-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QvXgF42+rrRcXiJv+Gl0ZcwR7APliyTQldpD9gJV2/x9mo0PCvkBTXwOybh5anNt P46UxzvXpILwiBP8yOJAKQ== 0000912057-02-029068.txt : 20020730 0000912057-02-029068.hdr.sgml : 20020730 20020730151024 ACCESSION NUMBER: 0000912057-02-029068 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020730 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMC CORP CENTRAL INDEX KEY: 0000790070 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER STORAGE DEVICES [3572] IRS NUMBER: 042680009 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-03656 FILM NUMBER: 02714668 BUSINESS ADDRESS: STREET 1: 35 PARKWOOD DR CITY: HOPKINTON STATE: MA ZIP: 01748-9103 BUSINESS PHONE: 5084351000 MAIL ADDRESS: STREET 1: 35 PARKWOOD DRIVE CITY: HOPKINTON STATE: MA ZIP: 01748-9103 10-Q 1 a2084917z10-q.htm FORM 10-Q
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For The Quarter Ended: June 30, 2002

Commission File Number 1-9853

EMC CORPORATION

(Exact name of registrant as specified in its charter)

Massachusetts		04-2680009
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

35 Parkwood Drive
Hopkinton, Massachusetts 01748-9103

(Address of principal executive offices, including zip code)

(508) 435-1000

(Registrant's telephone number, including area code)

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.

YES ý

NO o

The number of shares of common stock, par value $.01 per share, of the registrant outstanding as of June 30, 2002 was 2,203,566,734.

EMC CORPORATION

		Page No
Part I — Financial Information
	Consolidated Balance Sheets at June 30, 2002 and December 31, 2001	3
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2002 and 2001	4
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001	5
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2002 and 2001	6
	Notes to Interim Consolidated Financial Statements	7-20
	Management's Discussion and Analysis of Financial Condition and Results of Operations	21-39
Part II — Other Information		40-41
Signatures		42
Exhibit Index		43

EMC CORPORATION

PART I
FINANCIAL INFORMATION

CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)

				June 30, 2002			December 31, 2001
				(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents			$	1,632,354		$	2,129,019
	Short-term investments				591,877			445,428
	Accounts and notes receivable, less allowance for doubtful accounts of $48,922 and $36,169				1,022,836			1,348,569
	Inventories				456,935			583,985
	Deferred income taxes				261,584			287,597
	Other current assets				116,030			128,644

Total current assets					4,081,616			4,923,242
Long-term investments					3,238,524			2,509,112
Property, plant and equipment, net					1,773,741			1,827,331
Intangible and other assets, net					547,726			583,110
Deferred income taxes					45,508			46,840

		Total assets		$	9,687,115		$	9,889,635

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Notes payable and current portion of long-term obligations			$	47,851		$	56,677
	Accounts payable				415,944			424,132
	Accrued expenses				897,756			1,024,211
	Income taxes payable				350,686			315,368
	Deferred revenue				471,930			359,026

Total current liabilities					2,184,167			2,179,414
Other liabilities					87,076			109,401
Commitments and contingencies
Stockholders' equity:
	Series preferred stock, par value $.01; authorized 25,000 shares, none outstanding				—			—
	Common stock, par value $.01; authorized 6,000,000 shares; issued 2,228,041 and 2,221,442 shares				22,280			22,214
	Additional paid-in capital				3,532,009			3,470,325
	Deferred compensation				(17,375	)		(29,209	)
	Retained earnings				4,112,704			4,188,755
	Accumulated other comprehensive loss, net				(15,479	)		(33,007	)
	Treasury stock, at cost; 24,474 and 1,060 shares				(218,267	)		(18,258	)

		Total stockholders' equity			7,415,872			7,600,820

			Total liabilities and stockholders' equity	$	9,687,115		$	9,889,635

The accompanying notes are an integral part of the consolidated financial statements.

EMC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

		For the Three Months Ended						For the Six Months Ended
		June 30, 2002			June 30, 2001			June 30, 2002			June 30, 2001
Revenues:
	Net sales	$	1,099,671		$	1,736,485		$	2,124,294		$	3,793,411
	Services		287,867			284,370			565,222			572,239

			1,387,538			2,020,855			2,689,516			4,365,650
Costs and expenses:
	Cost of sales		653,263			892,221			1,287,862			1,768,832
	Cost of services		177,874			179,322			344,208			354,995
	Research and development		202,027			245,627			402,978			469,667
	Selling, general and administrative		420,779			617,336			875,447			1,210,372

Operating income (loss)			(66,405	)		86,349			(220,979	)		561,784
Investment income			57,823			64,239			113,348			135,848
Interest expense			(2,720	)		(3,597	)		(5,581	)		(6,855	)
Other income (expense), net			(5,650	)		2,136			(13,540	)		4,642

Income (loss) before taxes			(16,952	)		149,127			(126,752	)		695,419
Income tax provision (benefit)			(17,760	)		40,265			(50,701	)		187,762

Net income (loss)		$	808		$	108,862		$	(76,051	)	$	507,657

Net income (loss) per weighted average share, basic		$	0.00		$	0.05		$	(0.03	)	$	0.23

Net income (loss) per weighted average share, diluted		$	0.00		$	0.05		$	(0.03	)	$	0.23

Weighted average shares, basic			2,208,383			2,207,655			2,214,997			2,205,770

Weighted average shares, diluted			2,215,903			2,239,799			2,214,997			2,247,021

The accompanying notes are an integral part of the consolidated financial statements.

EMC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

			For the Six Months Ended
			June 30, 2002			June 30, 2001
Cash flows from operating activities:
Net income (loss)			$	(76,051	)	$	507,657
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Depreciation and amortization			334,782			311,127
	Other than temporary declines in equity investments			6,315			—
	Reversal of non-cash inventory provision			(52,840	)		—
	Amortization of deferred compensation			7,552			10,837
	Provision for doubtful accounts			26,822			11,282
	Deferred income taxes			40,286			4,647
	Net loss on disposal of property, plant and equipment			6,821			1,049
	Tax benefit from stock options exercised			23,002			129,194
	Minority interest			—			29
Changes in assets and liabilities:
	Accounts and notes receivable			300,956			372,992
	Inventories			188,791			(82,628	)
	Other assets			36,910			(34,665	)
	Accounts payable			1,901			(90,101	)
	Accrued expenses			(132,376	)		(20,785	)
	Income taxes payable			4,639			(164,707	)
	Deferred revenue			107,678			59,789
	Other liabilities			(9,594	)		3,074

		Net cash provided by operating activities		815,594			1,018,791

Cash flows from investing activities:
	Additions to property, plant and equipment			(218,836	)		(507,476	)
	Proceeds from sales of property, plant and equipment			—			17,143
	Capitalized software development costs			(64,261	)		(59,557	)
	Purchases of short and long-term available for sale securities			(5,324,084	)		(3,072,293	)
	Sales of short and long-term available for sale securities			4,345,908			2,709,376
	Maturity of short and long-term available for sale securities			121,646			84,020
	Business acquisitions, net of cash acquired			—			(51,051	)

		Net cash used by investing activities		(1,139,627	)		(879,838	)

Cash flows from financing activities:
	Issuance of common stock			43,030			103,050
	Purchase of treasury stock			(200,009	)		(2,293	)
	Payment of short-term obligations, net			(796	)		—
	Payment of long-term obligations			(8,099	)		(9,163	)
	Issuance of long-term obligations			—			5
	Cash portion of McDATA Corporation spin-off dividend			—			(141,981	)

		Net cash used by financing activities		(165,874	)		(50,382	)

Effect of exchange rate changes on cash				(6,758	)		(2,970	)

Net increase (decrease) in cash and cash equivalents				(496,665	)		85,601
Cash and cash equivalents at beginning of period				2,129,019			1,983,221

Cash and cash equivalents at end of period			$	1,632,354		$	2,068,822

Non-cash activity:
—Issuance of capital lease obligations			$	—		$	24,490
—Distribution of net assets in McDATA Corporation dividend				—			234,152

The accompanying notes are an integral part of the consolidated financial statements.

EMC CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)

		For the Three Months Ended						For the Six Months Ended
		June 30, 2002			June 30, 2001			June 30, 2002			June 30, 2001
Net income (loss)		$	808		$	108,862		$	(76,051	)	$	507,657
Other comprehensive income (loss), net of taxes (benefit):
	Foreign currency translation adjustments, net of taxes (benefit) of $3,797, $288, $(486) and $(1,802)		8,311			781			3,677			(4,866	)
	Equity adjustment for minimum pension liability, net of taxes (benefit) of $0, $0, $343 and $(7,616)		—			—			(343	)		(20,592	)
	Changes in market value of derivatives, net of taxes (benefit) of $(19), $(2,587), $(41) and $2,171		(168	)		(6,994	)		(364	)		5,869
	Changes in market value of investments, net of taxes (benefit) of $12,952, $(3,548), $4,771 and $2,854		41,010			(9,594	)		14,558			7,718

Other comprehensive income (loss)			49,153			(15,807	)		17,528			(11,871	)

Comprehensive income (loss)		$	49,961		$	93,055		$	(58,523	)	$	495,786

The accompanying notes are an integral part of the consolidated financial statements.

EMC CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

Company

EMC Corporation and its subsidiaries ("EMC") design, manufacture, market and support a wide range of storage platforms and software offerings, as well as related services, that enable its customers to store, manage, protect and share electronic information.

Accounting

The accompanying interim consolidated financial statements are unaudited and have been prepared in accordance with generally accepted accounting principles. These statements include the accounts of EMC and its subsidiaries. Certain information and footnote disclosures normally included in EMC's annual consolidated financial statements have been condensed or omitted. The interim consolidated financial statements, in the opinion of management, reflect all adjustments (consisting only of normal recurring accruals) necessary to fairly present the results as of and for the periods ended June 30, 2002 and 2001.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the entire fiscal year. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2001, which are contained in EMC's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 22, 2002.

Certain prior year amounts have been reclassified to conform with the 2002 presentation.

Revenue Recognition

EMC derives revenue from sales of information storage systems, software and services. EMC recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectibility is reasonably assured. This policy is applicable to all sales, including sales to resellers and end users. The following summarizes the major terms of EMC's contractual relationships with its customers and the manner in which EMC accounts for sales transactions.

Systems sales

Systems sales consist of the sale of hardware, including Symmetrix systems, CLARiiON systems, Celerra systems, Centera systems and Connectrix systems. Revenue for hardware is generally recognized upon shipment.

Software sales

Software sales consist of the sale of software application programs that provide customers with information management, sharing or protection capabilities. Revenue for software is generally recognized upon shipment.

Services revenue

Services revenue consists of the sale of installation services, software warranty and maintenance, hardware maintenance, training and professional services.

Installation is not considered essential to the functionality of EMC's products as these services do not alter the product capabilities, do not require specialized skills and may be performed by the customers or other vendors. Installation services revenues are recognized upon completion of installation.

Software warranty and maintenance and hardware maintenance revenues are recognized ratably over the contract period.

Training revenues are recognized upon completion of the training.

Professional services revenues, which include information infrastructure design, integration and implementation, business continuity, data migration, networking storage and project management, are recognized as milestones are met which reflect the percentage of costs incurred on the project to total estimated costs.

Multiple element arrangements

EMC considers sales contracts that include a combination of systems, software or services to be multiple element arrangements. An item is considered a separate element if it involves a separate earnings process. If an arrangement includes undelivered elements that are not essential to the functionality of the delivered elements, EMC defers the fair value of the undelivered elements with the residual revenue allocated to the delivered elements. Discounts are allocated only to the delivered elements. Fair value is determined based upon the price charged when the element is sold separately. Undelivered elements typically include installation, training, software warranty and maintenance, hardware maintenance and professional services.

Shipping terms

EMC sales contracts generally provide for the customer to accept title and risk of loss when the product leaves EMC's facility. When shipping terms or local laws do not allow for passage of title and risk of loss at shipping point, EMC defers recognizing revenue until title and risk of loss transfer to the customer.

Leases

Revenue from sales-type leases is recognized at the net present value of future lease payments. Revenue from operating leases is recognized over the lease period.

Other

EMC accrues for systems' warranty costs and reduces revenue for estimated sales returns at the time of shipment. Systems' warranty costs are estimated based upon EMC's historical experience and specific identification of systems' requirements. Sales returns are estimated based upon EMC's historical experience and specific identification of probable returns.

2. Inventories

Inventories consist of (table in thousands):

	June 30, 2002		December 31, 2001
Purchased parts	$	19,215	$	28,508
Work-in-process		379,972		396,304
Finished goods		57,748		159,173

	$	456,935	$	583,985

3. Property, Plant and Equipment

Property, plant and equipment consists of (table in thousands):

	June 30, 2002			December 31, 2001
Furniture and fixtures	$	148,698		$	146,369
Equipment		1,930,937			1,888,361
Buildings and improvements		764,426			683,515
Land and improvements		92,027			93,159
Construction in progress		234,323			328,172

		3,170,411			3,139,576
Accumulated depreciation		(1,396,670	)		(1,312,245	)

	$	1,773,741		$	1,827,331

4. Goodwill and Other Intangible Assets

In July 2001, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("FAS") No. 141, "Business Combinations" and FAS No. 142, "Goodwill and Other Intangible Assets." FAS No. 141 supercedes Accounting Principles Board Opinion No. 16, "Business Combinations" and FAS No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." FAS No. 142 supercedes Accounting Principles Board Opinion No. 17, "Intangible Assets." These new statements require use of the purchase method of accounting for all business combinations initiated after June 30, 2001, thereby eliminating use of the pooling-of-interests method. Goodwill is no longer amortized but tested for impairment under a two-step process. Under the first step, an entity's net assets are broken down into reporting units and compared to their fair value. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step compares the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. If the carrying amount of a reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. In addition, within six months of adopting the accounting standard, a transitional impairment test must be completed, and any impairments identified must be treated as a cumulative effect of a change in accounting principle. Additionally, new criteria have been established that determine whether an acquired intangible asset should be recognized separately from goodwill. The statements were effective for business combinations initiated after June 30, 2001, with the entire provisions of FAS No. 142 becoming effective for EMC

commencing with its 2002 fiscal year. EMC has completed its transitional impairment test and concluded that there is no impairment to goodwill. Additionally, EMC reassessed the useful lives of its intangible assets and determined that no changes were required. As a result of adopting FAS No. 142, approximately $45.0 million of goodwill amortization will not be recognized in 2002.

The following is a reconciliation of reported net income to adjusted net income and reported earnings per share to adjusted earnings per share had FAS No. 142 been in effect for the three and six months ended June 30, 2001 (table in thousands, except per share amounts):

	For the Three Months Ended June 30, 2001			For the Six Months Ended June 30, 2001
Net income	$	108,862		$	507,657
Add back: Impact of goodwill amortization, net of tax benefit of $1,511 and $1,966		12,715			23,742

Adjusted net income	$	121,577		$	531,399

Net income per share, basic	$	0.05		$	0.23
Add back: Impact of goodwill amortization, net of taxes		0.01			0.01

Adjusted net income per share, basic	$	0.06		$	0.24

Net income per share, diluted	$	0.05		$	0.23
Add back: Impact of goodwill amortization, net of taxes		0.01			0.01

Adjusted net income per share, diluted	$	0.05	*	$	0.24

*: Amount does not add to the total due to rounding.

