-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, r6dQA1HgRiXhQ2kM2jJDL4ntbTTeYCOvGVPSNGguQFG+iAFaGNOiQxz5cmEtNKnb FRemH49+K2mPdGfcf4tdbA== 0000898430-94-000599.txt : 19940822 0000898430-94-000599.hdr.sgml : 19940822 ACCESSION NUMBER: 0000898430-94-000599 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19940701 FILED AS OF DATE: 19940815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICROPOLIS CORP CENTRAL INDEX KEY: 0000718865 STANDARD INDUSTRIAL CLASSIFICATION: 3572 IRS NUMBER: 953093858 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12046 FILM NUMBER: 94544003 BUSINESS ADDRESS: STREET 1: 21211 NORDHOFF ST CITY: CHATSWORTH STATE: CA ZIP: 91311 BUSINESS PHONE: 8187093300 MAIL ADDRESS: STREET 1: 21211 NORDHOFF STREET CITY: CHATSWORTH STATE: CA ZIP: 91311 10-Q 1 FORM 10-Q FORM 10-Q --------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ________________________________________ (Mark One) (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended July 1, 1994 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______________ to ______________ Commission File Number: 0-12046 MICROPOLIS CORPORATION ------------------------------------------------------ (Exact name of Registrant as specified in its charter) Delaware 95-3093858 - - ------------------------------- -------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 21211 Nordhoff Street, Chatsworth, California 91311 - - -------------------------------------------------------------------------------- (Address of principal executive offices) Zip Code Registrant's telephone number, including area code (818) 709-3300 ------------------------------ Not Applicable - - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since lastreport) Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months or for such shorter period that the Registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. August 5, 1994: 15,176,860 shares of Common Stock, $1.00 Par Value ------------------------------------------------------------------- MICROPOLIS CORPORATION ---------------------- TABLE OF CONTENTS -----------------
Page Number ----------- PART I. FINANCIAL INFORMATION Item 1 Financial Statements: Condensed Consolidated Balance Sheets at July 1, 1994 and December 31, 1993 2 Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended July 1, 1994 and June 25, 1993 3 Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 1, 1994 and June 25, 1993 4 Notes to Condensed Consolidated Financial Statements 5 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 6 PART II. OTHER INFORMATION Item 1 Legal Proceedings 9 Item 4 Submission of Matters to a Vote of Security Holders 9 Item 6 Exhibits and Reports on Form 8-K 10
-1- PART I - FINANCIAL INFORMATION ------------------------------- MICROPOLIS CORPORATION ---------------------- CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (In thousands, except share amounts)
July 1, December 31, 1994 1993 -------- -------- (Unaudited) ASSETS - - ------ Current assets: Cash, cash equivalents and $ 74,641 $ 86,782 short-term investments Accounts receivable, net 50,555 48,231 Inventories 39,003 59,677 Other current assets 4,458 4,389 -------- -------- Total current assets 168,657 199,079 Property, plant and equipment, at cost, less accumulated depreciation and amortization 45,524 48,480 Other assets 2,622 2,870 -------- -------- $216,803 $250,429 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY - - ------------------------------------ Current liabilities: Accounts payable $ 26,376 36,959 Other accrued liabilities 17,718 17,697 -------- -------- Total current liabilities 44,094 54,656 6% Convertible Subordinated Debentures 75,000 75,000 Deferred income taxes 2,417 2,417 Shareholders' equity: Preferred stock, $1.00 par value, 2,000,000 shares authorized, none issued - - Common stock, $1.00 par value, 50,000,000 shares authorized; 15,164,500 shares issued and outstanding (14,888,125 in 1993) 15,165 14,888 Additional paid-in capital 108,504 107,292 Accumulated deficit (28,377) (3,824) -------- -------- Total shareholders' equity 95,292 118,356 -------- -------- $216,803 $250,429 ======== ========
See accompanying notes. -2- MICROPOLIS CORPORATION ---------------------- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ----------------------------------------------- (In thousands, except per share amounts) (Unaudited)
Three Months Ended Six Months Ended ----------------------- ----------------------- July 1, June 25, July 1, June 25, 1994 1993 1994 1993 ---------- ---------- ---------- ---------- Net sales $ 75,761 $107,519 $159,419 $202,077 Cost of sales 68,516 89,678 139,878 163,270 -------- -------- -------- -------- Gross profit 7,245 17,841 19,541 38,807 -------- -------- -------- -------- Operating expenses: Research and development 10,577 8,649 20,878 16,422 Selling, general and administrative 10,691 10,694 21,675 21,508 Total operating expenses 21,268 19,343 42,553 37,930 -------- -------- -------- -------- Income (loss) from operations (14,023) (1,502) (23,012) 877 Interest expense (1,256) (1,275) (2,539) (2,556) Interest income 486 598 998 1,151 Other expense - (390) - (570) -------- -------- -------- -------- Loss before income taxes (14,793) (2,569) (24,553) (1,098) Credit for income taxes - ( 52) - (38) -------- -------- -------- -------- Net loss $(14,793) $ (2,517) $(24,553) $ (1,060) ======== ======== ======== ======== Loss per share $(.99) $(.17) $(1.64) $(.07) ======== ======== ======== ======== Weighted average common and common equivalent shares outstanding 14,949 14,842 14,929 14,816 ======== ======== ======== ========
See accompanying notes. -3- MICROPOLIS CORPORATION ---------------------- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (In thousands)
Six Months Ended ---------------------- July 1, June 25, 1994 1993 ---------- ---------- (Unaudited) Cash flows from operating activities: Net loss $(24,553) $ (1,060) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,911 12,727 Loss on disposal of equipment 3 21 Increase (decrease) from changes in: Accounts receivable (2,324) (9,546) Inventories 20,674 3,979 Other current assets (69) (1,432) Other assets 212 206 Accounts payable and other accrued liabilities (10,331) 15,629 -------- -------- Net cash provided by (used in) operating activities (4,477) 20,524 Cash flows from investing activities: Proceeds from sale of equipment 83 46 Additions to property, plant and equipment (9,005) (12,997) Net change in short-term investments 1,033 16,356 -------- -------- Net cash provided by (used in) investing activities (7,889) 3,405 Cash flows from financing activities: Payment on capital lease obligation (231) (267) Proceeds from sale of common stock, net 1,489 1,554 -------- -------- Net cash provided by financing activities 1,258 1,287 Net increase (decrease) in cash and equivalents (11,108) 25,216 Cash and equivalents at beginning of period 49,100 47,394 -------- -------- Cash and equivalents at end of period 37,992 72,610 Short-term investments 36,649 23,152 -------- -------- Total cash, cash equivalents, and short-term investments $ 74,641 $ 95,762 ======== ======== Supplemental cash flow information: Interest payments $ 2,504 $ 2,524 Tax payments 2,966 400
See accompanying notes. -4- MICROPOLIS CORPORATION ---------------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- JULY 1, 1994 ------------ (Unaudited) NOTE 1. General - - ----------------- The accompanying condensed consolidated financial statements have not been audited by independent auditors but, in the opinion of the Company, such unaudited statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the consolidated financial position as of July 1,1994 and the consolidated results of operations for the three and six-month periods ended July 1, 1994 and June 25, 1993 and cash flows for the six-month periods ended July 1, 1994 and June 25, 1993. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Nevertheless, the Company believes that the disclosures in these financial statements are adequate to make the information presented not misleading. Interim results are not indicative of the results for the full fiscal year. These condensed consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1993 filed with the Securities and Exchange Commission. NOTE 2. Inventories - - -------------------- Inventories are stated at the lower of standard cost, which approximates first-in, first-out, or market:
July 1, December 25, 1994 1993 ------- ------------ Raw materials and purchased parts $15,476 $18,776 Work in process 12,879 22,245 Finished goods 10,648 18,656 ------- ------- $39,003 $59,677 ======= =======
