchase in
that year, the Participant may, if provided in the
Award Agreement, purchase in any subsequent year
such previously unpurchased shares in addition to
those that the Participant is otherwise entitled
to purchase.
(2) In the event an Incentive Stock
Option is immediately exercisable at the Date of
Grant, the manner of exercising such Option in the
event it is not exercised in full immediately
shall be specified in the Award Agreement.
(3) The Committee may accelerate the
exercise date of any Incentive Stock Option which
is not immediately exercisable at the Date of
Grant as the Committee, in its discretion, deems
advisable.
10
<PAGE>
(4) The Award Agreement shall set forth
all provisions relating to the exercisability of
Incentive Stock Options.
6.04 Payment of Option Price. Upon the exercise of any Incentive
Stock Option granted pursuant to this Plan, the purchase price
for such shares of Stock subject to such Option shall be paid in
cash unless the Committee, in its sole discretion and subject to
any applicable rules or regulations it may adopt, allows such
payment to be made, in whole or in part, by the transfer from the
Participant to the Corporation of previously acquired shares of
Stock. Any Stock so transferred shall be valued at Fair Market
Value on the day immediately preceding the effective exercise of
the Incentive Stock Option. For purposes of this Section 6.04,
"previously acquired shares of Stock" shall include shares of
Stock that are already owned by the Participant at the time of
exercise.
In addition to the foregoing, with respect to Incentive Stock
Options granted pursuant to this Plan after January 31, 1996, the
Committee may, in its sole discretion and subject to any
applicable rules or regulations it may adopt, allow such payment
to be made, in whole or in part, in installments or by having the
Participant execute a promissory note containing such terms as
the Committee may deem appropriate.
6.05 Rights as a Shareholder. The Participant shall have no rights as
a shareholder with respect to any shares of Stock subject to an
Incentive Stock Option until the Participant becomes the holder
of record of such shares. Except as provided in Section 4.03, no
adjustments shall be made for dividends or other cash
distributions or for other rights that have a record date
preceding the date the Participant becomes the holder of record
of such shares of Stock.
ARTICLE VII - NONQUALIFIED STOCK OPTIONS
7.01 Grant of Nonqualified Stock Options. In accordance with the
provisions of the Plan, the Committee shall approve, following
recommendation by management of the Corporation or its
Subsidiaries, the Eligible Employees to whom Nonqualified Stock
Options shall be granted under this Article VII. The Committee
shall determine the number of shares to be subject to each
Nonqualified Stock Option, the time at which such Option shall be
granted, whether such Option shall be granted in exchange for the
cancellation and termination of a previously granted Nonqualified
Stock Option under the Plan or otherwise, the extent to which a
Nonqualified Stock Option may be exercisable upon the
Participant's termination of employment, which may
11
<PAGE>
differ depending upon the reason for such termination, the manner
in which a Nonqualified Stock Option may be exercised and the
form of the Award Agreement that shall evidence each Nonqualified
Stock Option. Except as otherwise provided in this Article VII,
the Committee shall determine the terms, conditions and other
provisions of each Award Agreement, which may vary from
Participant to Participant. Each Participant shall enter into an
Award Agreement with the Corporation with respect to the grant of
each Nonqualified Stock Option.
7.02 Option Price. Unless otherwise determined by the Committee, the
option price per share shall not be less than one hundred percent
(100%) of the Fair Market Value of one share of Stock as of the
Date of Grant.
7.03 Duration and Exercise of Options.
(a) Duration of Nonqualified Stock Options. The period
during which a Nonqualified Stock Option granted under the
Plan may be exercised shall be established by the Committee,
and shall be set forth in the Award Agreement, but in no
event shall any Nonqualified Stock Option be exercisable
during a term of more than ten (10) years after the Date of
Grant.
(b) Exercisability of Nonqualified Stock Options.
(1) The Committee shall have discretion
to determine when a Nonqualified Stock Option
becomes exercisable and may provide that the
Nonqualified Stock Option shall become exercisable
in installments. If the Participant does not
purchase in any year the full number of shares
which the Participant is entitled to purchase in
that year, the Participant may, if provided in the
Award Agreement, purchase in any subsequent year
such previously unpurchased shares in addition to
those that the Participant is otherwise entitled
to purchase.
(2) In the event an Nonqualified Stock
Option is immediately exercisable at the Date of
Grant, the manner of exercising such Option in the
event it is not exercised in full immediately
shall be specified in the Award Agreement.
(3) The Committee may accelerate the
exercise date of any Nonqualified Stock Option
which is not immediately
12
<PAGE>
exercisable at the Date of Grant as the Committee,
in its discretion, deems advisable.
(4) The Award Agreement shall set forth
all provisions relating to the exercisability of
Nonqualified Stock Options.