Intangible assets as of June 30, 2002 and December 31, 2001 consist of (table in thousands):

	June 30, 2002			December 31, 2001
Goodwill	$	259,989		$	250,287
Accumulated amortization		(61,931	)		(61,931	)

	$	198,058		$	188,356

Purchased technology		99,005			95,305
Accumulated amortization		(58,455	)		(50,295	)

	$	40,550		$	45,010

Patents		57,157			57,157
Accumulated amortization		(43,559	)		(38,174	)

	$	13,598		$	18,983

Trademarks and customer lists		14,684			14,684
Accumulated amortization		(10,551	)		(9,750	)

	$	4,133		$	4,934

Total Intangible Assets		430,835			417,433
Accumulated amortization		(174,496	)		(160,150	)

	$	256,339		$	257,283

Amortization expense on intangible assets was $6.7 million and $14.3 million for the three and six months ended June 30, 2002, respectively, and $21.2 million and $40.0 million for the three and six months ended June 30, 2001, respectively. As of December 31, 2001, amortization expense on existing intangibles for the next five years was as follows (table in thousands):

2002		$	26,529
2003			22,650
2004			13,493
2005			3,810
2006			2,445

	Total	$	68,927

Changes in the carrying amount of goodwill, net, on a total consolidated basis and by segment for the three and six months ended June 30, 2002 and June 30, 2001 consist of the following (tables in thousands):

	For the Three Months Ended June 30, 2002
	Information Storage Products		Information Storage Services		Other		Total
Balance, March 31, 2002	$	196,443	$	1,615	$	—	$	198,058

Balance, June 30, 2002	$	196,443	$	1,615	$	—	$	198,058

	For the Three Months Ended June 30, 2001
	Information Storage Products			Information Storage Services			Other		Total
Balance, March 31, 2001	$	164,850		$	6,512		$	—	$	171,362
Goodwill acquired		48,837			—			—		48,837
Amortization expense		(13,285	)		(941	)		—		(14,226	)

Balance, June 30, 2001	$	200,402		$	5,571		$	—	$	205,973

	For the Six Months Ended June 30, 2002
	Information Storage Products		Information Storage Services		Other		Total
Balance, December 31, 2001	$	186,741	$	1,615	$	—	$	188,356
Finalization of purchase price allocation		9,702		—		—		9,702

Balance, June 30, 2002	$	196,443	$	1,615	$	—	$	198,058

	For the Six Months Ended June 30, 2001
	Information Storage Products			Information Storage Services			Other		Total
Balance, December 31, 2000	$	168,884		$	7,454		$	—	$	176,338
Goodwill acquired		55,343			—			—		55,343
Amortization expense		(23,825	)		(1,883	)		—		(25,708	)

Balance, June 30, 2001	$	200,402		$	5,571		$	—	$	205,973

5. Accrued Expenses

Accrued expenses consist of (table in thousands):

	June 30, 2002		December 31, 2001
Salary and benefits	$	290,909	$	310,214
Warranty		108,262		118,347
2001 restructuring (see Note 10)		116,356		199,281
Other		382,229		396,369

	$	897,756	$	1,024,211

6. Stockholders' Equity

Common Stock Repurchase Program

EMC's Board of Directors has authorized the repurchase of up to 50.0 million shares of its common stock, par value $.01 per share, of EMC ("Common Stock") from time to time. The purchased shares will be available for various corporate purposes, including for use in connection with stock option and employee stock purchase plans. EMC utilizes the cost method to account for the purchase of treasury stock which presents the aggregate cost of reacquired shares as a component of stockholders' equity. As of June 30, 2002, EMC had reacquired approximately 24.5 million shares.

Supplemental Disclosures for Stock Based Compensation

FAS No. 123, "Accounting for Stock Based Compensation" defines a fair value method of accounting for stock options and other equity instruments. Under the fair value method, compensation cost is measured at the grant date based on the fair market value of the award and is recognized over the service period, which is usually the vesting period. As provided for in FAS No. 123, EMC elected to apply Accounting Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued to Employees" and related interpretations in accounting for its stock-based compensation plans. APB Opinion No. 25 does not require options to be expensed when granted with an exercise price equal to fair market value. The following presents EMC's net income (loss) and net income (loss) per share in

accordance with APB Opinion No. 25 and as adjusted to account for options in accordance with FAS No. 123 (table in thousands, except per share amounts):

	Three Months Ended						Six Months Ended
	June 30, 2002			June 30, 2001			June 30, 2002			June 30, 2001
Net income (loss)	$	808		$	108,862		$	(76,051	)	$	507,657
Incremental stock option expense per FAS No. 123		(92,051	)		(82,126	)		(191,541	)		(150,043	)

Adjusted net income (loss)	$	(91,243	)	$	26,736		$	(267,592	)	$	357,614

Net income (loss) per weighted average share, basic—as reported	$	0.00		$	0.05		$	(0.03	)	$	0.23

Net income (loss) per weighted average share, diluted—as reported	$	0.00		$	0.05		$	(0.03	)	$	0.23

Adjusted net income (loss) per weighted average share, basic	$	(0.04	)	$	0.01		$	(0.12	)	$	0.16

Adjusted net income (loss) per weighted average share, diluted	$	(0.04	)	$	0.01		$	(0.12	)	$	0.16

The fair value of each option granted during 2002 and 2001 is estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:

	2002		2001
Dividend yield	None		None
Expected volatility	55.0	%	55.0	%
Risk-free interest rate	4.43	%	4.36	%
Expected life (years)	5.0		5.0

Employee Stock Purchase Plan

Under EMC's 1989 Employee Stock Purchase Plan (the "1989 Plan"), eligible employees of EMC may purchase shares of Common Stock, through payroll deductions, at the lower of 85% of the fair market value of the Common Stock at the time of grant or 85% of the fair market value at the time of exercise. In accordance with the 1989 Plan, an option to purchase shares is granted to each eligible employee of EMC who elects to participate in the 1989 Plan twice yearly, on January 1 and July 1, and is exercisable on the succeeding June 30 or December 31, respectively. In May 2002, shareholders of EMC approved an amendment to the 1989 Plan to increase the number of shares available for grant under the 1989 Plan to 58.0 million shares from 48.0 million shares.

Issuance of Subsidiary Stock

On February 7, 2001, EMC distributed to its stockholders of record as of the close of business on January 24, 2001, all of its shares of McDATA Corporation ("McDATA") Class A common stock. The distribution was effected by means of a pro rata dividend of approximately .0368069 of a share of McDATA Class A common stock for each share of Common Stock. In lieu of fractional shares of

McDATA Class A common stock, each stockholder received a cash payment. The distribution, which totaled $376.1 million, has been accounted for as a tax-free dividend to EMC stockholders and charged to retained earnings based on the book value as of the date of the distribution. As a result of the distribution, EMC no longer has any equity ownership interest in McDATA.

7. Net Income (Loss) Per Share

Calculation of diluted earnings (loss) per share is as follows (table in thousands, except per share amounts):

	For the Three Months Ended				For the Six Months Ended
	June 30, 2002		June 30, 2001		June 30, 2002			June 30, 2001
Net income (loss)	$	808	$	108,862	$	(76,051	)	$	507,657

Weighted average shares, basic		2,208,383		2,207,655		2,214,997			2,205,770
Weighted common stock equivalents		7,520		32,144		—			41,251

Weighted average shares, diluted		2,215,903		2,239,799		2,214,997			2,247,021

Net income (loss) per share, diluted	$	0.00	$	0.05	$	(0.03	)	$	0.23

Options to acquire 130.5 million and 143.1 million shares of Common Stock for the three and six months ended June 30, 2002 and options to acquire 56.8 million and 31.5 million shares of Common Stock for the three and six months ended June 30, 2001, respectively, were excluded from the calculation of diluted earnings per share because of their antidilutive effect.

8. Commitments and Contingencies

Lines of Credit

EMC has available for use credit lines of $50.0 million in the United States and $50.0 million in Brazil. The Brazilian line requires EMC to borrow in Brazilian currency. As of June 30, 2002, EMC had $33.2 million outstanding on its line of credit in Brazil and none outstanding on its line of credit in the United States. The U.S. credit line bears interest at the bank's base rate and requires EMC, upon utilization of the credit line, to meet certain financial covenants with respect to limitations on losses. The Brazilian credit line bears interest at the rate quoted by the lender (21% at June 30, 2002) and requires EMC to meet certain financial covenants with respect to limitations on losses and maintaining minimum levels of cash and investments. In the event the covenants are not met, the lender may require EMC to provide collateral to secure the outstanding balance. As of June 30, 2002, EMC was in compliance with the covenants. The Brazilian line of credit is denominated in local currency and as such, bears an interest rate commensurate with local currency short-term interest rates. The Brazilian line of credit has been established to help manage currency volatility between the local currency and the U.S. dollar and facilitate cash repatriation.

Litigation

In April 2002, EMC filed a complaint against Hitachi, Ltd. and Hitachi Data Systems Corporation (together, "Hitachi") with the International Trade Commission ("ITC") and in the United States

Federal District Court in Worcester, Massachusetts. The ITC complaint alleges that Hitachi has engaged in unlawful activities by importing into the United States products that infringe six EMC patents. EMC asked the ITC to issue an injunction to block importation of Hitachi's infringing products and in May 2002, the ITC voted to commence an investigation into EMC's claims. The suit in District Court seeks preliminary and permanent injunctions as well as unspecified monetary damages for patent infringement. In June 2002, the suit in District Court was stayed, pending the outcome of the ITC action. Subsequent to the date EMC filed a complaint against Hitachi, in April 2002, Hitachi and Hitachi Computer Products (America), Inc. ("HICAM") filed a complaint against EMC in the United States Federal District Court for the Western District of Oklahoma alleging that certain of EMC's products infringe eight Hitachi patents and seeking preliminary and permanent injunctions as well as unspecified monetary damages for patent infringement. In July 2002, this suit was transferred to the United States Federal District Court in Worcester, Massachusetts. EMC believes that Hitachi and HICAM's claims are without merit.

EMC is a party to other litigation that it considers routine and incidental to its business. Management does not expect the results of any of these actions to have a material adverse effect on EMC's business, results of operations or financial condition.

9. Segment Information

EMC operates in the following segments: information storage products, information storage services and other businesses. The following table presents the revenue components for information storage products (table in thousands):

	For the Three Months Ended				For the Six Months Ended
	June 30, 2002		June 30, 2001		June 30, 2002		June 30, 2001
Information storage systems	$	779,109	$	1,225,600	$	1,520,687	$	2,789,912
Information storage software		320,568		497,538		602,891		965,057

	$	1,099,677	$	1,723,138	$	2,123,578	$	3,754,969

EMC's management makes financial decisions and allocates resources based on revenues and gross profit achieved at the segment level. EMC does not allocate selling, general and administrative or research and development expenses to each segment, as management does not use this information to

measure the performance of the operating segments. The revenues and gross profit attributable to these segments are included in the following table (tables in thousands, except for footnote):

For the Three Months Ended	Information Storage Products			Information Storage Services			Other Businesses			Consolidated
June 30, 2002
Revenues	$	1,099,677		$	251,148		$	36,713		$	1,387,538
Gross profit		421,651	(1)		93,955			16,026			531,632	(1)
Gross profit percentage		38.3	%(1)		37.4	%		43.7	%		38.3	%(1)
June 30, 2001
Revenues	$	1,723,138		$	231,995		$	65,722		$	2,020,855
Gross profit		842,135			84,398			22,779			949,312
Gross profit percentage		48.9	%		36.4	%		34.7	%		47.0	%

For the Six Months Ended	Information Storage Products			Information Storage Services			Other Businesses			Consolidated
June 30, 2002
Revenues	$	2,123,578		$	489,678		$	76,260		$	2,689,516
Gross profit		782,976	(2)		189,399			32,231			1,004,606	(2)
Gross profit percentage		36.9	%(2)		38.7	%		42.3	%		37.4	%(2)
June 30, 2001
Revenues	$	3,754,969		$	463,981		$	146,700		$	4,365,650
Gross profit		2,016,039			175,915			49,869			2,241,823
Gross profit percentage		53.7	%		37.9	%		34.0	%		51.4	%

(1): Excludes the reduction of $24.8 million related to the third quarter of 2001 provision for excess and obsolete inventory. See Note 10.
(2): Excludes the reduction of $52.8 million related to the third quarter of 2001 provision for excess and obsolete inventory. See Note 10.

EMC's revenues are attributed to the geographic areas according to the location of customers. Revenues by geographic area are included in the following table (table in thousands):

			For the Three Months Ended				For the Six Months Ended
			June 30, 2002		June 30, 2001		June 30, 2002		June 30, 2001
Sales:
United States			$	782,198	$	1,110,450	$	1,531,878	$	2,480,483
Other North America				18,525		46,155		37,681		90,829

	Total North America			800,723		1,156,605		1,569,559		2,571,312
Europe, Middle East, Africa				346,970		528,984		632,579		1,125,678
Asia Pacific				212,861		263,313		436,706		542,539
Latin America				26,984		71,953		50,672		126,121

	Total International			586,815		864,250		1,119,957		1,794,338

		Total	$	1,387,538	$	2,020,855	$	2,689,516	$	4,365,650

No country other than the United States accounted for 10% or more of revenues during the three months or six months ended June 30, 2002 and June 30, 2001.

At June 30, 2002, long-lived assets, excluding financial instruments, intangible assets and deferred tax assets, were $1,527.8 million in the United States and $173.0 million in Ireland. At December 31, 2001, the long-lived assets, excluding financial instruments, intangible assets and deferred tax assets, were $1,551.5 million in the United States and $181.4 million in Ireland. No other country accounted for 10% or more of these assets at June 30, 2002 or December 31, 2001.

10. Restructuring Costs and Other Special Charges

In the third quarter of 2001, EMC implemented a restructuring program to reduce its cost structure and focus its resources on the highest potential growth areas of its business. As a result of the program, EMC incurred restructuring and other special charges of $825.2 million. The restructuring charges consisted of $111.5 million for employee termination benefits, $104.5 million related to the impairment of goodwill, purchased intangibles and other long-lived assets, $158.1 million to consolidate excess facilities and $34.5 million for other contractual obligations for which EMC will no longer derive an economic benefit. The other special charges included a provision for excess and obsolete inventory of $310.0 million and an other than temporary decline in certain equity investments of $106.6 million.

The following is a summary of the activity in the reserve for the restructuring liabilities from March 31, 2002 to June 30, 2002 (table in thousands):

Category		Balance as of March 31, 2002		Adjustment			Current Utilization			Balance as of June 30, 2002
Workforce reduction		$	27,106	$	19,277		$	(37,019	)	$	9,364
Other contractual obligations			11,838		(6,775	)		(1,017	)		4,046
Consolidation of excess facilities			120,345		(10,202	)		(7,197	)		102,946

	Total	$	159,289	$	2,300		$	(45,233	)	$	116,356

The following is a summary of the activity in the reserve for the restructuring liabilities from December 31, 2001 to June 30, 2002 (table in thousands):

Category		Balance as of December 31, 2001		Adjustment			Current Utilization			Balance as of June 30, 2002
Workforce reduction		$	48,149	$	19,277		$	(58,062	)	$	9,364
Other contractual obligations			23,645		(6,775	)		(12,824	)		4,046
Consolidation of excess facilities			127,487		(10,202	)		(14,339	)		102,946

	Total	$	199,281	$	2,300		$	(85,225	)	$	116,356

The restructuring program included a reduction in force of approximately 4,000 employees across all business functions and geographic regions. As of June 30, 2002, all identified personnel had been terminated.