NOTE 3. Per Share Information - - ------------------------------ Loss per share is computed by dividing net loss by the weighted average number of shares of common stock and applicable common stock equivalents outstanding during the period. Primary and fully diluted earnings per share are the same. -5- MICROPOLIS CORPORATION ---------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF --------------------------------------- FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- RESULTS OF OPERATIONS - - --------------------- Three Months Ended July 1, 1994 Compared to Three Months Ended June 25, - - ----------------------------------------------------------------------- 1993 - - ---- Net sales decreased 29.5% to $75.8 million in 1994 as compared to $107.5 million in 1993. The decrease in revenues was primarily attributable to a decrease in shipments of 5 1/4-inch drives with capacities of 2.4 gigabytes (GB) and below, offset in part by an increase in shipments of the Company's 3 1/2-inch drives. Limited availability of certain components contributed to the decline in unit volumes of certain 5 1/4-inch drives during the second quarter of 1994. OEM revenues declined by 67% in 1994 as compared to 1993 while sales made by the Storage Systems Division increased by approximately 24%. The decline in OEM sales is principally due to the continued decrease in shipments of the Company's 5 1/4-inch drives. The Company's largest customer in the second quarter of 1993 accounted for 17% of that quarter's sales. Sales to that customer declined significantly during the third quarter of 1993. The increase in the Storage Systems Division sales was attributable to high capacity 3 1/2-inch drives and storage subsystems products. Backlog as of July 1, 1994 was $30.7 million as compared to $57.2 million at June 26, 1993. The decline in backlog is attributable to a decline in orders for the older 5 1/4-inch drives with rotational speeds of 3600 rpm. Cost of sales as a percent of sales increased to 90.4% in 1994 from 83.4% in 1993 resulting in a gross margin of 9.6% as compared to 16.6% in 1993. The decrease in margin was the result of a larger mix of lower margin 3 1/2-inch drives versus high margin 5 1/4-inch drives and significant price erosion in the 3 1/2-inch products. Research and development expenses increased to 14.0% of sales in 1994 as compared to 8.0% in 1993. The percentage increase is the result of lower sales and an increase in spending of $1.9 million. The increase in spending was a result of research and development on the Company's high capacity 3 1/2-inch drives, greater than 3.6 GB 5 1/4-inch drives, subsystem products and research and development on new disk substrates performed at Tulip Memory Systems. Selling, general and administrative expenses were 14.1% of sales in 1994 as compared to 9.9% in 1993. The percentage increase is primarily the result of lower sales. Interest expense was $1.3 million in 1994 (1.7% of sales) which is comparable to the same period a year ago. Interest income was $486,000 as compared to $598,000 in 1993 as a result of lower cash balances. As a result of the above, loss before income taxes was $14.8 million in 1994 as compared to a loss of $2.6 million in 1993. The Company's income tax provision benefits from the tax holiday afforded the Company's Singapore operation, which will remain in effect through August 1999. The tax holiday afforded the Company's Thailand operation expired December 1993. The effect on net income and earnings per share of the income tax exemptions in Singapore and Thailand as compared to income taxes at the maximum statutory rates were approximately $933,000 and $.06 and $1.9 million and $.13 for the second quarter of 1994 and 1993, respectively. The expiration of the tax holiday in Thailand has not had a material effect on the results of operations in 1994. Net loss for 1994 was $14.8 million compared to net loss of $2.5 million in 1993. -6- In addition to the Company's core high-capacity drive business, the Company expects to continue to invest in engineering and sales and marketing for several new value-added subsystem products which began to generate limited revenue during the second quarter of 1994. In the near term, however, the Company's core drive business is operating in very competitive market segments. The Company expects that this, together with the current level of operating expenses which are required to develop and support the new drive and subsystem products, will result in a continued loss in the third quarter. The amount of the loss will be dependent upon the successful ramp of production in the above mentioned new disk drive and subsystem products, among other factors. Six Months Ended July 1, 1994 Compared to Six Months Ended June 25, - - ------------------------------------------------------------------- 1993 - - ---- Net sales decreased 21.1% to $159.4 million in 1994 as compared to $202.1 million in 1993. The decrease in revenues was primarily attributable to a decrease in shipments of 5 1/4-inch drives with capacities of 2.4 gigabytes and below, offset in part by an increase in shipments of the Company's 3 1/2-inch drives. OEM revenues declined by 61% in 1994 as compared to 1993 while sales made by Storage Systems Division increased by approximately 28%. The decline in OEM sales is principally due to the continued decrease in shipments of the Company's 5 1/4-inch drives. The increase in Storage Systems Division sales was attributable to high capacity 3 1/2-inch drives and storage subsystems products. Overall bookings for the first six months of 1994 decreased by 30% from those in 1993 principally due to a decline in orders for the older 5 1/4-inch drives with rotational speeds of 3600 rpm. Cost of sales as a percent of sales increased to 87.7% in 1994 from 80.8% in 1993 resulting in a gross margin of 12.3% as compared to 19.2% in 1993. The decrease in margin was the result of a larger mix of lower margin 3 1/2-inch drives versus high margin 5 1/4-inch drives. Research and development expenses increased to 13.1% of sales in 1994 as compared to 8.1% in 1993. The percentage increase is the result of lower sales and an increase in spending of $4.5 million. The increase in spending was a result of research and development on the Company's high capacity 3 1/2-inch drives, greater than 3.6 GB 5 1/4-inch drives, subsystem products and research and development on new disk substrates performed at Tulip Memory Systems. Selling, general and administrative expenses were 13.6% of sales in 1994 as compared to 10.6% in 1993. The percentage increase is primarily the result of lower sales. Interest expense was $2.5 million in 1994 (1.6% of sales) which is comparable to the same period a year ago. Interest income was $998,000 as compared to $1.2 million in 1993 as a result of lower cash balances. As a result of the above, loss before income taxes was $24.6 million in 1994 as compared to $1.1 million in 1993. The Company's income tax provision benefits from the tax holiday afforded the Company's Singapore operation, which will remain in effect through August 1999. The tax holiday afforded the Company's Thailand operation expired December 1993. The effect on net income and earnings per share of the income tax exemptions in Singapore and Thailand as compared to income taxes at the maximum statutory rates were approximately $2.0 million and $.13 and $4.3 million and $.30 for the first six months of 1994 and 1993, respectively. The expiration of the tax holiday in Thailand has not had a material effect on the results of operations in 1994. Net loss for 1994 was $24.6 million compared to a net loss of $1.1 million in 1993. -7- Liquidity and Capital Resources - - ------------------------------- Cash, cash equivalents and short-term investments decreased to $74.6 million as of July 1, 1994 from $86.8 million as of December 31, 1993. Net cash used in operations of $4.5 million includes a reduction in inventories of $20.7 million due principally to decreased work in process and finished goods inventory levels. Accounts payable and other accrued liabilities decreased by $10.3 million from the fourth quarter of 1993 due to decreased inventory receipts and due to an income tax payment made during the second quarter of 1994. The income tax payment was made as a result of an examination by the Internal Revenue Service for tax years 1986 through 1990. The amount of the payment (approximately $3 million), had no impact on current operations. The Company's capital expenditures in the first half of 1994 were $9.0 million as compared to $10.6 million in 1993. Capital expenditures related primarily to equipment and tooling to support the 3 1/2-inch form factor. The Company currently anticipates that its 1994 capital spending will be slightly lower than 1993 and will be principally for equipment and tooling required for the Company's new products. The Company has a $33 million credit facility. The availability under the facility is a function of the level of eligible receivables and borrowings which are secured by substantially all of the Company's assets. The amount available under the facility as of July 1, 1994 was $18.2 million (of which $3 million is reserved for an outstanding standby letter of credit). The Company believes that cash on hand, internally generated funds and the credit facility will provide sufficient capital resources to finance operations, fund planned capital expenditures and pay interest on outstanding debt for the next twelve months. -8- PART II - OTHER INFORMATION ---------------------------- MICROPOLIS CORPORATION ---------------------- Item 1. Legal Proceedings ----------------- During the second quarter of 1994, the Company settled the appeal of a single shareholder who had appealed the previous settlement of a class action lawsuit filed on January 30, 1989 against the Company and certain of its executive officers and directors. The settlement had no material effect on the Company's financial position or the results of operations. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- a) The Annual Meeting of Stockholders of Micropolis Corporation was held on April 27, 1994. b) Matters voted on at the meeting and votes cast on each matter were as follows: . The stockholders voted to re-elect the four encumbant directors as follows:
Nominee For Withhold ------- --- -------- Stuart Mabon 10,562,808 72,133 Ericson M. Dunstan 10,562,917 72,024 J. Burgess Jamieson 10,562,917 72,024 Theodore Smith 10,562,917 72,024
There were no broker non-votes in the election of directors. . The shareholders approved an amendment to the Micropolis Corporation Employee Stock Purchase Plan to increase the number of shares of Common Stock authorized for issuance thereunder from 600,000 to 1,400,000.