7.04 Payment of Option Price. Upon the exercise of any Nonqualified
Stock Option granted pursuant to this Plan, the purchase price
for such shares of Stock subject to such Option shall be paid in
cash unless the Committee, in its sole discretion and subject to
any applicable rules or regulations it may adopt, allows such
payment to be made, in whole or in part, by the transfer from the
Participant to the Corporation of previously acquired shares of
Stock. Any Stock so transferred shall be valued at Fair Market
Value on the day immediately preceding the effective exercise of
the Nonqualified Stock Option. For purposes of this Section
7.04, "previously acquired shares of Stock" shall include shares
of Stock that are already owned by the Participant at the time of
exercise.
In addition to the foregoing, for any Nonqualified Stock Option
granted pursuant to this Plan, the Committee may, in its sole
discretion and subject to any applicable rules or regulations it
may adopt, allow such payment to be made, in whole or in part, in
installments or by having the Participant execute a promissory
note containing such terms as the Committee may deem appropriate.
7.05 Rights as a Shareholder. The Participant shall have no rights as
a shareholder with respect to any shares of Stock subject to a
Nonqualified Option until the Participant becomes the holder of
record of such shares. Except as provided in Section 4.03, no
adjustments shall be made for dividends or other cash
distributions or for other rights that have a record date
preceding the date the Participant becomes the holder of record
of such shares of Stock.
ARTICLE VIII - NONQUALIFIED STOCK OPTIONS
FOR OUTSIDE DIRECTORS
8.01 Grant of Nonqualified Stock Options. All grants of Nonqualified
Stock Options to Outside Directors under this Article VIII shall
be automatic and nondiscretionary and shall be made strictly in
accordance with the following provisions:
13
<PAGE>
(a) No person shall have any discretion to select
the Outside Directors that shall be eligible for
Nonqualified Stock Options or to determine the number
of shares of Stock to be subject to such Options, the
option price per share or the Date of Grant.
(b) Each Outside Director shall be granted a
Nonqualified Stock Option to purchase twenty-five
thousand (25,000) shares of Stock on the Date of Grant.
For purposes of this Section 8.01(b), the Date of Grant
shall be the later of (i) the date that is thirty (30)
days after the Transaction Date, and (ii) the date that
the Outside Director first becomes elected to the
Board.
(c) Beginning with the 1994 annual stockholders'
meeting and each annual stockholders' meeting
thereafter, each Outside Director shall, upon his or
her reelection to the Board, receive a Nonqualified
Stock Option to purchase five thousand (5,000) shares
of Stock on the Date of Grant. For purposes of this
Section 8.01(c), the Date of Grant shall be the date of
the annual stockholders' meeting.
8.02 Option Price. The option price per share shall be one hundred
percent (100%) of the Fair Market Value of one share of Stock as
of the Date of Grant.
8.03 Duration and Exercise of Options.
(a) Duration of Options. Except as otherwise
provide in this Plan, the period during which a
Nonqualified Stock Option granted to Outside Directors
under this Article VIII may be exercised shall be ten
(10) years after the Date of Grant.
(b) Exercisability of Nonqualified Stock Options.
All Nonqualified Stock Options granted to Outside
Directors shall become exercisable with respect to one-
third of the shares subject to the Nonqualified Stock
Options on each of the three succeeding anniversaries
of the Date of Grant. If the Outside Director does not
purchase in any year the full number of shares which
the Outside Director is entitled to purchase in that
year, the Outside Director shall be entitled to
purchase in any subsequent year such previously
unpurchased shares in addition to those shares the
Outside Director is otherwise entitled to purchase.
8.04 Manner of Option Exercise. A Nonqualified Stock Option may be
exercised by an Outside Director in whole or in part, subject to
the conditions of this
14
<PAGE>
Plan and subject to such other administrative rules as the Board
may deem advisable, by delivering to the office of the Treasurer
of the Corporation written notice of the number of whole shares
with respect to which the Nonqualified Stock Option is being
exercised and by paying the purchase price for such shares in
full. The exercise of the Nonqualified Stock Option shall be
deemed effective upon receipt of such notice by the Corporation's
Treasurer (or such individual as the Treasurer shall designate in
writing) and upon payment that complies with the terms of this
Plan. As soon as practicable after the effective exercise of the
Nonqualified Stock Option, the Outside Director shall be recorded
on the stock transfer books of the Corporation as the owner of
the shares purchased and the Corporation shall deliver to the
Outside Director one or more duly issued stock certificates
evidencing such ownership.
8.05 Payment of Option Price. Upon the exercise of any Nonqualified
Stock Option granted to an Outside Director pursuant to this
Article VIII, the purchase price for such shares of Stock subject
to such Option shall be paid in cash unless the Board, in its
sole discretion and subject to any applicable rules or
regulations it may adopt, allows such payment to be made, in
whole or in part, by the transfer from the Outside Director to
the Corporation of previously acquired shares of Stock. Any
Stock so transferred shall be valued at Fair Market Value on the
day immediately preceding the effective exercise of the
Nonqualified Stock Option. For purposes of this Section 8.05,
"previously acquired shares of Stock" shall include shares of
Stock that are already owned by the Outside Director at the time
of exercise.
In addition to the foregoing, for any Nonqualified Stock Option
granted pursuant to this Article VIII, the Board may, in its sole
discretion and subject to any applicable rules or regulations it
may adopt, allow such payment to be made, in whole or in part, in
installments or by having the Participant execute a promissory
note containing such terms as the Board may deem appropriate.
