FORM 10-Q
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 26, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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COMMISSION FILE NUMBER 1-7534
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STORAGE TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 84-0593263
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
2270 South 88th Street,
Louisville, Colorado 80028-4309
(Address of principal executive (Zip Code)
offices)
Registrant's Telephone Number, including area code: (303) 673-5151
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 CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common stock ($.10 Par Value) - 101,181,471 shares outstanding at July 31, 1998.
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Form 10-Q
Page 2
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
JUNE 26, 1998
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet 3
Consolidated Statement of Operations 4
Consolidated Statement of Cash Flows 5
Consolidated Statement of Changes in
Stockholders' Equity 6
Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 25
Item 4 - Submission of Matters to a Vote of Security Holders 26
Item 6 - Exhibits and Reports on Form 8-K 27
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Form 10-Q
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STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands of Dollars)
06/26/98
(Unaudited) 12/26/97
-----------------------
ASSETS
Current assets:
Cash, including cash equivalents $ 247,550 $ 256,319
Short-term investments 21,004 77,275
Accounts receivable 570,623 627,981
Inventories (Note 2) 249,093 205,461
Deferred income tax assets 101,655 102,575
--------- ---------
Total current assets 1,189,925 1,269,611
Property, plant and equipment, at cost 301,094 305,122
Spare parts for maintenance, at cost 29,328 27,523
Deferred income tax assets 24,007 37,468
Other assets 96,869 100,293
--------- ---------
$1,641,223 $1,740,017
========= =========
LIABILITIES
Current liabilities:
Current portion of other long-term debt $ 2,327 $ 3,282
Accounts payable 104,231 103,483
Accrued liabilities 348,265 406,384
Income taxes payable 55,456 95,256
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Total current liabilities 510,279 608,405
Other long-term debt 17,302 19,109
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Total liabilities 527,581 627,514
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Commitments and contingencies (Note 5)
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 150,000,000 shares
authorized; 107,533,458 shares issued at
June 26, 1998, and 108,008,082 shares issued at
December 26, 1997 (Note 7) 10,753 10,800
Capital in excess of par value 1,051,523 1,161,997
Retained earnings (accumulated deficit) 56,006 (39,017)
Treasury stock of 117,240 shares at June 26, 1998,
and 918,896 shares at December 26, 1997 (2,408) (18,874)
Unearned compensation (2,232) (2,403)
--------- ---------
Total stockholders' equity 1,113,642 1,112,503
--------- ---------
$1,641,223 $1,740,017
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
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Form 10-Q
Page 4
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)
Quarter Ended Six Months Ended
--------------------------------------------
06/26/98 06/27/97 06/26/98 06/27/97
--------------------------------------------
Sales revenue $384,579 $369,859 $ 721,993 $667,529
Maintenance revenue 157,727 147,165 305,204 288,090
------- ------- --------- -------
Total revenue 542,306 517,024 1,027,197 955,619
------- ------- --------- -------
Cost of sales 194,003 199,793 363,102 365,198
Cost of maintenance 90,743 83,491 175,033 159,758
------- ------- --------- -------
Total cost of revenue 284,746 283,284 538,135 524,956
------- ------- --------- -------
Gross profit 257,560 233,740 489,062 430,663
Research and product
development costs 54,947 51,259 110,920 96,958
Marketing, general, administrative
and other income and expense,
net 118,041 115,116 232,863 217,654
------- ------- --------- -------
Operating profit 84,572 67,365 145,279 116,051
Interest income 4,578 7,924 10,370 14,886
Interest expense (1,320) (1,305) (2,449) (2,664)
------- ------- --------- -------
Income before income taxes 87,830 73,984 153,200 128,273
Provision for income taxes (33,400) (20,000) (58,200) (34,700)
------- ------- --------- -------
Net income $ 54,430 $ 53,984 $ 95,000 $ 93,573
======= ======= ========= =======
EARNINGS PER COMMON SHARE (NOTE 7)
Basic earnings per share $ 0.51 $ 0.44 $ 0.89 $ 0.76
======= ======= ========= =======
Weighted-average shares 106,945 123,035 106,777 122,740
======= ======= ========= =======
Diluted earnings per share $ 0.50 $ 0.43 $ 0.87 $ 0.75
======= ======= ========= =======
Weighted-average and dilutive
potential shares 109,939 124,507 109,650 125,057
======= ======= ========= =======
The accompanying notes are an integral part of the consolidated financial
statements.
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Form 10-Q
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STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In Thousands of Dollars)
Six Months Ended
-----------------------
06/26/98 06/27/97
-----------------------
OPERATING ACTIVITIES
Cash received from customers $1,065,374 $1,010,947
Cash paid to suppliers and employees (907,386) (766,739)
Interest received 10,370 14,151
Interest paid (1,878) (2,458)
Income taxes paid (81,379) (36,285)
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Net cash from operating activities 85,101 219,616
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INVESTING ACTIVITIES
Short-term investments, net 56,271 (98,742)
Purchase of property, plant and equipment, net (44,140) (21,023)
Other assets (3,541) 8,052
--------- ---------
Net cash provided by (used in) investing
activities 8,590 (111,713)
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FINANCING ACTIVITIES
Repurchases of common stock (Note 7) (118,561) (26,108)
Repayments of other debt (2,841) (2,988)
Proceeds from employee stock plans 21,713 15,015
--------- ---------
Net cash used in financing activities (99,689) (14,081)
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Effect of exchange rate changes on cash (2,771) (8,865)
--------- ---------
Increase (decrease) in cash and cash
equivalents (8,769) 84,957
Cash and cash equivalents - beginning of
the period 256,319 388,401
--------- ---------
Cash and cash equivalents - end of the period $ 247,550 $ 473,358
========= =========
RECONCILIATION OF NET INCOME TO NET CASH
FROM OPERATING ACTIVITIES
Net income $ 95,000 $ 93,573
Depreciation and amortization expense 62,016 56,542
Translation loss 5,178 13,888
Other adjustments to income (3,922) 5,314
Decrease in accounts receivable 38,799 43,232
(Increase) decrease in inventories (43,517) 26,650
Increase in spare parts for maintenance, net (10,593) (2,168)
Decrease in net deferred income tax asset 14,091 8,589
Decrease in accounts payable and accrued
liabilities (32,181) (15,830)
Decrease in income taxes payable (39,770) (10,174)
--------- ---------
Net cash from operating activities $ 85,101 $ 219,616
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
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Form 10-Q
Page 6
<TABLE>
<CAPTION>
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(In Thousands of Dollars)
Retained
Capital in Earnings
Common Excess of (Accumulated Treasury Unearned
Stock Par Value Deficit) Stock Compensation Total
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 26, 1997, as
previously reported $ 5,400 $1,161,997 $(33,617) $(18,874) $(2,403) $1,112,503
2-for-1 stock split in the form of a
stock dividend (Note 7) 5,400 (5,400)
------ --------- ------- ------- ------ ---------
Balances, December 26, 1997,
as restated 10,800 1,161,997 (39,017) (18,874) (2,403) 1,112,503
Shares issued under stock purchase
plan, and for exercises of options
(1,240,462 shares, including
808,254 shares issued from
treasury) 43 7,849 16,601 24,493
Repurchases of common stock
(900,000 shares) (Note 7) (90) (31,486) (31,576)
Final price adjustment for common stock
repurchased in October 1997 (Note 7) (87,030) (87,030)
Net income 95,000 95,000
Other 193 23 (135) 171 252
------ --------- ------- ------- ------ ---------
Balances, June 26, 1998 $10,753 $1,051,523 $ 56,006 $ (2,408) $(2,232) $1,113,642
====== ========= ======= ======= ====== =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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Form 10-Q
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STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PREPARATION
- -----------------------------
The accompanying consolidated financial statements of Storage Technology
Corporation and its subsidiaries (StorageTek or the Company) have been
prepared in accordance with the Securities and Exchange Commission
requirements for Form 10-Q. In the opinion of management, these statements
reflect all adjustments necessary for the fair presentation of results for
the periods presented, and such adjustments are of a normal, recurring
nature. For further information, refer to the consolidated financial
statements and footnotes included in the Company's Annual Report on Form 10-K
for the year ended December 26, 1997.
NOTE 2 - INVENTORIES
- --------------------
Inventories consist of the following (in thousands of dollars):
06/26/98 12/26/97
-----------------------------
Raw materials $ 47,731 $ 32,607
Work-in-process 77,522 57,235
Finished goods 123,840 115,619
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$249,093 $205,461
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NOTE 3 - DEBT AND FINANCING ARRANGEMENTS
- ----------------------------------------
The Company has a $350,000,000 unsecured credit agreement (the Revolver)
which expires in October 2001. The credit limit available under the Revolver
will be reduced by $12,500,000 on the last day of each calendar quarter
beginning December 31, 1998. The interest rates under the Revolver depend on
the type of advance selected. The basic advance rate is not less than the
London Interbank Offered Rate (LIBOR) plus 0.625% (6.3125% as of June 26,
1998). The Revolver contains certain financial and other covenants, including
restrictions on the Company's payment of cash dividends on its common stock.
As of June 26, 1998, the Company had issued letters of credit for
approximately $100,000 under the Revolver and had approximately $349,900,000
of available credit.
The Company has a financing agreement with a bank which provides for the sale
of promissory notes in the principal amount of up to $140,000,000 at any one
time. The agreement, which expires in January 2000, provides for commitments
by the bank to purchase promissory notes denominated in a number of foreign
currencies. The notes must be repaid only to the extent of future revenue of
the Company and obligations under the agreement are not cancelable by the
Company or the bank. Transaction gains and losses related to the notes are
deferred and recognized as an adjustment to the revenue supporting the note
repayment. The promissory notes, together with accrued interest, are payable
in U.S. dollars within 40 days from the date of
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Form 10-Q
Page 8
issuance and bear interest at rates no less than the LIBOR rate plus 0.35%
(6.0375% as of June 26, 1998). Under the terms of the agreement, the Company
is required to comply with certain covenants and, under certain
circumstances, may be required to maintain a collateral account, including
cash and qualifying investments, in an amount of no less than the outstanding
promissory notes. As of June 26, 1998, the Company had no outstanding
borrowings and had committed to borrowings between July 1998 and December
1998 in the cumulative principal amount of approximately $195,596,000.
NOTE 4 - RESTRUCTURING RESERVES
- -------------------------------
During the fourth quarter of 1995, the Company adopted a formal action plan
for restructuring its enterprise and network businesses. The restructuring
was adopted in an effort to establish a more cost efficient business
structure in response to competition. Elements of the Company's
restructuring plan included focusing on its core businesses, outsourcing non-
strategic activities, rearchitecting its distribution processes and channels,
and accelerating the integration of Network Systems Corporation.
The following table summarizes the activity associated with the Company's
restructuring reserves during the six months ended June 26, 1998 (in
thousands of dollars):
Employee Lease Other
Severance Abandonments Exit Costs Total
-------------------------------------------------
Balances, December 26, 1997 $14,994 $12,069 $ 229 $27,292
Cash payments (7,434) (782) (128) (8,344)
------ ------- ---- ------
Balances, June 26, 1998 $ 7,560 $11,287 $ 101 $18,948
====== ====== ==== ======
Substantially all of the remaining restructuring reserves represent costs to
be incurred under contractual agreements which will not provide the Company
with any future economic benefit. While the majority of these remaining
accruals are expected to result in future cash outflows, these outflows are
not expected to have a material effect on the Company's liquidity.
NOTE 5 - LITIGATION
- -------------------
In January 1994, Stuff Technology Partners II, a Colorado Limited Partnership
(Stuff), filed suit in Boulder County, Colorado, District Court against the
Company and certain subsidiaries. The suit alleged that the Company breached
a 1990 settlement agreement that had resolved earlier litigation between the
parties. The suit sought injunctive relief and damages in the amount of
$2,400,000,000. On December 28, 1995, the court dismissed the complaint.
Stuff appealed the dismissal to the Colorado Court of Appeals. In April
1996, the trial court stayed discovery on the Company's counterclaim for
breach of the covenant not to sue pending resolution of the appeal. In March
1997, the Court of Appeals reversed the District Court's judgment and
remanded the case to the District Court for further proceedings. In December
1997, the Colorado Supreme Court rejected the Company's petition seeking a
reversal of this decision. A new trial date has not been set. The case is
in the discovery phase.
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Form 10-Q
Page 9
On June 29, 1995, Odetics, Inc. (Odetics) filed a patent infringement suit in
the U.S. District Court for the Eastern District of Virginia against the
Company alleging that the "pass-through" port in certain of the Company's
tape library products infringed U.S. Patent No. 4,779,151 (the "151 Patent").
The complaint asked the court to impose injunctive relief, treble damages in
an unspecified amount, and an award of attorney's fees and costs. In
February 1996, a jury found that the Company's products did not infringe the
151 Patent. Odetics appealed and in June 1997, the U.S. Court of Appeals for
the Federal Circuit reversed the District Court's ruling and remanded the
case back to the District Court for further proceedings. On March 27, 1998,
a second trial was held and a jury found that a pass-through port in certain
of the Company's tape library products willfully infringed the 151 Patent and
awarded actual damages to Odetics of $70,600,000. On July 31, 1998, the
Court granted the Company's motion for judgment as a matter of law,
overturning the jury's verdict, and entered judgment in favor of the Company.
On December 8, 1995, Odetics filed a second patent infringement suit in the
U.S. District Court for the Eastern District of Virginia against the Company.
The complaint alleges that the "cartridge access port" in certain of the
Company's tape library products also infringes the 151 Patent. The complaint
seeks injunctive relief, treble damages in an unspecified amount, and an
award of attorney's fees and costs. This case has been stayed.
On October 3, 1995, certain former employees of the Company filed suit in the
U.S. District Court for the District of Colorado against the Company. The
amended suit alleges violations of the Age Discrimination in Employment Act
(ADEA) and the Employee Retirement Income Security Act (ERISA) between the
period of April 13, 1993, and December 31, 1996. On November 26, 1997, the
Court granted the plaintiffs' request to proceed as a collective action on
the ADEA claims and denied the plaintiffs' request to proceed as a class on
the ERISA claims. The period for joining the ADEA class action suit
terminated in March 1998. Approximately 400 persons elected to join the ADEA
class. The plaintiffs seek, among other things, compensatory damages in an
unspecified amount, including the value of back pay and benefits;
reinstatement as employees or alternatively the value of future earnings and
benefits; and exemplary or liquidated damages. The Company has filed an
answer denying both the ADEA and ERISA claims. In March 1998, the plaintiffs
filed a second request to proceed as a collective action on the ERISA claims.
The Court has not ruled on this request. A trial date has been set for
October 1999.
The Company believes it has adequate legal defenses with respect to each of
the actions cited above and intends to vigorously defend against these
actions. However, it is reasonably possible that these actions could result
in outcomes unfavorable to the Company. The Company is also involved in
various other less significant legal actions. While the Company currently
believes that the amount of the ultimate potential loss would not be material
to the Company's financial position, the outcome of these actions is
inherently difficult to predict. In the event of an adverse outcome, the
ultimate potential loss could have a material adverse effect on the Company's
financial position or reported results of operations in a particular quarter.
An unfavorable decision, particularly in patent litigation, could require
material changes in production processes and products or result in the
Company's inability to ship products or components found to have violated
third-party patent rights.
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Form 10-Q
Page 10
NOTE 6 - RECENTLY ISSUED ACCOUNTING STANDARDS
- ---------------------------------------------
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131, which is
effective for fiscal years beginning after December 15, 1997, establishes new
disclosure requirements for operating segments, including products, services,
geographic areas, and major customers. The Company will adopt SFAS No. 131
for the 1998 fiscal year, but does not expect the new accounting standard to
have a material impact on the Company's reported financial results.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1, which is
effective for transactions in fiscal years beginning after December 15, 1998,
provides guidance on accounting for the costs of computer software developed
or obtained for internal use. The Company will adopt SOP 98-1 for the 1999
fiscal year, but does not expect the new SOP to have a material effect on its
reported financial results.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is effective for all fiscal
periods beginning after June 15, 1999, with earlier adoption encouraged.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and hedging activities and requires all derivatives to be
recognized as either assets or liabilities in the consolidated balance sheet,
measured at fair value. The corresponding change in fair value of the
derivative will be recorded in the earnings of the Company net of related
change in fair value of the hedged item or as a component of comprehensive
income depending upon the intended use and designation. The Company is
currently evaluating the impact of SFAS No. 133 on its financial statements
and its plans for adoption.
NOTE 7 - COMMON STOCK
- ---------------------
In May 1998, the Company's board of directors authorized a two-for-one stock
split to be effected in the form of a 100% stock dividend payable at the
close of business June 26, 1998, to shareholders of record on June 5, 1998.
All earnings per common share amounts, references to common stock, and
stockholders equity amounts have been restated as if the stock dividend had
occurred as of the earliest period presented.
During the first six months of 1998, the Company repurchased 900,000 shares
of common stock at a cost of $31,531,000 under its existing stock repurchase
program.
In April 1998, the Company paid $87,030,000 as a final price adjustment for
the repurchase and retirement of 16,000,000 shares of its common stock in a
privately negotiated transaction executed in October 1997. The additional
payments were reflected as an adjustment to capital in excess of par value in
the Consolidated Statement of Changes in Stockholders' Equity.
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Form 10-Q
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NOTE 8 - SUBSEQUENT EVENTS
- --------------------------
In July 1998, the Company repurchased and retired 5,500,000 shares of its
common stock in a privately negotiated transaction for an initial price of
$263,313,000. This transaction was partially funded by an advance of
$150,000,000 under the Company's $350,000,000 unsecured credit agreement.
The final purchase price of the common stock is subject to adjustment based
on the trading price of the common stock during a defined period. Any price
adjustment will be reflected as an adjustment to capital in excess of par
value on the Consolidated Statement of Changes in Stockholders' Equity.
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Form 10-Q
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STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
JUNE 26, 1998
ALL ASSUMPTIONS, ANTICIPATIONS, EXPECTATIONS AND FORECASTS CONTAINED IN THE
FOLLOWING DISCUSSION REGARDING THE COMPANY'S PRODUCT AND BUSINESS PLANS,
FINANCIAL RESULTS, PERFORMANCE AND EVENTS ARE FORWARD-LOOKING STATEMENTS.
THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY BECAUSE OF A NUMBER OF
RISKS AND UNCERTAINTIES, SOME OF THESE RISKS ARE DETAILED BELOW IN "RISK
FACTORS THAT MAY AFFECT FUTURE RESULTS" AND ELSEWHERE IN THIS FORM 10-Q.
STATEMENTS MADE HEREIN ARE ACCURATE ONLY AS OF THE DATE OF FILING THIS FORM
10-Q WITH THE SECURITIES AND EXCHANGE COMMISSION AND MAY ONLY BE RELIED UPON
AS OF THAT DATE. THE COMPANY DISCLAIMS ANY OBLIGATION TO UPDATE INFORMATION
ON FORECASTS CONTAINED HEREIN, EXCEPT AS MAY BE OTHERWISE REQUIRED BY LAW.
GENERAL
- -------
The Company reported net income for the second quarter ended June 26, 1998 of
$54.4 million on revenue of $542.3 million, compared to net income for the
second quarter in 1997 of $54.0 million on revenue of $517.0 million. Net
income of $95.0 million was reported for the six months of 1998 on revenue of
$1.03 billion, compared to net income of $93.6 million for the six months of
1997 on revenue of $955.6 million.