The adjustment to the provision for workforce reduction was primarily attributable to greater severance payments associated with reductions in force in certain foreign jurisdictions. The adjustments to the provision for other contractual obligations and the provision for the consolidation of excess facilities resulted primarily from favorable settlements. For purposes of presentation in the accompanying statement of operations, the $2.3 million adjustment to the provision for restructuring has been classified within selling, general and administrative expenses.

The following is a summary of the activity in the reserve for excess and obsolete inventory established as part of the third quarter 2001 restructuring program. Activity is shown from March 31, 2002 to June 30, 2002 (table in thousands):

Category		Balance as of March 31, 2002			Reduction			Current Utilization			Balance as of June 30, 2002
Excess and obsolete inventory		$	181,282		$	(24,769	)	$	(46,478	)	$	110,035

The following is a summary of the activity in the reserve for excess and obsolete inventory established as part of the third quarter 2001 restructuring program. Activity is shown from December 31, 2001 to June 30, 2002 (table in thousands):

Category		Balance as of December 31, 2001			Reduction			Current Utilization			Balance as of June 30, 2002
Excess and obsolete inventory		$	255,467		$	(52,840	)	$	(92,592	)	$	110,035

The $24.8 million and $52.8 million reductions resulted from a combination of favorable settlements with vendors on amounts due for cancelled orders and the use of previously identified obsolete inventory. For purposes of presentation in the accompanying statement of operations, the reductions have been classified within cost of sales.

substantially paid by the end of 2002. Amounts relating to the consolidation of facilities will be paid over the respective lease terms through 2015.

11. Income Taxes

For the six months ended June 30, 2002, the estimated effective income tax rate was 40%. For the quarter ended March 31, 2002, the estimated effective income tax rate was 30%. The effective income tax rate is based upon the expected income (loss) for the year, the expected composition of that income (loss) in different countries, and adjustments, if any, for the potential tax consequences, benefits or resolutions of tax audits. As a result of the change in estimate, the effective income tax rate benefit for the quarter ended June 30, 2002 was 104.8%. The rate for the quarter ended June 30, 2002 includes $11.0 million to provide for an annual estimated effective income tax rate of 40%. The estimated rate for 2002 is subject to further change as a result of changes in the composition of the income and losses in the countries in which EMC operates and the effects, if any, from tax audits.

12. New Accounting Pronouncements

In October 2001, the FASB issued FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." FAS No. 144 provides guidance on the accounting for the impairment or disposal of long-lived assets. The objectives of FAS No. 144 are to address issues relating to the implementation of FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and to develop a model for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. FAS No. 144 was effective for EMC commencing with its 2002 fiscal year. Upon adoption, this accounting pronouncement did not have a significant impact on EMC's financial position or results of operations.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with our interim consolidated financial statements and notes thereto which appear elsewhere in this Quarterly Report and MD&A contained in EMC's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 22, 2002. The following discussion contains forward-looking statements and should also be read in conjunction with "FACTORS THAT MAY AFFECT FUTURE RESULTS" beginning on page 33.

All dollar amounts in this MD&A are in millions.

Results of Operations—Second Quarter of 2002 Compared to Second Quarter of 2001

Revenues

Total revenues for the second quarter of 2002 were $1,387.5, compared to $2,020.9 for the second quarter of 2001, representing a decrease of $633.4, or 31%.

Information storage systems revenues were $779.1 in the second quarter of 2002, compared to $1,225.6 in the second quarter of 2001, representing a decrease of $446.5, or 36%. Information storage software revenues were $320.6 in the second quarter of 2002, compared to $497.5 in the second quarter of 2001, representing a decrease of $176.9, or 36%. The decrease in both information storage systems and software revenues was primarily due to declining sales volume. Sales were negatively influenced by the global economic slowdown that began in 2001, which has led to a reduction in information technology spending. Competitive pricing pressures also had an adverse effect on revenues. Continued adverse changes in the economy, further reductions in information technology spending or continued pricing pressures may continue to negatively impact revenue during 2002.

Information storage services revenues were $251.1 in the second quarter of 2002, compared to $232.0 in the second quarter of 2001, representing an increase of $19.1, or 8%. The increase was primarily due to a greater volume of professional services.

Total information storage revenues were $1,350.8 in the second quarter of 2002, compared to $1,955.1 in the second quarter of 2001, representing a decrease of $604.3, or 31%.

Other businesses revenues were $36.7 in the second quarter of 2002, compared to $65.7 in the second quarter of 2001, representing a decrease of $29.0, or 44%. Other businesses revenues consist of revenues from AViiON server products and related services. Included in the second quarter of 2001 were revenues from AViiON server products of $13.3. In the third quarter of 2001, EMC stopped selling AViiON server products. Accordingly, other businesses revenues for 2002 and future quarters are and will be comprised only of AViiON services revenues. These revenues are expected to continue to decline in future quarters.

Revenues on sales into the North American markets were $800.7 in the second quarter of 2002, compared to $1,156.6 in the second quarter of 2001, representing a decrease of $355.9, or 31%. Revenues on sales into the European, Middle East and African markets were $347.0 in the second quarter of 2002, compared to $529.0 in the second quarter of 2001, representing a decrease of $182.0, or 34%. Revenues on sales into the Asia Pacific markets were $212.9 in the second quarter of 2002, compared to $263.3 in the second quarter of 2001, representing a decrease of $50.4, or 19%. Revenues on sales into the Latin American markets were $27.0 in the second quarter of 2002, compared to $72.0 in the second quarter of 2001, representing a decrease of $45.0, or 62%. The decline in revenues in all these markets was attributable to the global economic slowdown that began in 2001, which has led to a

reduction in information technology spending. Competitive pricing pressures also had an adverse effect on revenues.

Changes in exchange rates in the second quarter of 2002 compared to the second quarter of 2001 negatively impacted revenues by less than 1%. The impact was most significant in Japan, Brazil and Argentina.

Gross Margins

Gross margin decreased to $556.4 in the second quarter of 2002 from $949.3 in the second quarter of 2001, a decrease of $392.9, or 41%. Included in the second quarter of 2002 results is a reduction to cost of sales, resulting in a gross margin benefit of $24.8 related to the reduction of the third quarter 2001 provision for excess and obsolete inventory, which totaled $310.0. The reduction resulted from a combination of favorable settlements with vendors on amounts due for cancelled orders and the use of previously identified obsolete inventory. Included in the second quarter of 2001 was goodwill amortization of $11.1. As a result of implementing Statement of Financial Accounting Standards ("FAS") No. 142, "Goodwill and Other Intangible Assets," goodwill is no longer amortized. Excluding the effects of these two items, gross margin decreased to $531.6 in the second quarter of 2002 from $960.4 in the second quarter of 2001, or 45%, and the gross margin percentage declined to 38.3% in the second quarter of 2002 from 47.5% in the second quarter of 2001. The decline in gross margin dollars and percentage was primarily attributable to the reduction in revenues resulting from lower sales volume, which caused fixed overhead costs to be absorbed over a lower sales base. In addition, lower average selling prices also contributed to the decline.

Gross margin for information storage products, excluding the effects of the $24.8 reduction to the provision for excess and obsolete inventory in the second quarter of 2002 and $10.2 related to goodwill amortization in the second quarter of 2001, decreased to 38.3% in the second quarter of 2002, compared to 49.5% in the second quarter of 2001. The decline was primarily attributable to the reduction in revenues resulting from lower sales volume, which caused fixed overhead costs to be absorbed over a lower sales base. In addition, lower average selling prices also contributed to the decline.

Gross margin for information storage services, excluding the effects of $0.9 related to goodwill amortization in 2001, increased to 37.4% in the second quarter of 2002, compared to 36.8% in the second quarter of 2001. The increase in the gross margin percentage was attributable to increased margins from systems maintenance.

Gross margin for other businesses increased to 43.7% in the second quarter of 2002, compared to 34.7% in the second quarter of 2001. The increase in the gross margin percentage resulted from this segment consisting of only services revenue in the second quarter of 2002 compared to both systems and services revenue in the second quarter of 2001.

Research and Development

Research and development ("R&D") expenses were $202.0 and $245.6 in the second quarters of 2002 and 2001, respectively, a decline of 18%. As a percentage of revenues, R&D expenses were 14.6% and 12.2% in the second quarters of 2002 and 2001, respectively. In addition, we spent $35.5 and $29.8 in the second quarters of 2002 and 2001, respectively, on software development, which costs were capitalized. Included in R&D expenses in the second quarter of 2001 was $3.1 related to goodwill amortization. As a result of implementing FAS No. 142, goodwill is no longer amortized.

R&D spending reflects our efforts to continue to improve our long-term competitive position. These efforts include enhancements to information storage software and information storage systems, including networked information storage systems. Significant efforts underway include R&D associated with our AutoIS software strategy, as well as enhancements to our Symmetrix, CLARiiON and Celerra systems.

Selling, General and Administrative

Selling, general and administrative ("SG&A") expenses were $420.8 and $617.3 in the second quarters of 2002 and 2001, respectively, a decrease of 32%. As a percentage of revenues, SG&A expenses were 30.3% and 30.5% in the second quarters of 2002 and 2001, respectively. The decrease in SG&A expenses was primarily due to our continued cost cutting efforts that commenced in the third quarter of 2001 as part of our restructuring initiative as well as a decrease in commissions due to lower revenues.

Restructuring Costs and Other Special Charges

In the third quarter of 2001, we implemented a restructuring program to reduce our cost structure and focus our resources on the highest potential growth areas of our business. As a result of the program, we incurred restructuring and other special charges of $825.2. The restructuring charges consisted of $111.5 for employee termination benefits, $104.5 related to the impairment of goodwill, purchased intangibles and other long-lived assets, $158.1 to consolidate excess facilities and $34.5 for other contractual obligations for which we will no longer derive an economic benefit. The other special charges included a provision for excess and obsolete inventory of $310.0 and an other than temporary decline in certain equity investments of $106.6.

The following is a summary of the activity in the reserve for the restructuring liabilities from March 31, 2002 to June 30, 2002:

Category		Balance as of March 31, 2002		Adjustment			Current Utilization			Balance as of June 30, 2002
Workforce reduction		$	27.1	$	19.3		$	(37.0	)	$	9.4
Other contractual obligations			11.9		(6.8	)		(1.0	)		4.1
Consolidation of excess facilities			120.3		(10.2	)		(7.2	)		102.9

	Total	$	159.3	$	2.3		$	(45.2	)	$	116.4

The adjustment to the provision for workforce reduction was primarily attributable to greater severance payments associated with reductions in force in certain foreign jurisdictions. The adjustment to the provision for other contractual obligations and the provision for consolidation of excess facilities resulted primarily from favorable settlements. For purposes of presentation in the accompanying statement of operations, the $2.3 adjustment to the provision for restructuring has been classified within SG&A expenses.

Category		Balance as of March 31, 2002			Reduction			Current Utilization			Balance as of June 30, 2002
Excess and obsolete inventory		$	181.3		$	(24.8	)	$	(46.5	)	$	110.0

The $24.8 reduction resulted from a combination of favorable settlements with vendors on amounts due for cancelled orders and the use of previously identified obsolete inventory.

As of June 30, 2002, the restructuring program has been substantially completed, although the ability to sell and sublet facilities is subject to appropriate market conditions. The expected cash impact of the charge is $247.8, of which $55.4 was paid in 2001 and $76.0 was paid in 2002. Remaining cash expenditures relating to workforce reductions and other contractual obligations will be substantially paid by the end of 2002. Amounts relating to the consolidation of facilities will be paid over the respective lease terms through 2015. The restructuring program has reduced costs in all areas of our operations, favorably impacting cost of sales, SG&A expenses and R&D expenses. As of June 30, 2002, we have reduced operating expenses by approximately $250.0 per quarter compared to our operating cost structure for the quarter ended June 30, 2001.

Investment Income

Investment income decreased to $57.8 in the second quarter of 2002, from $64.2 in the second quarter of 2001. Investment income was earned from investments in cash equivalents, short and long-term investments and sales-type leases. Investment income decreased because of lower realized gains on sales of investments and lower yields on outstanding investment balances. The weighted average annualized return on investments, excluding realized gains, was 3.7% and 5.0% in the second quarters of 2002 and 2001, respectively.

Other Income (Expense), net

Other expense, net was $5.7 in the second quarter of 2002, compared to other income, net of $2.1 in the second quarter of 2001. The change was primarily due to lower foreign currency gains realized in the second quarter of 2002 compared to the second quarter of 2001.

Provision (Benefit) for Income Taxes

The benefit for income taxes was $17.8 in the second quarter of 2002 compared to a provision for income taxes of $40.3 in the second quarter of 2001. The effective income tax rate is based upon the expected income (loss) for the year, the expected composition of that income (loss) in different countries, and adjustments, if any, for the potential tax consequences, benefits or resolutions of tax audits. As of the end of the first quarter of 2002, our projected estimated annual income tax rate was 30.0%. Due to a change in our estimated mix of income and losses in the countries in which we operate, our projected estimated annual income tax rate as of the end of the second quarter of 2002 was 40.0%. As a result of the change in estimate, the effective income tax rate benefit for the quarter ended June 30, 2002 was 104.8%. The rate for the quarter ended June 30, 2002 includes $11.0 million to provide for an annual estimated effective income tax rate of 40%. The estimated rate for 2002 is subject to further change as a result of changes in the composition of the income and losses in the countries in which we operate and the effects, if any, from tax audits. In the second quarter of 2001, we

had pre-tax earnings resulting in an effective tax rate of 27.0%. The rate of the tax benefit in the second quarter of 2002 is higher than the rate of the tax provision in the second quarter of 2001 due to the composition of income and losses in the countries in which we operate.

Results of Operations—First Six Months of 2002 Compared to First Six Months of 2001

Revenues

Total revenues for the first six months of 2002 were $2,689.5, compared to $4,365.7 for the first six months of 2001, representing a decrease of $1,676.2, or 38%.

Information storage systems revenues were $1,520.7 in the first six months of 2002, compared to $2,789.9 in the first six months of 2001, representing a decrease of $1,269.2, or 45%. Information storage software revenues were $602.9 in first six months of 2002, compared to $965.1 in the first six months of 2001, representing a decrease of $362.2, or 38%. The decrease in both information storage systems and software revenues was primarily due to declining sales volume. Sales were negatively influenced by the global economic slowdown that began in 2001, which has led to a reduction in information technology spending. Competitive pricing pressures also had an adverse effect on revenues. Continued adverse changes in the economy, further reductions in information technology spending or continued pricing pressures may continue to negatively impact revenue during 2002.

Information storage services revenues were $489.7 in the first six months of 2002, compared to $464.0 in the first six months of 2001, representing an increase of $25.7, or 6%. The increase was primarily due to a greater volume of professional services.