8.06 Rights as a Shareholder. The Outside Director shall have no
rights as a shareholder with respect to any shares of Stock
subject to a Nonqualified Stock Option until the Outside Director
becomes the holder of record of such shares. Except as provided
in Section 4.03, no adjustments shall be made for dividends or
other cash distributions or for other rights that have a record
date preceding the date the Outside Director becomes the holder
of record of such shares of Stock.
8.07 Compliance with Rule 16b-3. All Nonqualified Stock Options
granted to Outside Directors must comply with the applicable
provisions of Rule 16b-3, or any successor provision, as then in
effect, of the General Rules and
15
<PAGE>
Regulations of the Securities Exchange Act of 1934, as amended
from time to time.
8.08 Termination of Status as a Director. In the event that an
Outside Director's membership on the Board terminates, the
following provisions shall apply:
(a) If the Outside Director's membership on the
Board terminates because of death, any Nonqualified
Stock Option granted to such Outside Director shall
become immediately exercisable in full and may be
exercised by the Outside Director's estate or by a
person who acquired the right to exercise such Option
by bequest or inheritance for the duration of such
Option.
(b) If the Outside Director's membership on the
Board terminates because of disability, the Outside
Director shall be entitled to exercise any Nonqualified
Stock Option to the extent such Option was exercisable
as of the date such Outside Director's membership on
the Board is terminated by reason of disability for a
period of twelve (12) months following the date of such
termination unless such Option, by its terms, expires
before the end of such twelve-month period. To the
extent that such Option was not exercisable as of the
date the Outside Director's membership on the Board
terminates because of disability, or if the Outside
Director does not exercise the Nonqualified Stock
Option within the twelve-month period specified in this
Section 8.08(b), all rights of the Outside Director
under such Option shall be forfeited. For purposes of
this Section 8.08(b), "disability" shall mean a mental
or physical condition of the Outside Director,
resulting from illness, injury or disease which, as
determined by the Board, causes the Outside Director to
resign from the Board and is reasonably expected to be
of long and indefinite duration or result in death.
(c) If the Outside Director's membership on the
Board terminates for any reason other than the Outside
Director's death or disability, the Outside Director
shall be entitled to exercise any Nonqualified Stock
Option to the extent such Option was exercisable as of
the date of such termination for a period of ninety
(90) days following the date of such termination unless
such Option, by its terms, expires before the end of
such ninety-day period. To the extent that the
Nonqualified Stock Option is not exercisable as of the
date the Outside Director's membership on the Board
terminates for any reason other than death or
disability, or if the Outside Director does not
exercise such
16
<PAGE>
Option within the time specified in this Section
8.08(c), all rights of the Outside Director under such
Option shall be forfeited.
8.09 Investment Purpose. The Corporation shall require, as a
condition to the grant and exercise of any Nonqualified Stock
Option pursuant to this Article VIII, that any Stock acquired
pursuant to such Nonqualified Stock Option shall be acquired only
for investment if, in the opinion of counsel for the Corporation,
such condition is required or deemed advisable under securities
laws or any other applicable law, regulation or rule of any
government or governmental agency. In this regard, if requested
by the Corporation, the Outside Director, prior to the
acquisition of any shares of Stock pursuant to any Nonqualified
Stock Option, shall execute an investment letter to the effect
that the Outside Director is acquiring shares of Stock pursuant
to such Option for investment purposes only and not with the
intention of making any distribution of such shares and will not
dispose of the shares in violation of the applicable federal and
state securities laws.
ARTICLE IX - RESTRICTED STOCK AWARDS
9.01 Grant of Restricted Stock Awards. In accordance with the
provisions of the Plan, the Committee shall approve, following
recommendation by management of the Corporation or its
Subsidiaries, the Eligible Employees to whom Restricted Stock
Awards shall be granted, shall determine the number of shares to
be subject to each Restricted Stock Award, the time at which the
Restricted Stock Award is to be granted, the manner in which
restrictions on the transferability of shares of Stock
represented by the Restricted Stock Award will lapse including
the extent to which such restrictions may lapse upon the
Participant's termination of employment, which may differ
depending upon the reason for such termination, subject to the
provisions of Section 9.03, and such other provisions of the
Restricted Stock Award as the Committee may deem necessary or
desirable. The Committee shall determine the form of Award
Agreement that shall evidence each Restricted Stock Award and
shall determine the terms, conditions and other provisions of
each Award Agreement, which may vary from Participant to
Participant. Each participant shall enter into an Award
Agreement with the Corporation with respect to the grant of each
Restricted Stock Award.
9.02 Restrictions on Transfer. The shares of Stock awarded pursuant
to a Restricted Stock Award shall be subject to the following
restrictions:
(a) No such share of Stock may be sold,
transferred, assigned, pledged, encumbered or otherwise
alienated or hypothecated
17
<PAGE>
unless and only to the extent that restrictions
shall have lapsed in accordance with the Plan and the
Award Agreement.