Revenue increased 5% and 7% during the second quarter and six months of 1998
compared to the same periods in 1997. The increase in revenue is primarily a
result of increased sales of tape products for the client-server market and
online mainframe products, as well as increased revenue from consulting
services. The increase was partially offset by declines in sales revenue of
mainframe Nearline(R) products and the effects of unfavorable foreign
currency exchange rate movements. Overall gross profit margin increased to
47% and 48% during the second quarter and six months of 1998, respectively,
compared to 45% for the same periods in 1997. This increase was principally
due to cost reductions associated with increased manufacturing volumes of
mainframe online products, increased sales of higher-margin software
products, and other cost reductions achieved in the Company's manufacturing
processes.
The Company's future revenue and operating results are significantly
dependent upon the continued demand for mainframe Nearline and online
products in their traditional markets; effectively managing the transition to
new technologies; expanding the market for information storage systems in the
client-server environment and network products designed for the storage area
network and network-attached storage environments; developing new
applications for its products; expanding its distribution channels; and
successfully expanding the consulting services business. For discussion of
these and other risk factors, see "Risk Factors That May Affect Future
Results" below.
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Form 10-Q
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The Company's cash and short-term investment balances decreased $65.0 million
during the six months of 1998 primarily due to cash payments of $118.6
million associated with the Company's common stock repurchase programs and
net investments in property, plant and equipment of $44.1 million. These
repurchases and investments were partially funded through cash generated from
operating activities of $85.1 million and a reduction of short-term
investments of $56.3 million.
The following table, stated as a percentage of total revenue, presents
Consolidated Statement of Operations information and revenue by product line,
which includes both product sales and maintenance revenue.
Quarter Ended Six Months Ended
--------------------------------------------
06/26/98 06/27/97 06/26/98 06/27/97
-----------------------------------------
Revenue:
Nearline products 61.0% 65.7% 63.3% 65.1%
Online products 26.9 22.9 25.4 23.2
Network and other products 12.1 11.4 11.3 11.7
----- ----- ----- -----
Total revenue 100.0 100.0 100.0 100.0
Cost of revenue 52.5 54.8 52.4 54.9
----- ----- ----- -----
Gross profit 47.5 45.2 47.6 45.1
Research and product development
costs 10.1 9.9 10.8 10.2
Marketing, general, administrative
and other income and expense, net 21.8 22.3 22.7 22.8
----- ----- ----- -----
Operating profit 15.6 13.0 14.1 12.1
Interest income, net 0.6 1.3 0.8 1.3
----- ----- ----- -----
Income before income taxes 16.2 14.3 14.9 13.4
Provision for income taxes (6.2) (3.9) (5.7) (3.6)
----- ----- ----- -----
Net income 10.0% 10.4% 9.2% 9.8%
===== ===== ===== =====
REVENUE
- -------
NEARLINE PRODUCTS
Revenue from Nearline products decreased 3% in the second quarter of 1998,
but increased 4% for the six months of 1998, as compared to the same periods
in 1997. The revenue decrease in the second quarter of 1998, as compared to
1997, was primarily due to decreased sales of earlier generation Nearline
products and a decline in sales of the TimberLine(R) 9490, a 36-track
cartridge subsystem. This decrease was partially offset by increased sales
of TimberWolf(TM), a family of OPENstorage(TM) tape libraries designed for
client-server attachment. The revenue increase in the six months of 1998, as
compared to 1997, was influenced by these same factors, as the increase in
sales of TimberWolf, as well as an increase in sales of the PowderHorn(R)
9310, a large-scale automated cartridge system library, more than offset the
decreases. The decrease in TimberLine sales revenue was primarily due to
delays in customer purchase decisions and pricing pressures associated with
the evaluation of new tape solutions currently under development by the
Company. The increase in TimberWolf sales revenue was primarily as a result
of market acceptance in the client-server market. The Company's initiative
to develop new applications for its Nearline products continues to be a
significant contributor to
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Form 10-Q
Page 14
Nearline revenue in 1998, driving demand for PowderHorn and the RedWood(R)
SD-3, a high-capacity cartridge subsystem.
The rate of revenue growth in the Company's mainframe tape products has
slowed as customers shift their storage requirements from the
mainframe to the client-server environment. Future revenue growth for
Nearline products is dependent upon the continued success of TimberWolf in
the client-server market and the timely development and transition to new
mainframe tape solutions. The Company is currently developing Virtual
Storage Manager (VSM), a mainframe data storage management solution designed
to improve performance, cartridge utilization, and overall storage
management; and the 9840, a high-performance tape drive. The Company expects
that these products will be key components of its growth initiative. The
Company anticipates Nearline sales will continue to be impacted during the
transition period to the VSM and 9840 products. There can be no assurance
that TimberWolf will continue to gain market acceptance, that the new
applications development activities will generate significant revenue, or
that the Company will timely develop new mainframe tape solutions.
ONLINE PRODUCTS
Revenue from online products increased 23% and 18% in the second quarter and
six months of 1998, respectively, compared to the same periods in 1997, due
to increased sales of mainframe online products under the Company's OEM
agreement with IBM. Sales of the Company's online products targeted for the
client-server market also increased in the second quarter and six months of
1998.
Approximately 22% and 20% of the Company's total revenue during the second
quarter and six months of 1998, respectively, was derived from the Company's
worldwide non-exclusive OEM agreement with IBM under which the Company
develops and manufactures mainframe online storage products. In December
1997, the Company entered into a new OEM agreement with IBM which expires in
December 2000. IBM may elect to terminate this agreement for convenience or
for cause, or upon certain instances of change in control or the occurrence
of certain other conditions. The Company may elect to terminate the
agreement for cause. IBM is not subject to any long-term volume purchase
commitments. The Company anticipates that it will experience pricing pressure
under this agreement for the remainder of 1998 due to volume-purchase
discounts and price reductions associated with new technologies. There can be
no assurance that the Company will continue to realize benefits associated
with the agreement. See "Risk Factors That May Affect Future Results -
Dependence on IBM," for further discussion of the risks associated with the
OEM agreement.
Success in the client-server disk market is significant to the Company's plans
to grow revenue in the future. While sales of client-server disk products
have increased in 1998, the Company must gain further acceptance for its disk
products in an intensely competitive market and successfully develop cost-
effective, high-volume distribution channels for these products in order to
accelerate the rate of revenue growth in this market. There can be no
assurance that the Company will be successful in its client-server disk
initiative.
<PAGE>
Form 10-Q
Page 15
NETWORK AND OTHER PRODUCTS
Revenue from network and other products increased 12% and 4% in the second
quarter and six months of 1998, respectively, compared to the same periods in
1997, primarily due to an increase in consulting services revenue. Revenue
from network products was unchanged in the second quarter and decreased
slightly in the six months of 1998, as compared to the same periods in 1997.
Future revenue growth from network products is dependent upon the timely
development and successful introduction of integrated storage area network
and network-attached storage solutions currently in development. The
successful development of the consulting services business is also an
important element of the Company's future revenue growth. There can be no
assurance that the Company will be successful in developing, distributing and
managing the introduction of new network products or that it will be
successful in developing the consulting services business.
GROSS PROFIT
- ------------
Overall gross profit margins increased to 47% and 48% in the second quarter
and six months of 1998, respectively, compared to 45% for the same periods in
1997.
Gross profit on product sales increased to 50% in the second quarter and six
months of 1998, compared to 46% and 45% for the second quarter and six months
of 1997, respectively. This increase is primarily a result of cost
reductions associated with increased manufacturing volumes of mainframe
online products, increased sales of higher-margin software products and other
cost reductions achieved in the Company's manufacturing processes. The
increase in gross profit as a percent of sales was partially offset by
increased sales of lower-margin client-server tape products and increased
sales through lower-margin indirect sales channels.
Gross profit on maintenance revenue decreased to 42% and 43% in the second
quarter and six months of 1998, respectively, compared to 43% and 45% for the
same periods in 1997. The decline is principally attributable to lower
margins associated with the Company's consulting services business.
The markets for most of the Company's products are subject to intense price
competition. The Company anticipates that price competition for its tape
products will continue to be a major factor as it expands its presence in the
client-server storage market and as customers evaluate new tape solutions
currently under development. The Company anticipates that the product sales
margins for its mainframe online products will decline during the remainder
of 1998 due to price reductions of online products as a result of volume-
purchase discounts associated with sales under the OEM agreement with IBM and
price reductions associated with new technologies. The Company's ability to
sustain or improve product sales margins is significantly dependent upon
continued success in reducing manufacturing costs in all of its product
lines. Product sales margins also may be affected by inventory reserves and
writedowns resulting from rapid technological changes and delays in gaining
market acceptance for new products. Maintenance margins may be adversely
affected in the future as a result of increased competition and lower margins
associated with the Company's consulting services business.
<PAGE>
Form 10-Q
Page 16
RESEARCH AND PRODUCT DEVELOPMENT
- --------------------------------
Research and product development expenditures increased 7% and 14% in the
second quarter and six months of 1998, respectively, compared to the same
periods in 1997. The increased investment in new product development
activities during the second quarter and six months of 1998 was partially
offset by funding received from Compaq for certain research and development
activities for client-server data storage solutions and networking products,
and from IBM for enhancements to the Company's mainframe online products.
The Company's research and development expenditures are expected to increase
through the remainder of 1998 and will be affected by the level of funding
received from partners such as Compaq and IBM for the development of new
products.
MARKETING, GENERAL, ADMINISTRATIVE AND OTHER
- --------------------------------------------
Marketing, general, administrative and other income and expense (MG&A)
increased 3% and 7% in the second quarter and six months of 1998,
respectively, compared to the same periods in 1997. The increase is
primarily a result of increased investment in internal business and financial
information systems and increased marketing expenses associated with the
Company's client-server storage and new applications initiatives. These
increases were partially offset by reductions in accruals for employee bonus
and profit-sharing payments in 1998, as compared to 1997, as the Company did
not attain certain goals in the first six months of 1998. MG&A for the
second quarter and six months of 1997 also included gains realized on the
sale of accounts receivable of approximately $7.2 million and $12.1 million,
respectively.
INTEREST INCOME AND EXPENSE
- ---------------------------
Interest income decreased 42% and 30% in the second quarter and six months of
1998, respectively, compared to the same periods in 1997, primarily because
of a decrease in cash available for investment. Interest expense increased
1% in the second quarter of 1998, and decreased 8% for the six months of
1998, as compared to the same periods in 1997. The decrease in the six
months of 1998 is due to the redemption of all of the Company's outstanding
8% Convertible Subordinated Debentures in January 1997.
INCOME TAXES
- ------------
The Company's effective tax rate increased from 27% for the second quarter of
1997 to 38% for the second quarter of 1998 as the Company has recognized
substantially all of its remaining net deductible temporary differences, tax
credit carryforwards and net operating loss carryforwards in the United
States. The Company's remaining valuation allowance of approximately $22.2
million as of June 26, 1998, relates principally to net deductible temporary
differences and net operating loss carryforwards associated with the
Company's foreign subsidiaries.
<PAGE>
Form 10-Q
Page 17
RESTRUCTURING
- -------------
During the fourth quarter of 1995, the Company adopted a formal action plan
for restructuring its enterprise and network businesses. The restructuring
was adopted in an effort to establish a more cost efficient business
structure in response to competition. Elements of the Company's
restructuring plan included focusing on core businesses and outsourcing non-
strategic activities, rearchitecting its distribution processes and channels,
and accelerating the integration of Network Systems Corporation.
The following table summarizes the activity associated with the Company's
restructuring reserves during the six months ended June 26, 1998 (in
thousands of dollars):
Employee Lease Other
Severance Abandonments Exit Costs Total
-------------------------------------------------
Balances, December 26, 1997 $14,994 $12,069 $ 229 $27,292
Cash payments (7,434) (782) (128) (8,344)
------ ------ ---- ------
Balances, June 26, 1998 $ 7,560 $11,287 $ 101 $18,948
====== ====== ==== ======
Substantially all of the remaining restructuring reserves represent costs to
be incurred under contractual agreements which will not provide the Company
with any future economic benefit. While the majority of these remaining
accruals are expected to result in future cash outflows, these outflows are
not expected to have a material effect on the Company's liquidity.
The Company believes that its restructuring programs have eliminated certain
non-essential functions and excess costs. There can be no assurance,
however, that the Company's restructuring activities will be successful or
sufficient to allow the Company to continue to generate improved operating
results in future periods. It is possible that changes in the Company's
business or in its industry may necessitate restructuring charges in the
future.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
WORKING CAPITAL
The Company's cash and short-term investments balances decreased $65.0
million during the six months of 1998 primarily due to cash payments of
$118.6 million associated with the Company's common stock repurchase programs
and net investments in property, plant and equipment of $44.1 million. These
repurchases and investments were partially funded through cash generated from
operating activities of $85.1 million and a reduction of short-term
investments of $56.3 million.
In July 1998, the Company repurchased and retired 5,500,000 shares of its
common stock in a privately negotiated transaction for an initial price of
$263.3 million. This transaction was partially funded by an advance of $150
million under the Company's $350 million unsecured credit agreement. The
final purchase price of the common stock is subject to price adjustment based
on the trading price of the common stock during a defined period. Any price
adjustment
<PAGE>
Form 10-Q
Page 18
will be reflected as an adjustment to capital in excess of par value on the
Consolidated Statement of Changes in Stockholders' Equity. See Note 7 of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for further discussion of the
Company's common stock repurchase programs.
The current ratio increased to 2.3 as of June 26, 1998, from 2.1 as of
December 26, 1997, primarily due to a decrease in accrued liabilities and
income taxes payable and an increase in inventory. This increase was
partially offset by a decrease in cash and cash equivalents, short-term
investments and accounts receivable. Inventory increased from $205.5 million
as of December 27, 1997, to $249.1 million as of June 26, 1998 primarily due
to increased inventory levels for Nearline and online products. Accounts
receivable decreased from $628.0 million as of December 26, 1997, to $570.6
million as of June 26, 1998, primarily as a result of reduced sales revenue
in the second quarter of 1998, as compared to the fourth quarter of 1997.
AVAILABLE FINANCING LINES
The Company has a $350 million unsecured credit agreement (the Revolver)
which expires in October 2001. The credit limit available under the Revolver
will be reduced by $12.5 million on the last day of each calendar quarter
beginning December 31, 1998. The interest rates under the Revolver depend on
the type of advance selected. The basic advance rate is not less than the
London Interbank Offered Rate (LIBOR) plus 0.625% (6.3125% as of June 26,
1998). The Revolver contains certain financial and other covenants, including
restrictions on the Company's payment of cash dividends on its common stock.
As of June 26, 1998, the Company had issued letters of credit for
approximately $100,000 under the Revolver and had approximately $349.9
million of available credit.
The Company has a financing agreement with a bank which provides for the sale
of promissory notes in the principal amount of up to $140 million at any one
time. The agreement, which expires in January 2000, provides for commitments
by the bank to purchase promissory notes denominated in a number of foreign
currencies. The notes must be repaid only to the extent of future revenue of
the Company and obligations under the agreement are not cancelable by the
Company or the bank. Transaction gains and losses related to the notes are
deferred and recognized as an adjustment to the revenue supporting the note
repayment. The promissory notes, together with accrued interest, are payable
in U.S. dollars within 40 days from the date of issuance and bear interest at
rates no less than the LIBOR rate plus 0.35% (6.0375% as of June 26, 1998).
Under the terms of the agreement, the Company is required to comply with
certain covenants and, under certain circumstances, may be required to
maintain a collateral account, including cash and qualifying investments, in
an amount of no less than the outstanding promissory notes. As of June 26,
1998, the Company had no outstanding borrowings and had committed to
borrowings between July 1998 and December 1998 in the cumulative principal
amount of approximately $195.6 million.
The Company intends to continue to commit substantial resources to research
and development projects and may, from time to time, as market and business
conditions warrant, invest in or acquire complementary businesses, products
or technologies. The Company believes it has adequate working capital and
financing capabilities to meet its anticipated operating and capital
requirements for the next 12 months. Over the longer term, the Company may
choose to fund these activities through the issuance of additional equity or
debt financing. The issuance of equity or convertible debt securities could
result in dilution to the Company's
<PAGE>
Form 10-Q
Page 19
stockholders. There can be no assurance that such additional financing, if
required, can be completed on terms acceptable to the Company.
INTERNATIONAL OPERATIONS
- ------------------------
During the second quarter and six months of 1998, approximately 36% of the
Company's revenue was generated from international operations, as compared to
approximately 34% and 35% for the second quarter and six months of 1997,
respectively. The Company also sells its products through certain domestic
indirect distribution channels that have end-user customers located outside
the U.S. The Company expects that it will generate a significant portion of
its revenue from international operations in the future. The majority of the
Company's international operations involve transactions denominated in the
local currencies of countries within Western Europe; principally Germany,
France and the United Kingdom; Japan; Canada and Australia. An increase in
the exchange value of the U.S. dollar reduces the value of revenue and
profits generated by the Company's international operations. As a result,
the Company's operating and financial results can be materially affected by
fluctuations in foreign currency exchange rates. In an attempt to mitigate
the impact of foreign currency fluctuations, the Company employs a hedging
program which utilizes foreign currency options and forward exchange
contracts. See "Market Risk Management/Foreign Currency Exchange Risk"
below.
The Company's international business may be affected by changes in demand
resulting from localized economic, political and market conditions. For
example, in the past, the Company's business has been adversely affected by
weak economic conditions in Europe.
The Company is subject to the risks of conducting business outside the United
States, including changes in, or impositions of, legislative or regulatory
requirements, tariffs, quotas, difficulty in obtaining export licenses,
potentially adverse taxes, the burdens of complying with a variety of foreign
laws and other factors outside the Company's control. There can be no
assurances that one or more of the foregoing factors will not have a material
adverse effect on the Company's business or financial results in the future.
MARKET RISK MANAGEMENT/FOREIGN CURRENCY EXCHANGE RISK
- -----------------------------------------------------
The market risk inherent in the Company's financial instruments relates
primarily to changes in foreign currency exchange rates. To mitigate the
impact of foreign currency fluctuations, the Company seeks opportunities to
reduce exposures through financing activities and utilizes foreign currency
options and forward exchange contracts to further reduce any remaining
exposures. All foreign currency options and forward exchange contracts are
authorized and executed pursuant to the Company's policies. Foreign currency
options and forward exchange contracts that are designated as, and qualify
as, hedging transactions are subject to hedge accounting treatment. The
Company does not hold or issue financial instruments, foreign currency
options or forward exchange contracts for trading purposes.
The Company has a financing agreement with a bank which provides for
commitments by the bank to purchase promissory notes denominated in a number
of foreign currencies. Transaction gains and losses related to the notes are
deferred and recognized as an adjustment to the revenue supporting the note
repayment. See "Available Financing Lines" above for further discussions of
the financing agreement.
<PAGE>
Form 10-Q
Page 20
The Company periodically utilizes foreign currency options, generally with
maturities of less than one year, to hedge a portion of its exposure to
exchange-rate fluctuations in connection with anticipated revenue from its
international operations. Gains and losses associated with the options are
deferred and recognized as an adjustment to the underlying revenue
transactions. To the extent an option is terminated or ceases to be
effective as a hedge, any gains and losses as of that date are deferred and
recognized as an adjustment to the underlying revenue transaction.
The Company also utilizes forward exchange contracts, generally with
maturities of less than two months, to hedge its exposure to exchange-rate
fluctuations in connection with anticipated monetary assets and liabilities
held in foreign currencies and anticipated revenues from its international
operations. The carrying amounts of these forward foreign exchange contracts
equal their fair value as the contracts are adjusted at each balance sheet
date for changes in exchange rates. Gains and losses on the forward
contracts used to hedge monetary assets and liabilities are recognized as
incurred within MG&A on the Consolidated Statement of Operations as
adjustments to the foreign exchange gains and losses on the translation of
net monetary assets.