Broker For Against Abstain non-votes --- ------- -------- --------- 5,279,561 1,682,483 218,263 3,454,634
. The shareholders approved the grant of additional options to three directors of the Company in April 1993 under the Stock Option Plan for Directors of Micropolis Corporation.
Broker For Against Abstain non-votes --- ------- -------- --------- 6,384,337 564,667 215,285 3,470,652
. The shareholders approved an amendment to the Stock Option Plan for Directors of Micropolis Corporation to increase the number of shares of Common Stock authorized for issuance thereunder from 200,000 to 300,000 and provide for the automatic granting of future options under this plan.
Broker For Against Abstain non-votes --- ------- -------- --------- 6,561,975 379,629 222,685 3,470,652
-9- . The shareholders approved an amendment to the Stock Option Plan for Executive and Key Employees of Micropolis Corporation to increase the number of shares authorized for issuance thereunder from 2,000,000 to 2,400,000, and to make directors who are employees of the Company eligible to receive options under this plan. Broker For Against Abstain non-votes --- ------- ------- --------- 4,523,216 2,438,458 218,663 3,454,604 Item 6. Exhibits and Reports on Form 8-K -------------------------------- a) Exhibits -------- 10.44 *Amendment to the Micropolis Corporation Employee Stock Purchase Plan. 10.45 *Amended and Restated Stock Option Plan for Independent Directors of Micropolis Corporation. 10.46 *Stock Option Plan for Executive and Key Employees of Micropolis Corporation, as amended. *Management contract or compensatory plan or arrangement required to be filed as an Exhibit to the Form 10-Q Report pursuant to Item 6 (a). b) Reports on Form 8-K ------------------- No report on Form 8-K has been filed during the quarter for which this report is filed. -10- SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on August 12, 1994. MICROPOLIS CORPORATION By s/Stuart P. Mabon ----------------------------------- Stuart P. Mabon Chairman of the Board, President and Chief Executive Officer By s/Dale J. Bartos ----------------------------------- Dale J. Bartos Senior Vice President - Finance and Chief Financial Officer -11- EX-10.44 2 AMD EMP STK PUR PLAN EXHIBIT 10.44 AMENDMENT TO THE MICROPOLIS CORPORATION EMPLOYEE STOCK PURCHASE PLAN Section 3 of the Micropolis Corporation Employee Stock Purchase Plan is hereby amended by substituting the following for the language in Subsection 3 in its entirety. "Subject to the provisions of Paragraph 11 (relating to adjustment upon changes in stock), the stock which may be sold pursuant to options granted under the Plan shall not exceed in the aggregate 1,400,000 shares of the authorized no par value Common Stock of the Company (the "Stock")." EX-10.45 3 AMD & REST STK OPT PLAN Exhibit 10.45 AMENDED AND RESTATED STOCK OPTION PLAN FOR INDEPENDENT DIRECTORS OF MICROPOLIS CORPORATION Micropolis Corporation, a corporation organized under the laws of the State of Delaware, in order to amend its existing Stock Option Plan for Directors, hereby adopts this Amended and Restated Stock Option Plan for Independent Directors of Micropolis Corporation. The purposes of this Plan are as follows: (1) To further the growth, development and financial success of the Company by providing additional incentives to its independent Directors who have a major share of the responsibility for the management of the Company's business by assisting them to become owners of common stock of the Company and thus to benefit directly from its growth, development and financial success. (2) To enable the Company to obtain and retain the services of the type of independent directors considered essential to the long-range success of the Company by providing and offering them an opportunity to become owners of common stock of the Company. RECITALS -------- A. In October 1987 the Board of Directors of the Company adopted and approved a Stock Option Plan for Directors of the Company, which Plan was approved by the stockholders of the Company in April 1988. As amended, with the approval of the stockholders of the Company, the Plan now covers 200,000 shares of common stock of the Company; options for 115,000 shares are presently outstanding, approved by stockholders and covered by presently available shares under the Plan; and 25,000 shares have been issued upon exercise of options under the Plan. Upon approval by stockholders of (i) the addition of 100,000 shares under the Plan, and (ii) options covering an additional 90,000 shares (granted by the Board on April 28, 1993, subject to stockholder approval), options covering 205,000 shares will be outstanding and 70,000 shares would be available for future option grant. The Plan now provides that all option grants are subject to stockholder approval and all directors of the Company are eligible for option grants under the Plan. B. The Board of Directors deems it desirable and in the best interests of the Company and its stockholders to provide for the automatic granting of future options under the Plan, to increase the number of shares available for the granting of options under the Plan from 200,000 to 300,000, and to permit the grant of options under the Plan only to directors who are not employees of the Company, all upon the terms and conditions set forth herein and subject to the approval of such amendments by the stockholders of the Company at the 1994 annual meeting of stockholders. ARTICLE I DEFINITIONS ----------- Whenever the following terms are used in this Plan, they shall have the meaning specified below unless the context clearly indicates to the contrary. The masculine pronoun shall include the feminine and neuter and the singular shall include the plural, where the context so indicates. Section 1.1 - Board - - ----------- ----- "Board" shall mean the Board of Directors of the Company. Section 1.2 - Company - - ----------- ------- "Company" shall mean Micropolis Corporation. In addition, "Company" shall mean any corporation assuming, or issuing new stock options in substitution for, Options outstanding under the Plan. Section 1.3 - Director - - ----------- -------- "Director" shall mean a member of the Board who is not an employee of the Company or of any "affiliate" of the Company as that term is defined by Regulation 405 under the Securities Act. Section 1.4 - Exchange Act - - ----------- ------------ "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. Section 1.5 - Option - - ----------- ------ "Option" shall mean an option to purchase common stock of the Company, granted under the Plan. Section 1.6 - Optionee - - ----------- -------- "Optionee" shall mean a Director to whom an Option is granted under the Plan. Section 1.7 - Parent Corporation - - ----------- ------------------ "Parent Corporation" shall mean any corporation in an unbroken chain of corporations ending with the Company if each of the corporations other than the Company then owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. Section 1.8 - Plan - - ----------- ---- "Plan" shall mean the Amended and Restated Stock Option Plan for Independent Directors of Micropolis Corporation and, unless the context requires otherwise, the Stock Option Plan for Directors of Micropolis Corporation, as in effect on October 5, 1993. Section 1.9 - Rule 16b-3 - - ----------- ---------- "Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act as such Rule may be amended in the future. Section 1.10 - Secretary - - ------------ --------- "Secretary" shall mean the Secretary of the Company. Section 1.11 - Securities Act - - ------------ -------------- "Securities Act" shall mean the Securities Act of 1933, as amended. Section 1.12 - Termination of Directorship - - ------------ --------------------------- "Termination of Directorship" shall mean the time when Optionee ceases to be a director of the Company or any Parent Corporation for any reason, including, but not by way of limitation, a termination by resignation, failure to be elected, death or retirement. The Board, in its absolute discretion, shall determine the effect of all other matters and questions relating to Termination of Directorship. ARTICLE II SHARES SUBJECT TO PLAN ---------------------- Section 2.1 - Shares Subject to Plan - - ----------- ---------------------- The shares of stock subject to Options shall be shares of the Company's $1.00 par value Common Stock (the "Common Stock"). The aggregate number of such shares which may be issued upon exercise of Options shall not exceed 300,000. Section 2.2 - Unexercised Options - - ----------- ------------------- If any Option expires or is cancelled without having been fully exercised, the number of shares subject to such Option but as to which such Option was not exercised prior to its expiration or cancellation may again be optioned hereunder, subject to the limitations of Section 2.1. Section 2.3 - Changes in Company's Shares - - ----------- --------------------------- In the event that the outstanding shares of Common Stock of the Company are hereafter changed into or exchanged for a different number or kind of shares or other securities of the Company, or of another corporation, by reason of reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, stock dividend or combination of shares, appropriate adjustments shall be made by the Board in the number and kind of shares for the purchase of which Options may be granted, including adjustments of the limitations in Section 2.1 on the maximum number and kind of shares which may be issued on exercise of Options. ARTICLE III GRANTING OF OPTIONS ------------------- Section 3.1 - Eligibility - - ----------- ----------- Each Director of the Company or of any corporation which is then a Parent Corporation shall be eligible to receive Options at the times and in the manner set forth in Section 3.3. Section 3.2 - Tax Status of