(b) Upon the grant of a Restricted Stock Award,
the Corporation shall cause to be issued stock
certificates representing the shares subject to such
Restricted Stock Award in the Participant's name. The
Corporation shall hold such stock certificates until
the restrictions set forth in Sections 9.02(a) and
9.02(b) lapse in accordance with the Plan and the Award
Agreement. Once the restrictions have lapsed with
respect to all or part of the shares subject to the
Restricted Stock Award, such stock certificates shall
be distributed to the Participant.
(c) Notwithstanding the provisions of Section
9.02(c), and subject to any terms, conditions or other
restrictions set forth in the Award Agreement, a
Participant receiving a Restricted Stock Award shall,
as of the Date of Grant, have the right to vote such
shares of Stock and to receive dividends and other
distributions made with respect to such shares, but the
Participant shall not, unless otherwise determined by
the Committee, have any other rights as a shareholder.
The terms, conditions and restrictions set forth in the
Award Agreement shall also apply to any additional
shares of Stock received by a Participant as the result
of any dividend paid on the shares of Stock subject to
the Restricted Stock Award or as the result of any
stock split, stock distribution or combination of
shares that affects the shares of Stock subject to the
Restricted Stock Award.
9.03 Lapsing of Restrictions. The Committee shall have the discretion
to determine the times and extent to which restrictions on the
transferability of shares under each Restricted Stock Award shall
lapse, and the Award Agreement shall set forth all provisions
relating to the lapsing of such restrictions.
9.04 Modification of Lapsing Schedule. The Committee may, in its sole
discretion, modify the rate at which restrictions on
transferability of shares under a Restricted Stock Award shall
lapse. Any such modification shall apply only to those shares of
Stock which are restricted as of the effective date of the
modification, and shall be reflected in a resolution adopted by
the Committee and, if deemed appropriate by the Committee, in an
amendment to any Award Agreement with respect to which it
applies.
18
<PAGE>
ARTICLE X - PERFORMANCE UNITS
10.01 Grant of Performance Units. In accordance with the provisions of
the Plan, the Committee shall approve, following recommendation
by the management of the Corporation or its Subsidiary, the
Eligible Employees to whom Performance Unit Awards shall be
granted, and shall determine the number of Performance Units to
be subject to each Performance Unit Award, the time at which such
Performance Unit Award shall be granted, the extent to which
Performance Units may vest upon the Participant's termination of
employment, which may differ depending upon the reason for such
termination, and such other provisions of the Performance Unit
Award as the Committee may deem necessary or desirable. The
Committee shall determine the form of Award Agreement that shall
evidence each Performance Unit Award and shall determine the
terms, conditions and other provisions of each Award Agreement,
which may vary from Participant to Participant. Each Participant
shall enter into an Award Agreement with the Corporation with
respect to the grant of each Performance Unit Award.
10.02 Vesting of Performance Units. Each Performance Unit Award
Agreement shall set forth:
(a) The Performance Period over which Performance
Units may vest;
(b) The initial and cumulative Performance Goals
which must be satisfied prior to vesting of any portion
of the Performance Units represented by the Performance
Unit Award. Unless otherwise determined by the
Committee, such Performance Unit goals shall, for
purposes of valuing each Performance Unit under Section
10.03, include threshold, target, superior and
exceptional levels.
(c) The vesting schedule with respect to the
Performance Units, which, unless otherwise determined
by the Committee, shall be as follows:
(i) Upon the completion of the first
full calendar year of the Performance Period and
the attainment of the initial threshold
Performance Goal, twenty-five percent (25%) of the
total number of Performance Units comprising the
Participant's Performance Unit Award shall vest
and become immediately payable to the Participant
in accordance with Sections 10.03 and 10.04. In
the event
19
<PAGE>
such initial Performance Goal is
not satisfied, such percentage of the Performance
Units awarded to the Participant shall be
immediately forfeited and shall no longer be
eligible for vesting and payment to the
Participant.
(ii) Upon completion of the second full
calendar year of the Performance Period and the
attainment of the cumulative threshold Performance
Goal for that two-year period, twenty-five percent
(25%) of the total number of Performance Units
comprising the Participant's Performance Unit
Award shall vest and become immediately payable to
the Participant in accordance with Sections 10.03
and 10.04. In the event such cumulative
Performance Goal is not satisfied, such percentage
of Performance Units awarded to the Participant
shall be immediately forfeited and shall no longer
be eligible for vesting and payment to the
Participant.
(iii) Upon completion of the third
full calendar year of the Performance Period and
the attainment of the cumulative threshold
Performance Goal for that three-year period, fifty
percent (50%) of the total number of Performance
Units comprising the Participant's Performance
Unit Award shall vest and become immediately
payable to the Participant in accordance with
Sections 10.03 and 10.04. In the event such
cumulative Performance Goal is not satisfied, such
percentage of Performance Units awarded to the
Participant shall be immediately forfeited and no
longer be eligible for vesting and payment to the
Participant.