A hypothetical 10% adverse movement in foreign exchange rates applied to the
Company's foreign currency exchange rate sensitive instruments held as of
December 26, 1997, and as of June 26, 1998, would result in a hypothetical
loss of approximately $26.6 million and $32.7 million, respectively. The
increase in the hypothetical loss during the six months of 1998 is primarily
due to the use of additional forward exchange contracts to hedge exchange-
rate exposure associated with monetary assets and liabilities held in foreign
currencies. These hypothetical losses do not take into consideration the
Company's underlying international operations. The Company anticipates that
any hypothetical loss associated with the Company's foreign currency exchange
rate sensitive instruments would be offset by gains associated with its
underlying international operations.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
- -------------------------------------------
NEW PRODUCTS, MARKETS AND DISTRIBUTION CHANNELS
The Company's results of operations and competitive strength depend upon its
ability to successfully develop, manufacture, market and deliver innovative
new products and product enhancements. Short product life cycles are
inherent to the high-technology market. The Company must devote significant
resources to research and product development projects and effectively manage
the risks inherent in new product transitions. Developing new products and
product enhancements is complex and involves uncertainties. Delays in
product development, manufacturing, or in customer purchasing decisions can
make product transitions difficult. In addition, product transitions make
the process of production and inventory planning more difficult as the
Company must accurately anticipate product mix and configuration demands, and
accurately forecast inventory levels. The Company has experienced product
development delays in the past that adversely affected the Company's
financial results and competitive position. There can be no assurances that
the Company will be able to successfully manage the development and
transition to of new products and product enhancements in the future.
<PAGE>
Form 10-Q
Page 21
The Company is currently developing several new mainframe Nearline products
planned for availability in the fourth quarter of 1998. The Company expects
that these products will be key components of its growth initiative and
failure to timely develop and distribute these new mainframe Nearline
products may negatively impact the Company's results in the remainder of 1998
and 1999.
The Company historically has generated a significant portion of its revenue
and operating profits from mainframe products. The rate of revenue growth in
the Company's mainframe tape products has slowed as customers shift
their storage requirements from the mainframe to the client-server
environment. The Company's future financial results are significantly
dependent upon the continued success of the TimberWolf tape family in the
client-server market and significantly increasing the Company's presence in
the client-server disk market. The Company must also establish new cost-
effective, high-volume distribution channels in order to be successful in
this market. There can be no assurances that the Company will be successful
in these activities.
The Company is expanding the market for its products and services through new
applications which address customer needs for information. The new
applications initiative was successful in developing new markets for the
Company's products and services during the second quarter and six months of
1998. However, there can be no assurances that the Company's applications
development activities will result in increased revenue and profitability in
the future.
The Company's increasing dependence on indirect distribution channels, such
as OEMs, value-added resellers and value-added distributors, will make
production and inventory planning more complex. In the event an indirect
partner establishes a new relationship with a competitor or experiences
financial difficulties, the Company's operating and financial results may be
adversely affected. See "Dependence on IBM," below, for a discussion of
issues associated with the Company's distribution channels for its mainframe
online products.
DEPENDENCE ON IBM
Approximately 22% and 20% of the Company's total revenue during the second
quarter and six months of 1998, respectively, was derived from OEM sales of
mainframe online products to IBM. The Company currently anticipates that it
will derive a significant portion of its sales revenue during the remainder
of 1998 from product sales to IBM. Under the worldwide, non-exclusive OEM
agreement entered into during December 1997, IBM is not subject to any long-
term volume purchase commitments. IBM may terminate the agreement for
convenience or for cause, or upon certain instances of change in control or
the occurrence of certain other conditions. The Company anticipates that it
will experience pricing pressures under the agreement for the remainder of
1998 due to volume-purchase discounts and price reductions associated with
new technologies. The Company's success under the OEM agreement is
significantly dependent upon achieving certain product development, delivery
and performance milestones. The Company's success is also dependent upon IBM
continuing to successfully market the mainframe online products, and
developing and delivering to the Company disk drives for inclusion in the
products. Because of the volume-purchase discounts and pricing of new
technology included in the OEM agreement, the Company must continue to reduce
costs and expenses associated with manufacturing the products in order to
achieve the expected benefits during the remaining term of the agreement.
The OEM relationship may also cause the Company to incur additional costs
associated with unanticipated increases or decreases in <PAGE>
Form 10-Q
Page 22
manufacturing and inventory volumes. There can be no assurances that the
Company will achieve the milestones contained in the OEM agreement or that
IBM will successfully market these products in the future.
In December 1997, the Company and IBM agreed to a settlement with the United
States Department of Justice (DOJ) concerning the Company's OEM relationship
with IBM. The terms of the settlement are contained in a consent decree
which was approved by the U.S. District Court for the District of Columbia on
March 20, 1998. Under the terms of the consent decree, which expires in
December 2002, the Company must develop complementary distribution channels
for delivery of its online products in 1999 or the Company could be subject
to limitations on its sales to IBM in the future. The Company's current OEM
agreement with IBM expires in December 2000 and IBM has indicated that it is
currently developing a competitive online product. Failure to develop new
distribution channels for the Company's mainframe online products could
adversely affect the Company's ability to sell its mainframe online products
in future periods.
COMPETITION
The markets for the Company's products and services are intensely
competitive. In the mainframe market, the Company's traditional competitors
include IBM, EMC, Fujitsu and Hitachi. Competition in the client-server
market comes from the Company's traditional rivals in the mainframe market,
in addition to companies focused on the client-server industry, such as Sun
Microsystems, Compaq and Hewlett-Packard. A number of the Company's
competitors have significantly greater market presence and financial
resources than the Company. In addition, many of the Company's potential
customers in the client-server market purchase their storage requirements as
part of a packaged server and storage product, which may provide a
competitive advantage to the Company's rivals. The Company expects to
address this issue by providing superior storage area network and network-
attached storage solutions that operate across multiple computer platforms
and by establishing distribution relationships with these competitors. The
Company currently has relationships with some of its competitors, including
Compaq, IBM, Hewlett Packard, NCR, Groupe Bull, and Siemens Nixdorf
Informationssysteme. There can be no assurances that the Company will be able
to successfully compete against other companies in the mainframe and
client-server market.
PATENTS AND LICENSES
The Company's patents and other proprietary rights are material assets and
key elements of the business and competitive strength. The Company protects
its proprietary information through a combination of patents, trademarks,
copyrights, confidentiality procedures, trade secret laws and licensing
arrangements. The Company's policy is to apply for patents, or other
appropriate proprietary or statutory protection in the United States and
other selected countries to establish its proprietary rights in new and
improved technology. There can be no assurances, however, that these
arrangements will successfully preclude competitors from developing products
similar to the Company's products, or that the Company's proprietary rights
will not be challenged, invalidated, or circumvented, or that these rights
will provide significant competitive advantages. The Company also relies on
technology that is licensed from others, such as IBM. The Company is unable
to predict whether its licensing arrangements can be renewed in the future on
terms acceptable to the Company.
<PAGE>
Form 10-Q
Page 23
In order to protect and enforce its proprietary rights, from time to time the
Company has commenced legal actions against other companies. Similarly,
other companies have brought legal actions against the Company claiming
infringement of patent or other proprietary rights. Licenses or royalty
arrangements are generally offered in these situations. However, any
litigation by or against the Company, with or without merit, may result in
significant expense and divert the efforts of the Company's technical and
management personnel. In the event of a successful claim of infringement
against the Company, the Company could be required to pay substantial
damages; cease the manufacture, use and sale of infringing products; expend
significant resources to develop non-infringing technology; or discontinue
the use of certain processes if the Company is unable to enter into royalty
arrangements. As a result of an increasingly complex and diverse competitive
environment, the Company anticipates that the volume of proprietary rights
claims will grow. There can be no assurances that litigation will not be
commenced against the Company in the future involving patents, copyrights,
trademarks or trade secrets, or that the Company will be able to obtain any
licensing, royalty or other rights on acceptable terms. The Company
currently is involved in several legal proceedings involving its proprietary
rights and alleging patent infringement. See Note 5 of NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS and "Odetics Litigation" above for additional
information with respect to certain of these legal proceedings.
VOLATILITY OF STOCK PRICE; EARNINGS FLUCTUATIONS
The trading price of the Company's common stock has fluctuated significantly
in the past and may fluctuate significantly in the future. Industry
conditions, new product or product development announcements by the Company
or its competitors, announced acquisitions and joint ventures by the Company
or its competitors, broad market trends unrelated to the Company's
performance, changes in revenue or earnings estimates by the investment
community, global economic conditions and foreign currency exchange rate
fluctuations are among the factors that can affect the Company's stock price.
In addition, if the Company's reported operating results are below the
expectations of stock market analysts and investors, there could be an
immediate and significant adverse effect on the trading price of the
Company's common stock.
The Company's financial and operating results have fluctuated significantly
in the past and may continue to fluctuate in the future. Fluctuations are
caused by factors such as customers' historical tendencies to make purchase
decisions near the end of the calendar year, the timing of the announcement
and availability of new products by the Company and its competitors,
fluctuating foreign currency exchange rates, changes in the mix and
configuration of products sold, rapid price erosion, the purchasing patterns
of the Company's OEM partners and global economic conditions.
SOLE SOURCE SUPPLIERS
The Company generally uses standard parts and components for its products and
believes that, in most cases, there are a number of alternative, competent
vendors for most of those parts and components. Certain of the Company's key
components and products are purchased from single suppliers that the Company
believes are currently the only manufacturers of the particular components
that meet the Company's qualification requirements and other specifications
or for which alternative sources of supply are not readily available. In
particular, a key component of the Company's tape drive heads is supplied by
Sumitomo Corporation on a sole source basis and the Company is dependent on
IBM for disk drives used in products manufactured for IBM under an
<PAGE>
Form 10-Q
Page 24
OEM agreement. Certain of the Company's suppliers have experienced occasional
technical, financial or other problems in the past that have delayed
deliveries, but without significant effect on the Company. An unanticipated
failure of any sole source supplier to meet the Company's requirements for an
extended period, or an interruption in the Company's ability to secure
comparable components, could have a material adverse effect on the Company's
revenue and operating results. In the event a sole source supplier was
unable or unwilling to continue to supply components, the Company would have
to identify and qualify other acceptable suppliers. This process could take
an extended period, and no assurance can be given that any additional source
would become available or would be able to satisfy the Company's production
requirements on a timely basis.
RISKS ASSOCIATED WITH THE YEAR 2000
The Company's product lines include information storage systems and network
products which store, retrieve and transmit data. In order to properly
process data, the Company's products must manage and manipulate data that
includes both 20th and 21st century dates (Year 2000 Compliant). The Company
believes its current products are Year 2000 Compliant provided they have been
upgraded to include all recommended engineering changes. There can be no
assurance that the Company's current products will be Year 2000 Compliant.
In addition, the Company does not currently intend to develop modifications
to certain of its older products to make them Year 2000 Compliant and plans
to notify the affected maintenance customers of this plan. The Company's
inability to effectively manage the year 2000 risks associated with its
current and older product lines could have material adverse effects,
including increased warranty costs, customer satisfaction issues and
potential lawsuits.
The Company is currently in the process of replacing many of its internal
business and financial information systems. These systems are being replaced
by new systems which are believed to be Year 2000 Compliant. The Company is
also identifying and implementing changes to other information systems which
are not being replaced in order to make them Year 2000 Compliant. The Company
anticipates that the installation of its new information systems and changes
to its remaining information systems in order to make them Year 2000 Compliant
will be substantially completed by the first half of 1999. The Company
currently does not expect that the year 2000 will cause operational problems
or result in the Company incurring material costs incremental to the cost of
the information systems projects currently underway. Delays in implementing
these internal information systems or a failure to fully identify all year
2000 dependencies in the Company's internal information systems could have
material adverse consequences, including delays in the delivery or sale of
the Company's products, or cause the Company to incur increased costs.
<PAGE>
Form 10-Q
Page 25
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
- --------------------------
See Part I, Item 3 - Legal Proceedings, of the Company's Form 10-K for the
fiscal year ended December 26, 1997, filed with the Commission on March 6,
1998.
On June 29, 1995, Odetics, Inc. (Odetics) filed a patent infringement suit in
the U.S. District Court for the Eastern District of Virginia against the
Company alleging that the "pass-through" port in certain of the Company's
tape library products infringed U.S. Patent No. 4,779,151 (the "151 Patent").
The complaint asked the court to impose injunctive relief, treble damages in
an unspecified amount, and an award of attorney's fees and costs. In
February 1996, a jury found that the Company's products did not infringe the
151 Patent. Odetics appealed and in June 1997, the U.S. Court of Appeals for
the Federal Circuit reversed the District Court's ruling and remanded the
case back to the District Court for further proceedings. On March 27, 1998,
a second trial was held and a jury found that a pass-through port in certain
of the Company's tape library products willfully infringed the 151 Patent and
awarded actual damages to Odetics of $70.6 million. On July 31, 1998, the
Court granted the Company's motion for judgment as a matter of law,
overturning the jury's verdict, and entered judgment in favor of the Company.
On December 8, 1995, Odetics filed a second patent infringement suit in the
U.S. District Court for the Eastern District of Virginia against the Company.
The complaint alleges that the "cartridge access port" in certain of the
Company's tape library products also infringes the 151 Patent. The complaint
seeks injunctive relief, treble damages in an unspecified amount, and an
award of attorney's fees and costs. This case has been stayed.
The Company believes it has adequate legal defenses with respect to each of
the actions cited above and intends to vigorously defend against these
actions. However, it is reasonably possible that these actions could result
in outcomes unfavorable to the Company. The Company is also involved in
various other less significant legal actions. While the Company currently
believes that the amount of the ultimate potential loss would not be material
to the Company's financial position, the outcome of these actions is
inherently difficult to predict. In the event of an adverse outcome, the
ultimate potential loss could have a material adverse effect on the Company's
financial position or reported results of operations in a particular quarter.
An unfavorable decision, particularly in patent litigation, could require
material changes in production processes and products or result in the
Company's inability to ship products or components found to have violated
third-party patent rights.
Information concerning these legal proceedings is also contained in Note 5 of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS included in Part I of this Form
10-Q.
<PAGE>
Form 10-Q
Page 26
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
The annual meeting of stockholders of the Company was held on May 21, 1998.
A quorum of stockholders was represented at the meeting in person or by
proxy.
A board of ten directors was to be elected at the meeting. All of
management's nominees as listed in the Company's proxy statement were
elected. The following directors were elected at the meeting:
FOR WITHHELD
---------- --------
David E. Weiss 48,512,448 203,677
William L. Armstrong 48,507,271 208,854
J. Harold Chandler 48,512,249 203,876
William R. Hoover 48,489,112 227,013
Stephen J. Keane 48,512,072 204,053
William T. Kerr 48,512,568 203,557
Robert E. La Blanc 48,512,336 203,789
Robert E. Lee 48,510,788 205,337
Harrison Shull 48,511,564 204,561
Richard C. Steadman 48,512,246 203,879
At the annual meeting, the stockholders approved amendments to the Company's
Amended and Restated 1987 Employee Stock Purchase Plan and the reservation of
an additional 1,400,000 shares of Common Stock for issuance under the plan,
by a vote of 45,643,950 in favor to 1,237,133 against, with 1,835,042
abstentions. The stockholders also approved amendments to the Company's
Amended and Restated Stock Option Plan for Nonemployee Directors and the
reservation of an additional 250,000 shares of Common Stock for issuance
under this plan, by a vote of 44,811,484 in favor to 3,451,129 against, with
453,512 abstentions. Also, the stockholders also ratified the appointment of
PricewaterhouseCoopers LLP as the Company's independent accountants for the
current fiscal year, by a vote of 48,576,568 in favor to 50,449 against, with
89,108 abstentions. There were no broker non-votes for any of these
proposals.
<PAGE>
Form 10-Q
Page 27
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
10.1 First Amendment to the Second Amended and Restated
Contingent Multicurrency Note Purchase Commitment
Agreement, dated as of May 28, 1998, between the Company
and Bank of America National Trust and Savings.
10.2 Third Amendment to the Restated Bylaws.
10.3(1) 1995 Equity Participation Plan as amended March 1998.
11.0 Computation of Earnings Per Common Share.
27.0 Financial Data Schedule for six months ended June 26, 1998.
27.0 Financial Data Schedule for the three months ended
March 27, 1998.
27.0 Financial Data Schedule for the year ended
December 26, 1997.
27.0 Financial Data Schedule for nine months ended
September 26, 1997.
27.0 Financial Data Schedule for six months ended June 27, 1997.
27.0 Financial Data Schedule for the three months ended
March 28, 1997.
27.0 Financial Data Schedule for the year ended
December 27, 1996.
27.0 Financial Data Schedule for nine months ended
September 27, 1996
27.0 Financial Data Schedule for six months ended June 28, 1996.
27.0 Financial Data Schedule for the three months ended
March 29, 1996.
27.0 Financial Data Schedule for the year ended
December 29, 1995.
(b) Reports on Form 8-K
On May 27, 1998, the Company filed a Current Report on Form 8-K
dated May 21, 1998, disclosing that on May 21, 1998, the
Registrant's board of directors had approved a two-for-one split of
its common stock, to be effected in the form of a stock dividend.
The stock split entitled shareholders to receive one additional
share of common stock for each outstanding share of common stock
held of record as of the close of business on June 5, 1998 and was
distributed on June 26, 1998.
(1) Contract or compensation plan or arrangement in which directors
and/or officers participate.
<PAGE>
Form 10-Q
Page 28
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STORAGE TECHNOLOGY CORPORATION
(Registrant)
August 7, 1998 /s/ DAVID E. LACEY
- ----------------------- ------------------------------------------
(Date) David E. Lacey
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
August 7, 1998 /s/ THOMAS G. ARNOLD
- ----------------------- ------------------------------------------
(Date) Thomas G. Arnold
Vice President and Corporate Controller
(Principal Accounting Officer)
FIRST AMENDMENT TO THE SECOND AMENDED AND RESTATED CONTINGENT
MULTICURRENCY NOTE PURCHASE COMMITMENT AGREEMENT
--------------------------------------------------
THIS AMENDMENT (this "Amendment"), dated as of May 28, 1998, is
made to the Second Amended and Restated Contingent Multicurrency Note
Purchase Commitment Agreement, dated as of January 15, 1998 (as
heretofore or hereafter amended, modified or supplemented from time to
time and in effect, the "Agreement"), between Storage Technology
Corporation ("Borrower") and Bank of America National Trust and
Savings Association ("BofA"). Capitalized terms used but not otherwise
defined herein shall have the meanings assigned to such terms by the
Agreement.
WHEREAS, Borrower and BofA desire to amend and supplement the
Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
AMENDMENTS TO AGREEMENT
Section 1.1 Amendment to Section 1.04. Section 1.04 of the
Agreement is hereby amended to incorporate the changes shown below:
Section 1.04 Disbursement of Purchase Price into
Collateral Account; Notice of Collateral Status. The
Borrower will notify BofA in writing no later than 10:00
a.m. (San Francisco time) on each LIBOR Fixing Date (i)
whether or not Borrower will be in Collateral Status on the
next succeeding Purchase Date for which such Notice of
Borrowing was delivered, and (ii) if Borrower will be in
Collateral Status on such next succeeding Purchase Date,
the amount to be deposited into the Collateral Account on
such next succeeding Purchase Date in order to enable the
Borrower to meet its obligations under Section 6.01(h).
Section 1.2 Amendment to Definition of "Applicable Margin".