Total information storage revenues were $2,613.3 in the first six months of 2002, compared to $4,219.0 in the first six months of 2001, representing a decrease of $1,605.7, or 38%.

Other businesses revenues were $76.3 in the first six months of 2002, compared to $146.7 in the first six months of 2001, representing a decrease of $70.4, or 48%. Other businesses revenues consist of revenues from AViiON server products and related services. Included in the first six months of 2001 were revenues from AViiON server products of $38.4. In the third quarter of 2001, EMC stopped selling AViiON server products. Accordingly, other businesses revenues for 2002 and future quarters are and will be comprised only of AViiON services revenues. These revenues are expected to continue to decline in future quarters.

Revenues on sales into the North American markets were $1,569.6 in the first six months of 2002, compared to $2,571.3 in the first six months of 2001, representing a decrease of $1,001.7, or 39%. Revenues on sales into the European, Middle East and African markets were $632.6 in the first six months of 2002, compared to $1,125.7 in the first six months of 2001, representing a decrease of $493.1, or 44%. Revenues on sales into the Asia Pacific markets were $436.7 in the first six months of 2002, compared to $542.5 in the first six months of 2001, representing a decrease of $105.8, or 20%. Revenues on sales into the Latin American markets were $50.7 in the first six months of 2002, compared to $126.1 in the first six months of 2001, representing a decrease of $75.4, or 60%. The decline in revenues in all these markets was attributable to the global economic slowdown that began in 2001, which has led to a reduction in information technology spending. Competitive pricing pressures also had an adverse effect on revenues. The decline in revenues in Europe was also attributable to lower sales workforce productivity caused by the reduction in force related to our third quarter 2001 restructuring program, which, because of local labor laws, did not take place in Europe until well into the first quarter of 2002.

Changes in exchange rates in the first six months of 2002 compared to the first six months of 2001 negatively impacted revenues by approximately 1%. The impact was most significant in Japan, Argentina and Brazil.

Gross Margins

Gross margin decreased to $1,057.4 in the first six months of 2002 from $2,241.8 in the first six months of 2001, a decrease of $1,184.4, or 53%. Included in the first six months of 2002 results is a reduction to cost of sales, resulting in a gross margin benefit of $52.8 related to the reduction of the third quarter 2001 provision for excess and obsolete inventory, which totaled $310.0. The reduction resulted from a combination of favorable settlements with vendors on amounts due for cancelled orders and the use of previously identified obsolete inventory. Included in the first six months of 2001 was goodwill amortization of $22.2. As a result of implementing FAS No. 142, goodwill is no longer amortized. Excluding the effects of these two items, gross margin decreased to $1,004.6 in the first six months of 2002 from $2,264.1 in the first six months of 2001, or 56%, and the gross margin percentage declined to 37.4% in the first six months of 2002 from 51.9% in the first six months of 2001. The decline in gross margin dollars and percentage was primarily attributable to the reduction in revenues resulting from lower sales volume, which caused fixed overhead costs to be absorbed over a lower sales base. In addition, lower average selling prices also contributed to the decline.

Gross margin for information storage products, excluding the effects of the $52.8 reduction to the provision for excess and obsolete inventory in 2002 and $20.3 related to goodwill amortization in 2001, decreased to 36.9% in the first six months of 2002, compared to 54.2% in the first six months of 2001. The decline was primarily attributable to the reduction in revenues resulting from lower sales volume, which caused fixed overhead costs to be absorbed over a lower sales base. In addition, lower average selling prices also contributed to the decline.

Gross margin for information storage services, excluding the effect of the $1.9 related to goodwill amortization in 2001, remained consistent at 38.7% in the first six months of 2002, compared to 38.3% in the first six months of 2001.

Gross margin for other businesses increased to 42.3% in the first six months of 2002, compared to 34.0% in the first six months of 2001. The increase in the gross margin percentage resulted from this segment consisting of only services revenue in the first six months of 2002 compared to both systems and services revenue in the first six months of 2001.

Research and Development

R&D expenses were $403.0 and $469.7 in the first six months of 2002 and 2001, respectively, a decline of 14%. As a percentage of revenues, R&D expenses were 15.0% and 10.8% in the first six months of 2002 and 2001, respectively. In addition, we spent $64.3 and $59.6 in the first six months of 2002 and 2001, respectively, on software development, which costs were capitalized. Included in R&D expenses in the first six months of 2001 was $3.5 related to goodwill amortization. As a result of implementing FAS No. 142, goodwill is no longer amortized.

Selling, General and Administrative

SG&A expenses were $875.4 and $1,210.4 in the first six months of 2002 and 2001, respectively, a decrease of 28%. As a percentage of revenues, SG&A expenses were 32.6% and 27.7% in the first six months of 2002 and 2001, respectively. The decrease in SG&A expenses was primarily due to our continued cost cutting efforts that commenced in the third quarter of 2001 as part of our restructuring initiative as well as a decrease in commissions due to lower revenues.

Restructuring Costs and Other Special Charges

The following is a summary of the activity in the reserve for the restructuring liabilities from December 31, 2001 to June 30, 2002:

Category		Balance as of December 31, 2001		Adjustment			Current Utilization			Balance as of June 30, 2002
Workforce reduction		$	48.2	$	19.3		$	(58.1	)	$	9.4
Other contractual obligations			23.7		(6.8	)		(12.8	)		4.1
Consolidation of excess facilities			127.4		(10.2	)		(14.3	)		102.9

	Total	$	199.3	$	2.3		$	(85.2	)	$	116.4

The adjustment to the provision for workforce reduction was primarily attributable to greater severance payments associated with reductions in force in certain foreign jurisdictions. The adjustment to the provision for other contractual obligations and the provision for the consolidation of excess facilities resulted primarily from favorable settlements. For purposes of presentation in the accompanying statement of operations, the $2.3 adjustment to the provision for restructuring has been classified within SG&A expenses.

Category		Balance as of December 31, 2001			Reduction			Current Utilization			Balance as of June 30, 2002
Excess and obsolete inventory		$	255.5		$	(52.8	)	$	(92.7	)	$	110.0

The $52.8 reduction resulted from a combination of favorable settlements with vendors on amounts due for cancelled orders and the use of previously identified obsolete inventory.

The restructuring program has been substantially completed, although the ability to sell and sublet facilities is subject to appropriate market conditions. The expected cash impact of the charge is $247.8, of which $55.4 was paid in 2001 and $76.0 was paid in 2002. Remaining cash expenditures relating to workforce reductions and other contractual obligations will be substantially paid by the end of 2002. Amounts relating to the consolidation of facilities will be paid over the respective lease terms through 2015. The restructuring program has reduced costs in all areas of our operations, favorably impacting cost of sales, SG&A expenses and R&D expenses. As of June 30, 2002, we have reduced operating expenses by approximately $250.0 per quarter compared to our operating cost structure for the quarter ended June 30, 2001.

Investment Income

Investment income decreased to $113.3 in the first six months of 2002, from $135.8 in the first six months of 2001. Investment income was earned from investments in cash equivalents, short and long-term investments and sales-type leases. Investment income decreased because of lower realized gains on sales of investments and lower yields on outstanding investment balances. The weighted average annualized return on investments, excluding realized gains, was 3.6% and 5.2% in the first six months of 2002 and 2001, respectively.

Other Income (Expense), net

Other expense, net was $13.5 in the first six months of 2002, compared to other income, net of $4.6 in the first six months of 2001. The change was primarily due to foreign currency losses incurred in the first six months of 2002 compared to foreign currency gains realized in the first six months of 2001. Included in the six months ended June 30, 2002 was a $6.3 charge for other than temporary declines in equity investments. These investments are in privately-held companies, primarily in the storage industry. These investments are carried at cost, subject to adjustment for impairment.

Provision (Benefit) for Income Taxes

The benefit for income taxes was $50.7 in the first six months of 2002 compared to a provision for income taxes of $187.8 in the first six months of 2001. The effective income tax rate is based upon the expected income (loss) for the year, the expected composition of that income (loss) in different countries, and adjustments, if any, for the potential tax consequences, benefits or resolutions of tax audits. As a result of our pre-tax loss in the first six months of 2002, we had an income tax benefit with an effective tax rate of 40.0%. The estimated rate for 2002 is subject to change as a result of changes in the composition of the income and losses in the countries in which we operate and effects, if any, from tax audits. In the first six months of 2001, we had pre-tax earnings resulting in an effective tax rate of 27.0%. The rate of benefit in the first six months of 2002 is higher than the rate of the tax provision in the first six months of 2001 due to the composition of income and losses in the countries in which we operate.

Financial Condition

Cash and cash equivalents and short and long-term investments were $5,462.8 and $5,083.6 at June 30, 2002 and December 31, 2001, respectively, an increase of $379.2. During the first six months of 2002, cash and cash equivalents decreased by $496.7 and short and long-term investments increased by $875.9. Our mix of cash and cash equivalents and short and long-term investments fluctuates from quarter to quarter and is subject to the timing of expected cash receipts and cash disbursements.

Cash provided by operating activities in the first six months of 2002 was $815.6, compared to $1,018.8 in the first six months of 2001. The decline in the first six months of 2002 compared to the first six months of 2001 was primarily attributable to the $76.1 net loss incurred in the first six months of 2002 compared to the $507.7 of net income generated in the first six months of 2001. Partially offsetting the reduction in net income was an improvement in working capital associated with reductions in accounts and notes receivable and inventories and an increase in deferred revenue associated primarily with software sales.

Cash used for investing activities was $1,139.6 in the first six months of 2002, compared to $879.8 in the first six months of 2001. Capital additions were $218.8 and $507.5 in the first six months of 2002 and 2001, respectively. The decrease in capital additions resulted from cost containment measures implemented during the third quarter of 2001. Net purchases and maturities of investments, consisting primarily of debt securities, were $856.5 and $278.9 in the first six months of 2002 and 2001, respectively.

Cash used for financing activities was $165.9 in the first six months of 2002, compared to $50.4 in the first six months of 2001. During the first six months of 2002, we repurchased 23.4 million shares of Common Stock at a cost of $200.0. As of June 30, 2002, we had repurchased 24.5 million of the 50.0 million shares of Common Stock authorized for repurchase by our Board of Directors in May 2001. During the first six months of 2001, we distributed our ownership interest in McDATA. As a result of the distribution, McDATA's net assets were no longer consolidated with our assets, which resulted in a $142.0 reduction in cash. Partially offsetting these uses of cash was the generation of $43.0 for the six months ended June 30, 2002 and $103.1 for the six months ended June 30, 2001, from the exercise of stock options.

We employ several strategies to enhance our liquidity and income. We derive revenues from both selling and leasing activity. We customarily sell the notes receivable resulting from our leasing activity. Generally, we do not retain any recourse on the sale of these notes. If recourse is retained, we assess and provide for any exposure that may exist. Additionally, from time to time we may sell accounts receivable when it is economically beneficial. We also lend certain fixed income securities to generate investment income. During the first six months of 2002, we entered into various agreements to loan fixed income securities generally on an overnight basis. Under these securities lending agreements, the value of the collateral is equal to 102% of the fair market value of the loaned securities. The collateral is generally cash, U.S. government-backed securities or letters of credit. At June 30, 2002, there were no outstanding securities lending transactions.

We have available for use credit lines of $50.0 in the United States and $50.0 in Brazil. The Brazilian line requires us to borrow in Brazilian currency. As of June 30, 2002, we had $33.2 outstanding on our line of credit in Brazil and none outstanding on our line of credit in the United States. The Brazilian line of credit requires us to meet certain financial covenants with respect to limitations on losses and maintaining minimum levels of cash and investments. In the event the covenants are not met, the lender may require us to provide collateral to secure the outstanding balance. As of June 30, 2002, we were in compliance with the covenants. The Brazilian line of credit has been established to help manage currency volatility between the local currency and the U.S. dollar and facilitate cash repatriation.

Based on our current operating and capital expenditure forecasts, we believe that the cominbation of funds currently available, funds generated from operations and our available lines of credit will be adequate to finance our ongoing operations for the next twelve months.

To date, inflation has not had a material impact on our financial results.

Critical Accounting Policies

Critical accounting policies are those that are both most important to the portrayal of our financial condition and results of operations and require our management's most difficult, subjective or complex judgments and estimates. Actual results could differ from those estimates. We believe the policies that fall within this category are the policies on revenue recognition, asset valuation and accounting for income taxes.

Revenue Recognition

EMC derives revenue from sales of information storage systems, software and services. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectibility is reasonably assured. This policy is applicable to all sales, including sales to resellers and end users. The following summarizes the major terms of our contractual relationships with our customers and the manner in which we account for sales transactions.

Systems sales

Software sales

Services revenue

Services revenue consists of the sale of installation services, software warranty and maintenance, hardware maintenance, training and professional services.

Installation is not considered essential to the functionality of our products as these services do not alter the product capabilities, do not require specialized skills and may be performed by the customers or other vendors. Installation services revenues are recognized upon completion of installation.

Software warranty and maintenance and hardware maintenance revenues are recognized ratably over the contract period.

Training revenues are recognized upon completion of the training.

Multiple element arrangements

We consider sales contracts that include a combination of systems, software or services to be multiple element arrangements. An item is considered a separate element if it involves a separate earnings process. If an arrangement includes undelivered elements that are not essential to the functionality of the delivered elements, we defer the fair value of the undelivered elements with the residual revenue allocated to the delivered elements. Discounts are allocated only to the delivered elements. Fair value is determined based upon the price charged when the element is sold separately. Undelivered elements typically include installation, training, software warranty and maintenance, hardware maintenance and professional services.

Shipping terms

Our sales contracts generally provide for the customer to accept title and risk of loss when the product leaves our facility. When shipping terms or local laws do not allow for passage of title and risk of loss at shipping point, we defer recognizing revenue until title and risk of loss transfer to the customer.

Leases

Revenue from sales-type leases is recognized at the net present value of future lease payments. Revenue from operating leases is recognized over the lease period.

Other

We accrue for systems' warranty costs and reduce revenue for estimated sales returns at the time of shipment. Systems' warranty costs are estimated based upon our historical experience and specific identification of systems' requirements. Sales returns are estimated based upon our historical experience and specific identification of probable returns.

Revenue recognition is governed by various accounting principles, including the Securities and Exchange Commission's Staff Accounting Bulletin, No. 101, "Revenue Recognition in Financial Statements," Statement of Position No. 97-2, "Software Revenue Recognition," FAS No. 48, "Revenue Recognition When Right of Return Exists," FAS No. 13, "Accounting for Leases," and SOP No. 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts," among others. The application of the appropriate accounting principle to our revenue is dependent upon the specific transaction and whether the sale or lease includes systems, software and services or a combination of these items. As our business evolves, the mix of products and services sold will impact the timing of when revenue and related costs are recognized. Additionally, revenue recognition involves judgments, including assessments of expected returns and the likelihood of nonpayment. We analyze various factors, including a review of specific transactions, historical experience, credit-worthiness of customers and current market and economic conditions. Changes in judgments on these factors could impact the timing and amount of revenue and costs recognized.

As noted, we accrue for systems warranty costs at the time of shipment. While we engage in extensive product quality programs and processes, our warranty obligation is affected by product failure rates, material usage and service delivery costs. Should actual product failure rates, material usage or service delivery costs differ from our estimates, the amount of actual warranty costs could differ from our estimates.