10.03 Valuation of Performance Units. The dollar value of each
Performance Unit that becomes vested and payable to a Participant
pursuant to Section 10.02(c) shall be determined on the basis of
a graduated valuation scale set forth in the Award Agreement in
accordance with the corresponding Performance Goals.
10.04 Payment of Performance Unit Awards. The value of Performance
Units that have vested shall be paid to the Participant within
sixty (60) calendar days after the Committee determines whether
the applicable Performance Goal has been attained. Such payment
may, at the discretion of the Committee, be made in cash, shares
of Stock or a combination thereof. Any payment to be made to a
Participant shall be subject to the applicable withholding
requirements described in Section 15.06.
20
<PAGE>
ARTICLE XI - CHANGE OF CONTROL
11.01 Definitions. For purposes of this Article XI, the following
definitions shall apply:
(a) "Change of Control" shall mean any of the
following events:
(1) A merger or consolidation to which
the Corporation is a party if the individuals and
entities who were shareholders of the Corporation
immediately prior to the effective date of such
merger or consolidation have, immediately
following the effective date of such merger or
consolidation, beneficial ownership (as defined in
Rule 13d-3 under the Securities Exchange Act of
1934) of less than fifty percent (50%) of the
total combined voting power of all classes of
securities issued by the surviving corporation for
the election of directors of the surviving
corporation;
(2) The direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934) of securities of
the Corporation representing, in the aggregate,
twenty percent (20%) or more of the total combined
voting power of all classes of the Corporation's
then issued and outstanding securities by any
person or entity or by a group of associated
persons or entities acting in concert;
(3) The sale of the properties and
assets of the Corporation substantially as an
entirety, to any person or entity which is not a
wholly-owned subsidiary of the Corporation;
(4) The shareholders of the Corporation
approve any plan or proposal for the liquidation
of the Corporation; or
(5) A change in the composition of the
Board at any time during any consecutive twenty-
four (24) month period such that the "Continuity
Directors" cease for any reason to constitute at
least a seventy percent (70%) majority of the
Board. For purposes of this event, "Continuity
Directors" means those members of the Board who
either:
21
<PAGE>
(i) were directors at the
beginning of such consecutive twenty-four
(24) month period; or
(ii) were elected by, or on
the nomination or recommendation of, at
least a two-thirds (2/3) majority of the
then-existing Board of Directors.
(b) "Change of Control Action" shall mean any
payment (including any benefit or transfer of property)
in the nature of compensation to or for the benefit of
a Participant or Outside Director under any arrangement
which is considered to be contingent on a Change of
Control for purposes of Internal Revenue Code Section
280G. As used in this definition, the term
"arrangement" means any agreement between a Participant
or Outside Director and the Corporation or its
Subsidiary and shall include, without limitation, any
and all of the Corporation or Subsidiary's salary,
bonus, incentive, restricted stock, stock option,
compensation or benefit plans, programs or arrangements
and this Plan.
(c) "Change of Control Termination" shall mean,
with respect to a Participant, any of the following
events occurring within two (2) years after a Change of
Control:
(1) The termination of the
Participant's employment by the Corporation or its
Subsidiary for any reason, with or without cause,
except for conduct by the Participant constituting
(i) a felony involving moral turpitude under
either federal law or the law of the state of the
Corporation's incorporation or (ii) the
Participant's willful failure to fulfill his
employment duties with the Corporation or its
Subsidiary; provided, however, that for purposes
of this clause (ii), an act or failure to act by
the Participant shall not be "willful" unless it
is done, or omitted to be done, in bad faith and
without any reasonable belief that the
Participant's action or omission was in the best
interests of the Corporation or its Subsidiary; or
(2) The termination of employment with
the Corporation or its Subsidiary by the
Participant for Good Reason.
(d) "Good Reason" shall mean a good faith
determination by the Participant, in the Participant's
sole and absolute judgment, that
22
<PAGE>
any one or more of the following events has
occurred without the Participant's express written
consent after a Change of Control:
(1) A change in the Participant's
reporting responsibilities, titles or offices as
in effect immediately prior to the Change of
Control, or any removal of the Participant from or
any failure to re-elect the Participant to any of
such positions, which has the effect of
diminishing the Participant's responsibility or
authority;
(2) A reduction by the Corporation or
its Subsidiary in the Participant's base salary as
in effect immediately prior to the Change of
Control or as the same may be increased from time
to time thereafter;
(3) A requirement imposed by the
Corporation or its Subsidiary on the Participant
that results in the Participant being based at a
location that is outside of a twenty-five (25)
radius mile of the Participant's job location at
the time of the Change of Control;
(4) Without the adoption of a
replacement plan, program or arrangement that
provides benefits to the Participant that are
equal to or greater than those benefits that are
discontinued or adversely affected:
(a) The failure by the
Corporation or Subsidiary to continue in
effect, within its maximum stated term, any
pension, bonus, incentive, stock ownership,
purchase, option, life insurance, health,
accident, disability, or any other employee
compensation or benefit plan, program or
arrangement, in which the Participant is
participating immediately prior to a Change
of Control; or
(b) The taking of any action
by the Corporation or its Subsidiary that
would adversely affect the Participant's
participation or materially reduce the
Participant's benefits under any of such
plans, programs or arrangements; or
23
<PAGE>
(5) Any action by the Corporation or
its Subsidiary that would materially adversely
affect the physical conditions existing at the
time of the Change of Control in or under which
the Participant performs his or her employment
duties; or
(6) If the Participant's primary
employment duties are with a Subsidiary of the
Corporation, the sale, merger, contribution,
transfer or any other transaction relating to the
Corporation's ownership interest in such
Subsidiary and which decreases such ownership
interest below the level specified in Section
2.25; or
(7) Any material breach by the
Corporation or its Subsidiary of any employment
agreement between the Participant and the
Corporation or its Subsidiary.