Section 1.05(f) of the Agreement is hereby amended and restated to
read in its entirety as follows:
(f) The "Applicable Margin" on each day during the Period to
Maturity of any Note shall be:
(i) if on the Purchase Date of such Note Borrower is in
Collateral Status, 0.350%,
<PAGE>
(ii) if on the Purchase Date of such Note Borrower is not
in Collateral Status, the Applicable Margin will be determined by
BofA on such Purchase Date in accordance with the table set forth
below. Such determination shall be based on the calculations of
(i) the ratio of (x) Consolidated Total Debt on the last day of
the most recent Fiscal Quarter of the Borrower and its
Subsidiaries for which a Compliance Certificate shall have been
delivered pursuant to Section 6.01(g)(vii), as shown in such
Compliance Certificate, to (y) the sum of EBITDA of the Borrower
and its Subsidiaries for the period of four Fiscal Quarters
ending on such last day, as shown in such Compliance Certificate,
and (ii) the Leverage Ratio on such last day, as set forth in
such Compliance Certificate.
Applicable Margin
----------------------------------------
Consolidated Total Debt If Leverage Ratio
to EBITDA is less than or If Leverage Ratio
(rolling four quarter) equal to 0.35 is greater than 0.35
------------------------ ------------------- ----------------------
If Less than .50 +0.625% +0.875%
If Less than 1.00 but greater than
or equal to .50 +1.000% +1.250%
If Less than 1.50 but greater than
or equal to 1.00 +1.250% +1.500%
If Greater than or equal to 1.50 +1.500% +1.750%
(iii) the determination of whether or not Borrower is in
Collateral Status and the Applicable Margin for any Note for
purposes of this Section 1.05(f) shall be made on the Purchase
Date of such Note and such determination shall apply to each day
during the Period to Maturity of such Note.
Section 1.3 Amendment to Definition of "Scheduled Termination
Date". Section 1.08(a) of the Agreement is hereby amended to change
the Scheduled Termination Date set forth therein to January 1, 2000.
Section 1.4 Amendment to Definition of "Applicable Facility Fee
Rate". Section 3.01(b) of the Agreement is hereby amended and restated
to read in its entirety as follows:
(b) The "Applicable Facility Fee Rate" shall be:
(i) .150% on any day when Borrower is in Collateral
Status, and
2
<PAGE>
(ii) on any day when Borrower is not in Collateral
Status, the Applicable Facility Fee Rate will be determined by
BofA on such Purchase Date in accordance with the table set forth
below. Such determination shall be based on the calculations of
(i) the ratio of (x) Consolidated Total Debt, on the last day of
the most recent Fiscal Quarter of the Borrower and its
Subsidiaries for which a Compliance Certificate shall have been
delivered pursuant to Section 6.01(g)(vii), as shown in such
Compliance Certificate, to (y) the sum of EBITDA of the Borrower
and its Subsidiaries for the period of four Fiscal Quarters
ending on such last day, as shown in such Compliance Certificate,
and (ii) the Leverage Ratio on such last day, as set forth in
such Compliance Certificate.
Applicable Facility Fee Rate
----------------------------------------
Consolidated Total Debt If Leverage Ratio
to EBITDA is less than or If Leverage Ratio
(rolling four quarter) equal to 0.35 is greater than 0.35
------------------------ ------------------- ----------------------
If Less than .50 +0.200% +0.250%
If Less than 1.00 but greater than
or equal to .50 +0.275% +0.325%
If Less than 1.50 but greater than
or equal to 1.00 +0.325% +0.350%
If Greater than or equal to 1.50 +0.350% +0.375%
(iii) the determination of whether or not Borrower is in
Collateral Status for purposes of this Section 3.01(b) shall be
made on each Purchase Date and such determination shall apply
from such Purchase Date to, but excluding, the next succeeding
Purchase Date.
Section 1.5 Amendment to Section 4.02(c). Section 4.02(c) of the
Agreement is hereby amended to incorporate the changes shown below:
(c) On such Purchase Date, (i) the Borrower is in compliance
with the requirements of Section 6.01(h)(ii), or (ii) the
aggregate amount of cash and Qualifying Investment (or in
the case of Qualifying Investments, principal equivalent
amount) contained in the Collateral Account (including any
proceeds of payment of the Purchase Prices of Notes on such
Purchase Date which are to be disbursed into the Collateral
Account pursuant to Section 1.04) shall be not less than the
aggregate of the Purchase Prices of all Notes purchased on
any Purchase Date on which Borrower was in Collateral Status
and which are outstanding or to be issued on such Purchase
Date.
3
<PAGE>
Section 1.6 Amendment to Section 6.01(h)(i)(C). Section
6.01(h)(i)(C) of the Agreement is hereby amended to incorporate the
changes shown below:
(C) (i) on each Purchase Date, deposit or maintain cash
and other such Qualifying Investments in such Collateral Account
at BofA in an aggregate amount (or, in the case of Qualifying
Investments, principal equivalent amounts) which is not less than
the aggregate of the Purchase Prices of all Notes purchased on
any Purchase Date on which Borrower was in Collateral Status and
which are outstanding or to be issued on such Purchase Date
(after giving effect to any Notes which will be repaid on such
day) and (ii) not withdraw any amounts or investments from such
Collateral Account except as permitted by the Collateral Account
Agreement;
Section 1.7 Amendment to Section 6.01(h). Section 6.01(h) of the
Agreement is hereby amended by inserting after the end of Section
6.01(h)(i)(E) and before the beginning of Section 6.02 the following:
(ii) Notwithstanding the provisions of Section
6.01(h)(i), the Borrower will not be required to deposit or
maintain cash and Qualifying Investments in the Collateral
Account as required by clause (h)(i) on any Purchase Date, if:
(A) on such Purchase Date, after giving effect to any
payment of Purchase Price and any payment of principal and
interest on any outstanding Notes on such Purchase Date, the
Aggregate Purchase Price does not exceed $70,000,000;
(B) as of the last day of the immediately preceding
Fiscal Quarter, for which a Compliance Certificate has been
delivered pursuant to Section 6.01(g)(vii), the Consolidated Net
Income and Consolidated Operating Income of the Borrower and its
Subsidiaries, as shown in such Compliance Certificate, is greater
than zero;
(C) as of the last day of the immediately preceding
Fiscal Quarter, for which a Compliance Certificate has been
delivered pursuant to Section 6.01(g)(vii), the Available Cash
Amount, as shown in such Compliance Certificate, is greater than
$275,000,000; and
(D) Borrower shall have delivered, prior to 10:00 a.m.
(San Francisco time) on the LIBOR Fixing Date for such Purchase
Date, a Notice of Borrowing pursuant to Section 1.03(b)
indicating that Borrower will not be in Collateral Status as of
such Purchase Date; provided, that for the Purchase Date
occurring on May 29, 1998 Borrower shall be entitled to deliver
an amended Notice of Borrowing prior to 5:00 p.m. (San Francisco
time) on or before May 28, 1998; provided, further, that such
amended Notice of Borrowing shall relate solely to Clause (4) of
the Notice of Borrowing.
4
<PAGE>
(iii) For purpose of clause (h)(ii) above, (A) the term
"Available Cash Amount" means, with respect to the last day of
any Fiscal Quarter, the excess, as set forth in the Compliance
Certificate as of such last day which was delivered pursuant to
Section 6.01(g)(vii), of (1) the sum of (x) the U.S. Dollar
equivalent (determined in accordance with GAAP) of all
unrestricted cash and unrestricted Cash Equivalent Investments
owned by the Borrower and its Subsidiaries (including, without
duplication, (i) any portion of unrestricted cash and
unrestricted Cash Equivalent Investments of which such portion
was received by the Borrower in respect of the Purchase Price for
any outstanding Note, and (ii) any portion of restricted cash and
restricted Cash Equivalent Investments for which the only
restrictions are that such portion has been deposited in the
Collateral Account and is subject to a lien of BofA under the
Collateral Account Agreement), as shown on the most recent
Consolidated balance sheet of the Borrower and its Subsidiaries
which was delivered pursuant to Section 6.01(g)(i) or (ii), plus
(y) the Available Revolver Amount as of the last day of such
Fiscal Quarter, over (2) the Aggregate Purchase Price as of the
last day of such Fiscal Quarter and (B) the term "Available
Revolver Amount" means, with respect to the last day of any
Fiscal Quarter, the excess, as set forth in the most recent
Compliance Certificate as of such last day which was delivered
pursuant to Section 6.01(g)(vii), of (x) the net of all lender
commitments under the Bank Credit Agreement as of the last day of
such Fiscal Quarter, over (y) the sum of (1) the outstanding
principal amount of all loans, advances and outstanding letter of
credit reimbursement obligations under the Bank Credit Agreement
as of the last day of such Fiscal Quarter, plus (2) the aggregate
outstanding face amount of all letters of credit under the Bank
Credit Agreement as of the last day of such Fiscal Quarter.
(iv) If the Borrower has not met all of the conditions
contained in Section 6.01(h)(ii), the Borrower shall be deemed to
be in "Collateral Status". The determination of whether or not
Borrower is in Collateral Status for purposes of this Section
6.01(h) shall be made on each Purchase Date and such
determination shall apply from such Purchase Date to the next
succeeding Purchase Date.
(v) For purposes of determining whether or not Borrower
is in compliance with Sections 6.01(h)(ii)(B) and (C) above, the
Consolidated Net Income, Consolidated Operating Income, Available
Cash Amount and Available Revolver Amount shall be calculated as
set forth in this Section 6.01(h) and such calculation shall be
used in determining whether or not Borrower is in Collateral
Status from the first Purchase Date after the delivery of such
Compliance Certificate to, but excluding, the first Purchase Date
after which Borrower has delivered a new Compliance Certificate
for the next Fiscal Quarter of the Borrower as provided herein.
Section 1.8 Amendment to Schedule I. Schedule I to the Agreement
is hereby amended by inserting the following definitions in their
alphabetically determined places:
"Available Cash Amount" is defined in Section 6.01(h)(iii).
5
<PAGE>
"Available Revolver Amount" is defined in Section 6.01(h)(iii).
"Collateral Account Agreement" means the Collateral Account
Agreement dated as of January 15, 1998, as the same may be amended,
supplemented or otherwise modified from time to time, and any
replacement, renewal or replacement thereof.
"Collateral Status" is defined in Section 6.01(h)(iv).
"EBITDA" means, for any period, for the Borrower and its
Subsidiaries on a consolidated basis, determined in accordance with
GAAP, the sum of (a) Net Income (or Net Loss) for such period, plus
(b) all amounts treated as expenses for depreciation, interest and the
amortization of intangibles of any kind to the extent included in the
determination of such Net Income (or Net Loss), plus (c) all accrued
taxes on or measured by income to the extent included in the
determination of such Net Income (or Net Loss).
"Leverage Ratio" means, with respect to any Person, the ratio
that (i) Consolidated Total Debt of such Person bears to (ii) the
Consolidated Total Capital of such Person.
"Net Income" means, with respect to any Person for any period,
net income of such Person, as determined by such Person in accordance
with GAAP.
"Operating Income" means, with respect to any Person for any
period, operating income of such Person, as determined by such Person
in accordance with GAAP.
"Total Capital" is defined in Section 1.1 of the Bank Credit
Agreement, as in effect on the date hereof.
"Total Debt" is defined in Section 1.1 of the Bank Credit
Agreement, as in effect on the date hereof.
Section 1.9 Amendment to Exhibit 1.03(b). Exhibit 1.03(b) to the
Agreement is hereby amended and restated in its entirety to read as
set forth in Schedule A attached hereto.
Section 1.10 Amendment to Exhibit 6.01(g)(vii). Annex I to
Exhibit 6.01(g)(vii) to the Agreement is hereby amended and restated
in its entirety to read as set forth in Schedule B attached hereto.
Section 1.11 Amendment to Exhibit 5.01(d). Exhibit 5.01(d) to
the Agreement is hereby amended and restated in its entirety to read
as set forth in Schedule C attached hereto.
6
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties. Borrower hereby
represents and warrants to BofA that:
(a) Representations and Warranties. The representations and
warranties of Borrower contained in the Agreement are true and
correct on and as of the date of this Amendment as though made on
and as of such date, and
(b) No Termination Event. Both before and after giving
effect to this Amendment, no event shall exist that constitutes a
Termination Event or an Unmatured Termination Event.
ARTICLE III
MISCELLANEOUS
Section 3.1 Agreement Document Pursuant to Agreement. This
Amendment is an Agreement Document executed pursuant to the Agreement
and shall be construed, administered and applied in accordance with
all of the terms and provisions of the Agreement.
Section 3.2 Successors, Transferees and Assigns. This Amendment
shall be binding upon and inure to the benefit of the parties hereto
and their respective successors, transferees and assigns.
Section 3.3 Execution in Counterparts. This Amendment may be
executed by the parties hereto in several counterparts, each of which
shall be deemed to be an original and all of which shall be taken
together as one agreement.
Section 3.4 Governing Law. THIS AMENDMENT SHALL BE A CONTRACT
MADE UNDER, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO ITS PRINCIPLES OF
CONFLICTS OF LAWS.
Section 3.5 Reaffirmation of Agreement. As amended and
supplemented by this Amendment, the Agreement remains in full force
and effect and is hereby reaffirmed, ratified and confirmed in all
respects. From and after the date hereof, all references to the
Agreement in any agreement, instrument or document shall be references
to the Agreement as amended and supplemented hereby.
7
<PAGE>
Section 3.6 Headings. The various captions in this Amendment are
provided solely for convenience of reference and shall not affect the
meaning or interpretation of any provision of this Amendment.
Section 3.7 Complete Agreement. The Agreement (including this
Amendment and the Exhibits and Schedules to the Agreement and this
Amendment) and the other Agreement Documents contain the entire
understanding of the parties with respect to the transactions
contemplated hereby and thereby and supersedes all prior arrangements
or understandings with respect thereto.
Section 3.8 Severability. Whenever possible, each provision of
this Amendment will be interpreted in such a manner as to be effective
and valid under applicable law, but if any provision of this Amendment
is held to be prohibited by or invalid under applicable law, such
provision will be ineffective only to the extent of such prohibition
or invalidity, without invalidating the remainder of this Amendment,
except to the extent that such prohibition or invalidity would
constitute a material change in the terms of this Amendment taken as a
whole.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.
STORAGE TECHNOLOGY CORPORATION
By: /s/ Mark D. McGregor
------------------------------------
Name: Mark D. McGregor
--------------------------------
Title: Vice President & Treasurer
-------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ Kevin McMahon
------------------------------------
Name: Kevin McMahon
--------------------------------
Title: Managing Director
-------------------------------
<PAGE>
SCHEDULE A
EXHIBIT 1.03(B)
TO SECOND AMENDED AND RESTATED CONTINGENT
MULTICURRENCY NOTE PURCHASE COMMITMENT AGREEMENT
FORM OF
NOTICE OF BORROWING
---------------------
Date:
-------------
To: Bank of America National Trust and
Savings Association
555 California Street, 41st Floor
San Francisco, California 94104
Attention: Kevin McMahon
Facsimile No.: (415) 622-2514
Re: Storage Technology Corporation
Ladies and Gentlemen:
The undersigned, Storage Technology Corporation (the "Borrower"),
refers to the Second Amended and Restated Contingent Multicurrency
Note Purchase Commitment Agreement dated as of January 15, 1998 (as
amended, modified, renewed or extended from time to time, the
"Agreement"), between the Borrower and Bank of America National Trust
and Savings Association ("BofA"), for full particulars of the matters
herein described. All capitalized terms used in this Notice of
Borrowing and not otherwise defined herein shall have the meanings
assigned to such terms in the Agreement. The Borrower hereby gives
you irrevocable notice, pursuant to Section 1.03(b) of the Agreement,
that:
(1) the Purchase Date of the Note is , ;
(2) the Maturity Date of the Note is . ;
(3) the Purchase Price of the Note to be issued and sold on
the above Purchase Date is $ ;
(4) [the Borrower will not be in Collateral Status as of the
Purchase Date] [the Borrower will be in Collateral Status as
of the Purchase Date and the amount to be deposited into the
Collateral Account is $ ].
STORAGE TECHNOLOGY CORPORATION
By:
------------------------------------
Name:
--------------------------------
Title:
-------------------------------
<PAGE>
SCHEDULE B
ANNEX I TO
COMPLIANCE CERTIFICATE
1. Consolidated Net Income and
Consolidated Operating Income Actual Required/Permitted
--------------------------------- -------- --------------------
No (i) Consolidated Net
(A) Consolidated Net Income/(Loss) $ Loss or Consolidated
Operating Loss of the
Borrower and its
(B) Consolidated Operating
Income/(Loss) $ Subsidiaries to occur
for each of any two
consecutive Fiscal
Quarters (calculated
as of the last day of
each such Fiscal
Quarter); or (ii)
Consolidated Net Loss
or Consolidated
Operating Loss of the
Borrower and its
Subsidiaries for any
Fiscal Quarter
greater than
$25,000,000.
Note: Provided that there shall be excluded from Consolidated
Net Loss and Consolidated Operating Loss for any Fiscal Quarter the
amount of costs and expenses in respect of mergers and acquisitions
consummated in such quarter and recognized in accordance with GAAP.
2. EBITDA
--------
The EBITDA of Borrower and its Subsidiaries for the four
consecutive Fiscal Quarters ending with the Fiscal Quarter set forth
above, was US $ .
3. Consolidated Total Debt
-------------------------
The Consolidated Total Debt of Borrower and its Subsidiaries as
of the last day of the Fiscal Quarter set forth above, was US
$ .
4. Consolidated Total Capital
----------------------------
The Consolidated Total Capital of Borrower and its Subsidiaries
as of the last day of the Fiscal Quarter set forth above, was US
$ .
5. Leverage Ratio
----------------
The Leverage Ratio (Consolidated Total Debt divided by
Consolidated Total Capital) of Borrower and its Subsidiaries as of the
last day of the Fiscal Quarter set forth above, was .
6. Available Cash Amount
-----------------------
The Available Cash Amount as of the last day of the Fiscal
Quarter set forth above, was .
7. Available Revolver Amount
---------------------------
The Available Revolver Amount as of the last day of the Fiscal
Quarter set forth above, was .
THIRD AMENDMENT TO THE
RESTATED BYLAWS
OF
STORAGE TECHNOLOGY CORPORATION
------------------------------
The Bylaws of the Corporation are hereby amended as follows:
1. Article V, Section 2, is amended and revised to read as follows:
ARTICLE V
Stock
-----
"Section 2. Certificates.
------------
Every holder of stock in the corporation shall be entitled to have a
certificate signed by, or in the name of the corporation by, the chairman or
the president or vice president, and by the treasurer or an assistant
treasurer, or the secretary or an assistant secretary of the corporation,
representing the number of shares owned by him in the corporation registered
in certificate form. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue. Certificates of stock shall be consecutively numbered and shall be in
such form consistent with law as shall be prescribed by the Board of
Directors."
2. The Bylaws are further amended and revised by adding a new Article
VII, entitled "Indemnification", to read as follows:
"ARTICLE VII
Indemnification
---------------
Section 1. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she is or was a director or officer, of the corporation or is or was serving
at the request of the corporation as a director, officer, employee or agent
of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or
agent or in any other capacity while serving as a director, officer, employee
or agent, shall be indemnified and held harmless by the corporation to the
fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the corporation to
provide broader indemnification rights than permitted prior thereto), against
all expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by such indemnitee in connection therewith and such
indemnification shall continue as to an indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators; provided, however, that,
except as provided in Section 3 of this Article VII with respect to
proceedings to enforce rights to indemnification, the corporation shall
indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the corporation.