Stock Options - - ----------- --------------------------- Options granted under the Plan do not qualify as "incentive stock options" under Section 422 of the Internal Revenue Code of 1986. Section 3.3 - Granting of Options - - ----------- ------------------- Each person who then is reelected or continuing as a Director automatically shall be granted an Option to purchase 5,000 shares of Common Stock (subject to adjustment as provided in Section 2.3) at the close of business on the date of each annual meeting of the stockholders of the Company, subject to stockholder approval of the material amendments to the Plan (as set forth in Recital B) at the 1994 annual meeting of stockholders. In addition, subject to such stockholder approval, when a person is initially elected to the Board, at an annual meeting of stockholders or at any other time, each such new Director automatically shall be granted an Option to purchase 20,000 shares of Common Stock (subject to adjustment as provided in Section 2.3) at the close of business on the date of his or her election to the Board. ARTICLE IV TERMS OF OPTIONS ---------------- Section 4.1 - Option Agreement - - ----------- ---------------- Each Option shall be evidenced by a written Stock Option Agreement, which shall be executed by the Optionee and an authorized officer of the Company and which shall contain such terms and conditions as the Board shall determine, consistent with the Plan. Section 4.2 - Option Price - - ----------- ------------ (a) The price of the shares of Common Stock subject to each Option shall be equal to 100% of the fair market value of such shares on the date such Option is granted. (b) For purposes of the Plan, the fair market value of a share of the Common Stock as of a given grant date shall be: (i) the closing price of a share of the Common Stock on the principal exchange on which shares of the Common Stock are then trading, if any, on the day immediately preceding such grant date, or, if shares were not traded on the day immediately preceding such grant date, then on the next preceding trading day during which a sale occurred; or (ii) if the Common Stock is not traded on an exchange but is quoted on NASDAQ or a successor quotation system, (1) the last sales price (if the Common Stock is then listed as a National Market Issue under the NASD National Market System) or (2) the mean between the closing representative bid and asked prices (in all other cases) for the Common Stock on the day immediately preceding such grant date as reported by NASDAQ or such successor quotation system; or (iii) if the Common Stock is not publicly traded on an exchange and not quoted on NASDAQ or a successor quotation system, the mean between the closing bid and asked prices for the Common Stock, on the day immediately preceding such grant date, as determined in good faith by the Board; or (iv) if the Common Stock is not publicly traded, the fair market value established by the Board acting in good faith. Section 4.3 - Commencement of Exercisability - - ----------- ------------------------------ (a) No Option may be exercised in whole or in part during the first year after such Option is granted. (b) Options shall become exercisable in cumulative annual installments of 33 1/3% of the number of shares covered by the Option on each of the first, second and third anniversaries of the date of Option grant. The term of each Option shall be five years. (c) No portion of an Option which is unexercisable at Termination of Directorship shall thereafter become exercisable. Section 4.4 - Expiration of Options - - ----------- --------------------- No Option may be exercised to any extent by anyone after the first to occur of the following events: (i) The expiration of five years from the date the Option was granted; or (ii) The expiration of three months from the date of the Optionee's Termination of Directorship for any reason other than such Optionee's death unless the Optionee dies within said three-month period; or (iii) The expiration of one year from the date of the Optionee's death. Section 4.5 - Consideration - - ----------- ------------- In consideration of the granting of the Option, the Optionee shall agree, in the written Stock Option Agreement, to serve as a Director of the Company until the next annual meeting of the stockholders of the Company or a Parent Corporation. Nothing in this Plan or in any Stock Option Agreement hereunder shall confer upon any Optionee any right to continue as a Director of the Company or any Parent Corporation. Section 4.6 - Adjustments in Outstanding Options - - ----------- ---------------------------------- In the event that the outstanding shares of the stock subject to Options are changed into or exchanged for a different number or kind of shares of the Company or other securities of the Company by reason of merger, consolidation, recapitalization, reclassification, stock split-up, stock dividend or combination of shares, the Board shall make an appropriate and equitable adjustment in the number and kind of shares as to which all outstanding Options, or portions thereof then unexercised, shall be exercisable, to the end that after such event the Optionee's proportionate interest shall be maintained as before the occurrence of such event. Such adjustment in an outstanding Option shall be made without change in the total price applicable to the Option or the unexercised portion of the Option (except for any change in the aggregate price resulting from rounding-off of share quantities or prices) and with any necessary corresponding adjustment in Option price per share. Any such adjustment made by the Board shall be final and binding upon all Optionees, the Company and all other interested persons. Section 4.7 - Merger, Consolidation, Acquisition, Liquidation or Dissolution - - ----------- -------------------------------------------------------------- In its absolute discretion, and on such terms and conditions as it deems appropriate, the Board may provide by the terms of any Option that such Option cannot be exercised after the merger or consolidation of the Company with or into another corporation, the acquisition by another corporation or person of all or substantially all of the Company's assets or 80% or more of the Company's then outstanding voting stock or the liquidation or dissolution of the Company; and if the Board so provides, it may, in its absolute discretion and on such terms and conditions as it deems appropriate, also provide, either by the terms of such Option or by a resolution adopted prior to the occurrence of such merger, consolidation, acquisition, liquidation or dissolution, that, for some period of time prior to such event, such Option shall be exercisable as to all shares covered thereby, notwithstanding anything to the contrary in Section 4.3(a) or Section 4.3(b). ARTICLE V EXERCISE OF OPTIONS ------------------- Section 5.1 - Person Eligible to Exercise - - ----------- --------------------------- During the lifetime of the Optionee, only he may exercise an Option granted to him, or any portion thereof. After the death of the Optionee, any exercisable portion of an Option may, prior to the time when such portion becomes unexercisable under Section 4.4 or Section 4.7, be exercised by his personal representative or by any person empowered to do so under the deceased Optionee's will or under the then applicable laws of descent and distribution. Section 5.2 - Partial Exercise - - ----------- ---------------- At any time and from time to time prior to the time when an exercisable Option or exercisable portion thereof become unexercisable under Section 4.4 or Section 4.7, such Option or portion thereof may be exercised in whole or in part; provided, however, that the Company shall not be required to issue fractional shares. Section 5.3 - Manner of Exercise - - ----------- ------------------ An exercisable Option, or any exercisable portion thereof, may be exercised solely by delivery to the Secretary or his office of all of the following prior to the time when such Option or such portion becomes unexercisable under Section 4.4 or Section 4.7: (a) Notice in writing signed by the Optionee or other person then entitled to exercise such Option or portion, stating that such Option or portion is exercised, such notice complying with any applicable rules established by the Board; and (b) Full payment (in cash or by check) for the shares with respect to which such Option or portion is thereby exercised; and (c) Such representations and documents as the Board, in its absolute discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act and any other federal or state securities laws or regulations. The Board may, in its absolute discretion, also take whatever additional actions it deems appropriate to effect such compliance including, without limitation, placing legends on share certificates and issuing stop-transfer orders to transfer agents and registrars; and (d) In the event that the Option or portion thereof shall be exercised pursuant to Section 5.1 by any person or persons other than the Optionee, appropriate proof of the right of such person or persons to exercise the Option or portion thereof. Section 5.4 - Conditions to Issuance of Stock Certificates - - ----------- -------------------------------------------- The shares of stock issuable and deliverable upon the exercise of an Option, or any portion thereof, may be either previously authorized but unissued shares or issued shares which have then been reacquired by the Company. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock purchased upon the exercise of any Option or portion thereof prior to fulfillment of all of the following conditions: (a) The admission of such shares to listing on all stock exchanges on which such class of stock is then listed; and (b) The completion of any registration or other qualification of such shares under any state or federal law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the Board shall, in its absolute discretion, deem necessary or advisable; and (c) The obtaining of any approval or other clearance from any state or federal governmental agency which the Board shall, in its absolute discretion, determine to be necessary or advisable; and (d) The payment to the Company of all amounts which it is required to withhold, if any, under federal, state or local law in connection with the exercise of the Option; and (e) The lapse of such reasonable period of time following the exercise of the Option as the Board may establish from time to time for reasons of administrative convenience. Section 5.5 - Rights as Stockholders - - ----------- ---------------------- The holders of Options shall not be, nor have any of the rights or privileges of, stockholders of the Company in respect of any shares purchasable upon the exercise of any part of an Option unless and until certificates representing such shares have been issued by the Company to such holders. ARTICLE VI ADMINISTRATION -------------- Section 6.1 - Duties and Powers of the Board - - ----------- ------------------------------ It shall be the duty of the Board to conduct the general administration of the Plan in accordance with its provisions. The Board shall have the power to interpret the Plan and the Options and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. Section 6.2 - Majority Rule - - ----------- ------------- The Board shall act by a majority of its members in office. The Board may act either by vote at a meeting or by a memorandum or other written instrument signed by a majority of the Board. Section 6.3 - Compensation; Professional Assistance; Good Faith Actions - - ----------- --------------------------------------------------------- Members of the Board shall receive no additional compensation for their services under the Plan. All expenses and liabilities incurred by members of the Board in connection with the administration of the Plan shall be borne by the Company. The Board may employ attorneys, consultants, accountants, appraisers, brokers or other persons. The Board and the Company shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Board in good faith shall be final and binding upon all Optionees, the Company and all other interested persons. No member of the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Options, and all members of the Board shall be fully protected by the Company in respect to any such action, determination or interpretation. ARTICLE VII OTHER PROVISIONS ---------------- Section 7.1 - Options Not Transferable - - ----------- ------------------------ No Option or interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Optionee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that nothing in this Section 7.1 shall prevent transfers by will or by the applicable laws of descent and distribution. Section 7.2 - Amendment, Suspension or Termination of the Plan - - ---------- ------------------------------------------------ (a) The Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board. However, without approval of the Company's stockholders given within 12 months before or after the action by the Board, no action of the Board may, except as provided in Section 2.3, increase the limit imposed in Section 2.1 on the maximum number of shares which may be issued on exercise of Options, modify the eligibility requirements of Section 3.1, reduce the Option price requirements of Section 4.2(a), change the exercisability provisions of Section 4.3 or extend the limit imposed in Section 7.2(d) on the period during which Options may be granted. Neither the amendment, suspension nor termination of the Plan shall, without the consent of the holder of the Option, alter or impair any rights or obligations under any Option theretofore granted. Notwithstanding the foregoing, the Plan shall not be amended more than once every six months other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act or the rules thereunder. (b) The Plan is intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder, including without limitation Rule 16b-3. Notwithstanding anything herein to the contrary, the Plan shall be administered, and Options shall be granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and Options granted hereunder shall be deemed amended to the extent necessary to conform to such laws, rules and regulations. (c) All adjustments in the number and kind of shares covered by the Plan and outstanding Options thereunder, and in the exercise price of outstanding Options, shall be made if, and in the same manner as, such adjustments are made to the Company's Stock Option Plan for Executive and Key Employees, or any successor to said plan, and to non-qualified stock options outstanding under said plan or successor plan. (d) No Option may be granted during any period of suspension nor after termination of the Plan, and in no event may any Option be granted under the Plan after October 28, 1997. Section 7.3 - Approval of Plan Amendments by Stockholders - - ----------- ------------------------------------------- The material amendments to the Plan (as set forth in Recital B) will be submitted for the approval of the Company's stockholders at the 1994 annual meeting of stockholders. If such approval is not obtained, such amendments to the Plan shall have no force or effect. Options may be granted prior to such stockholder approval, subject to such stockholder approval. Any Options so granted shall provide that if such approval is not obtained, the Options shall be void and of no further force or effect. Section 7.4 - Effect of Plan Upon Other Option and Compensation Plans - - ----------- ------------------------------------------------------- The adoption of this Plan shall not affect any other compensation or incentive plans in effect for Directors of the Company. Nothing in this Plan shall be construed to limit the right of the Company to grant or assume options otherwise than under this Plan in connection with any proper corporate purpose, including, but not by way of limitation, the grant or assumption of options in connection with the acquisition by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, firm or association. Neither the adoption of this Plan by the Board on October 6, 1993 nor its subsequent approval by the Company's stockholders shall have any effect upon previously granted Options or the terms of the written grant of such Options. Section 7.5 - Titles - - ----------- ------ Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Plan. EX-10.46 4 STK OPT PLAN FOR EXEC Exhibit 10.46 STOCK OPTION PLAN FOR EXECUTIVE AND KEY EMPLOYEES OF MICROPOLIS CORPORATION Micropolis Corporation, a corporation organized under the laws of the State of Delaware, has previously adopted this Stock Option Plan for Executive and Key Employees of Micropolis Corporation, and wishes to amend the Plan to provide for the granting of options hereunder to directors of the Company who are also employees and to make certain other minor changes to the Plan which are deemed desirable. The purposes of this Plan are as follows: (1) To further the growth, development and financial success of the Company by providing additional incentives to certain of its executive and other key Employees who have been or will be given responsibility for the management or administration of the Company's business affairs, by assisting them to become owners of the Company's Common Stock and thus to benefit directly from its growth, development and financial success. (2) To enable the Company to obtain and retain the services of the type of professional, technical and managerial employees considered essential to the long-range success of the Company by providing and offering them an opportunity to become owners of the Company's Common Stock under options, including options that are intended to qualify as "incentive stock options" under Section 422 of the Code. ARTICLE I DEFINITIONS ----------- Whenever the following terms are used in this Plan, they shall have the meaning specified below unless the context clearly indicates to the contrary. The masculine pronoun shall include the feminine and neuter and the singular shall include the plural, where the context so indicates. Section 1.1 - Board - - ----------- ----- "Board" shall mean the Board of Directors of the Company. Section 1.2 - Code - - ----------- ---- "Code" shall mean the Internal Revenue Code of 1986, as amended. Section 1.3 - Committee - - ----------- --------- "Committee" shall mean the Compensation Committee of the Board, appointed as provided in Section 6.1. Section 1.4 - Company - - ----------- ------- "Company" shall mean Micropolis Corporation. In addition, "Company" shall mean any corporation assuming, or issuing new employee stock options in substitution for, Incentive Stock Options, outstanding under the Plan, in a transaction to which Section 424(a) of the Code applies. Section 1.5 - Director - - ----------- -------- "Director" shall mean a member of the Board. Section 1.6 - Employee - - ----------- -------- "Employee" shall mean any employee (as defined in accordance with the regulations and revenue rulings then applicable under Section 3401(c) of the Code) of the Company, or of any corporation which is then a Parent Corporation or a Subsidiary, whether such employee is so employed at the time this Plan is adopted or becomes so employed subsequent to the adoption of this Plan. Section 1.7 - Exchange Act - - ----------- ------------ "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. Section 1.8 - Incentive Stock Option - - ----------- ---------------------- "Incentive Stock Option" shall mean an Option which qualifies under Section 422 of the Code and which is designated as an Incentive Stock