"Good Reason" shall not include the
Participant's death or a termination for any reason
other than the events specified in clauses (1) through
(7) above.
With respect to an Outside Director, "Change
of Control Termination" shall mean the termination of
the Outside Director's status as a member of the Board
for any reason within two (2) years after a Change of
Control.
11.02 Acceleration of Vesting/Put Option. Subject to the "Limitation
on Change of Control Compensation" contained in Section 11.03, in
the event of a Change of Control Termination of a Participant or
Outside Director, and without further action of the Board, the
Committee or otherwise:
(a) Each Incentive Stock Option or Nonqualified
Stock Option granted to such Participant or Outside
Director pursuant to this Plan shall become immediately
exercisable in full and shall remain exercisable until
the expiration of such Option according to its terms;
(b) All restrictions on the transferability of
shares of Stock subject to each Restricted Stock Award
granted to such Participant shall immediately lapse and
be of no further force or effect;
(c) Within thirty (30) days following the Change
of Control Termination, the Participant may, by written
election delivered to an officer of the Corporation,
require the Corporation to
24
<PAGE>
purchase, within five (5) days following
delivery of the election, the shares of the
Participant's Stock with respect to which restrictions
have lapsed in accordance with Section 11.02(b), at a
price equal to the Fair Market Value of such shares of
Stock on the day prior to the Change of Control;
provided, however, that if a Participant is a Section
16(b) Participant and if the Change of Control
Termination occurs within the six (6) month period
following the later of the Participant's most recent
purchase of Stock which is subject to Section 16(b) of
the 1934 Act or the grant of the applicable Restricted
Stock Award, then the Participant shall be entitled to
deliver the written election specified herein within
thirty (30) days following the expiration of such six-
month period, and the thirty-five (35) day period
referenced in clause Section 11.02(d) shall commence
upon the expiration of such six-month period. For
purposes of this Section 11.02(c), a "purchase of Stock
which is subject to Section 16(b) of the 1934 Act"
shall, to the extent provided by Section 16(b), or any
successor provision, of the Securities Exchange Act of
1934 and the General Rules and Regulations issued
thereunder, include the establishment of or increase in
a call equivalent position or the liquidation of or
decrease in a put equivalent position with respect to
such Stock.
(d) To the extent a Participant has not sold
shares of Stock to the Corporation pursuant to Section
11.02(c), certificates for such shares of Stock, with
no restrictive language, shall be delivered to the
Participant within thirty-five (35) days following the
Change of Control Termination.
11.03 Limitation on Change of Control Compensation. A Participant or
Outside Director shall not be entitled to receive any Change of
Control Action which would, with respect to the Participant or
Outside Director, constitute a "parachute payment" for purposes
of Internal Revenue Code Section 280G. In the event any Change of
Control Action would, with respect to the Participant or Outside
Director, constitute a "parachute payment," the Participant or
Outside Director shall have the right to designate those Change
of Control Action(s) which would be reduced or eliminated so that
the Participant or Outside Director will not receive a "parachute
payment."
11.04 Limitations on Committee's and Board's Actions. Prior to a
Change of Control, Participants and Outside Directors shall have
no rights under this Article XI, and the Board shall have the
power and right, within its sole discretion, by a resolution
adopted by a two-thirds (2/3) majority to rescind, modify or
amend this Article XI without the consent of any Participant or
25
<PAGE>
Outside Director. In all other cases, and notwithstanding the
authority granted to the Committee or Board to exercise
discretion in interpreting, administering, amending or
terminating this Plan, neither the Committee nor the Board shall,
following a Change of Control, have the power to exercise such
authority or otherwise take any action which is inconsistent with
the provisions of this Article XI.
Notwithstanding anything in this Article XI to the contrary, the
Board may restrict the rights of, or the applicability of this
Article XI to, Section 16(b) Participants or Outside Directors to
the extent necessary to comply with the requirements of Section
16(b), or any successor provision, of the Securities Exchange Act
of 1934, as amended.
ARTICLE XII - RIGHTS OF ELIGIBLE EMPLOYEES AND PARTICIPANTS
12.01 Relationship to Employment. Nothing contained in the Plan, nor
in any Award granted pursuant to the Plan, shall confer upon any
Participant any right with respect to continuance of employment
by the Corporation or its Subsidiaries, nor interfere in any way
with the right of the Corporation or its Subsidiaries to
terminate the Participant's employment at any time.