Section 2. Right to Advancement of Expenses. The right to
indemnification conferred in Section 1 of this Article VII shall include the
right to be paid by the corporation the expenses incurred in defending any
proceeding for which such right to indemnification is applicable in advance
of its final disposition (hereinafter an "advancement of expenses");
provided, however, that, if the Delaware General Corporation Law so requires,
an advancement of expenses incurred by an indemnitee in his or her capacity
as a director of officer (and not in any other capacity in which service was
or is rendered by such indemnitee, including, without limitation, service to
an employee benefit plan) shall be made only upon delivery to the corporation
of an undertaking (hereinafter an "undertaking"), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (hereinafter a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses under this Section or otherwise.
Section 3. Right of Indemnitee to Bring Suit. The rights to
indemnification and to the advancement of expenses conferred in Sections 1
and 2 of this Article shall be contract rights; and no amendment of such
sections shall adversely affect the rights of any director or officer
thereunder insofar as such rights relate to facts or occurrences prior to the
date of such amendment. If a claim under either such section is not paid in
full by the corporation within thirty days after a written claim has been
received by the corporation, except in the case of a claim for an advancement
of expenses, in which case the applicable period shall be fifteen days, the
indemnitee may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim. If successful in whole or in part in
any such suit, or in a suit brought by the corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In any suit (i) brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit to enforce a right to
an advancement of expenses), or (ii) brought by the corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, it shall be
a defense (in the case of a suit by an indemnitee) or the corporation shall
be entitled to recover such expenses (in the case of a suit by the
corporation) if it is determined by final adjudication that the indemnitee
has not met any applicable standard for indemnification set forth in the
Delaware General Corporation Law. Neither the failure of the corporation
(including its board of directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth
in the Delaware General Corporation Law, nor an actual determination by the
corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee
to enforce a right to indemnification or to an advancement of expenses
hereunder, or by the corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Section or otherwise shall be on the corporation.
Section 4. Non-Exclusivity of Rights. The rights to indemnification
and to the advancement of expenses conferred in this Article VII shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, the corporation's certificate of incorporation by-law,
agreement, vote of stockholders or disinterested directors or otherwise.
Section 5. Insurance. The corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of
the corporation or another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such
expense, liability or loss under the Delaware General Corporation Law."
Dated: May 21, 1998
STORAGE TECHNOLOGY CORPORATION
1995 EQUITY PARTICIPATION PLAN
(As amended by the Board of Directors on March 4, 1998)
SECTION 1
INTRODUCTION
------------
1.1 ESTABLISHMENT. Effective as provided in Section 22, the Company
hereby establishes a plan of long-term stock-based compensation incentives
for selected employees, directors and consultants of the Company and its
affiliated corporations. The plan shall be known as the Storage Technology
Corporation 1995 Equity Participation Plan (the "1995 Plan").
1.2 PURPOSE. The purpose of the 1995 Plan is to provide employees,
directors and consultants selected for participation in the 1995 Plan with
added incentives to continue in the service of the Company and its affiliates
and to create in such employees, directors and consultants a more direct
interest in the future success of the operations of the Company and its
affiliated corporations by relating incentive compensation to the achievement
of long-term corporate economic objectives. The 1995 Plan is also designed
to attract key employees, directors and consultants and to retain and
motivate participating employees, directors and consultants by providing an
opportunity for equity investment in the Company.
1.3 NO EFFECT ON 1987 PLAN OPTIONS. Options granted pursuant to the
Storage Technology Corporation 1987 Equity Participation Plan (the "1987
Plan") shall be governed by the terms and provisions of the option agreements
covering such grants and by the provisions of the 1987 Plan.
SECTION 2
DEFINITIONS
-----------
2.1 DEFINITIONS. The following terms shall have the meanings set forth
below:
(a) "Affiliated Corporation" means any corporation that is either
a parent corporation with respect to the
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Company or a subsidiary corporation with respect to the Company (within the
meaning of Sections 424(e) and (f), respectively, of the Internal Revenue
Code).
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means performance or conduct problems resulting in
discharge, as determined by the Company or Affiliated Company, which
determination will be conclusive.
(d) "Committee" means a committee designated by the Board to
administer the Plan or, if no committee is so designated, the Board.
(e) "Common Stock" means the Company's $.10 par value voting
common stock.
(f) "Common Stock Equivalent" means a right to receive Common
Stock in the future that may be granted to a Participant pursuant to Sections
12, 13 or 15 in lieu of a current issuance of Common Stock, subject to
certain conditions and limitations imposed in accordance with such Sections.
(g) "Consultant" means a natural person who performs services for
the Company, or any Affiliated Corporation, or any division thereof in
exchange for consideration, but who is not an Employee.
(h) "Director" means a member of the Board.
(i) "Effective Date" means the effective date of the 1995 Plan, as
set forth in Section 22 hereof.
(j) "Eligible Employees" means those Employees upon whose
judgment, initiative and efforts the Company or the Affiliated Corporations
are, or are expected to become, largely dependent for the successful conduct
of their business.
(k) "Employee" means a natural person who is deemed an employee
(including, without limitation, an officer or director who is also an
employee) of the Company, or any Affiliated Corporation, in accordance with
the rules contained in Section 3401(c) of the Internal Revenue Code and the
regulations thereunder.
(l) "Fair Market Value" means with respect to Common Stock, as of
any date, the closing price of a share of Common Stock on the New York Stock
Exchange as
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reported by The Wall Street Journal for the last trading day prior to
that date. If no such prices are reported, then Fair Market Value
shall mean the average of the high and low sale prices for the Common Stock
(or if no sale prices are reported, the average of the high and low bid
prices) as reported by the principal regional stock exchange, or if not so
reported, as reported by Nasdaq or a quotation system of general circulation
to brokers and dealers.
(m) "Incentive Stock Option" means the right to purchase Common
Stock granted to an Employee pursuant to Sections 6 and 7, which constitutes
an incentive stock option within the meaning of Section 422 of the Internal
Revenue Code, and which may or may not be issued with related Stock
Appreciation Rights.
(n) "Internal Revenue Code" means the Internal Revenue Code of
1986, as it may be amended from time to time.
(o) "Long-Term Employee" means a person who, as of the date he or
she ceases to be an Employee of the Company or any Affiliated Corporation,
has been an Employee of the Company or any Affiliated Corporation for six
years or more, with no break in such employment of longer than one year.
(p) "MBO Payment" means a payment to a Participant pursuant to the
Company's MBO Plan, which payment may be made either in shares of Common
Stock, Common Stock Equivalents or in cash, or partly in Common Stock, partly
in Common Stock Equivalents and partly in cash, as determined in accordance
with the provisions of Section 13.
(q) "MBO Equity Plan" means the Company's Management By Objective
Plan, as established by the Board or the Committee from time to time,
pursuant to which MBO Payments are made from time to time in the manner and
under the conditions established by the Board or the Committee.
(r) "Non-Qualified Option" means a right to purchase Common Stock
granted to a Participant pursuant to Sections 6 and 8, which does not qualify
as an Incentive Stock Option or which is designated as a Non-Qualified
Option, and which may or may not be issued with related Stock Appreciation
Rights.
(s) "Outside Director" means a Director who is not an Employee.
(t) "Participant" means an Eligible Employee, Director or
Consultant designated by the Committee from time to time during the term of
the 1995 Plan to receive one or more of the stock-based compensation
incentives provided under the 1995 Plan.
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(u) "Reduction in Force" means any termination of employment that,
in the sole judgment of the Company, is (i) made at the request of the
Company or an Affiliated Corporation and is due to the elimination of the
Employee's position, or (ii) a reduction in the number of persons employed by
the Company, either overall or in the Employee's function, department,
division or other relevant workplace unit.
(v) "Restricted Stock Award" means an award of Common Stock
granted to a Participant pursuant to Section 10 that is subject to certain
restrictions imposed in accordance with the provisions of such Section.
(w) "Retire" means any termination of employment that is deemed to
be a "Retirement" by a resolution of the Board of Directors, or any
termination of employment made at the request of the Employee if, as of the
date of such termination, such Employee (a) is age 62 or older and (b) has,
at the time of such termination, been employed by the Company or any
Affiliated Corporation for six years or more, with no break in such
employment of longer than one year.
(x) "Retired" means the status of any former Employee after he or
she Retires.
(y) "Stock Appreciation Right" means a right granted to a
Participant pursuant to Section 9 to receive a payment from the Company equal
to the difference between the Fair Market Value of one or more shares of
Common Stock subject to a Non-Qualified Option or an Incentive Stock Option
and the exercise price of such shares under the terms of such Stock Option.
(z) "Stock Option" means an Incentive Stock Option or a Non-
Qualified Option.
2.2 GENDER AND NUMBER. Except when otherwise indicated by the context,
the masculine gender shall also include the feminine gender, and the
definition of any term herein in the singular shall also include the plural.
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SECTION 3
PLAN ADMINISTRATION
-------------------
3.1 ADMINISTRATION GENERALLY. The 1995 Plan shall be administered by
the Board or Committee. In accordance with the provisions of the 1995 Plan,
the Committee, in its sole discretion:
(i) shall select the Participants from Eligible
Employees, Directors and Consultants;
(ii) shall determine the number of shares of Common Stock
to be subject to Incentive Stock Options, Non-Qualified Options, Stock
Appreciation Rights, Restricted Stock Awards and other Common Stock or Common
Stock Equivalent awards granted pursuant to the 1995 Plan;
(iii) shall determine the number of shares of Common Stock
or Common Stock Equivalents to be issued as MBO Payments;
(iv) shall determine the time at which such options,
rights, awards and payments are to be granted;
(v) shall fix the exercise price, period and the manner
in which a Stock Option becomes exercisable;
(vi) shall establish the duration and nature of Restricted
Stock Award restrictions;
(vii) shall determine the Fair Market Value of the Common
Stock, in accordance with Section 2.1(l) of the 1995 Plan;
(viii) shall determine whether and under what
circumstances, if any, a Stock Option or Stock Appreciation Right may be
settled in cash or Common Stock Equivalents instead of Common Stock;
(ix) may reduce the exercise price of any Stock Option or
Stock Appreciation Right to the then current Fair Market Value if the Fair
Market Value of the Common Stock covered by such option or right shall have
declined since the date the Stock Option was granted;
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<PAGE>
(x) may modify or amend the terms and conditions of any
Stock Option, Stock Appreciation Right, Restricted Stock Award or other
Common Stock award, subject to Section 19 of the Plan (including, but not
limited to, accelerating vesting or waiving forfeiture restrictions);
(xi) may institute an option exchange program;
(xii) may authorize any person to execute on behalf of the
Company any instrument required to effect the grant of a Stock Option, Stock
Appreciation Right, Restricted Stock Award or other Common Stock or Common
Stock Equivalent award previously granted by the Committee; and
(xiii) shall establish such other terms and
requirements of the various compensation incentives under the 1995 Plan as
the Committee may deem necessary or desirable and consistent with the terms
of the 1995 Plan.
The Committee shall determine the form or forms of the agreements with
Participants, which shall evidence the particular provisions, terms,
conditions, rights and duties of the Company and the Participants with
respect to Incentive Stock Options, Non-Qualified Options, Stock Appreciation
Rights, Common Stock Equivalent and Restricted Stock Awards granted pursuant
to the 1995 Plan, which provisions need not be identical except as may be
provided herein. The Committee may from time to time adopt such rules and
regulations for carrying out the purposes of the 1995 Plan as it may deem
proper and in the best interests of the Company. The Committee may correct
any defect or supply any omission or reconcile any inconsistency in the 1995
Plan or in any agreement entered into hereunder in the manner and to the
extent it shall deem expedient to carry the 1995 Plan into effect, and it
shall be the sole and final judge of such expediency. No member of the
Committee shall be liable for any action or determination made in good faith.
The determinations, interpretations and other actions of the Committee
pursuant to the provisions of the 1995 Plan shall be binding and conclusive
for all purposes and on all persons, subject only to the review and control
of the Board on all Plan matters except selection of Participants.
3.2 MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule 16b-3, the
1995 Plan may be administered by different bodies with respect to Directors
who are Employees, Outside Directors, officers (within the meaning of Rule
16a-1(f)) who are not Directors, and Employees who are neither Directors nor
officers.
3.3 ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS. With
respect to grants of Stock Options, Stock Appreciation Rights, Restricted
Stock Awards or other
6
<PAGE>
Common Stock or Common Stock Equivalent awards under the 1995 Plan to
Employees who are also officers or Directors, the 1995 Plan shall be
administered by:
(a) the Board, if the Board may administer the 1995 Plan and
still have transactions under the 1995 Plan qualify for exemption under
Rule 16b-3, or
(b) a Committee designated by the Board to administer the 1995
Plan, which Committee shall be constituted (i) in such a manner as to permit
awards granted under the 1995 Plan to qualify for exemption under Rule 16b-3
and (ii) in such a manner as to satisfy applicable laws.
3.4 ADMINISTRATION WITH RESPECT TO OTHER PERSONS. With respect to
grants of Stock Options, Stock Appreciation Rights, Restricted Stock Awards
or other Common Stock or Common Stock Equivalent awards to Employees who are
neither Directors nor officers, the 1995 Plan shall be administered by:
(a) the Board or
(b) a Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy applicable laws.
3.5 COMMITTEE COMPOSITION. Once a Committee has been appointed
pursuant to Section 3.3 or 3.4, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time
the Board may increase the size of any Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new
members in substitution therefor, fill vacancies (however caused) or remove
all members of the Committee and thereafter directly administer the Plan, all
to the extent permitted by applicable laws and, in the case of a Committee
appointed under Section 3.3, to the extent permitted by Rule 16b-3 as it
applies to transactions intended to qualify thereunder as exempt
transactions.
SECTION 4
STOCK SUBJECT TO THE PLAN
-------------------------
4.1 NUMBER OF SHARES. Four million four hundred thousand (4,400,000)
shares of Common Stock are authorized for issuance under the 1995 Plan in
accordance with the provisions of the 1995 Plan and subject to such
restrictions or other provisions as the Committee may from time to time deem
necessary. This authorization may be increased
7
<PAGE>
from time to time by approval of the Board and the stockholders of the
Company. Shares of Common Stock that are issued upon exercise of Incentive
Stock Options, Non-Qualified Options, or Stock Appreciation Rights or pursuant
to MBO Payments, shares of Common Stock that are issued as Restricted Stock
Awards, shares of Common Stock that are issued in connection with Common Stock
Equivalents, and shares of Common Stock that are issued pursuant to a plan
adopted pursuant to Section 15, shall be applied to reduce the number of
shares of Common Stock remaining available for future issuance under the 1995
Plan.
4.2 UNUSED AND FORFEITED STOCK. Any shares of Common Stock that are
subject to an Incentive Stock Option or a Non-Qualified Option that expires
or for any reason is terminated unexercised, and with respect to which no
related Stock Appreciation Right has been exercised, any shares of Common
Stock that are subject to Common Stock Equivalents or to a Restricted Stock
Award and that are forfeited (the "Forfeited Restricted Stock"), and any
shares of Common Stock that for any other reason are not issued to a
Participant (not including shares withheld pursuant to Section 20.2) or are
forfeited (if forfeited, the "Other Forfeited Stock"), shall automatically
become available for use under the 1995 Plan; provided, however, that (i) no
shares of Forfeited Restricted Stock or Other Forfeited Stock may be subject
to Incentive Stock Options and (ii) such shares shall not be returned to the
1995 Plan if prohibited by Rule 16b-3.
4.3 CAPITAL ADJUSTMENTS.
(a) Changes in Capitalization. Subject to any required action
by the stockholders of the Company, the number of shares of Common Stock
covered by each outstanding Stock Option, Stock Appreciation Right and
Common Stock Equivalent ("Rights"), and the number of shares of Common Stock
that have been authorized for issuance under the Plan but as to which no
Stock Options, Stock Appreciation Rights or Common Stock Equivalents have yet
been granted or that have been returned to the Plan upon cancellation or
expiration of a Stock Option, Stock Appreciation Right or Common Stock
Equivalents (the "Shares Available for Future Grant"), as well as the price
per share of Common Stock covered by each outstanding Stock Option or Stock
Appreciation Right, shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued and outstanding shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration." Such
proportionate adjustment shall be made by the Committee, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class,
or
8
<PAGE>
securities convertible into or exercisable for shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number of Shares Available for Future Grant or the number or
price of shares of Common Stock subject to outstanding Stock Options or Stock
Appreciation Rights.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that a Stock Option
or Stock Appreciation Right has not been previously exercised, it will
terminate immediately prior to the consummation of such proposed action. The
Committee may, in the exercise of its sole discretion in such instances,
declare that any Stock Option or Stock Appreciation Right shall terminate as
of a date fixed by the Committee and give each Participant the right to
exercise his or her Stock Option or Stock Appreciation Right in whole or in
part, including with respect to shares as to which the Stock Option or Stock
Appreciation Right would not otherwise be exercisable. Unless determined
otherwise by the Committee, Common Stock Equivalents shall convert into
shares of Common Stock immediately prior to the consummation of any such
dissolution or liquidation.
(c) Merger or Asset Sale. In the event of a merger or
consolidation of the Company with or into another corporation, or the sale of
all or substantially all of the assets of the Company, each outstanding Stock
Option, Stock Appreciation Right and Common Stock Equivalent may be assumed
or an equivalent Stock Option, Stock Appreciation Right or Common Stock
Equivalent may be substituted by the successor corporation or a parent or
subsidiary of the successor corporation. The Committee may, in lieu of such
assumption or substitution of Stock Options and Stock Appreciation Rights,
provide for Optionees to have the right to exercise his or her Stock Option
or Stock Appreciation Right in whole or in part, including with respect to
shares as to which it would not otherwise be exercisable. If the Committee
makes a Common Stock Equivalent convertible into shares of Common Stock or
makes a Stock Option or Stock Appreciation Right exercisable in lieu of
assumption or substitution in the event of a merger, consolidation or sale of
assets, the Committee shall notify the Participants and, in the case of a
Stock Option or Stock Appreciation Right, shall notify the Optionee that the
Stock Option or Stock Appreciation Right shall be fully exercisable for a
period of thirty (30) days from the date of such notice, and the Stock Option
or Stock Appreciation Right shall terminate upon the expiration of such
period. For the purposes of this paragraph, the Stock Option, Stock
Appreciation Right or Common Stock Equivalent shall be considered assumed if,
following the merger, consolidation or sale of assets, the Stock Option,
Stock Appreciation Right or Common Stock Equivalent confers the right to
purchase or receive, for each share of Common Stock subject to the Stock
Option, Stock Appreciation Right or Common Stock Equivalent immediately prior
to the merger, consolidation or sale of assets, the consideration (whether
stock, cash or other securities or property) received in the merger,
consolidation or sale of assets by holders of Common Stock
9
<PAGE>
for each share held on the effective date of the transaction (and, if holders
were offered a choice of consideration, the type of consideration chosen by
the holders of a majority of the outstanding shares); provided, however, that
if such consideration received in the merger, consolidation or sale of assets
was not solely common stock of the successor corporation or its parent, the
Committee may, with the consent of the successor corporation, provide for the
consideration to be received upon conversion of a Common Stock Equivalent or
upon the exercise of the Stock Option or Stock Appreciation Right, for each
share of Common Stock subject to the Stock Option, Stock Appreciation Right
or Common Stock Equivalent to be solely common stock of the successor
corporation or its parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger,
consolidation or sale of assets.