Asset Valuation

Asset valuation includes assessing the recorded value of certain assets, including accounts and notes receivable, inventories, property, plant and equipment, investments, capitalized software and intangible and other assets. Asset valuation is governed by various accounting principles, including FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", and Accounting Research Bulletin No. 43, "Restatement and Revision of Accounting Research Bulletins", among others. Management uses a variety of factors to assess valuation depending upon the asset. For example, accounts and notes receivable are evaluated based upon the credit-worthiness of customers, historical experience, an assessment of expected returns and current market and economic conditions. The recoverability of inventories is based upon the types and levels of inventory held, forecasted demand, pricing, competition and changes in technology. Property, plant and equipment, capitalized software and intangible and other assets are evaluated utilizing various factors, including the expected period the asset will be utilized, forecasted cash flows, changes in technology and customer demand. Investments are evaluated for impairment based upon market conditions, the industry sectors in which the entity operates and the viability of each entity. Changes in judgments on any of these factors could impact the value of the asset.

Accounting for Income Taxes

Our effective income tax rate is based upon the expected income (loss) for the year, the expected composition of that income (loss) in different countries, and adjustments, if any, for the potential tax consequences, benefits or resolutions of tax audits. We recognize changes in our estimates as additional information becomes available. In addition, we assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we establish a valuation allowance. To the extent we establish a valuation allowance, we include such allowance as an expense within the tax provision in our statement of operations. In the event that actual results differ from our estimates, our provision for income taxes could be materially impacted.

New Accounting Pronouncements

In October 2001, the Financial Accounting Standards Board issued FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." FAS No. 144 provides guidance on the accounting for the impairment or disposal of long-lived assets. The objectives of FAS No. 144 are to address issues relating to the implementation of FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and to develop a model for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. FAS No. 144 was effective for us commencing with our 2002 fiscal year. Upon adoption, this accounting pronouncement did not have a significant impact on our financial position or results of operations.

FACTORS THAT MAY AFFECT FUTURE RESULTS

Our prospects are subject to certain uncertainties and risks. This Quarterly Report on Form 10-Q also contains certain forward-looking statements within the meaning of the Federal securities laws. Our future results may differ materially from our current results and actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors, including but not limited to those set forth below, other one-time events and other important factors disclosed previously and from time to time in our other filings with the SEC.

Our business could continue to be materially adversely affected as a result of general economic and market conditions.

We are subject to the effects of general global economic and market conditions. Our operating results have been materially adversely affected as a result of unfavorable economic conditions and reduced information technology spending. If economic and market conditions do not improve, our business, results of operations or financial condition could continue to be materially adversely affected.

Our business could continue to be materially adversely affected as a result of a lessening demand in the information technology market.

Our revenue and profitability depend on the overall demand for information storage systems, software and services, particularly in the product segments in which we compete. During 2001 and the first and second quarters of 2002, there was a decrease in demand for information storage products as customers delayed or reduced information technology expenditures. For 2002, customer forecasts indicate that information technology budgets have been further reduced. Further delays or reductions in information technology spending, domestically or internationally, could continue to materially adversely affect demand for our products and services which could result in decreased revenues or earnings.

We may have difficulty managing operations.

Our future operating results will depend on our overall ability to manage operations, which includes, among other things:

•: retaining and hiring, as required, the appropriate number of qualified employees
•: enhancing and expanding, as appropriate, our infrastructure, including but not limited to, our information systems and management team
•: accurately forecasting revenues
•: managing inventory levels to minimize excess and obsolete inventory
•: controlling expenses
•: managing our manufacturing capacity, real estate facilities and other assets
•: executing on our plans

An unexpected further decline in revenues without a corresponding and timely reduction in expenses or a failure to manage other aspects of our operations could have a further material adverse effect on our business, results of operations or financial condition.

Competitive pricing and difficulty managing product costs could materially adversely affect our revenues and earnings.

Competitive pricing pressures exist in the information storage market and have had, and in the future may have, a material adverse effect on our revenues and earnings. There also has been and may continue to be a willingness on the part of certain competitors to reduce prices or provide information storage products or services, together with other products or services, at minimal or no additional cost in order to preserve or gain market share. We currently believe that pricing pressures are likely to continue.

To date, we have been able to manage our component and product design costs. However, there can be no assurance that we will be able to continue to achieve reductions in component and product design costs. Further, the relative and varying rates of increases or decreases in product price and component cost could have a material adverse effect on our earnings.

Our business could be materially adversely affected as a result of war or acts of terrorism.

Terrorist acts or acts of war may cause damage or disruption to our employees, facilities, customers, partners, suppliers and distributors and resellers, which could have a material adverse effect on our business, results of operations or financial condition. Such conflicts may also cause damage or disruption to transportation and communication systems and to our ability to manage logistics in such an environment, including receipt of components and distribution of products.

We may be unable to keep pace with rapid industry, technological and market changes.

The markets in which we compete are characterized by rapid technological change, frequent new product introductions, evolving industry standards and changing needs of customers. There can be no assurance that our existing products will continue to be properly positioned in the market or that we will be able to introduce new or enhanced products into the market on a timely basis, or at all. We spend a considerable amount of money on research and development and introduce new products from time to time. There can be no assurance that enhancements to existing products or new products will receive customer acceptance.

Risks associated with the development and introduction of new products include delays in development and changes in data storage, networking and operating system technologies which could require us to modify existing products. Risks inherent in the transition to new products include the difficulty in forecasting customer preferences or demand accurately, the inability to expand production capacity to meet demand for new products, the impact of customers' demand for new products on the products being replaced, thereby causing an excessive obsolete supply of inventory, and delays in initial shipments of new products. Further risks inherent in new product introductions include the uncertainty of price-performance relative to products of competitors, competitors' responses to the introductions and the desire by customers to evaluate new products for longer periods of time. Our failure to introduce new or enhanced products on a timely basis, keep pace with rapid industry, technological or market changes or effectively manage the transitions to new products or new technologies could have a material adverse effect on our business, results of operations or financial condition.

If our suppliers do not meet our quality or delivery requirements, we could have decreased revenues and earnings.

We purchase many sophisticated components and products from one or a limited number of qualified suppliers, including some of our competitors. These components and products include disk

drives, high density memory components and power supplies. We have experienced delivery delays from time to time because of high industry demand or the inability of some vendors to consistently meet our quality or delivery requirements. If any of our suppliers were to cancel contracts or commitments with us or fail to meet the quality or delivery requirements needed to satisfy customer orders for our products, we could lose time-sensitive customer orders and have significantly decreased quarterly revenues and earnings, which would have a material adverse effect on our business, results of operations and financial condition.

Additionally, we periodically transition our product line to incorporate new technologies. The importance of transitioning our customers smoothly to new technologies, along with our historically uneven pattern of quarterly sales, intensifies the risk that a supplier who fails to meet our quality or delivery requirements will have a material adverse impact on our revenues and earnings.

Our business may suffer if we are unable to retain or attract key personnel.

Our business depends to a significant extent on the continued service of senior management and other key employees, the development of additional management personnel and the hiring of new qualified employees. Competition for highly skilled personnel is intense in the high technology industry. Because of the importance of stock-based incentive compensation in our total compensation program, the volatility or lack of positive performance in our stock price may from time to time adversely affect our ability to retain or attract key employees. There can be no assurance that we will be successful in retaining existing personnel or recruiting new personnel. The loss of one or more key or other employees, our inability to attract additional qualified employees or the delay in hiring key personnel could have a material adverse effect on our business, results of operations or financial condition.

Historically uneven sales patterns could significantly impact our quarterly revenues and earnings.

Our quarterly sales have historically reflected an uneven pattern in which a disproportionate percentage of a quarter's total sales occur in the last month and weeks and days of each quarter. This pattern makes prediction of revenues, earnings and working capital for each financial period especially difficult and uncertain and increases the risk of unanticipated variations in quarterly results and financial condition. We believe this uneven sales pattern is a result of many factors including:

•: the significant size of our average product price in relation to our customers' budgets, resulting in long lead times for customers' budgetary approval, which tends to be given late in a quarter
•: the tendency of customers to wait until late in a quarter to commit to purchase in the hope of obtaining more favorable pricing from one or more competitors seeking their business
•: the fourth quarter influence of customers' spending their remaining capital budget authorization prior to new budget constraints in the first quarter of the following year
•: seasonal influences

Our uneven sales pattern also makes it extremely difficult to predict near-term demand and adjust manufacturing capacity accordingly. If predicted demand is substantially greater than orders, there will be excess inventory. Alternatively, if orders substantially exceed predicted demand, the ability to assemble, test and ship orders received in the last weeks and days of each quarter may be limited, which could materially adversely affect quarterly revenues and earnings.

In addition, our revenues in any quarter are substantially dependent on orders booked and shipped in that quarter and our backlog at any particular time is not necessarily indicative of future sales levels. This is because:

•: we assemble our products on the basis of our forecast of near-term demand and maintain inventory in advance of receipt of firm orders from customers
•: we generally ship products shortly after receipt of the order
•: customers may reschedule or cancel orders with little or no penalty

Moreover, delays in product shipping, caused by loss of power or telecommunications or similar services, or an unexpected decline in revenues without a corresponding and timely slowdown in expenses, could intensify the impact of these factors on our business, results of operations and financial condition.

Risks associated with our distribution channels may materially adversely affect our financial results.

In addition to our direct sales force, we have agreements in place with many distributors, systems integrators, resellers and original equipment manufacturers to market and sell our products and services. We may, from time to time, derive a significant percentage of our revenues from such distribution channels. Our financial results could be materially adversely affected if our contracts with channel partners were terminated, if our relationship with channel partners were to deteriorate or if the financial condition of our channel partners were to weaken. In addition, as our market opportunities change, we may have an increased reliance on channel partners, which may negatively impact our gross margins. There can be no assurance that we will be successful in maintaining or expanding these channels. If we are not successful, we may lose sales opportunities, customers and market share. Furthermore, the partial reliance on channel partners may materially reduce the visibility to our management of potential customers and demand for products and services, thereby making it more difficult to accurately forecast such demand. In addition, there can be no assurance that our channel partners will not develop or market products or services in competition with us in the future.

Our business could be materially adversely affected as a result of the risks associated with acquisitions and investments.

As part of our business strategy, we seek to acquire businesses that offer complementary products, services or technologies. These acquisitions are accompanied by the risks commonly encountered in an acquisition of a business including, among other things:

•: the effect of the acquisition on our financial and strategic position and reputation
•: the failure of an acquired business to further our strategies
•: the difficulty of integrating the acquired business
•: the lack of experience in new markets, products or technologies or the initial dependence on unfamiliar supply or distribution partners
•: the diversion of our management's attention from other business concerns
•: the impairment of relationships with customers of the acquired business
•: the potential loss of key employees of the acquired company
•: the potential impairment of acquired assets

These factors could have a material adverse effect on our business, results of operations or financial condition. To the extent that we issue shares of our common stock or other rights to purchase common stock in connection with any future acquisition, existing stockholders may experience dilution and potentially decreased earnings per share.

We also seek to invest in businesses that offer complementary products, services or technologies. These investments are accompanied by risks similar to those encountered in an acquisition of a business.

The markets we serve are highly competitive, and we may be unable to compete effectively.

We compete with many established companies in the markets we serve and some of these companies (whether independently or by establishing alliances) may have substantially greater financial, marketing and technological resources, larger distribution capabilities, earlier access to customers and more opportunity to address customers' various information technology requirements than us. We also compete with many smaller, less established companies in specific product segments. Some of these companies may develop new technologies or products in advance of us or establish business models or technologies disruptive to us. Our business may be materially adversely affected by the announcement or introduction of new products by our competitors, including hardware and software products and services, and the implementation of effective marketing or sales strategies by our competitors.

Changes in foreign conditions could impair our international sales.

A substantial portion of our revenues is derived from sales outside the United States. In addition, a substantial portion of our products is manufactured outside of the United States. Accordingly, our future results could be materially adversely affected by a variety of factors, including changes in foreign currency exchange rates, changes in a specific country's or region's political or economic conditions, trade restrictions, import or export licensing requirements, the overlap of different tax structures or changes in international tax laws, changes in regulatory requirements, compliance with a variety of foreign laws and regulations and longer payment cycles in certain countries.

Undetected problems in our products could directly impair our financial results.

If flaws in design, production, assembly or testing of our products were to occur, we could experience a rate of failure in our products that would result in substantial repair or replacement costs and potential damage to our reputation. Continued improvement in manufacturing capabilities, control of material and manufacturing quality and costs and product testing, are critical factors in our future growth. There can be no assurance that our efforts to monitor, develop, modify and implement appropriate test and manufacturing processes for our products will be sufficient to permit us to avoid a rate of failure in our products that results in substantial delays in shipment, significant repair or replacement costs or potential damage to our reputation, any of which could have a material adverse effect on our business, results of operations or financial condition.

Our business could be materially adversely affected as a result of the risks associated with alliances.

We have alliances with leading information technology companies and we plan to continue our strategy of developing key alliances in order to expand our reach into markets. There can be no assurance that we will be successful in our ongoing strategic alliances or that we will be able to find further suitable business relationships as we develop new products and strategies. Any failure to

continue or expand such relationships could have a material adverse effect on our business, results of operations or financial condition.

There can be no assurance that companies with which we have strategic alliances, certain of which have substantially greater financial, marketing or technological resources than us, will not develop or market products in competition with us in the future, discontinue their alliances with us or form alliances with our competitors.

Our business may suffer if we cannot protect our intellectual property.

We generally rely upon patent, copyright, trademark and trade secret laws and contract rights in the United States and in other countries to establish and maintain our proprietary rights in our technology and products. However, there can be no assurance that any of our proprietary rights will not be challenged, invalidated or circumvented. In addition, the laws of certain countries do not protect our proprietary rights to the same extent as do the laws of the United States. Therefore, there can be no assurance that we will be able to adequately protect our proprietary technology against unauthorized third-party copying or use, which could adversely affect our competitive position. Further, there can be no assurance that we will be able to obtain licenses to any technology that we may require to conduct our business or that, if obtainable, such technology can be licensed at a reasonable cost.

From time to time, we receive notices from third parties claiming infringement by our products of third-party patent or other intellectual property rights. Responding to any such claim, regardless of its merit, could be time-consuming, result in costly litigation, divert management's attention and resources and cause us to incur significant expenses. In the event there is a temporary or permanent injunction entered prohibiting us from marketing or selling certain of our products or a successful claim of infringement against us requiring us to pay royalties to a third party, and we fail to develop or license a substitute technology, our business, results of operations or financial condition could be materially adversely affected.

We may become involved in litigation that may materially adversely affect us.

In the ordinary course of business, we may become involved in litigation, administrative proceedings and governmental proceedings. Such matters can be time-consuming, divert management's attention and resources and cause us to incur significant expenses. Furthermore, there can be no assurance that the results of any of these actions will not have a material adverse effect on our business, results of operations or financial condition.

We may have exposure to additional income tax liabilities.