Option by the Committee. Section 1.9 - Non-Qualified Option - - ----------- -------------------- "Non-Qualified Option" shall mean an Option which is not an Incentive Stock Option and which is designated as a Non-Qualified Option by the Committee. Section 1.10 - Officer - - ------------ ------- "Officer" shall mean an officer of the Company, as defined in Rule 16a-1(f) under the Exchange Act, as such Rule may be amended in the future. Section 1.11 - Option - - ------------ ------ "Option" shall mean an option to purchase Common Stock of the Company, granted under the Plan. "Options" includes both Incentive Stock Options and Non-Qualified Options. Section 1.12 - Optionee - - ------------ -------- "Optionee" shall mean an Employee to whom an Option is granted under the Plan. Section 1.13 - Parent Corporation - - ------------ ------------------ "Parent Corporation" shall mean any corporation in an unbroken chain of corporations ending with the Company if each of the corporations other than the Company then owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. Section 1.14 - Plan - - ------------ ---- "Plan" shall mean this Stock Option Plan for Executive and Key Employees of Micropolis Corporation. Section 1.15 - Rule 16b-3 - - ------------ ---------- "Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act, as such Rule may be amended in the future. Section 1.16 - Secretary - - ------------ --------- "Secretary" shall mean the Secretary of the Company. Section 1.17 - Securities Act - - ------------ -------------- "Securities Act" shall mean the Securities Act of 1933, as amended. Section 1.18 - Subsidiary - - ------------ ---------- "Subsidiary" shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. Section 1.19 - Termination of Employment - - ------------ ------------------------- "Termination of Employment" shall mean the time when the employee-employer relationship between the Optionee and the Company, a Parent Corporation or a Subsidiary is terminated for any reason, with or without cause, including, but not by way of limitation, a termination by resignation, discharge, death or retirement, but excluding terminations where there is a simultaneous reemployment by the Company, a Parent Corporation or a Subsidiary. The Committee, in its absolute discretion, shall determine the effect of all other matters and questions relating to Termination of Employment, including, but not by way of limitation, the question of whether a Termination of Employment resulted from a discharge for good cause, and all questions of whether particular leaves of absence constitute Terminations of Employment; provided, however, that, with respect to Incentive Stock Options, a leave of absence shall constitute a Termination of Employment if, and to the extent that, such leave of absence interrupts employment for the purposes of Section 422(a)(2) of the Code and the then applicable regulations and revenue rulings under said Section. ARTICLE II SHARES SUBJECT TO PLAN ---------------------- Section 2.1 - Shares Subject to Plan - - ----------- ---------------------- The shares of stock subject to Options shall be shares of the Company's $1.00 par value Common Stock. The aggregate number of such shares which may be issued upon exercise of Options shall not exceed 2,400,000. Section 2.2 - Unexercised Options - - ----------- ------------------- If any Option expires or is cancelled without having been fully exercised, the number of shares subject to such Option but as to which such Option was not exercised prior to its expiration or cancellation may again be optioned hereunder, subject to the limitations of Section 2.1. Section 2.3 - Changes in Company's Shares - - ----------- --------------------------- In the event that the outstanding shares of Common Stock of the Company are hereafter changed into or exchanged for a different number or kind of shares or other securities of the Company, or of another corporation, by reason of reorganization, merger, consolidation, recapitalization, reclassification, stock split-up, stock dividend or combination of shares, appropriate adjustments shall be made by the Committee in the number and kind of shares for the purchase of which Options may be granted, including adjustments of the limitations in Section 2.1 on the maximum number and kind of shares which may be issued on exercise of Options. ARTICLE III GRANTING OF OPTIONS ------------------- Section 3.1 - Eligibility - - ----------- ----------- Any executive or other key Employee of the Company or of any corporation which is then a Parent Corporation or a Subsidiary shall be eligible to be granted Options, except as provided in Section 3.2. Section 3.2 - Qualification of Incentive Stock Options - - ----------- ---------------------------------------- No Incentive Stock Option shall be granted unless such Option, when granted, qualifies as an "incentive stock option" under Section 422 of the Code. Section 3.3 - Granting of Options - - ----------- ------------------- (a) The Committee shall from time to time, in its absolute discretion: (i) Determine which Employees are executive or other key Employees and select from among the executive or other key Employees (including those to whom Options have been previously granted under the Plan) such of them as in its opinion should be granted Options; and (ii) Determine the number of shares to be subject to such Options granted to such selected executive or other key Employees, and determine whether such Options are to be Incentive Stock Options or Non-Qualified Options; and (iii) Determine the terms and conditions of such Options, consistent with the Plan. (b) Upon the selection of an executive or other key Employee to be granted an Option, the Committee shall instruct the Secretary to issue such Option and may impose such conditions on the grant of such Option as it deems appropriate. Without limiting the generality of the preceding sentence, the Committee may, in its discretion and on such terms as it deems appropriate, require as a condition on the grant of an Option to an Employee that the Employee surrender for cancellation some or all of the unexercised Options which have been previously granted to him. An Option the grant of which is conditioned upon such surrender may have an option price lower (or higher) than the option price of the surrendered Option, may cover the same (or a lesser or greater) number of shares as the surrendered Option, may contain such other terms as the Committee deems appropriate and shall be exercisable in accordance with its terms, without regard to the number of shares, price, option period or any other term or condition of the surrendered Option. ARTICLE IV TERMS OF OPTIONS ---------------- Section 4.1 - Option Agreement - - ----------- ---------------- Each Option shall be evidenced by a written Stock Option Agreement, which shall be executed by the Optionee and an authorized Officer of the Company and which shall contain such terms and conditions as the Committee shall determine, consistent with the Plan. Stock Option Agreements evidencing Incentive Stock Options shall contain such terms and conditions as may be necessary to qualify such Options as "incentive stock options" under Section 422 of the Code. Section 4.2 - Option Price - - ----------- ------------ (a) The price of the shares subject to each Option shall be set by the Committee; provided, however, that the price per share shall be not less than 100% of the fair market value of such shares on the date such Option is granted; provided, further, that, in the case of an Incentive Stock Option, the price per share shall not be less than 110% of the fair market value of such shares on the date such Option is granted in the case of an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company, any Subsidiary or any Parent Corporation. (b) For purposes of the Plan, the fair market value of a share of the Company's Common Stock as of a given date shall be: (i) the closing price of a share of the Company's Common Stock on the principal exchange on which shares of the Company's Common Stock are then trading, if any, on the day previous to such date, or, if shares were not traded on the day previous to such date, then on the next preceding trading day during which a sale occurred; or (ii) if such Common Stock is not traded on an exchange but is quoted on NASDAQ or a successor quotation system, (1) the last sales price (if the Company's Common Stock is then listed as a National Market Issue under the NASD National Market System) or (2) the mean between the closing representative bid and asked prices (in all other cases) for the Company's Common Stock on the day previous to such date as reported by NASDAQ or such successor quotation system; or (iii) if such Common Stock is not publicly traded on an exchange and not quoted on NASDAQ or a successor quotation system, the mean between the closing bid and asked prices for the Company's Common Stock, on the day previous to such date, as determined in good faith by the Committee; or (iv) if the Company's Common Stock is not publicly traded, the fair market value established by the Committee acting in good faith. Section 4.3 - Commencement of Exercisability - - ----------- ------------------------------ (a) No Option may be exercised in whole or in part during the first six months after such Option is granted or such longer period as may be provided in the terms of any individual Option. (b) Subject to the provisions of Sections 4.3(a), 4.3(c), 4.3(d) and 7.3, Options shall become exercisable at such times and in such installments (which may be cumulative) as the Committee shall provide in the terms of each individual Option; provided, however, that by a resolution adopted after an Option is granted the Committee may, on such terms and conditions as it may determine to be appropriate, and subject to Section 4.3(c) and