SECTION 5
PARTICIPATION
-------------
5.1 ELIGIBILITY. Participants in the 1995 Plan shall be those Eligible
Employees, Directors and Consultants who, in the judgment of the Committee,
are performing, or during the term of their service to the Company are
expected to perform, vital services in the management, operation and
development of the Company or an Affiliated Corporation, and significantly
contribute or are expected to significantly contribute to the achievement of
long-term corporate economic objectives. Participants who are Employees may
be granted from time to time one or more Incentive Stock Options (with or
without Stock Appreciation Rights), and Participants (whether or not they are
Employees) may be granted one or more Non-Qualified Options (with or without
Stock Appreciation Rights), one or more Restricted Stock Awards, one or more
MBO Payments in Common Stock Equivalents or in shares of Common Stock, Common
Stock equivalents pursuant to Section 12, and one or more other Common Stock
or Common Stock Equivalent awards pursuant to Section 15; provided, however,
that the grant of each such option, right, award or payment shall be
separately approved by the Committee, and receipt of one such option, right,
award or payment shall not result in automatic receipt of any other option,
right, award or payment. Upon determination by the Committee that a Stock
Option, Stock Appreciation Right, Restricted Stock Award, MBO Payment or
other Common Stock or Common Stock Equivalent award is to be granted to a
Participant, written notice shall be given to such person, specifying the
terms, conditions, rights and duties related thereto. Each Participant
shall, if required by the Committee, enter into an agreement with the
Company, in such form as the Committee shall determine and as is consistent
with the provisions of the 1995 Plan, specifying such terms, conditions,
rights and duties. Stock Options, Stock Appreciation Rights, Restricted
Stock Awards, MBO Payments and other Common Stock or Common Stock Equivalent
awards
10
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shall be deemed to be granted as of the date specified in the grant
resolution of the Committee, which date shall be the date of any related
agreement with the Participant. In the event of any inconsistency between
the provisions of the 1995 Plan and any such agreement entered into
hereunder, the provisions of the 1995 Plan shall govern.
5.2 LIMITATIONS. The following limitations shall apply to grants of
Stock Options and Stock Appreciation Rights to Participants:
(a) No Participant shall be granted, in any fiscal year of the
Company, Stock Options and Stock Appreciation Rights to purchase more than
500,000 shares.
(b) The foregoing limitation shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 4.3.
(c) If a Stock Option or Stock Appreciation Right is canceled
in the same fiscal year of the Company in which it was granted (other than in
connection with a transaction described in Section 4.3), the canceled Stock
Option or Stock Appreciation Right shall be counted against the limit set
forth in Section 5.2(a). For this purpose, if the exercise price of a Stock
Option or Stock Appreciation Right is reduced, the transaction will be
treated as a cancellation of the Stock Option or Stock Appreciation Right and
the grant of a new Stock Option or Stock Appreciation Right.
(d) Incentive Stock Options may not be granted to Outside
Directors or to Consultants.
5.3 RULE 16B-3. Stock Options, Stock Appreciation Rights, Restricted
Stock Awards, MBO Payments and other Common Stock or Common Stock Equivalent
awards granted to Participants who are subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), must comply
with the applicable provisions of Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to 1995 Plan transactions.
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SECTION 6
STOCK OPTIONS
-------------
6.1 GRANT OF STOCK OPTIONS. Coincident with or following designation
for participation in the 1995 Plan, a Participant may be granted one or more
Stock Options. The Committee in its sole discretion may designate whether a
Stock Option granted to an Employee is to be considered an Incentive Stock
Option or a Non-Qualified Option. The Committee may grant both an Incentive
Stock Option and a Non-Qualified Option to the same Employee at the same time
or at different times. Incentive Stock Options and Non-Qualified Options,
whether granted at the same or different times, shall be deemed to have been
awarded in separate grants, shall be clearly identified, and in no event will
the exercise of one Stock Option affect the right to exercise any other Stock
Option or affect the number of shares of Common Stock for which any other
Stock Option may be exercised. All Stock Options granted to Participants who
are not Employees shall be Non-Qualified Options.
6.2 MANNER OF STOCK OPTION EXERCISE. A Stock Option may be exercised
by a Participant in whole or in part from time to time, subject to the
conditions contained herein, (i) by delivery of written notice of exercise to
the Company at its principal office in Louisville, Colorado (Attention:
Corporate Secretary), in person or through mail, facsimile or electronic
mail, or by delivery of notice of exercise in such other method as has been
approved by the Committee, and (ii) by paying in full, with the written
notice of exercise or at such other time as the Committee may establish, the
total exercise price under the Stock Option for the shares being purchased.
Such notice shall be in a form satisfactory to the Committee and shall
specify the particular Stock Option (or portion thereof) that is being
exercised and the number of shares with respect to which the Stock Option is
being exercised. The exercise of the Stock Option shall be deemed effective
upon receipt of such notice by the Corporate Secretary and payment to the
Company. As soon as practicable after the effective exercise of the Stock
Option, and upon satisfaction of all applicable withholding requirements
pursuant to Section 20, the Participant shall be recorded on the stock
transfer books of the Company as the owner of the shares purchased and the
Company shall deliver to the Participant one or more duly issued and executed
stock certificates evidencing such ownership.
6.3 PAYMENT OF STOCK OPTION EXERCISE PRICE. At the time of the
exercise of a Stock Option, payment of the total Stock Option exercise price
for the shares to be purchased shall be made in the manner specified in the
option agreement relating to such Stock Option, which may include any or all
of the following methods of payment:
(i) in cash or by check;
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(ii) by transfer from the Participant to the Company of
shares of Common Stock (other than shares of Common Stock that the Committee
determines by rule may not be used to exercise Stock Options) with a then
current aggregate Fair Market Value equal to the total Stock Option exercise
price;
(iii) delivery to the Company of (A) a properly executed
exercise notice, (B) irrevocable instructions to a broker to sell a
sufficient number of the shares being exercised to cover the exercise price
and to promptly deliver to the Company the amount of sale proceeds required
to pay the exercise price and any required tax withholding relating to the
exercise, and (C) such other documentation as the Committee and the broker
shall require to effect a same-day exercise and sale;
(iv) delivery to the Company of (A) a properly executed
exercise notice, (B) irrevocable instructions to a broker or other third
party acceptable to the Company to hold the shares being exercised as
collateral for a loan to the Optionee of an amount sufficient to cover the
exercise price and to promptly deliver to the Company the amount of loan
proceeds required to pay the exercise price and any required tax withholding
relating to the exercise and (C) such other documentation as the Committee
and the broker or other third party shall require to effect the transaction;
(v) a reduction in the amount of any Company liability to
the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vi) any combination of the foregoing methods of payment;
or
(vii) such other consideration and method of payment for
the issuance of Shares to the extent permitted by applicable laws, rules and
regulations and by the agreement relating to the Stock Option being
exercised.
In the event that the option agreement does not specify the acceptable
methods of payment of the exercise price, payment may be made by any of the
methods specified in clauses (i) through (iii), inclusive, of this Section
6.3, or any combination of such methods of payment.
6.4 STOCKHOLDER PRIVILEGES. No Participant shall have any rights as
a stockholder with respect to any shares of Common Stock covered by a Stock
Option until the Participant becomes the holder of record of such Common
Stock, and no adjustments shall be made for dividends or other distributions
or other rights as to which there is a record date preceding the date such
Participant becomes the holder of record of such Common Stock.
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SECTION 7
INCENTIVE STOCK OPTIONS
-----------------------
7.1 INCENTIVE STOCK OPTION EXERCISE PRICE. The per share price to be
paid by a Participant at the time an Incentive Stock Option is exercised
shall be determined by the Committee at the time an Incentive Stock Option is
granted (or deemed to have been granted under applicable tax rules), but in
no event shall such exercise price be less than:
(a) one hundred percent of the Fair Market Value, on the date
the Incentive Stock Option is granted (or deemed to have been granted under
applicable tax rules), of one share of the stock to which such Stock Option
relates; or
(b) one hundred and ten percent of the Fair Market Value, on the
date the Incentive Stock Option is granted (or deemed to have been granted
under applicable tax rules), of one share of the stock to which such Stock
Option relates if, at the time the Incentive Stock Option is granted, the
Participant owns, directly or indirectly (as determined pursuant to Section
424(d) of the Internal Revenue Code), ten percent or more of the total
combined voting power of all classes of stock of the Company or of any
Affiliated Corporation (such a Participant is referred to as a "10% Holder").
7.2 NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to an Incentive Stock Option shall be designated by the Committee at
the time the Committee decides to grant an Incentive Stock Option.
7.3 AGGREGATE LIMITATION OF STOCK EXERCISABLE UNDER OPTIONS. To the
extent the aggregate Fair Market Value, determined as of the time an
Incentive Stock Option is granted, of the shares of Common Stock with respect
to which Incentive Stock Options are exercisable for the first time by an
Option Holder in any calendar year under the 1995 Plan or otherwise, granted
by the Company and Affiliated Corporations, exceeds $100,000, such excess
shall be treated as a Non-Qualified Option.
7.4 DURATION OF INCENTIVE STOCK OPTIONS. The period during which an
Incentive Stock Option may be exercised shall be fixed by the Committee, but
in no event shall such period be more than ten years from the date the Stock
Option is granted, or, in the case of Participants who are 10% Holders as
described in Section 7.1(b), five years from the date the Stock Option is
granted. No Incentive Stock Option with respect to which Stock Appreciation
Rights have been granted may be exercised during the six-month period
following the date on which such Stock Option was granted. Upon the
expiration of such exercise period, the Incentive Stock Option, to the extent
not then exercised, shall terminate.
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Except as otherwise provided in Section 11, all Incentive Stock Options
granted to a Participant hereunder shall terminate and may no longer be
exercised if the Participant ceases to be an Employee.
7.5 RESTRICTIONS ON EXERCISE OF INCENTIVE STOCK OPTIONS. Incentive
Stock Options may be granted subject to such restrictions as to the timing of
exercise of all or various portions thereof as the Committee may determine at
the time it grants Incentive Stock Options to Participants.
7.6 DISPOSITION OF STOCK ACQUIRED PURSUANT TO THE EXERCISE OF
INCENTIVE STOCK OPTIONS -- WITHHOLDING. In the event that a Participant
makes a disposition (as defined in Section 424(c) of the Internal Revenue
Code) of any Common Stock acquired pursuant to the exercise of an Incentive
Stock Option prior to the expiration of two years from the date on which the
Incentive Stock Option was granted or prior to the expiration of one year
from the date on which the Stock Option was exercised, the Participant shall
send written notice to the Company at its principal office in Louisville,
Colorado (Attention: Corporate Secretary) of the date of such disposition,
the number of shares disposed of, the amount of proceeds received from such
disposition and any other information relating to such disposition as the
Company may reasonably request. The Participant shall, in the event of such
a disposition, make appropriate arrangements with the Company to provide for
the amount of additional withholding required by federal, state and local
income and other tax laws.
SECTION 8
NON-QUALIFIED OPTIONS
---------------------
8.1 OPTION EXERCISE PRICE. The per share price to be paid by the
Participant at the time a Non-Qualified Option is exercised shall be
determined by the Committee at the time the Stock Option is granted or
amended, but in no event shall such exercise price per share be less than
eighty-five percent of the Fair Market Value of one share of Common Stock on
the date the Stock Option is granted or amended.
8.2 NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to a Non-Qualified Option shall be designated by the Committee at the
time the Committee decides to grant a Non-Qualified Option.
8.3 DURATION OF NON-QUALIFIED OPTIONS; RESTRICTIONS ON EXERCISE. The
period during which a Non-Qualified Option may be exercised, and the
installment restrictions on
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option exercise during such period, if any, shall be fixed by the Committee,
but in no event shall such period be more than ten years from the date the
Stock Option is granted, and no Non-Qualified Option with respect to which
Stock Appreciation Rights have been granted may be exercised during the
six-month period immediately following the date on which such Stock Option
was granted. Upon the expiration of such exercise period, the Non-Qualified
Option, to the extent not then exercised, shall terminate. Except as
otherwise provided in Section 11, all Non-Qualified Options granted to
a Participant hereunder shall terminate and may no longer be exercised if
the Participant ceases to be an Employee, Director or Consultant.
SECTION 9
STOCK APPRECIATION RIGHTS
-------------------------
9.1 GRANT OF RIGHTS. A Stock Appreciation Right may be granted to a
Participant in conjunction with any Incentive Stock Option or Non-Qualified
Option granted to such Participant, as determined by the Committee, (i) at
the time of the grant of such Stock Option in the case of an Incentive Stock
Option or (ii) at the time of grant, or at any subsequent time during the
term of the Stock Option, in the case of a Non-Qualified Option. Once
granted, the term of a Stock Appreciation Right shall be equal to the term of
its related Stock Option. Upon exercise of a Stock Appreciation Right by a
Participant for a share of Common Stock, the related Stock Option shall be
terminated with respect to such share. Incentive Stock Options and Non-
Qualified Options shall not be exercisable with respect to shares of Common
Stock for which Stock Appreciation Rights have been exercised. Upon such
Stock Appreciation Right exercise, the Participant shall be entitled to
receive the economic value of such Stock Appreciation Right determined in the
manner prescribed in Section 9.2.
9.2 EXERCISE OF STOCK APPRECIATION RIGHTS. Stock Appreciation Rights
shall be subject to such terms and conditions consistent with other
provisions of the 1995 Plan as may be determined from time to time by the
Committee and shall include the following:
(a) A Stock Appreciation Right shall be exercisable, in whole
or in part, at such time or times and only to the extent that the Stock
Option to which it relates shall be exercisable; provided, however, that,
except as otherwise provided in Section 11, no Stock Appreciation Right shall
be exercisable during the six-month period following the date of its grant.
A Stock Appreciation Right shall be exercised by the giving of notice in the
same manner as the Stock Option to which it relates may be exercised.
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(b) Upon the exercise of a Stock Appreciation Right, a
Participant shall be entitled to receive the economic value thereof, which
shall be equal to (i) the excess of the then Fair Market Value of one share
of Common Stock over the exercise price per share specified in the related
Stock Option, multiplied by (ii) the number of shares in respect of which the
Stock Appreciation Right is being exercised.
(c) The Committee shall, in the agreement relating to the Stock
Appreciation Right, either (i) specify the form in which payment of the
economic value of exercised Stock Appreciation Rights will be made to the
Participant upon exercise thereof (i.e., cash, Common Stock, or a specified
combination thereof) or (ii) grant the Participant the right to elect to
receive cash in full or partial payment of such economic value, at the
Participant's discretion. If the agreement relating to the Stock
Appreciation Right does not so specify, then the Participant shall have the
right to elect cash or Common Stock, Common Stock Equivalents or any
combination thereof. If the Participant is not an "officer" or "director" of
the Company, as those terms are defined in the rules under Section 16 of the
Exchange Act, at the time of grant or exercise of the Stock Appreciation
Right, then the Committee may retain the right to either consent to or
disapprove of Participant's elected method of payment.
9.3 STOCKHOLDER PRIVILEGES. No Participant shall have any rights as
a stockholder with respect to any shares of Common Stock covered by a Stock
Appreciation Right until the Participant becomes the holder of record of such
Common Stock, and no adjustments shall be made for dividends or other
distributions or other rights as to which there is a record date preceding
the date such Participant becomes the holder of record of such Common Stock.
SECTION 10
RESTRICTED STOCK AWARDS
-----------------------
10.1 AWARDS GRANTED BY COMMITTEE. Coincident with or following
designation for participation in the 1995 Plan, a Participant may be granted
one or more Restricted Stock Awards consisting of shares of Common Stock.
The number of shares granted as a Restricted Stock Award shall be determined
by the Committee. The Committee may, in its discretion, require the payment
by the Participant of cash in an amount equal to the par value of the Common
Stock subject to the Restricted Stock Award as a condition precedent to the
issuance of Common Stock to the Participant.
10.2 RESTRICTIONS. A Participant's right to retain a Restricted Stock
Award granted to him or her under Section 10.1 shall be subject to such
restrictions, including but not
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limited to the Participant's continuous status as an Employee, Director or
Consultant for a restriction period specified by the Committee, or the
attainment of specified performance goals and objectives, as may be
established by the Committee with respect to such award. The Committee may
in its sole discretion require different periods of employment, director
service or consulting service or different performance goals and objectives
with respect to different Participants, to different Restricted Stock Awards
or to separate, designated portions of the Common Stock shares constituting a
Restricted Stock Award. Subject to the provisions of Sections 11 and 14, if a
Participant's continuous status as an Employee, Director or Consultant
terminates prior to the end of such restriction period or the attainment of
such goals and objectives as may be specified by the Committee, the Restricted
Stock Award shall be forfeited and all shares of Common Stock related thereto
shall be immediately returned to the Company.
10.3 PRIVILEGES OF A STOCKHOLDER; TRANSFERABILITY. A Participant
shall have all voting, dividend, liquidation and other rights with respect to
Common Stock in accordance with its terms received by him or her as a
Restricted Stock Award under this Section 10 upon becoming the holder of
record of such Common Stock; provided, however, that the Participant's right
to sell, encumber, or otherwise transfer such Common Stock (and any other
securities issued in respect of such shares of Common Stock as a stock
dividend, stock split or the like) shall be subject to the limitations of
Section 16.2 hereof.
10.4 ENFORCEMENT OF RESTRICTIONS. The Committee may in its sole
discretion require one or more of the following methods of enforcing the
restrictions referred to in Section 10.2 and 10.3:
(a) Placing a legend on the stock certificates referring to the
restrictions;
(b) Requiring the Participant to keep the stock certificates,
duly endorsed, in the custody of the Company while the restrictions remain in
effect; or
(c) Requiring that the stock certificates, duly endorsed, be
held in the custody of a third party while the restrictions remain in effect.
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SECTION 11
EFFECT OF TERMINATION OF SERVICE ON STOCK OPTIONS,
STOCK APPRECIATION RIGHTS AND RESTRICTED STOCK AWARDS
-----------------------------------------------------
11.1 EFFECT OF TERMINATION OF SERVICE ON STOCK OPTIONS AND STOCK
APPRECIATION RIGHTS. No Stock Option or Stock Appreciation Right may be
exercised unless, at the time of such exercise, the Participant is an
Employee, Director or Consultant, except as follows:
(a) The Stock Option or Stock Appreciation Right may be
exercised within such period of time after termination of service as is
specified in the Stock Option or Stock Appreciation Right agreement or
instrument, but (i) in no event may such post-termination period extend
beyond the original expiration date of the Stock Option or Stock Appreciation
Right and (ii) only to the extent that the Participant was entitled to
exercise it at the date of termination of service. In the absence of a
specified time in the Stock Option or Stock Appreciation Right agreement or
instrument, the Stock Option or Stock Appreciation Right shall remain
exercisable for the applicable period and to the extent specified in Section
11.5 below following the Participant's termination of service as an Employee,
Director or Consultant. In the case of an Incentive Stock Option, such
period of time shall not exceed 90 days from the date of termination of
status as an Employee; provided, however, that the agreement may specify a
longer period, in which case Stock Option shall convert to a Non-Qualified
Option on the 91st day following termination of employment.
(b) If the Participant dies while serving as an Employee,
Director or Consultant, or within three months after the Participant ceases
such service, the Stock Option or Stock Appreciation Right may be exercised
by the person to whom it is transferred by will or the laws of descent and
distribution within such period of time after death as is specified in the
Stock Option or Stock Appreciation Right agreement or instrument, but in no
event may such post-death period extend beyond the original expiration date
of the Stock Option or Stock Appreciation Right. In the absence of a
specified time in the Stock Option or Stock Appreciation Right agreement or
instrument, the Stock Option or Stock Appreciation Right shall remain
exercisable for the applicable period and to the extent specified in Section
11.5 below.
(c) If the Participant becomes disabled (within the meaning of
Section 22(e)(3) of the Internal Revenue Code) while serving as an Employee,
Director or Consultant, the Stock Option or Stock Appreciation Right may be
exercised within such period of time after termination of service as is
specified in the Stock Option or Stock Appreciation
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Right agreement or instrument, but in no event may such post-termination
period extend beyond the original expiration date of the Stock Option or
Stock Appreciation Right. In the absence of a specified time in the Stock
Option or Stock Appreciation Right agreement or instrument, the Stock Option
or Stock Appreciation Right shall remain exercisable for the applicable
period and to the extent specified in Section 11.5 below.