As a multinational corporation, we are subject to income taxes in both the United States and various foreign jurisdictions. Our domestic and international tax liabilities are subject to the allocation of revenues and expenses in different jurisdictions and the timing of recognizing revenues and expenses. Additionally, the amount of income taxes paid is subject to our interpretation of applicable tax laws in the jurisdictions in which we file. From time to time, we are subject to income tax audits. While we believe we have complied with all applicable income tax laws, there can be no assurance that a governing tax authority will not have a different interpretation of the law and assess us with additional taxes. Should we be assessed with additional taxes, there could be a material adverse affect on our results of operations or financial condition.

Changes in regulations could materially adversely affect us.

Our business, results of operations or financial condition could be materially adversely affected if laws, regulations or standards relating to us or our products were newly implemented or changed.

Our stock price is volatile.

Our stock price, like that of other technology companies, is subject to significant volatility because of factors such as:

•: the announcement of new products, services or technological innovations by us or our competitors
•: quarterly variations in our operating results
•: changes in revenue or earnings estimates by the investment community
•: speculation in the press or investment community

In addition, our stock price is affected by general economic and market conditions and has recently been negatively affected by unfavorable global economic conditions. If such conditions continue to deteriorate, our stock price could decline further.

EMC CORPORATION

PART II
OTHER INFORMATION

Item 1. Legal Proceedings

In April 2002, EMC filed a complaint against Hitachi, Ltd. and Hitachi Data Systems Corporation (together, "Hitachi") with the International Trade Commission ("ITC") and in the United States Federal District Court in Worcester, Massachusetts. The ITC complaint alleges that Hitachi has engaged in unlawful activities by importing into the United States products that infringe six EMC patents. We have asked the ITC to issue an injunction to block importation of Hitachi's infringing products and in May 2002, the ITC voted to commence an investigation into our claims. The suit in District Court seeks preliminary and permanent injunctions as well as unspecified monetary damages for patent infringement. In June 2002, the suit in District Court was stayed, pending the outcome of the ITC action. Subsequent to the date we filed a complaint against Hitachi, in April 2002, Hitachi and Hitachi Computer Products (America), Inc. ("HICAM") filed a complaint against us in the United States Federal District Court for the Western District of Oklahoma alleging that certain of our products infringe eight Hitachi patents and seeking preliminary and permanent injunctions as well as unspecified monetary damages for patent infringement. In July 2002, this suit was transferred to the United States Federal District Court in Worcester, Massachusetts. We believe that Hitachi and HICAM's claims are without merit.

We are a party to other litigation which we consider routine and incidental to our business. Management does not expect the results of any of these actions to have a material adverse effect on our business, results of operations or financial condition.

Item 4. Submission of Matters to a Vote of Security Holders

The Annual Meeting of Stockholders was held on May 8, 2002. There was no solicitation in opposition to management's nominees as listed in EMC's proxy statement and all such nominees were elected as Class III directors for a three-year term. The stockholders approved an amendment to our 1989 Employee Stock Purchase Plan to increase the number of shares of available for grant under the Plan by 10,000,000 shares. The stockholders also voted on two stockholder proposals (Proposals 3 and 4). The stockholders approved Proposal 3, which requested that the Board take steps to nominate candidates that will result in a majority of independent directors. The stockholders voted against Proposal 4, which requested the Board nominating committee to make a greater commitment to locate qualified women and minorities as Board candidates, and provide a related report to stockholders. The results of the votes for each of these proposals were as follows:

1.: Election of Class III Directors:

	For	Withheld
Michael J. Cronin	1,745,808,239	64,538,176
W. Paul Fitzgerald	1,738,579,496	71,766,919
Joseph M. Tucci	1,583,719,365	226,627,050

In addition to these directors, EMC's other incumbent directors (John R. Egan, Windle B. Priem, Michael C. Ruettgers and Alfred M. Zeien) had terms that continued after the 2002 Annual Meeting.

2.: To amend EMC's 1989 Employee Stock Purchase Plan:

For:		1,755,738,187
Against:		47,762,900
Abstain:		6,845,328
Broker Non-Vote:		0

3.: To approve Proposal 3, a stockholder proposal, as described above:

For:		645,241,768
Against:		505,520,101
Abstain:		16,396,025
Broker Non-Vote:		643,188,520

4.: To approve Proposal 4, a stockholder proposal, as described above:

For:		358,860,778
Against:		756,491,341
Abstain:		51,805,775
Broker Non-Vote:		643,188,520

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

See index to Exhibits on page 43 of this report.

(b) Reports on Form 8-K

We did not file any current report on Form 8-K during the quarter ended June 30, 2002.

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.

		EMC CORPORATION
Date: July 30, 2002		By:		/s/ WILLIAM J. TEUBER, JR. William J. Teuber, Jr. Executive Vice President and Chief Financial Officer (Principal Financial Officer)

EXHIBIT INDEX

3.1		Restated Articles of Organization of EMC Corporation, as amended. (1)
3.2		Amended and Restated By-laws of EMC Corporation. (2)
4.1		Form of Stock Certificate. (3)
10.1		EMC Corporation 1985 Stock Option Plan, as amended (filed herewith).
10.2		EMC Corporation 1992 Stock Option Plan for Directors, as amended (filed herewith).
10.3		EMC Corporation 1993 Stock Option Plan, as amended (filed herewith).
10.4		EMC Corporation 2001 Stock Option Plan, as amended (filed herewith).
10.5		EMC Corporation Executive Deferred Compensation Retirement Plan, as amended (filed herewith).

(1): Incorporated by reference to EMC Corporation's Quarterly Report on Form 10-Q filed August 9, 2001 (No. 1-9853).
(2): Incorporated by reference to EMC Corporation's Annual Report on Form 10-K filed March 17, 2000 (No. 1-9853).
(3): Incorporated by reference to EMC Corporation's Annual Report on Form 10-K filed March 31, 1988 (No. 0-14367).