12.02 Nontransferability of Award. No Incentive Stock Options,
Restricted Stock Awards or Performance Units shall be
transferable, in whole or in part, by the Participant, either
voluntarily or involuntarily, except by will or the laws of
descent or distribution. If the Participant attempts to transfer
an Incentive Stock Option, Restricted Stock Award or Performance
Unit, or any portion of such Option, Award or Unit, such transfer
shall be void and the Incentive Stock Option, Restricted Stock
Award or Performance Unit shall terminate. An Incentive Stock
Option shall be exercisable during the Participant's lifetime
only by the Participant or by such Participant's guardian or
other legal representative.
Subject to the approval of the Committee, or, in the case of
Outside Directors, subject to the approval of the Board,
Nonqualified Stock Options granted under the Plan may be
transferred, for no consideration, by the Participant or the
Outside Director to a member of the Participant's or the Outside
Director's immediate family, to a trust for the benefit of such
family members or to a partnership in which such family members
are the only partners. The family member to whom, or the trust
or partnership to which, a Nonqualified Stock Option has been
transferred shall not be permitted to subsequently transfer the
Option, either voluntarily or involuntarily, unless such transfer
is to another family member, trust or partnership which meets the
requirements of this
26
<PAGE>
Section 12.02. No other transfers of Nonqualified Stock Options,
in whole or in part, by the Participant or the Outside Director
shall be permitted, voluntarily or involuntarily, except by will
or the laws of descent and distribution. If the Participant or
Outside Director attempts to transfer a Nonqualified Stock
Option, or any portion of such Option, in a manner not permitted
by this Section 12.02, such transfer shall be void and the
Nonqualified Stock Option shall terminate.
Notwithstanding anything in this Section 12.02 to the contrary,
the Board may prohibit Outside Directors from transferring
Nonqualified Stock Options granted under the Plan to the family
members, trusts or partnerships described above if the Board
determines that prohibiting such transfers is necessary for the
Outside Director to be a "disinterested person" as defined in
Rule 16b-3, or any successor provision, as then in effect, of the
General Rules and Regulations under the Securities Exchange Act
of 1934, as amended, or to otherwise comply with the requirements
of Section 16(b), or any successor provision, of the Securities
Exchange Act of 1934, as amended.
ARTICLE XIII - AMENDMENT OR MODIFICATION
13.01 Authority to Amend and Procedure. Subject to the provisions of
Article XI and Section 13.02, the Board or the Committee may, at
any time and without further action on the part of the
shareholders of the Corporation, terminate this Plan or make such
amendments thereto as it deems advisable and in the best
interests of the Corporation or its Subsidiaries; provided,
however, that no such termination or amendment shall, without the
consent of a Participant, materially adversely affect or impair
the right of a Participant with respect to an Award already
granted; and provided, further, that unless the shareholders of
the Corporation shall have approved the same, no amendment shall,
either directly or indirectly:
(a) Materially increase the total number of
shares of Stock that may be awarded under this Plan to
all Participants and Outside Directors, except for
adjustments described in Section 4.03 of this Plan;
(b) Materially increase the benefits accruing to
Participants and Outside Directors under the Plan; or
(c) Materially modify the requirements as to
eligibility for participation in the Plan.
27
<PAGE>
13.02 Limitations. In no event shall the Board or the Committee,
either directly or indirectly, amend the provisions of Article
VIII relating to Nonqualified Stock Options that are granted to
Outside Directors more frequently than once every six (6) months,
unless such amendment is required to comply with changes in the
Employee Retirement Income Security Act of 1974, as amended, and
the regulations thereunder, or the Internal Revenue Code and the
regulations thereunder.
ARTICLE XIV - EFFECTIVE DATE AND DURATION OF PLAN
14.01 Effective Date of Plan. The Plan shall be deemed effective upon
its adoption by the Board. Incentive Stock Options, Nonqualified
Stock, Restricted Stock Awards and Performance Unit Awards may be
granted under the Plan immediately upon adoption of the Plan by
the Board.
14.02 Duration of the Plan. The Plan shall terminate at midnight on
July 9, 2002, except as to Awards previously granted and
outstanding under the Plan at that date, and no further Awards
shall be granted thereafter. The Plan may be abandoned or
terminated at any earlier time by the Board or the Committee,
except with respect to any Awards then outstanding under the
Plan.
ARTICLE XV - GENERAL PROVISIONS
15.01 Construction and Headings. The headings of the Articles,
Sections and their subparts within the Plan are for convenience
only and are not meant to be of substantive significance, and
such headings shall not add to or detract from the meaning of
such Article, Section or subpart.
15.02 Governing Law. The Plan and all rights and obligations
thereunder shall be construed in accordance with and governed by
the laws of the State of Minnesota, without regard to the
conflict of laws provisions of any jurisdiction.