11.2 EFFECT OF TERMINATION OF SERVICE ON RESTRICTED STOCK AWARDS. In
the event of the death or disability (as defined in Section 11.1(c)) of a
Participant, all period of service and other restrictions applicable to
Restricted Stock Awards then held by such Participant shall lapse, and such
awards shall become fully vested and nonforfeitable. In the event of a
Participant's termination of service for any other reason, any Restricted
Stock Awards as to which the employment period or other restrictions have not
been satisfied shall be forfeited.
11.3 MEANING OF EMPLOYMENT. For all purposes of the 1995 Plan and any
Stock Option or Stock Appreciation Right granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 3401(c) of the
Internal Revenue Code and the regulations thereunder.
11.4 MEANING OF CONTINUOUS STATUS. Unless otherwise specified in the
Stock Option or Stock Appreciation Right agreement or instrument, so long as
a Participant is either an Employee or a Director or a Consultant, he or she
shall be considered to be in continuous status as an Employee, Director or
Consultant, even if the person is serving in one capacity when the award is
granted and subsequently changes to service in a different capacity, such as
terminating employment but continuing to serve as a Consultant.
11.5 DEFAULT PROVISIONS FOR TERMINATION OF SERVICE. In the event that
the Stock Option or Stock Appreciation Right agreement or instrument do not
specify the post-termination period of exercisability, the following
provisions shall apply:
(a) Subject to 11.5(f), if such termination is due to the death
of the Participant, or the Participant dies within three months after such
termination, or if such termination occurs after the Participant becomes
disabled (within the meaning of Section 22(e)(3) of the Internal Revenue
Code), the Stock Option or Stock Appreciation Right may be exercised by the
Participant (or, in the case of death, by the person to whom it is
transferred by will of the laws of descent and distribution): (i) for all
Incentive Stock Option grants, or for Non-Qualified Stock Option grants or
Stock Appreciation Right grants made before May 22, 1997, or for Non-
Qualified Stock Option grants or Stock Appreciation Right grants made on or
after May 22, 1997, if, at the time of the Participant's termination, such
Participant was not a Long-Term Employee, then within a period of one year
after the date of death (but in no event longer than the term of the Stock
Option or Stock Appreciation Right); and (ii) for grants made on or after May
22, 1997, if the Participant was a Long-Term
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Employee at the time of the Participant's termination, the Non-Qualified
Stock Option or Stock Appreciation Right may be exercised, to the extent
it is vested as of the date of the Participant's termination, for the entire
remaining term of such Stock Option or Stock Appreciation Right.
(b) Subject to 11.5(f), if such termination occurs after the
Participant becomes disabled (within the meaning of Section 22(e)(3) of the
Internal Revenue Code), the Stock Option or Stock Appreciation Right may be
exercised: (i) for all Incentive Stock Option grants, or for Non-Qualified
Stock Option or Stock Appreciation Right grants made before May 22, 1997, or
for Non-Qualified Stock Option grants or Stock Appreciation Right grants made
on or after May 22, 1997, if, at the time of the Participant's termination,
such Participant was not a Long-Term Employee, then within a period of one
year after the date of such termination (but in no event longer than the term
of the Stock Option or Stock Appreciation Right); and (ii) for grants made on
or after May 22, 1997, if the Participant is a Long-Term Employee, a Non-
Qualified Stock Option or Stock Appreciation Right may be exercised to the
extent it is vested as of the date of the Participant's termination for the
entire remaining term of such Stock Option or Stock Appreciation Right.
(c) Subject to 11.5(f), if such termination is due to a
Reduction in Force, then, for grants on or after May 22, 1997, the Stock
Option or Stock Appreciation Right shall be exercisable, to the extent vested
at the time of such termination, for a period of six months from the date of
such termination.
(d) Subject to 11.5(f), if the Participant Retires, then, for
grants on or after May 22, 1997, the Stock Option or Stock Appreciation Right
shall be exercisable, to the extent vested at the time the Participant
Retires, for the entire remaining term of such Stock Option or Stock
Appreciation Right.
(e) Subject to 11.5(f), if the Participant's employment is
terminated for any reason other than those reasons covered by subsections
(a) through (d) of this Section 11.5, then the Stock Option or Stock
Appreciation Right shall be exercisable, to the extent vested at the time of
such termination, for a period of ninety (90) days after the date of such
termination.
(f) Notwithstanding the provisions of Section 11.5(a) through
(e) above:
(i) With respect to all grants of Stock Options or Stock
Appreciation Rights occurring on or after May 22, 1997, no such grants shall
be exercisable after the date of termination of employment if either the
termination was for Cause, or if the former
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Employee, Consultant or Director is then, in the sole judgement of the
Company, in material breach of any contractual, statutory, fiduciary or
other legal obligation to the Company.
(ii) In addition to the provisions of paragraph (i) above,
unless otherwise provided in the Option or Stock Appreciation Right
agreement, with respect to all grants of Stock Options or Stock Appreciation
Rights occurring on or after March 4, 1998 (or earlier date if agreed to by
the Company and the participant): (x) if at any time within six months after
termination of the optionee's employment or service, the former Employee,
Consultant or Director is, in the sole judgement of the Company, engaging or
has engaged in any activity in competition with any activity of the Company,
or harmful or contrary to the interests of the Company, including, but not
limited to: accepting employment with or serving as a consultant or advisor
to any employer that is in competition with the Company or acting against the
interests of the Company, including employing or recruiting any Employee of
the Company; or disclosing or misusing any confidential, proprietary or
material information concerning the Company (such information includes,
without limitation, information regarding the Company's operations, its
products, product designs, business plans, strategic plans, marketing and
distribution plans and arrangements, customers, and financial statements,
budgets and forecasts); or participating in any hostile takeover attempt of
the Company, then (I) any Options or Stock Appreciation Rights still held by
the optionee shall immediately cease to be exercisable and shall be canceled,
and (II) any shares issued upon exercise of Options or Stock Appreciation
Rights after the date of termination of employment or service shall be sold
back to the Company at the exercise price paid for such shares, and any cash
received upon exercise of a Stock Appreciation Right after termination of
employment or service shall be returned to the Company; (y) if the Employee,
Consultant or Director leaves the employment of the Company within six months
of exercising Stock Options or Stock Appreciation Rights for any reason
except death, disability or retirement, then any gain represented by the fair
market value on the date of exercise over the exercise price multiplied by
the number of shares such individual purchased ("option gain"), without
regard to any subsequent market price decrease or increase, shall be paid by
such individual to the Company; and (z) shares issued upon exercise of
Options or Stock Appreciation Rights after termination of employment or
service shall be non-transferable until six months after such termination and
shall be held in escrow by the Company until such time. The Compensation
Committee, in its sole discretion, may, with respect to a particular Option
or Stock Appreciation Right, omit the provisions of this paragraph (ii) or
release the optionee from the operation of such provisions if the
Compensation Committee determines that such action is in the best interests
of the Company.
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SECTION 12
DIRECTOR STOCK AND STOCK EQUIVALENTS
------------------------------------
12.1 DIRECTOR STOCK AND STOCK EQUIVALENTS. Effective with the
beginning of the Company's fiscal year beginning December 28, 1996, each
Outside Director may receive all or a portion of his or her annual retainer
and any meeting fees (which shall include any additional annual retainer or
fees paid to a committee chair) in shares of Common Stock or, if elected by
the Director, in Common Stock Equivalents. An election pursuant to this
Section 12 must be made in writing on or before the first day of the
beginning of the Outside Director's annual retainer period and shall entitle
the Outside Director to a number of shares of Common Stock or Common Stock
Equivalents determined by dividing (i) the dollar amount of the portion of
the retainer for the fiscal period that is to be paid in shares of Common
Stock or Common Stock Equivalents by (ii) the Fair Market Value of one share
of Common Stock as of the last day of each such fiscal period, rounded up to
the next full number of shares. In the event any person becomes an Outside
Director other than at the beginning of an annual retainer period, such
person may elect, within thirty (30) days of the date on which such person
becomes an Outside Director, to receive his or her retainer and any meeting
fees in shares of Common Stock or Common Stock Equivalents as described above
for the balance of such annual retainer period in accordance with the formula
set forth in the preceding sentence.
For purposes of this Section 12, an annual retainer period shall begin
on the date of an Annual Meeting of the Stockholders of the Company and shall
end on the day immediately preceding the next following Annual Meeting.
12.2 STOCK EQUIVALENTS. The number of Common Stock Equivalents
determined under Section 12.1 for each Outside Director shall be credited to
a bookkeeping account established in the name of that Director subject to the
following terms and conditions:
(i) If the Company pays a cash dividend with respect to the
Common Stock at any time while Common Stock Equivalents are credited to an
Outside Director's account, there shall be credited to the Outside Director's
account additional Common Stock Equivalents equal to (a) the dollar amount of
the cash dividend the Director would have received had he or she been the
actual owner of the Common Stock to which the Common Stock Equivalents then
credited to the Director's account relate, divided by (b) the Fair Market
Value of one share of the Company's Common Stock on the dividend payment
date. The Company will pay the Director a cash payment in lieu of fractional
stock equivalents on the date of such dividend payment.
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(ii) Upon the death or other termination of the Outside
Director's service on the Board, or, if authorized by the Committee, such
other time or times as specified by the Outside Director at the time of his
or her annual election(s), the Company shall deliver to the Outside Director
(or his or her designated beneficiary or estate) a number of shares of Common
Stock equal to the whole number of Common Stock Equivalents then credited to
the Director's account, together with a cash payment equal to the Fair Market
Value of any fractional Common Stock Equivalent.
(iii) The Company's obligation with respect to Common Stock
Equivalents shall not be funded or secured in any manner, nor shall an
Outside Director's right to receive Common Stock equivalents be assigned or
transferable, voluntarily or involuntarily, except as expressly provided
herein.
(iv) An Outside Director shall not be entitled to any voting or
other stockholder rights as a result of the credit of Common Stock
Equivalents to the Director's account until certificates representing shares
of Common Stock are delivered to the Director (or his or her designated
beneficiary or estate) hereunder.
12.3 ELECTIONS. The Committee shall determine the form of Outside
Director's elections pursuant to this Section 12, which form shall evidence
the particular provisions, terms, conditions, rights and duties of the
Company and the Outside Directors with respect to Common Stock and Common
Stock Equivalents paid with respect to the Director's annual retainer and any
meeting fees.
SECTION 13
MBO PAYMENTS
------------
13.1 PARTICIPANT ELECTION AS TO MBO PAYMENT. At such time as the
Committee determines that a Participant has or may become eligible for an MBO
Payment pursuant to the MBO Plan, the Committee may notify the Participant as
to whether or not the Participant will be required by the Committee to, or
will be given the right to elect to, accept all or a part of such MBO Payment
in the form of shares of Common Stock or Common Stock Equivalents. If the
Committee grants the Participant the right to elect whether to accept the MBO
Payment in Common Stock or Common Stock Equivalents, then the Participant
shall have ten (10) business days after the receipt of such notice from the
Committee to make such election. The Participant shall notify the Committee
with respect to his or her election on such form as may be provided for this
purpose by the Committee, setting forth thereon the dollar value of the
portion of the MBO Payment which he or she desires to receive in shares
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of Common Stock or Common Stock Equivalents. If a Participant fails to make
an election pursuant to this Section with respect to the mode of payment of an
MBO Payment, the entire MBO Payment shall be made in cash.
13.2 DETERMINATION OF NUMBER OF SHARES. The number of shares of
Common Stock or Common Stock Equivalents that shall be issued or credited as
an MBO Payment shall be determined by dividing the dollar value of the
portion of the MBO Payment that is to be paid in shares of Common Stock or
Common Stock Equivalents (whether as elected above or as adjusted by the
Committee pursuant to Section 13.3) by the Fair Market Value of the Common
Stock on the date the shares are issued or credited with respect to such
Payment. No fractional shares of Common Stock or Common Stock Equivalent
shall be issued or credited as a part of an MBO Payment and the value of any
such fractional share that would otherwise be issued pursuant to the
Participant's election shall be paid in cash.
13.3 DECISION OF COMMITTEE. The Committee shall have the sole
discretion to either accept the Participant's election with respect to the
payment of an MBO Payment, in whole or in part, in shares of Common Stock or
Common Stock Equivalents or to determine that a lesser portion, or none, of
the MBO Payment will be made in shares of Common Stock or Common Stock
Equivalents, and the Committee's determination in this regard shall be final
and binding on the Participant.
SECTION 14
TENDER OFFERS AND ACQUISITIONS
------------------------------
If any person or entity (other than the Company or any person or entity
that is controlled by the Company) shall make a tender offer or exchange
offer for all or any part of the Common Stock or other capital shares of the
Company and shall purchase any part of the Common Stock or other capital
shares tendered to it, and the Board opposes or does not affirmatively
recommend acceptance of such tender offer or exchange offer, then:
(a) all Stock Options with respect to which no Stock
Appreciation Rights have been granted, and all Stock Options with respect to
which Stock Appreciation Rights have been issued (and all such related Stock
Appreciation Rights) that have been outstanding for at least six months,
shall become immediately exercisable in full during the remaining term
thereof, whether or not the Participants to whom such options and rights have
been granted remain Employees, Directors or Consultants of the Company;
provided, however, that Stock Appreciation Rights shall remain subject to the
requirements of Section 9.2(a)
25
<PAGE>
with respect to the exercise thereof only within prescribed periods after
public release of Company financial information;
(b) all restrictions with respect to outstanding Restricted
Stock Awards shall immediately lapses; and
(c) all Common Stock Equivalents shall convert into shares of
Common Stock as of the date determined by the Committee.
SECTION 15
OTHER COMMON STOCK PROGRAMS
---------------------------
From time to time during the duration of the 1995 Plan, the Board may,
in its sole discretion, adopt one or more incentive compensation arrangements
for Eligible Employees, Directors or Consultants pursuant to which such
Eligible Employees, Directors or Consultants may acquire shares of Common
Stock or Common Stock Equivalents, whether by purchase, outright grant or
otherwise. Any such arrangements shall be subject to the general provisions
of the 1995 Plan and all shares of Common Stock or Common Stock Equivalents
issued or credited pursuant to such arrangements shall be issued under the
1995 Plan if so designated by the Committee.
SECTION 16
RIGHTS OF PARTICIPANTS
----------------------
16.1 EMPLOYMENT, DIRECTORSHIP OR CONSULTING RELATIONSHIP. Nothing
contained in the 1995 Plan or in any Stock Option, Stock Appreciation Right,
Restricted Stock Award or other Common Stock or Common Stock Equivalent award
granted under the 1995 Plan shall confer upon any Participant any right with
respect to the continuation of his or her employment, service as a director
or consulting relationship with the Company or any Affiliated Corporation, or
interfere in any way with the right of the Company or any Affiliated
Corporation, subject to the terms of any separate agreement to the contrary,
at any time to terminate such service or to increase or decrease the
compensation of the Participant from the rate in existence at the time of the
grant of a Stock Option, Stock Appreciation Right, Restricted Stock Award or
other Common Stock or Common Stock Equivalent award. Whether an authorized
leave of absence, or absence in military or government service, shall
constitute termination of service shall be determined by the Committee at the
time.
26
<PAGE>
16.2 NONTRANSFERABILITY. Except as otherwise approved by the
Committee and set forth in the agreement between the Company and the
Participant, no right or interest of any Participant in a Stock Option, a
Stock Appreciation Right, a Restricted Stock Award prior to the completion of
the restriction period applicable thereto, or other Common Stock or Common
Stock Equivalent award granted pursuant to the 1995 Plan shall be assignable
or transferable during the lifetime of the Participant, either voluntarily or
involuntarily, or subjected to any lien, directly or indirectly, by operation
of law, or otherwise, including execution, levy, garnishment, attachment,
pledge or bankruptcy. If permitted by applicable law (including Rule 16b-3,
as amended from time to time), the Committee may (but need not) permit the
transfer of Stock Options, Stock Appreciation Rights, Restricted Stock Awards
and/or other Common Stock or Common Stock Equivalent awards either generally,
to a limited class of persons or on a case-by-case basis. In the event of a
Participant's death, a Participant's rights and interest in Stock Options,
Stock Appreciation Rights, Restricted Stock Awards and other Common Stock or
Common Stock Equivalent awards shall be transferable by testamentary will or
the laws of descent and distribution, and payment of any amounts due under
the 1995 Plan shall be made to, and exercise of any Stock Options or Stock
Appreciation Rights may be made by, the Participant's legal representatives,
heirs or legatees. If in the opinion of the Committee a person entitled to
payments or to exercise rights with respect to the 1995 Plan is disabled from
caring for his or her affairs because of mental condition, physical
condition, or age, payment due such person may be made to, and such rights
shall be exercised by, such person's guardian, conservator or other legal
personal representative upon furnishing the Committee with evidence
satisfactory to the Committee of such status.
SECTION 17
GENERAL RESTRICTIONS
--------------------
17.1 INVESTMENT REPRESENTATIONS. The Company may require any person to
whom a Stock Option, Stock Appreciation Right, Restricted Stock Award, MBO
Payment or other Common Stock or Common Stock Equivalent award is granted, as
a condition of exercising such Stock Option or Stock Appreciation Right, or
receiving such Restricted Stock Award, MBO Payment or other Common Stock
award or Common Stock Equivalent award, to give written assurances in
substance and form satisfactory to the Company and its counsel to the effect
that such person is acquiring the Common Stock subject to the Stock Option,
Stock Appreciation Right, Restricted Stock Award, MBO Payment or Common Stock
or Common Stock Equivalent award for his or her own account for investment
and not with any present intention of selling or otherwise distributing the
same, and to such other effects as the
27
<PAGE>
Company deems necessary or appropriate in order to comply with federal and
applicable state securities laws.
17.2 COMPLIANCE WITH SECURITIES LAWS. Each Stock Option, Stock
Appreciation Right and Common Stock Equivalent shall be subject to the
requirement that, if at any time counsel to the Company shall determine that
the listing, registration or qualification of the shares subject to such
Stock Option, Stock Appreciation Right or Common Stock Equivalent upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental or regulatory body, is necessary as a condition
of, or in connection with, the issuance or purchase of shares thereunder,
such Stock Option, Stock Appreciation Right or Common Stock Equivalent may
not be accepted or exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained on conditions acceptable to the Committee. Nothing herein shall be
deemed to require the Company to apply for or to obtain such listing,
registration or qualification.
17.3 CHANGES IN ACCOUNTING RULES. Notwithstanding any other provision
of the 1995 Plan to the contrary, if, during the term of the 1995 Plan, any
changes in the financial or tax accounting rules applicable to Stock Options,
Stock Appreciation Rights, Restricted Stock Awards, MBO Payments or other
Common Stock or Common Stock Equivalent awards shall occur that, in the sole
judgment of the Committee, may have a material adverse effect on the reported
earnings, assets or liabilities of the Company, the Committee shall have the
right and power to modify as necessary, or cancel, any then outstanding and
unexercised Stock Options or Stock Appreciation Rights, any then outstanding
Restricted Stock Awards as to which the applicable restriction has not been
satisfied and any other Common Stock awards or Common Stock Equivalent.
SECTION 18
OTHER BENEFITS
--------------
The amount of any compensation deemed to be received by an Employee,
Director or Consultant as a result of the exercise of a Stock Option, a Stock
Appreciation Right or the sale of shares received upon such exercise or the
vesting of any Restricted Stock Awards or the receipt of any other Common
Stock or Common Stock Equivalent award will not constitute "earnings" with
respect to which any other benefits provided by the Company or an Affiliated
Corporation to such person are determined, including without limitation
benefits under any pension, profit sharing, life insurance or salary
continuation plan.