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EMC CORPORATION
EMC CORPORATION
PART I FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)
EMC CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited)
EMC CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
EMC CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) (unaudited)
EMC CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts in this MD&A are in millions.
EMC CORPORATION
PART II OTHER INFORMATION
SIGNATURES
EXHIBIT INDEX
EX-10.1 3 a2084917zex-10_1.txt EXHIBIT 10-1 Exhibit 10.1 EMC CORPORATION 1985 STOCK OPTION PLAN, as amended June 7, 2002 1. PURPOSE. The purpose of the EMC Corporation 1985 Stock Option Plan is to enable EMC Corporation to provide a special incentive to a limited number of key employees of the Company and its Subsidiaries, if any, who are in a position to have a significant effect upon the Company's business and earnings. In order to accomplish this purpose, the Plan authorizes the grant to such key employees of options to purchase Common Stock of the Company. Increased ownership of Common Stock will provide such key employees with an additional incentive to take into account the long-term interests of the Company. 2. DEFINITIONS. As used herein, the following words or terms have the meanings set forth below. The masculine gender is used throughout the Plan but is intended to apply to members of both sexes. 2.1 "Board of Directors" means the Board of Directors of the Company. 2.2 "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute. 2.3 "Committee" means the Committee appointed by the Board of Directors to administer the Plan or the Board of Directors as a whole if no appointment is made. 2.4 "Common Stock" means the Common Stock of the Company. 2.5 "Company" means EMC Corporation, a corporation established under the laws of The Commonwealth of Massachusetts. 2.6 "Fair Market Value" in the case of a share of Common Stock on a particular day, means the fair market value as determined from time to time by the Board of Directors or, where appropriate, by the Committee, taking into account all information which the Board of Directors, or the Committee, considers relevant. 2.7 "Incentive Stock Option" means a stock option that satisfies the requirements of Section 422 of the Code. 2.8 "Participant" means an individual holding a stock option or stock options granted to him under the Plan. 2.9 "Plan" means the EMC Corporation 1985 Stock Option Plan set forth herein. 2.10 "Subsidiary" or "Subsidiaries" means a corporation or corporations in which the Company owns, directly or indirectly, stock possessing 50 percent or more of the total combined voting power of all classes of stock. 2.11 "Ten Percent Stockholder" means any person who, at the time an option is granted, owns or is deemed to own stock (as determined in accordance with Sections 422 and 424 of the Code) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or its parent or a subsidiary. 3. ADMINISTRATION. 3.1 The Plan shall be administered by the Committee and, to the extent provided herein, the Board of Directors. A majority of the members of the Committee shall constitute a quorum, and all determinations of the Committee shall be made by a majority of its members. Any determination of the Committee under the Plan may be made without notice or meeting of the Committee by a writing signed by a majority of the Committee members. 3.2 Subject to the provisions set forth herein, each of the Committee and the Board of Directors shall have full authority to determine the provisions of options to be granted under the Plan. Subject to the provisions set forth herein, the Committee shall have full authority to interpret the terms of the Plan and of options granted under the Plan, to adopt, amend and rescind rules and guidelines for the administration of the Plan and for its own acts and proceedings and to decide all questions and settle all controversies and disputes which may arise in connection with the Plan; PROVIDED, HOWEVER, that any change to the terms of an option granted hereunder shall be approved by the Board of Directors to the extent such change would be deemed to be a new option grant or such terms relate to a subsequent transaction that would not be exempt from Section 16(b) of the Securities Exchange Act of 1934 in the absence of such approval. 3.3 The decision of the Committee or the Board of Directors, as applicable, on any matter as to which the Committee or the Board of Directors, as applicable, is given authority under subsection 3.2 shall be final and binding on all persons concerned. 3.4 Nothing in the Plan shall be deemed to give any officer or employee, or his legal representatives or assigns, any right to participate in the Plan, except to such 2 extent, if any, as the Committee or the Board, as applicable, may have determined or approved pursuant to the provisions of the Plan. 4. SHARES SUBJECT TO THE PLAN. 4.1 The maximum number of shares of Common Stock that may be delivered upon the exercise of options granted under the Plan shall be 288,000,000, subject to adjustment in accordance with the provisions of Section 8. 4.2 If any option granted under the Plan terminates without having been exercised in full (including an option which terminates by agreement between the Company and the Participant), the number of shares of Common Stock as to which such option has not been exercised prior to termination shall be available for future grants within the limits set forth in subsection 4.1. 4.3 Shares of Common Stock delivered upon the exercise of options shall consist of shares of authorized and unissued Common Stock, except that the Board of Directors may from time to time in its discretion determine in any case the shares to be so delivered shall consist of shares of authorized and issued Common Stock reacquired by the Company and held in its Treasury. No fractional shares of Common Stock shall be delivered upon the exercise of an option. 5. ELIGIBILITY FOR OPTIONS. Employees eligible to receive options under the Plan shall be those key employees of the Company and its Subsidiaries, if any, who, in the opinion of the Committee, are in a position to have a significant effect upon the Company's business and earnings. Members of the Board of Directors of the Company or a Subsidiary who are not employed as regular salaried officers or employees of the Company or a Subsidiary may not participate in the Plan. 6. GRANT OF OPTIONS. 6.1 From time to time while the Plan is in effect, each of the Committee and the Board of Directors may, in its absolute discretion, select from among the persons eligible to receive options (including persons to whom options were previously granted) those persons to whom options are to be granted. 6.2 Each of the Committee and the Board of Directors shall, in its absolute discretion, determine the number of shares of Common Stock to be subject to each option granted by it under the Plan. 6.3 No Incentive Stock Option may be granted under the Plan after May 16, 1995, but options theretofore granted may extend beyond that date. 3 7. PROVISIONS OF OPTIONS. 7.1 INCENTIVE STOCK OPTIONS OR OTHER OPTIONS. Options granted under the Plan may be either Incentive Stock Options or options which do not qualify as Incentive Stock Options, as the Committee or the Board of Directors shall determine at the time of each grant of options hereunder. 7.2 STOCK OPTION CERTIFICATES OR AGREEMENTS. Options granted under the Plan shall be evidenced by certificates or agreements in such form as the Committee shall from time to time approve. Such certificates or agreements shall comply with the terms and conditions of the Plan and may contain such other provisions not inconsistent with the terms and conditions of the Plan as the Committee shall deem advisable. In the case of options intended to qualify as Incentive Stock Options, the certificates or agreements shall contain such provisions relating to exercise and other matters as are required of incentive stock options under the Code. 7.3 TERMS AND CONDITIONS. All options granted under the Plan shall be subject to the following terms and conditions to the extent applicable and to such other terms and conditions not inconsistent therewith as the Committee or the Board of Directors shall determine: 7.3.1 Exercise Price. The exercise price per share of Common Stock with respect to each option shall be as determined by the Committee but in the case of an Incentive Stock Option not less than 100% (110% in the case of an Incentive Stock Option granted to a Ten Percent Stockholder) of the Fair Market Value per share at the time the option is granted. In the case of an option which does not qualify as an Incentive Stock Option, the exercise price per share of Common Stock shall be not less than par value. However, for those employees subject to Section 16 of the Securities Exchange Act of 1934, the per share exercise price for an option which does not qualify as an Incentive Stock Option shall not be less than 50% of the Fair Market Value at the time the option is granted. 7.3.2 VALUE OF SHARES OF COMMON STOCK SUBJECT TO INCENTIVE STOCK OPTIONS. Each eligible employee may be granted Incentive Stock Options only to the extent that, in the aggregate under this Plan and all incentive stock option plans of the Company and any related corporation, such Incentive Stock Options do not become exercisable for the first time by such employee during any calendar year in a manner which would entitle the employee to purchase more than $100,000 in fair market value (determined at the time the Incentive Stock Options were granted) of Common Stock in that year. Any options granted to any employee in excess of such amount will be granted as Non-Qualified Options. 4 7.3.3 PERIOD OF OPTIONS. An option shall be exercisable during such period of time as the Committee or the Board of Directors may specify (subject to subsection 7.4 below), but in the case of an Incentive Stock Option not after the expiration of ten years (five years in the case of an Incentive Stock Option granted to a Ten Percent Stockholder) from the date the option is granted. 7.3.4 EXERCISE OF OPTIONS. 7.3.4.1 Each option shall be made exercisable at such time or times as the Committee or the Board of Directors shall determine. In the case of an option made exercisable in installments, the Committee or the Board of Directors may later determine to accelerate the time at which one or more of such installments may be exercised. 7.3.4.2 Any exercise of an option shall be in writing signed by the proper person and delivered or mailed to the General Counsel of the Company, accompanied by an option exercise notice and payment in full for the number of shares in respect to which the option is exercised. 7.3.4.3 In the event an option is exercised by the executor or administrator of a deceased Participant, or by the person or persons to whom the option has been transferred by the Participant's will or the applicable laws of descent and distribution, the Company shall be under no obligation to deliver stock thereunder until the Company is satisfied that the person or persons exercising the option is or are the duly appointed executor or administrator of the deceased Participant or the person or persons to whom the option has been transferred by the Participant's will or by the applicable laws of descent and distribution. 7.3.4.4 The Committee or the Board of Directors may at the time of grant condition the exercise of an option upon agreement by the Participant to subject the Common Stock to any restrictions on transfer or repurchase rights in effect on the date of exercise, upon representations of continued employment and upon other terms not inconsistent with this Plan. Any such conditions shall be set forth in the option certificate or other document evidencing the option. 7.3.4.5 In the case of an option that is not an Incentive Stock Option, the Committee shall have the right to require that the individual exercising the option to remit to the Company an amount sufficient to satisfy any federal, state, or local withholding tax requirements (or makes other arrangements satisfactory to the Company with regard to such taxes) prior to the delivery of any Common Stock pursuant to the exercise of the option. In the case of an Incentive Stock Option, if at the time the Incentive Stock Option is exercised the Committee determines 5 that under applicable law and regulations the Company could be liable for the withholding of any federal or state tax with respect to a disposition of the Common Stock received upon exercise, the Committee may require as a condition of exercise that the individual exercising the Incentive Stock Option agree (i) to inform the Company promptly of any disposition (within the meaning of Section 422 (a) (1) of the Code and the regulations thereunder) of Common Stock received upon exercise, and (ii) to give such security as the Committee deems adequate to meet the potential liability of the Company for the withholding of tax, and to augment such security from time to time in any amount reasonably deemed necessary by the Committee to preserve the adequacy of such security. 7.3.4.6 In the case of an option that is exercised by an individual that is subject to taxation in a foreign jurisdiction, the Committee shall have the right to require the individual exercising the option to remit to the Company an amount sufficient to satisfy any federal or withholding requirement of that foreign jurisdiction (or make other arrangements satisfactory to the Company with regard to such taxes prior to the delivery of any Common Stock pursuant to the exercise of the option). 7.3.5 PAYMENT FOR AND DELIVERY OF STOCK. The shares of stock purchased on any exercise of an option granted hereunder shall be paid for in full in cash or, if permitted by the terms of the option, in shares of unrestricted Common Stock at the time of such exercise or, if so permitted, a combination of such cash and Common Stock. A Participant shall not have the rights of a stockholder with respect to awards under the Plan except as to stock actually issued to him. 7.3.6 LISTING OF STOCK, WITHHOLDING AND OTHER LEGAL REQUIREMENTS. The Company shall not be obligated to deliver any stock until all federal and state laws and regulations which the Company may deem applicable have been complied with, nor, in the event the outstanding Common Stock is at the time listed upon any stock exchange, until the stock to be delivered has been listed or authorized to be added to the list upon official notice of issuance to such exchange. In addition, if the shares of stock subject to any option have not been registered in accordance with the Securities Act of 1933, as amended, the Company may require the person or persons who wishes or wish to exercise such option to make such representation or agreement with respect to the sale of stock acquired on exercise of the option as will be sufficient, in the opinion of the Company's counsel, to avoid violation of said Act, and may also require that the certificates evidencing said stock bear an appropriate restrictive legend. 7.3.7 NON-TRANSFERABILITY OF OPTIONS. No option may be transferred by the Participant otherwise than by will, by the laws of descent and distribution or 6 pursuant to a qualified domestic relations order, and during the Participant's lifetime the option may be exercised only by him or her; PROVIDED, HOWEVER, that the Board of Directors or the Committee, as applicable, in its discretion, may allow for transferability of non-qualified stock options by the Participant to "Immediate Family Members". Immediate Family Members means children, grandchildren, spouse or common law spouse, siblings or parents of the Participant or to bona fide trusts, partnerships or other entities controlled by and of which the beneficiaries are Immediate Family Members of the Participant. Any option grants that are transferable are further conditioned on the Participant and Immediate Family Members agreeing to abide by the Company's then current stock option transfer guidelines. 7.3.8 DEATH. If a Participant dies at a time when he is entitled to exercise an Incentive Stock Option, then at any time or times within three years after his death such Incentive Stock Option may be exercised, as to all or any of the shares which the Participant was entitled to purchase thereunder immediately prior to his death, by his executor or administrator or the person or persons to whom the Incentive Stock Option is transferred by will or the applicable laws of descent and distribution, and except as so exercised such Incentive Stock Option shall expire at the end of such three-year period. In no event, however, may any Incentive Stock Option granted under the Plan be exercised after the expiration of ten years (five years in the case of an Incentive Stock Option granted to a Ten Percent Stockholder) from the date the Incentive Stock Option was granted. 7.3.9 TERMINATION OF EMPLOYMENT. If the employment of a Participant terminates for any reason other than his death, all options held by the Participant shall thereupon expire on the date of termination unless the option by its terms, or the Committee or the Board of Directors by resolution, shall allow the Participant to exercise any or all of the options held by him after termination. In the case of an Incentive Stock Option, the Incentive Stock Option shall in any event expire at the end of three months after such termination of employment, or after the expiration of ten years (five years in the case of an Incentive Stock Option granted to a Ten Percent Stockholder) from the date the Incentive Stock Option was granted, whichever occurs first. If the Committee or the Board of Directors so decides, an option may provide that a leave of absence granted by the Company or Subsidiary is not a termination of employment for the purpose of this subsection 7.3.9, and in the absence of such a provision the Committee may in any particular case determine that such a leave of absence is not a termination of employment for such purpose. The Committee shall also determine all other matters relating to continuous employment. 7.3.10 CANCELLATION AND RESCISSION OF OPTIONS. The following provisions of this Section 7.3.10 shall apply to options granted on or after July 1, 1998 to (i) Participants who are classified by the Company or a Subsidiary as 7 an executive officer, senior officer, or officer (collectively, an "Officer") of the Company or a Subsidiary; and (ii) certain other Participants designated by the Committee or the Board of Directors to be subject to the terms of this Section 7.3.10 (such designated Participants together with Officers referred to collectively as "Senior Participants"). The Committee or the Board of Directors may cancel, rescind, suspend or otherwise limit or restrict any unexpired option at any time if the Senior Participant engages in "Detrimental Activity" (as defined below). Furthermore, in the event a Senior Participant engages in Detrimental Activity at any time prior to or during the six months after any exercise of an option, such exercise may be rescinded until the later of (i) two years after such exercise or (ii) two years after such Detrimental Activity. Upon such rescission, the Company at its sole option may require the Senior Participant to (i) deliver and transfer to the Company the shares of Common Stock received by the Senior Participant upon such exercise, (ii) pay to the Company an amount equal to any realized gain received by the Senior Participant from such exercise, or (iii) pay to the Company an amount equal to the market price (as of the exercise date) of the Common Stock acquired upon such exercise minus the respective exercise price. The Company shall be entitled to set-off any such amount owed to the Company against any amount owed to the Senior Participant by the Company. As used in this subsection 7.3.10, "Detrimental Activity"shall include: (i) the failure to comply with the terms of the Plan or certificate or agreement evidencing the option; (ii) the failure to comply with any term set forth in the Company's Key Employee Agreement (irrespective of whether the Senior Participant is a party to the Key Employee Agreement); (iii) any activity that results in termination of the Senior Participant's employment for cause; (iv) a violation of any rule, policy, procedure or guideline of the Company; or (v) the Senior Participant being convicted of, or entering a guilty plea with respect to a crime whether or not connected with the Company. Further, if the Company commences an action against such Senior Participant (by way of claim or counterclaim and including declaratory claims), in which it is preliminarily or finally determined that such Senior Participant engaged in Detrimental Activity or otherwise violated this Section 7.3.10, the Senior Participant shall reimburse the Company for all costs and fees incurred in such action, including but not limited to, the Company's reasonable attorneys' fees. 7.3.11 JURISDICTION AND GOVERNING LAW. The parties submit to the exclusive jurisdiction and venue of the federal or state courts of the Commonwealth of Massachusetts to resolve issues that may arise out of or relate to the Plan or the same subject matter. The Plan shall be governed by the laws of the Commonwealth of Massachusetts, excluding its conflicts or choice of law rules or principles that might otherwise refer construction or interpretation of this Plan to the substantive law of another jurisdiction. 8 7.4 AUTHORITY OF THE COMMITTEE. The Committee shall have the authority, either generally or in particular instances, to waive compliance by a Participant with any obligation to be performed by him under an option and to waive any condition or provision of an option, except that the Committee may not (i) increase the total number of shares covered by any Incentive Stock Option (except in accordance with Section 8), (ii) reduce the option price per share of any Incentive Stock Option (except in accordance with Section 8) or (iii) extend the term of any Incentive Stock Option to more than ten years, subject, however, to the provisions of Section 10. 8. CHANGES IN STOCK. In the event of a stock dividend, stock split or other change in corporate structure or capitalization affecting the Common Stock that becomes effective after the adoption of the Plan by the Board of Directors, the Committee shall make appropriate adjustments in (i) the number and kind of shares of stock on which options may thereafter be granted hereunder, (ii) the number and kind of shares of stock remaining subject to each option outstanding at the time of such change and (iii) the option price. The Committee's determination shall be binding on all persons concerned. Subject to any required action by the stockholders, if the Company shall be the surviving corporation in any merger or consolidation (other than a merger or consolidation in which the Company survives but in which a majority of its outstanding shares are converted into securities of another corporation or are exchanged for other consideration), any option granted hereunder shall pertain and apply to the securities which a holder of the number of shares of stock of the Company then subject to the option would have been entitled to receive, but a dissolution or liquidation of the Company or a merger or consolidation in which the Company is not the surviving corporation or in which a majority of its outstanding shares are so converted or exchanged shall cause every option hereunder to terminate; provided that if any such dissolution, liquidation, merger or consolidation is contemplated, the Company shall either arrange for any corporation succeeding to the business and assets of the Company to issue to the Participants replacement options (which, in the case of Incentive Stock Options, satisfy, in the determination of the Committee, the requirements of Section 424 of the Code) on such corporation's stock which will to the extent possible preserve the value of the outstanding options or shall make the outstanding options fully exercisable at least 20 days before the effective date of any such dissolution, liquidation, merger or consolidation. The existence of the Plan shall not prevent any such change or other transaction and no Participant thereunder shall have any right except as herein expressly set forth. 9. EMPLOYMENT RIGHTS. Neither the adoption of the Plan nor any grant of options confers upon any employee of the Company or a Subsidiary any right to continued employment with the Company or a Subsidiary, as the case may be, nor does it interfere in any way with the 9 right of the Company or a Subsidiary to terminate the employment of any of its employees at any time. 10. DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION. The Committee or the Board of Directors may at any time discontinue granting options under the Plan and, with the consent of the Participant, may at any time cancel an existing option in whole or in part and grant another option to the Participant for such number of shares as the Committee or the Board of Directors specifies. The Board of Directors may at any time or times amend the Plan for the purpose of satisfying the requirements of any changes in applicable laws or regulations or for any other purpose which may at the time be permitted by law or may at any time terminate the Plan as to any further grants of options, provided that no such amendment shall without the approval of the stockholders of the Company (a) increase the maximum number of shares available under the Plan, (b) change the group of employees eligible to receive options under the Plan, (c) reduce the exercise price of outstanding incentive options or reduce the price at which incentive options may be granted, (d) extend the time within which options may be granted, (e) alter the Plan in such a way that incentive options granted or to be granted hereunder would not be considered incentive stock options under Section 422 of the Code, or (f) amend the provisions of this Section 10, and no such amendment shall adversely affect the rights of any employee (without his consent) under any option previously granted. 