15.03 Successor and Assigns. This Plan shall be binding upon and inure
to the benefit of the successors and assigns of the Corporation
and its Subsidiaries, including, without limitation, whether by
way of merger, consolidation, operation of law, assignment,
purchase or other acquisition of substantially all of the assets
or business of the Corporation or any of its Subsidiaries, and
any and all such successors and assigns shall absolutely and
unconditionally assume all of the Corporation's or the
Subsidiary's obligations hereunder; provided,
28
<PAGE>
however, that this Section 15.03 shall not apply with respect to
the successors or assigns of a Subsidiary in the event that,
prior to a Change of Control, the Subsidiary is sold, merged,
contributed or in any other manner transferred or for any other
reason ceases to be a Subsidiary of the Corporation.
15.04 Survival of Provisions. The rights, remedies, agreements,
obligations and covenants of the parties contained in or made
pursuant to the Plan, any Award Agreement and any other notices
or agreements in connection therewith, including, without
limitation, any notice of exercise of an Incentive Stock Option
or a Nonqualified Stock Option, shall survive the execution and
delivery of such notices and agreements and shall survive the
exercise of any Incentive Stock Option or Nonqualified Stock
Option, the payment of such Option's exercise price and the
delivery and receipt of the shares of Stock subject to such
Option, and shall remain in full force and effect.
15.05 Absence of Liability of Directors and Committee Members. No
member of the Board or of the Committee shall be liable, with
respect to this Plan, for any act, whether by commission or
omission, taken by any other member of the Board or the
Committee, or by any officer, agent, or employee of the
Corporation or its Subsidiaries, nor shall any member of the
Board or the Committee be liable, except in circumstances
involving such member's own bad faith, for anything done or
omitted to be done by any person in connection with this Plan.
15.06 Withholding Taxes. The Corporation or its Subsidiaries is
entitled to:
(a) Withhold and deduct from future wages of a
Participant (or from other amounts which may be due and
owing from a Participant to the Corporation or the
Subsidiary), or make other arrangements for the
collection of, all legally required amounts necessary
to satisfy any and all federal, state and local
withholding and employment-related tax requirements
attributable to the Participant's exercise of a
Nonqualified Stock Option or attributable to the lapse
of restrictions on a Restricted Stock Award or
otherwise incurred with respect to any other provisions
of the Plan; or
(b) Require the Participant promptly to remit the
amount of such tax requirements to the Corporation or
the Subsidiary before acting on the Participant's
notice of exercise of a Nonqualified Stock Option or
before taking any further action with respect to the
Nonqualified Stock Option or the issuance of any
certificate with respect to any shares of stock awarded
under a Restricted Stock Award or a Nonqualified Stock
Option.
<PAGE>
EXHIBIT 11.0
CONTROL DATA SYSTEMS, INC.
Computation of Earnings Per Common Share
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net earnings applicable to
common shares:
Net earnings $ 3,654 $ 2,261 $ 6,532 $ 4,460
Primary:
Shares for common and common share
equivalent earnings per share (1):
Weighted average number of
common shares outstanding 13,513,692 12,695,134 13,338,753 12,964,795
Dilutive effect of outstanding
stock options and warrants 1,130,582 182,542 1,099,306 0
14,644,274 12,877,676 14,438,059 12,964,795
Net earnings per common share
and common share equivalents $ 0.25 $ 0.18 $ 0.45 $ 0.35
Fully Diluted:
Shares for common and common share
equivalent earnings per share (2):
Weighted average number of
common shares outstanding 13,513,692 12,695,134 13,338,753 12,964,795
Dilutive effect of outstanding
stock options and warrants 1,130,582 182,542 1,113,099 117,627
14,644,274 12,877,676 14,451,852 13,082,422
Net earnings per common share
and common share equivalents $ 0.25 $ 0.18 $ 0.45 $ 0.34
<FN>
(1) Outstanding stock options, warrants, and shares issuable under
employee stock purchase plans are converted to common share
equivalents by the treasury stock method using the average market
price of the Company's shares during each period.
(2) Outstanding stock options, warrants, and shares issuable under
employee stock purchase plans are converted to common share
equivalents by the treasury stock method using the greater of the
average market price or the period-end market price of the Company's
shares during each period.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE REGISTRANT'S
FINANCIAL STATEMENTS FOR ITS SECOND QUARTER
YEAR-TO-DATE OF FISCAL YEAR 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
<CAPTION>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Jun-30-1996
<CASH> 89,488
<SECURITIES> 0
<RECEIVABLES> 77,603
<ALLOWANCES> 0
<INVENTORY> 18,443
<CURRENT-ASSETS> 189,807
<PP&E> 17,306
<DEPRECIATION> 0
<TOTAL-ASSETS> 222,457
<CURRENT-LIABILITIES> 81,022
<BONDS> 0
<COMMON> 148
0
0
<OTHER-SE> 96,669
<TOTAL-LIABILITY-AND-EQUITY> 222,457
<SALES> 66,223
<TOTAL-REVENUES> 153,785
<CGS> 36,804
<TOTAL-COSTS> 101,756
<OTHER-EXPENSES> 44,545
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 152
<INCOME-PRETAX> 7,332
<INCOME-TAX> 800
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,532
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
</TABLE>