28
<PAGE>
SECTION 19
PLAN AMENDMENT, MODIFICATION AND TERMINATION
--------------------------------------------
19.1 AMENDMENT OR TERMINATION. The Board, upon recommendation of the
Committee or at its own initiative, at any time may terminate and at any time
and from time to time and in any respect, may amend or modify the 1995 Plan.
The Company shall obtain stockholder approval of any amendment to the extent
necessary and desirable to comply with Applicable Laws. "Applicable Laws"
means the requirements relating to the administration of stock option plans
under U. S. state corporate laws, U.S. federal and state securities laws, the
Code, any stock exchange or quotation system on which the Common Stock is
listed or quoted and the applicable laws of any foreign country or
jurisdiction where Stock Options, Stock Appreciation Rights, Restricted Stock
Awards or other Common Stock or Common Stock Equivalent awards are, or will
be, granted under the 1995 Plan.
19.2 EFFECT OF AMENDMENT. Any Stock Option, Stock Appreciation Right,
Restricted Stock Award or other Common Stock or Common Stock Equivalent award
granted to a Participant prior to the date the 1995 Plan is amended, modified
or terminated will remain in effect according to its terms unless otherwise
agreed upon by the Participant; provided, however, that this sentence shall
not impair the right of the Committee to take whatever action it deems
appropriate under Section 4.3, Section 14 or Section 17.3. The termination
or any modification or amendment of the 1995 Plan shall not, without the
consent of a Participant, affect his or her rights under a Stock Option,
Stock Appreciation Right, Restricted Stock Award or other Common Stock or
Common Stock Equivalent award previously granted to him or her. With the
consent of the Participant affected, the Committee may amend outstanding
option agreements in a manner not inconsistent with the 1995 Plan.
19.3 PRESERVATION OF INCENTIVE STOCK OPTIONS. The Board shall have
the right to amend or modify the terms and provisions of the 1995 Plan and of
any outstanding Incentive Stock Options granted under the 1995 Plan to the
extent necessary to qualify any or all such Stock Options for such favorable
treatment as may be afforded Incentive Stock Options under Section 422 of the
Internal Revenue Code.
29
<PAGE>
SECTION 20
WITHHOLDING
-----------
20.1 WITHHOLDING REQUIREMENT. The Company's obligations to deliver
shares of Common Stock upon the exercise of any Stock Option or Stock
Appreciation Right granted under the 1995 Plan or upon any MBO Payment under
the 1995 Plan or pursuant to any other Common Stock or Common Stock
Equivalent award, shall be subject to the Participant's satisfaction of all
applicable federal, state and local income and other tax withholding
requirements.
20.2 WITHHOLDING WITH COMMON STOCK. At the time the Committee grants
a Stock Option, Stock Appreciation Right, MBO Payment or any other Common
Stock or Common Stock Equivalent award, it may, in its sole discretion, grant
the Participant an election to pay all such amounts of tax withholding, or
any part thereof, by electing to transfer to the Company, or to have the
Company withhold from shares otherwise issuable to the Participant, shares of
Common Stock having a value equal to the amount required to be withheld or
such lesser amount as may be elected by the Participant. All elections shall
be subject to the approval or disapproval of the Committee. The value of
shares of Common Stock to be withheld shall be based on the Fair Market Value
of the Common Stock on the date that the amount of tax to be withheld is to
be determined (the "Tax Date"). Any such elections by Participants to have
shares of Common Stock withheld for this purpose will be subject to the
following conditions:
(a) All elections must be made prior to the Tax Date;
(b) All elections shall be irrevocable; and
(c) If the Participant is an officer or director of the Company
within the meaning of Section 16 of the Exchange Act, then the approval by
the Committee of the grant of the award shall be deemed to include approval
by the Committee of the election by such Participant to utilize this
withholding provision, unless otherwise specified in the agreement relating
to the award.
30
<PAGE>
SECTION 21
REQUIREMENTS OF LAW
-------------------
21.1 REQUIREMENTS OF LAW. The issuance of stock and the payment of cash
pursuant to the 1995 Plan shall be subject to all applicable laws, rules and
regulations.
21.2 GOVERNING LAW. The 1995 Plan and all agreements hereunder shall
be construed in accordance with and governed by the laws of the State of
Colorado.
SECTION 22
EFFECTIVE DATE OF THE 1995 PLAN
-------------------------------
22.1 EFFECTIVE DATE. The 1995 Plan is effective as of March 8, 1995,
the date it was adopted by the Board of Directors of the Company, subject to
the approval of the stockholders of the Company prior to the one-year
anniversary of such date. Stock Options, Stock Appreciation Rights,
Restricted Stock Awards and other Common Stock awards may be granted prior to
stockholder approval if made subject to stockholder approval.
22.2 DURATION OF THE 1995 PLAN. The 1995 Plan shall terminate at
midnight on March 7, 2005, which is the day before the tenth anniversary of
the Effective Date, and may be terminated prior thereto by Board action; and
no Stock Option, Stock Appreciation Right, Restricted Stock Award or other
Common Stock or Common Stock Equivalent award shall be granted after such
termination. Stock Options, Stock Appreciation Rights, Restricted Stock
Awards and other Common Stock Common Stock Equivalent awards outstanding at
the time of the 1995 Plan termination may continue to be exercised, or become
free of restrictions, in accordance with their terms.
31
EXHIBIT 11
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
--------------------------- ---------------------------
JUNE 26, JUNE 27, JUNE 26, JUNE 27,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BASIC (A)
Earnings:
Net income $ 54,430 $ 53,984 $ 95,000 $ 93,573
========= ========= ========= =========
Shares:
Weighted average shares outstanding 106,945 123,035 106,777 122,740
========= ========= ========= =========
Earnings per share:
Basic earnings per share $ 0.51 $ 0.44 $ 0.89 $ 0.76
========= ========= ========= =========
DILUTED (A)
Earnings:
Net income $ 54,430 $ 53,984 $ 95,000 $ 93,573
Adjustment for interest and amortization
of debt issue costs on 8% Convertible
Debentures, net of estimated tax effects 255
--------- --------- --------- ---------
Net income, as adjusted $ 54,430 $ 53,984 $ 95,000 $ 93,828
========= ========= ========= =========
Shares:
Weighted average shares outstanding 106,945 123,035 106,777 122,740
Dilutive effect of outstanding options (as
determined under the treasury stock method) 2,994 1,472 2,873 1,739
Adjustment for shares issuable upon assumed
conversion of 8% Convertible Debentures 578
--------- --------- --------- ---------
Weighted-average and dilutive potential shares 109,939 124,507 109,650 125,057
========= ========= ========= =========
Earnings per share:
Diluted earnings per share $ 0.50 $ 0.43 $ 0.87 $ 0.75
========= ========= ========= =========
(A) Earnings per share has been restated to reflect the effect of the 2-for-1 stock split in the form of a
stock dividend in June, 1998.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE COMPANY'S FORM 10-Q DATED
JUNE 26, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000094673
<NAME> STORAGE TECHNOLOGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-25-1998
<PERIOD-END> JUN-26-1998
<CASH> 247,550
<SECURITIES> 21,004
<RECEIVABLES> 570,623 <F1>
<ALLOWANCES> 0
<INVENTORY> 249,093
<CURRENT-ASSETS> 1,189,925
<PP&E> 301,094 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,641,223
<CURRENT-LIABILITIES> 510,279
<BONDS> 17,302
0
0
<COMMON> 10,753
<OTHER-SE> 1,102,889
<TOTAL-LIABILITY-AND-EQUITY> 1,641,223
<SALES> 721,993
<TOTAL-REVENUES> 1,027,197
<CGS> 363,102
<TOTAL-COSTS> 538,135
<OTHER-EXPENSES> 110,920
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,449
<INCOME-PRETAX> 153,200
<INCOME-TAX> 58,200
<INCOME-CONTINUING> 95,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 95,000
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.87
<FN>
<F1> Asset values for the interim period represent
net amounts.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE COMPANY'S FORM 10-Q DATED
MARCH 27, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000094673
<NAME> STORAGE TECHNOLOGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-25-1998
<PERIOD-END> MAR-27-1998
<CASH> 416,599
<SECURITIES> 20,701
<RECEIVABLES> 504,587 <F1>
<ALLOWANCES> 0
<INVENTORY> 102,377
<CURRENT-ASSETS> 1,279,713
<PP&E> 301,593 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,731,570
<CURRENT-LIABILITIES> 563,896
<BONDS> 17,793
0
0
<COMMON> 10,754
<OTHER-SE> 1,139,127
<TOTAL-LIABILITY-AND-EQUITY> 1,731,570
<SALES> 337,414
<TOTAL-REVENUES> 484,891
<CGS> 169,099
<TOTAL-COSTS> 253,389
<OTHER-EXPENSES> 55,973
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,129
<INCOME-PRETAX> 65,370
<INCOME-TAX> 24,800
<INCOME-CONTINUING> 40,570
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,570
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.37
<FN>
<F1> Asset values for the interim period represent
net amounts.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE COMPANY'S FORM 10-K DATED
DECEMBER 26, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000094673
<NAME> STORAGE TECHNOLOGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-26-1997
<PERIOD-END> DEC-26-1997
<CASH> 256,319
<SECURITIES> 77,275
<RECEIVABLES> 645,905
<ALLOWANCES> 17,924
<INVENTORY> 205,461
<CURRENT-ASSETS> 1,269,611
<PP&E> 794,853
<DEPRECIATION> 489,731
<TOTAL-ASSETS> 1,740,017
<CURRENT-LIABILITIES> 608,405
<BONDS> 0
0
0
<COMMON> 10,800
<OTHER-SE> 1,101,703
<TOTAL-LIABILITY-AND-EQUITY> 1,740,017
<SALES> 1,541,635
<TOTAL-REVENUES> 2,144,656
<CGS> 838,931
<TOTAL-COSTS> 1,171,530
<OTHER-EXPENSES> 209,526
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,709
<INCOME-PRETAX> 316,117
<INCOME-TAX> 84,300
<INCOME-CONTINUING> 231,817
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 231,817
<EPS-PRIMARY> 1.93
<EPS-DILUTED> 1.89
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE COMPANY'S FORM 10-Q DATED
SEPTEMBER 26, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000094673
<NAME> STORAGE TECHNOLOGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-26-1997
<PERIOD-END> SEP-26-1997
<CASH> 454,535
<SECURITIES> 246,010
<RECEIVABLES> 492,689 <F1>
<ALLOWANCES> 0
<INVENTORY> 276,007
<CURRENT-ASSETS> 1,469,241
<PP&E> 301,857 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,031,736
<CURRENT-LIABILITIES> 531,701
<BONDS> 20,352
0
0
<COMMON> 12,446
<OTHER-SE> 1,434,992
<TOTAL-LIABILITY-AND-EQUITY> 2,031,736
<SALES> 1,038,764
<TOTAL-REVENUES> 1,480,787
<CGS> 567,016
<TOTAL-COSTS> 810,339
<OTHER-EXPENSES> 149,403
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,484
<INCOME-PRETAX> 203,003
<INCOME-TAX> 54,900
<INCOME-CONTINUING> 148,103
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 148,103
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.19
<FN>
<F1> Asset values for the interim period represent
net amounts.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE COMPANY'S FORM 10-Q DATED
JUNE 27, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000094673
<NAME> STORAGE TECHNOLOGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-26-1997
<PERIOD-END> JUN-27-1997
<CASH> 473,358
<SECURITIES> 127,918
<RECEIVABLES> 496,402 <F1>
<ALLOWANCES> 0
<INVENTORY> 263,698
<CURRENT-ASSETS> 1,361,376
<PP&E> 310,776 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,946,801
<CURRENT-LIABILITIES> 499,816
<BONDS> 21,455
0
0
<COMMON> 12,454
<OTHER-SE> 1,385,330
<TOTAL-LIABILITY-AND-EQUITY> 1,946,801
<SALES> 667,529
<TOTAL-REVENUES> 955,619
<CGS> 365,198
<TOTAL-COSTS> 524,956
<OTHER-EXPENSES> 96,958
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,664
<INCOME-PRETAX> 128,273
<INCOME-TAX> 34,700
<INCOME-CONTINUING> 93,573
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93,573
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0.75
<FN>
<F1> Asset values for the interim period represent
net amounts.
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE COMPANY'S FORM 10-Q DATED
MARCH 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000094673
<NAME> STORAGE TECHNOLOGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> QUARTER
<FISCAL-YEAR-END> DEC-26-1997
<PERIOD-END> MAR-28-1997
<CASH> 521,651
<SECURITIES> 16,962
<RECEIVABLES> 420,979 <F1>
<ALLOWANCES> 0
<INVENTORY> 289,339
<CURRENT-ASSETS> 1,248,931
<PP&E> 328,138 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,867,122
<CURRENT-LIABILITIES> 484,195
<BONDS> 21,692
0
0
<COMMON> 12,400
<OTHER-SE> 1,326,122
<TOTAL-LIABILITY-AND-EQUITY> 1,867,122
<SALES> 297,670
<TOTAL-REVENUES> 438,595
<CGS> 165,405
<TOTAL-COSTS> 241,672
<OTHER-EXPENSES> 45,699
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,359
<INCOME-PRETAX> 54,289
<INCOME-TAX> 14,700
<INCOME-CONTINUING> 39,589
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,589
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
<FN>
<F1> Asset values for the interim period represent
net amounts.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE COMPANY'S FORM 10-K DATED
DECEMBER 27, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000094673
<NAME> STORAGE TECHNOLOGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-END> DEC-27-1996
<CASH> 388,401
<SECURITIES> 29,176
<RECEIVABLES> 567,066
<ALLOWANCES> 12,907
<INVENTORY> 288,615
<CURRENT-ASSETS> 1,260,351
<PP&E> 829,122
<DEPRECIATION> 501,588
<TOTAL-ASSETS> 1,884,276
<CURRENT-LIABILITIES> 536,180
<BONDS> 150,806
0
0
<COMMON> 11,636
<OTHER-SE> 1,169,347
<TOTAL-LIABILITY-AND-EQUITY> 1,884,276
<SALES> 1,478,685
<TOTAL-REVENUES> 2,039,550
<CGS> 897,548
<TOTAL-COSTS> 1,192,777
<OTHER-EXPENSES> 176,422
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,122
<INCOME-PRETAX> 226,692
<INCOME-TAX> 55,900
<INCOME-CONTINUING> 170,792
<DISCONTINUED> 0
<EXTRAORDINARY> 9,535
<CHANGES> 0
<NET-INCOME> 180,327
<EPS-PRIMARY> 1.61
<EPS-DILUTED> 1.50
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE COMPANY'S FORM 10-Q DATED
SEPTEMBER 27, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000094673
<NAME> STORAGE TECHNOLOGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-END> SEP-27-1996
<CASH> 282,907
<SECURITIES> 87,017
<RECEIVABLES> 436,587 <F1>
<ALLOWANCES> 0
<INVENTORY> 263,174
<CURRENT-ASSETS> 1,070,733
<PP&E> 328,965 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,801,123
<CURRENT-LIABILITIES> 511,154
<BONDS> 172,605
0
0
<COMMON> 11,366
<OTHER-SE> 1,090,821
<TOTAL-LIABILITY-AND-EQUITY> 1,801,123
<SALES> 1,006,202
<TOTAL-REVENUES> 1,418,871
<CGS> 607,568
<TOTAL-COSTS> 826,107
<OTHER-EXPENSES> 135,515
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,396
<INCOME-PRETAX> 140,349
<INCOME-TAX> 37,400
<INCOME-CONTINUING> 102,949
<DISCONTINUED> 0
<EXTRAORDINARY> 9,535
<CHANGES> 0
<NET-INCOME> 112,484
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 0.95
<FN>
<F1> Asset values for the interim period
represent net amounts.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE COMPANY'S FORM 10-Q DATED
JUNE 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000094673
<NAME> STORAGE TECHNOLOGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-END> JUN-28-1996
<CASH> 489,780
<SECURITIES> 0
<RECEIVABLES> 404,446 <F1>
<ALLOWANCES> 0
<INVENTORY> 274,815
<CURRENT-ASSETS> 1,174,143
<PP&E> 327,653 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,919,188
<CURRENT-LIABILITIES> 506,963
<BONDS> 268,726
0
0
<COMMON> 11,402
<OTHER-SE> 1,114,074
<TOTAL-LIABILITY-AND-EQUITY> 1,919,188
<SALES> 658,080
<TOTAL-REVENUES> 932,786
<CGS> 385,467
<TOTAL-COSTS> 532,556
<OTHER-EXPENSES> 98,617
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,018
<INCOME-PRETAX> 86,849
<INCOME-TAX> 23,400
<INCOME-CONTINUING> 63,449
<DISCONTINUED> 0
<EXTRAORDINARY> 9,535
<CHANGES> 0
<NET-INCOME> 72,984
<EPS-PRIMARY> 0.68
<EPS-DILUTED> 0.63
<FN>
<F1> Asset values for the interim period
represent net amounts.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE COMPANY'S FORM 10-Q DATED
MARCH 29, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000094673
<NAME> STORAGE TECHNOLOGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-END> MAR-29-1996
<CASH> 432,895
<SECURITIES> 0
<RECEIVABLES> 428,083 <F1>
<ALLOWANCES> 0
<INVENTORY> 238,549
<CURRENT-ASSETS> 1,106,975
<PP&E> 326,612 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,862,027
<CURRENT-LIABILITIES> 497,584
<BONDS> 344,343
0
0
<COMMON> 10,678
<OTHER-SE> 990,742
<TOTAL-LIABILITY-AND-EQUITY> 1,862,027
<SALES> 317,298
<TOTAL-REVENUES> 453,481
<CGS> 187,046
<TOTAL-COSTS> 259,567
<OTHER-EXPENSES> 49,622
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,429
<INCOME-PRETAX> 34,989
<INCOME-TAX> 9,400
<INCOME-CONTINUING> 25,589
<DISCONTINUED> 0
<EXTRAORDINARY> 9,535
<CHANGES> 0
<NET-INCOME> 35,124
<EPS-PRIMARY> .33
<EPS-DILUTED> .31
<FN>
<F1> Asset values for the interim period
represent net amounts.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE COMPANY'S FORM 10-K DATED
DECEMBER 29, 1995 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000094673
<NAME> STORAGE TECHNOLOGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1995
<PERIOD-END> DEC-29-1995
<CASH> 264,502
<SECURITIES> 0
<RECEIVABLES> 432,043
<ALLOWANCES> 14,665
<INVENTORY> 214,553
<CURRENT-ASSETS> 974,988
<PP&E> 860,868
<DEPRECIATION> 527,847
<TOTAL-ASSETS> 1,888,629
<CURRENT-LIABILITIES> 549,637
<BONDS> 363,963
0
0
<COMMON> 10,670
<OTHER-SE> 952,163
<TOTAL-LIABILITY-AND-EQUITY> 1,888,629
<SALES> 1,345,260
<TOTAL-REVENUES> 1,929,485
<CGS> 841,583
<TOTAL-COSTS> 1,217,622
<OTHER-EXPENSES> 399,482 <F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,347
<INCOME-PRETAX> (124,530)
<INCOME-TAX> 17,800
<INCOME-CONTINUING> (142,330)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (142,330)
<EPS-PRIMARY> (1.46)
<EPS-DILUTED> (1.46)
<FN>
<F1> Includes restructuring charges of $167,175,000,
litigation settlement of $30,680,000 and
merger expense of $14,352,000.
</FN>
</TABLE>