Section 7.3, accelerate the time at which such Option or any portion thereof may be exercised. (c) No portion of an Option which is unexercisable at Termination of Employment shall thereafter become exercisable. (d) Notwithstanding any other provision of this Plan, in the case of an Incentive Stock Option, the aggregate fair market value (determined at the time the Incentive Stock Option is granted) of the shares of the Company's stock with respect to which "incentive stock options" (within the meaning of Section 422 of the Code) are exercisable for the first time by the Optionee during any calendar year (under the Plan and all other incentive stock option plans of the Company, any Subsidiary and any Parent Corporation) shall not exceed $100,000. Section 4.4 - Expiration of Options - - ----------- --------------------- (a) No Option may be exercised to any extent by anyone after the first to occur of the following events: (i) The expiration of ten years from the date the Option was granted; or (ii) With respect to an Incentive Stock Option in the case of an Optionee owning (within the meaning of Section 424(d) of the Code), at the time the Incentive Stock Option was granted, more than 10% of the total combined voting power of all classes of stock of the Company, any Subsidiary or any Parent Corporation, the expiration of five years from the date the Incentive Stock Option was granted; or (iii) Except in the case of any Optionee who is disabled (within the meaning of Section 22(e)(3) of the Code), the expiration of three months from the date of the Optionee's Termination of Employment for any reason other than such Optionee's death unless the Optionee dies within said three-month period; or (iv) In the case of an Optionee who is disabled (within the meaning of Section 22(e)(3) of the Code), the expiration of one year from the date of the Optionee's Termination of Employment for any reason other than such Optionee's death unless the Optionee dies within said one-year period; or (v) The expiration of one year from the date of the Optionee's death. (b) Subject to the provisions of Section 4.4(a), the Committee shall provide, in the terms of each individual Option, when such Option expires and becomes unexercisable; and (without limiting the generality of the foregoing) the Committee may provide in the terms of individual Options that said Options expire 30 days following a Termination of Employment for any reason. Section 4.5 - Consideration - - ----------- ------------- In consideration of the granting of an Option, the Optionee shall agree, in the written Stock Option Agreement, to remain in the employ of the Company, a Parent Corporation or a Subsidiary for a period of at least one year after the Option is granted. Nothing in this Plan or in any Stock Option Agreement hereunder shall confer upon any Optionee any right to continue in the employ of the Company, any Parent Corporation or any Subsidiary or shall interfere with or restrict in any way the rights of the Company, its Parent Corporations and its Subsidiaries, which are hereby expressly reserved, to discharge any Optionee at any time for any reason whatsoever, with or without cause. Section 4.6 - Adjustments in Outstanding Options - - ----------- ---------------------------------- In the event that the outstanding shares of the stock subject to Options are changed into or exchanged for a different number or kind of shares of the Company or other securities of the Company by reason of merger, consolidation, recapitalization, reclassification, stock split-up, stock dividend or combination of shares, the Committee shall make an appropriate and equitable adjustment in the number and kind of shares as to which all outstanding Options, or portions thereof then unexercised, shall be exercisable, to the end that after such event the Optionee's proportionate interest shall be maintained as before the occurrence of such event. Such adjustment in an outstanding Option shall be made without change in the total price applicable to the Option or the unexercised portion of the Option (except for any change in the aggregate price resulting from rounding-off of share quantities or prices) and with any necessary corresponding adjustment in Option price per share; provided, however, that, in the case of Incentive Stock Options, each such adjustment shall be made in such manner as not to constitute a "modification" within the meaning of Section 424(h)(3) of the Code. Any such adjustment made by the Committee shall be final and binding upon all Optionees, the Company and all other interested persons. Section 4.7 - Merger, Consolidation, Acquisition, Liquidation or Dissolution - - ----------- -------------------------------------------------------------- In its absolute discretion, and on such terms and conditions as it deems appropriate, the Committee may provide by the terms of any Option that such Option cannot be exercised after the merger or consolidation of the Company with or into another corporation, the acquisition by another corporation or person of all or substantially all of the Company's assets or 80% or more of the Company's then outstanding voting stock or the liquidation or dissolution of the Company; and if the Committee so provides, it may, in its absolute discretion and on such terms and conditions as it deems appropriate, also provide, either by the terms of such Option or by a resolution adopted prior to the occurrence of such merger, consolidation, acquisition, liquidation or dissolution, that, for some period of time prior to such event, such Option shall be exercisable as to all shares covered thereby, notwithstanding anything to the contrary in Section 4.3(a), Section 4.3(b), Section 4.3(d) and/or any installment provisions of such Option, but subject to Section 7.3. ARTICLE V EXERCISE OF OPTIONS ------------------- Section 5.1 - Person Eligible to Exercise - - ----------- --------------------------- During the lifetime of the Optionee, only he may exercise an Option (or any portion thereof) granted to him. After the death of the Optionee, any exercisable portion of an Option may, prior to the time when such portion becomes unexercisable under the Plan or the applicable Stock Option Agreement, be exercised by his personal representative or by any person empowered to do so under the deceased Optionee's will or under the then applicable laws of descent and distribution. Section 5.2 - Partial Exercise - - ----------- ---------------- At any time and from time to time prior to the time when any exercisable Option or exercisable portion thereof becomes unexercisable under the Plan or the applicable Stock Option Agreement, such Option or portion thereof may be exercised in whole or in part; provided, however, that the Company shall not be required to issue fractional shares and the Committee may, by the terms of the Option, require any partial exercise to be with respect to a specified minimum number of shares. Section 5.3 - Manner of Exercise - - ----------- ------------------ An exercisable Option, or any exercisable portion thereof, may be exercised solely by delivery to the Secretary or his office of all of the following prior to the time when such Option or such portion becomes unexercisable under the Plan or the applicable Stock Option Agreement: (a) Notice in writing signed by the Optionee or other person then entitled to exercise such Option or portion, stating that such Option or portion is exercised, such notice complying with all applicable rules established by the Committee; and (b) Full payment (in cash or by check) for the shares with respect to which such Option or portion is thereby exercised; and (c) The payment (in cash or by check) to the Company (or other employer corporation) of all amounts which it is required to withhold under federal, state or local law in connection with the exercise of the Option; with the consent of the Committee, (i) shares of the Company's Common Stock owned by the Optionee duly endorsed for transfer or (ii) subject to the timing requirements of Section 5.4, shares of the Company's Common Stock issuable to the Optionee upon exercise of the Option, valued in accordance with Section 4.2(b) at the date of Option exercise, may be used to make all or part of such payment; and (d) Such representations and documents as the Committee, in its absolute discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act and any other federal or state securities laws or regulations. The Committee may, in its absolute discretion, also take whatever additional actions it deems appropriate to effect such compliance including, without limitation, placing legends on share certificates and issuing stop-transfer orders to transfer agents and registrars; and (e) In the event that the Option or portion thereof shall be exercised pursuant to Section 5.1 by any person or persons other than the Optionee, appropriate proof of the right of such person or persons to exercise the Option or portion thereof. Section 5.4 - Certain Timing Requirements - - ----------- --------------------------- Shares of the Company's Common Stock issuable to the Optionee upon exercise of the Option may be used to satisfy the tax withholding consequences of such exercise only (i) during the period beginning on the third business day following the date of release of the quarterly or annual summary statement of sales and earnings of the Company and ending on the twelfth business day following such date or (ii) pursuant to an irrevocable written election by the Optionee to use shares of the Company's Common Stock issuable to the Optionee upon exercise of the Option to pay the withholding taxes (subject to the approval of the Committee) made at least six months prior to the payment of such withholding taxes. Section 5.5 - Conditions to Issuance of Stock Certificates - - ----------- -------------------------------------------- The shares of stock issuable and deliverable upon the exercise of an Option, or any portion thereof, may be either previously authorized but unissued shares or issued shares which have then been reacquired by the Company. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock purchased upon the exercise of any Option or portion thereof prior to fulfillment of all of the following conditions: (a) The admission of such shares to listing on all stock exchanges on which such class of stock is then listed; and (b) The completion of any registration or other qualification of such shares under any state or federal law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the Committee shall, in its absolute discretion, deem necessary or advisable; and (c) The obtaining of any approval or other clearance from any state or federal governmental agency which the Committee shall, in its absolute discretion, determine to be necessary or advisable; and (d) The payment to the Company (or other employer corporation) of all amounts which it is required to withhold under federal, state or local law in connection with the exercise of the Option; and (e) The lapse of such reasonable period of time following the exercise of the Option as the Committee may establish from time to time for reasons of administrative convenience. Section 5.6 - Rights as Shareholders - - ----------- ---------------------- The holders of Options shall not be, nor have any of the rights or privileges of, shareholders of the Company in respect of any shares purchasable upon the exercise of any part of an Option unless and until certificates representing such shares have been issued by the Company to such holders. Section 5.7 - Transfer Restrictions - - ----------- --------------------- Unless otherwise approved in writing by the Committee, no shares acquired upon exercise of any Option by any Officer may be sold, assigned, pledged, encumbered or otherwise transferred until at least six months have elapsed from (but excluding) the date that such Option was granted. The Committee, in its absolute discretion, may impose such other restrictions on the transferability of the shares purchasable upon the exercise of an Option as it deems appropriate. Any such other restriction shall be set forth in the respective Stock Option Agreement and may be referred to on the certificates evidencing such shares. The Committee may require the Employee to give the Company prompt notice of any disposition of shares of stock, acquired by exercise of an Incentive Stock Option, within two years from the date of granting such Option or one year after the transfer of such shares to such Employee. The Committee may direct that the certificates evidencing shares acquired by exercise of an Incentive Stock Option refer to such requirement to give prompt notice of disposition. ARTICLE VI ADMINISTRATION -------------- Section 6.1 - Compensation Committee - - ----------- ---------------------- The Compensation Committee shall consist of two or more Directors, appointed by and holding office at the pleasure of the Board, each of whom is a "disinterested person" as defined by Rule 16b-3. Appointment of Committee members shall be effective upon acceptance of appointment. Committee members may resign at any time by delivering written notice to the Board. Vacancies in the Committee shall be filled by the Board. Section 6.2 - Duties and Powers of Committee - - ----------- ------------------------------ It shall be the duty of the Committee to conduct the general administration of the Plan in accordance with its provisions. The Committee shall have the power to interpret the Plan and the Options and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. Any such interpretations and rules in regard to Incentive Stock Options shall be consistent with the basic purpose of the Plan to grant "incentive stock options" within the meaning of Section 422 of the Code. The Board shall have no right to exercise any of the rights or duties of the Committee under the Plan. Section 6.3 - Majority Rule - - ----------- ------------- The Committee shall act by a majority of its members in office. The Committee may act either by vote at a meeting or by a memorandum or other written instrument signed by a majority of the Committee. Section 6.4 - Compensation; Professional Assistance; Good Faith Actions - - ----------- --------------------------------------------------------- Members of the Committee shall receive such compensation for their services as members as may be determined by the Board. All expenses and liabilities incurred by members of the Committee in connection with the administration of the Plan shall be borne by the Company. The Committee may employ attorneys, consultants, accountants, appraisers, brokers or other persons. The Committee, the Company and its Officers and Directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon all Optionees, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Options, and all members of the Committee shall be fully protected by the Company in respect to any such action, determination or interpretation. ARTICLE VII OTHER PROVISIONS ---------------- Section 7.1 - Options Not Transferable - - ----------- ------------------------ No Option or interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Optionee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that nothing in this Section 7.1 shall prevent transfers by will or by the applicable laws of descent and distribution. Section 7.2 - Amendment, Suspension or Termination of the Plan - - ----------- ------------------------------------------------ The Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Committee. However, without approval of the Company's shareholders given within 12 months before or after the action by the Committee, no action of the Committee may, except as provided in Section 2.3, increase any limit imposed in Section 2.1 on the maximum number of shares which may be issued on exercise of Options, materially modify the eligibility requirements of Section 3.1, reduce the minimum Option price requirements of Section 4.2(a) or extend the limit imposed in this Section 7.2 on the period during which Options may be granted or amend or modify the Plan in a manner requiring shareholder approval under Rule 16b-3. Neither the amendment, suspension nor termination of the Plan shall, without the consent of the holder of the Option, impair any rights or obligations under any Option theretofore granted. No Option may be granted during any period of suspension nor after termination of the Plan, and in no event may any Option be granted under this Plan after October 28, 1997. Section 7.3 - Approval of Plan Amendment by Shareholders - - ----------- ------------------------------------------ This Plan was initially approved by the Company's stockholders on April 26, 1988. Amendments to this Plan increasing the number of shares authorized hereunder were duly approved by the Company's stockholders on May 18, 1989, May 15, 1991 and April 28, 1993. The only amendment provided herein which requires stockholder approval is the amendment to Section 3.1, which permits Directors who are Employees to receive Options under the Plan. Such amendment shall be submitted to stockholders for approval at the 1994 Annual Meeting of Stockholders. Options may be granted to Employee-Directors prior to such stockholder approval; provided, however, that such Options shall not be exercisable prior to the time when said amendment is approved by the stockholders; provided, further, that if such approval is not obtained at said meeting, all Options previously granted under the Plan to Employee-Directors shall thereupon be cancelled and become null and void. The Company shall take such actions with respect to the Plan as may be necessary to satisfy the requirements of Rule 16b-3(b). Section 7.4 - Effect of Plan Upon Other Option and Compensation Plans - - ----------- ------------------------------------------------------- This Plan, including the amendment to Section 3.1, shall not affect any other compensation or incentive plans in effect for the Company, any Parent Corporation or any Subsidiary. Nothing in this Plan shall be construed to limit the right of the Company, any Parent Corporation or any Subsidiary (a) to establish any other forms of incentives or compensation for employees of the Company, any Parent Corporation or any Subsidiary or (b) to grant or assume options otherwise than under this Plan in connection with any proper corporate purpose, including, but not by way of limitation, the grant or assumption of options in connection with the acquisition by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, firm or association. Section 7.5 - Titles - - ----------- ------ Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Plan. Section 7.6 - Conformity to Securities Laws - - ----------- ----------------------------- The Plan is intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder, including without limitation Rule 16b-3. Notwithstanding anything herein to the contrary, the Plan shall be administered, and Options shall be granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and Options granted hereunder shall be deemed amended to the extent necessary to conform to such laws, rules and regulations. * * * * I hereby certify that the foregoing Plan was duly approved, and the amendments therein adopted, by the Board of Directors of Micropolis Corporation on September 16, 1993. Executed on this 16th day of September, 1993. _____________________________ Secretary I hereby certify that the material amendment to the foregoing Plan was duly approved by the stockholders of Micropolis Corporation on ________________, 1994. Executed on this ______ day of ____________, 1994. _____________________________ Secretary -----END PRIVACY-ENHANCED MESSAGE-----