11. EFFECTIVE DATE. The Plan shall become effective upon its adoption by the Board of Directors, and options may be granted under the Plan from and after the date of such adoption; provided, however, that if prior to May 16, 1986 the stockholders of the Company have not approved the Plan, the Plan shall terminate to the extent that it relates to the issuance of Incentive Stock Options and all Incentive Stock Options theretofore granted shall terminate and cease to be of any force or effect. No Incentive Stock Option granted hereunder shall be exercisable unless and until the Plan has been so approved. 10 EX-10.2 4 a2084917zex-10_2.txt EXHIBIT 10-2 Exhibit 10.2 EMC CORPORATION 1992 EMC CORPORATION STOCK OPTION PLAN FOR DIRECTORS, as amended June 7, 2002 1. PURPOSE The purpose of this 1992 Stock Option Plan for Directors (the "Plan") is to advance the interests of EMC Corporation (the "Company") by enhancing the ability of the Company to attract and retain directors who are in a position to make significant contributions to the success of the Company and to reward directors for such contributions through ownership of shares of the Company's Common Stock (the "Stock"). 2. ADMINISTRATION The Plan shall be administered by the Board of Directors (the "Board") of the Company and the Executive Compensation and Stock Option Committee (the "Committee") of the Board, as set forth herein. The Board and the Committee shall each have authority, not inconsistent with the express provisions of the Plan to grant options in accordance with the Plan to such directors as are eligible to receive options. The Committee shall in addition have authority, not inconsistent with the express provisions of the Plan, (a) to prescribe the form or forms of instruments evidencing options and any other instruments required under the Plan and to change such forms from time to time; (b) to adopt, amend and rescind rules and regulations for the administration of the Plan; and (c) to interpret the Plan and decide any questions and settle all controversies and disputes that may arise in connection with the Plan. Such determinations of the Committee or the Board, as the case may be, shall be conclusive and shall bind all parties. Subject to Section 7, the Committee shall also have the authority, both generally and in particular instances, to waive compliance by a director with any obligation to be performed by him or her under an option and to waive any condition or provision of an option. Notwithstanding the preceding two sentences, any change to the terms of an option granted hereunder shall be approved by the Board to the extent such change would be deemed to be a new option grant or such terms relate to a subsequent transaction that would not be exempt from Section 16(b) of the Securities Exchange Act of 1934 in the absence of such approval. 3. EFFECTIVE DATE The Plan shall become effective on the date on which the Plan is approved by the stockholders of the Company. 4. SHARES SUBJECT TO THE PLAN (a) NUMBER OF SHARES. Subject to adjustment as provided in Section 4(c), the aggregate number of shares of Stock that may be delivered upon the exercise of options granted under the Plan shall be 14,400,000. If any option granted under the Plan terminates without having been exercised in full, the number of shares of Stock as to which such option was not exercised shall be available for future grants within the limits set forth in this Section 4(a). (b) SHARES TO BE DELIVERED. Shares delivered under the Plan shall be authorized but unissued Stock or, if the Board so decides in its sole discretion, previously issued Stock acquired by the Company and held in treasury. No fractional shares of Stock shall be delivered under the Plan. (c) CHANGES IN STOCK. In the event of a stock dividend, stock split or other change in corporate structure or capitalization affecting the Stock, the number and kind of shares of stock or securities of the Company to be subject to options then outstanding or to be granted under the Plan, and the option price, and other relevant provisions shall be appropriately adjusted by the Committee, whose determination shall be binding on all persons. 5. ELIGIBILITY FOR OPTIONS Directors eligible to receive options under the Plan ("Eligible Directors") shall be those directors who (i) are not employees of the Company; and (ii) are not holders of more than 5% of the outstanding shares of the Stock or persons in control of such holders. 6. TERMS AND CONDITIONS OF OPTIONS (a) FORMULA OPTIONS. Eligible Directors who are directors on the date of stockholder approval of the Plan shall be awarded options to purchase up to 40,000 shares of Stock. Following stockholder approval of the plan, each newly elected Eligible Director shall be awarded options to purchase up to 40,000 shares of Stock on the date of his or her first election. (b) DISCRETIONARY OPTIONS. In addition to the formula options provided for above, the Committee or the Board may award options to purchase shares of Stock to Eligible Directors on such terms as it may determine not inconsistent with this Plan. (c) EXERCISE PRICE. The exercise price of each option shall be not less than 50% of the fair market value per share of the Stock at the time of the grant. Unless the Board or the Committee specifies otherwise with respect to a particular formula option, the exercise price of each formula option provided for in Section 6(a) above shall be the fair market value per share of the Stock at the time of grant. "Fair market value" shall mean (i) the composite closing price per share of the Stock on the principal national securities exchange or market on which the Stock is then traded or (ii) if the Stock is not then traded on any such exchange or market, the fair market value as 2 determined from time to time in good faith by the Board or, where appropriate, by the Committee, taking into account all information which the Board, or the Committee, considers relevant. (d) DURATION OF OPTIONS. The latest date on which an option may be exercised (the "Final Exercise Date") shall be the date which is ten years from the date the option was granted. (e) EXERCISE OF OPTIONS. (1) Each formula option shall become exercisable in increments of 33 1/3% of the shares covered thereby on each of the first through third anniversaries of the grant. Each discretionary option shall become exercisable at such time or times as the Committee or the Board shall determine. (2) Any exercise of an option shall be in writing, signed by the proper person and delivered or mailed to the Company, accompanied by (a) an option exercise notice and any other documents required by the Committee; and (b) payment in full for the number of shares for which the option is exercised. (3) If any option is exercised by the executor or administrator of a deceased director, or by the person or persons to whom the option has been transferred by the director's will or the applicable laws of descent and distribution, the Company shall be under no obligation to deliver Stock pursuant to such exercise until the Company is satisfied as to the authority of the person or persons exercising the option. (4) The Company shall have the right to settle any option, and to terminate the rights of the holder thereof, by paying to the option holder the difference between the fair market value of the Stock at the time of settlement and the purchase price. (f) PAYMENT FOR AND DELIVERY OF STOCK. Stock purchased under the Plan shall be paid for as follows: (i) in cash or by certified check, bank draft or money order payable to the order of the Company; (ii) through the delivery of shares of Stock having a fair market value on the last business day preceding the date of exercise equal to the purchase price; or (iii) by a combination of cash and Stock as provided in clauses (i) and (ii) above. An option holder shall not have the rights of a stockholder with regard to awards under the Plan except as to Stock actually received by him or her under the Plan. The Company shall not be obligated to deliver any shares of Stock (a) until, in the opinion of the Company's counsel, all applicable Federal and state laws and regulations have been complied with; and (b) if the outstanding Stock is at the time listed on any stock exchange, until the shares to be delivered have been listed or authorized to be listed on such exchange upon official notice of issuance; and (c) until all other legal matters in connection with the issuance and delivery of such shares have been approved by the Company's counsel. If the sale of Stock has not been 3 registered under the Securities Act of 1933, as amended, the Company may require, as a condition to exercise of the option, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of such Act and may require that the certificates evidencing such Stock bear an appropriate legend restricting transfer. (g) NONTRANSFERABILITY OF OPTIONS/EXCEPTIONS. No option may be transferred by a director otherwise than by will, by the laws of descent and distribution or pursuant to a qualified domestic relations order, and during the director's lifetime the option may be exercised only by him or her; PROVIDED, HOWEVER, that the Board of Directors or the Committee, as applicable, in its discretion, may allow for transferability of options by the Participant to "Immediate Family Members." Immediate Family Members means children, grandchildren, spouse or common law spouse, siblings or parents of the Participant or to bona fide trusts, partnerships or other entities controlled by and of which the beneficiaries are Immediate Family Members of the Participant. Any option grants that are transferable are further conditioned on the Participant and Immediate Family Members agreeing to abide by the Company's then current stock option transfer guidelines. (h) DEATH. If a director dies at the time he or she is entitled to exercise an option, then the portion formerly exercisable by the director may be exercised by the director's executor or administrator, or by the person to whom the option is transferred under the applicable laws of descent and distribution, within three years of the death of the director, subject to earlier termination of an option pursuant to Section 6(d). (i) OTHER TERMINATION OF STATUS OF DIRECTOR. All previously unexercised options terminate and are forfeited automatically upon the termination of the director's service with the Company, unless the Committee or the Board of Directors specifies otherwise. (j) MERGERS, ETC. In the event of a dissolution, liquidation, consolidation or merger in which the Company is not the surviving corporation, or which results in the acquisition of substantially all of the Company's stock by a single person or entity or by a group of persons and entities acting in concert all outstanding options will thereupon terminate, provided at least twenty days prior to the effective date of any such dissolution, liquidation, consolidation or merger, the Committee or the Board may either (i) make all outstanding options immediately exercisable or (ii) arrange to have the surviving corporation grant replacement options for the option holders. (k) CANCELLATION AND RESCISSION OF OPTIONS. The following provisions of this Section 6(k) shall apply to options granted on or after July 1, 1998. The Committee or the Board of Directors may cancel, rescind, suspend or otherwise limit or restrict any unexpired option at any time if the director engages in "Detrimental Activity" (as defined below). Furthermore, in the event a director engages in Detrimental Activity at any time prior to or during the six months after any exercise of an option, such exercise may be rescinded until the later of (i) two years after such exercise or (ii) two years after such Detrimental Activity. Upon such rescission, the Company at its sole option may require the director to (i) deliver and transfer to the Company the shares of Common Stock received by the director upon such exercise, (ii) pay to the Company an amount 4 equal to any realized gain received by the director from such exercise, or (iii) pay to the Company an amount equal to the market price (as of the exercise date) of the Common Stock acquired upon such exercise minus the respective exercise price. The Company shall be entitled to set-off any such amount owed to the Company against any amount owed to the director by the Company. As used in this Section 6(k), "Detrimental Activity" shall include: (i) the failure to comply with the terms of the Plan or certificate or agreement evidencing the option; (ii) the failure to comply with any term set forth in the Company's Key Employee Agreement (irrespective of whether the director is a party to the Key Employee Agreement), (iii) any activity that results in termination of the director's employment for cause; (iv) a violation of any rule, policy, procedure or guideline of the Company; or (v) the director being convicted of, or entering a guilty plea with respect to a crime whether or not connected with the Company. Further, if the Company commences an action against such director (by way of claim or counterclaim and including declaratory claims), in which it is preliminarily or finally determined that such director engaged in Detrimental Activity or otherwise violated this Section 6(k), the director shall reimburse the Company for all costs and fees incurred in such action, including but not limited to, the Company's reasonable attorneys' fees. (l) JURISDICTION AND GOVERNING LAW. The parties submit to the exclusive jurisdiction and venue of the federal or state courts of the Commonwealth of Massachusetts to resolve issues that may arise out of or relate to the Plan or the same subject matter. The Plan shall be governed by the laws of the Commonwealth of Massachusetts, excluding its conflicts or choice of law rules or principles that might otherwise refer construction or interpretation of this Plan to the substantive law of another jurisdiction. 7. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION Neither adoption of the Plan nor the grant of options to a director shall affect the Company's right to grant to such director or any director options that are not subject to the Plan, to issue to such directors Stock as a bonus or otherwise, or to adopt other plans or arrangements under which Stock may be issued to directors. The Committee or the Board may at any time discontinue granting options under the Plan. The Board may at any time, or times, amend the Plan for the purpose of satisfying any changes in applicable laws or regulations or for any other purpose which may at the time be permitted by law, or may at any time terminate the Plan as to any further grants of options, provided that (except to the extent expressly required or permitted herein above) no such amendment shall, without the approval of the stockholders of the Company, (a) increase the maximum number of shares available under the Plan; (b) increase the number of options to be granted to Eligible Directors; (c) amend the definition of Eligible Directors so as to enlarge the group of directors eligible to receive options under the Plan; (d) reduce the price at which options may be granted other than as permitted in the Plan; or (e) amend the provisions of this Section 7. 5 EX-10.3 5 a2084917zex-10_3.txt EXHIBIT 10-3 Exhibit 10.3 EMC CORPORATION 1993 STOCK OPTION PLAN, as amended June 7, 2002 1. PURPOSE. The purpose of the EMC Corporation 1993 Stock Option Plan is to enable EMC Corporation to provide a special incentive to a limited number of key employees of the Company and its Subsidiaries, if any, who are in a position to have a significant effect upon the Company's business and earnings. In order to accomplish this purpose, the Plan authorizes the grant to such key employees of options to purchase Common Stock of the Company. Increased ownership of Common Stock will provide such key employees with an additional incentive to take into account the long-term interests of the Company. 2. DEFINITIONS. As used herein, the following words or terms have the meanings set forth below. The masculine gender is used throughout the Plan but is intended to apply to members of both sexes. 2.1 "Board of Directors" means the Board of Directors of the Company. 2.2 "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute. 2.3 "Committee" means the Committee appointed by the Board of Directors to administer the Plan or the Board of Directors as a whole if no appointment is made. 2.4 "Common Stock" means the Common Stock of the Company. 2.5 "Company" means EMC Corporation, a corporation established under the laws of The Commonwealth of Massachusetts. 2.6 "Fair Market Value" in the case of a share of Common Stock on a particular day, means the fair market value as determined from time to time by the Board of Directors or, where appropriate, by the Committee, taking into account all information which the Board of Directors, or the Committee, considers relevant. 2.7 "Incentive Stock Option" means a stock option that satisfies the requirements of Section 422 of the Code. 2.8 "Participant" means an individual holding a stock option or stock options granted to him under the Plan. Page 1 of 10 2.9 "Plan" means the EMC Corporation 1993 Stock Option Plan set forth herein. 2.10 "Subsidiary" or "Subsidiaries" means a corporation or corporations in which the Company owns, directly or indirectly, stock possessing 50 percent or more of the total combined voting power of all classes of stock. 2.11 "Ten Percent Stockholder" means any person who, at the time an option is granted, owns or is deemed to own stock (as determined in accordance with Sections 422 and 424 of the Code) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or its parent or a subsidiary. 3. ADMINISTRATION. 3.1 The Plan shall be administered by the Committee and, to the extent provided herein, the Board of Directors. A majority of the members of the Committee shall constitute a quorum, and all determinations of the Committee shall be made by a majority of its members. Any determination of the Committee under the Plan may be made without notice or meeting of the Committee by a writing signed by a majority of the Committee members. 3.2 Subject to the provisions set forth herein, each of the Committee and the Board of Directors shall have full authority to determine the provisions of options to be granted under the Plan. Subject to the provisions set forth herein, the Committee shall have full authority to interpret the terms of the Plan and of options granted under the Plan, to adopt, amend and rescind rules and guidelines for the administration of the Plan and for its own acts and proceedings and to decide all questions and settle all controversies and disputes which may arise in connection with the Plan; PROVIDED, HOWEVER, that any change to the terms of an option granted hereunder shall be approved by the Board of Directors to the extent such change would be deemed to be a new option grant or such terms relate to a subsequent transaction that would not be exempt from Section 16(b) of the Securities Exchange Act of 1934 in the absence of such approval. 3.3 The decision of the Committee or the Board of Directors, as applicable, on any matter as to which the Committee or the Board of Directors, as applicable, is given authority under subsection 3.2 shall be final and binding on all persons concerned. 3.4 Nothing in the Plan shall be deemed to give any officer or employee, or his legal representatives or assigns, any right to participate in the Plan, except to such extent, if any, as the Committee or the Board, as applicable, may have determined or approved pursuant to the provisions of the Plan. Page 2 of 10 4. SHARES SUBJECT TO THE PLAN. 4.1 The maximum number of shares of Common Stock that may be delivered upon the exercise of options granted under the Plan shall be 180,000,000, subject to adjustment in accordance with the provisions of Section 8. 4.2 If any option granted under the Plan terminates without having been exercised in full (including an option which terminates by agreement between the Company and the Participant), or if shares of Common Stock are reacquired by the Company upon the rescission of an exercise of an option, the number of shares of Common Stock as to which an option has not been exercised prior to termination, or have been reacquired upon the rescission of an option, shall be available for future grants within the limits set forth in subsection 4.1. 4.3 Shares of Common Stock delivered upon the exercise of options shall consist of shares of authorized and unissued Common Stock, except that the Board of Directors may from time to time in its discretion determine in any case the shares to be so delivered shall consist of shares of authorized and issued Common Stock reacquired by the Company and held in its Treasury. No fractional shares of Common Stock shall be delivered upon the exercise of an option. 5. ELIGIBILITY FOR OPTIONS. Employees eligible to receive options under the Plan shall be those key employees of the Company and its Subsidiaries, if any, who, in the opinion of the Committee, are in a position to have a significant effect upon the Company's business and earnings. Members of the Board of Directors of the Company or a Subsidiary who are not employed as regular salaried officers or employees of the Company or a Subsidiary may not participate in the Plan. 6. GRANT OF OPTIONS. 6.1 From time to time while the Plan is in effect, each of the Committee and the Board of Directors may, in its absolute discretion, select from among the persons eligible to receive options (including persons to whom options were previously granted) those persons to whom options are to be granted. 6.2 Each of the Committee and the Board of Directors shall, in its absolute discretion, determine the number of shares of Common Stock to be subject to each option granted by it under the Plan. 6.3 No Incentive Stock Option may be granted under the Plan after May 12, 2003, but options theretofore granted may extend beyond that date. Page 3 of 10 7. PROVISIONS OF OPTIONS. 7.1 INCENTIVE STOCK OPTIONS OR OTHER OPTIONS. Options granted under the Plan may be either Incentive Stock Options or options which do not qualify as Incentive Stock Options, as the Committee or the Board of Directors shall determine at the time of each grant of options hereunder. 7.2 STOCK OPTION CERTIFICATES OR AGREEMENTS. Options granted under the Plan shall be evidenced by certificates or agreements in such form as the Committee shall from time to time approve. Such certificates or agreements shall comply with the terms and conditions of the Plan and may contain such other provisions not inconsistent with the terms and conditions of the Plan as the Committee shall deem advisable. In the case of options intended to qualify as Incentive Stock Options, the certificates or agreements shall contain such provisions relating to exercise and other matters as are required of incentive stock options under the Code. 7.3 TERMS AND CONDITIONS. All options granted under the Plan shall be subject to the following terms and conditions to the extent applicable and to such other terms and conditions not inconsistent therewith as the Committee or the Board of Directors shall determine: 7.3.1 EXERCISE PRICE. The exercise price per share of Common Stock with respect to each option shall be as determined by the Committee but in the case of an Incentive Stock Option not less than 100% (110% in the case of an Incentive Stock Option granted to a Ten Percent Stockholder) of the Fair Market Value per share at the time the option is granted. In the case of an option which does not qualify as an Incentive Stock Option, the exercise price per share of Common Stock shall be not less than par value. 7.3.2 VALUE OF SHARES OF COMMON STOCK SUBJECT TO INCENTIVE STOCK OPTIONS. Each eligible employee may be granted Incentive Stock Options only to the extent that, in the aggregate under this Plan and all incentive stock option plans of the Company and any related corporation, such Incentive Stock Options do not become exercisable for the first time by such employee during any calendar year in a manner which would entitle the employee to purchase more than $100,000 in fair market value (determined at the time the Incentive Stock Options were granted) of Common Stock in that year. Any options granted to an employee in excess of such amount will be granted as Non-Qualified Options. 7.3.3 PERIOD OF OPTIONS. An option shall be exercisable during such period of time as the Committee or Board of Directors may specify (subject to subsection 7.4 below), but in the case of an Incentive Stock Option not after the expiration of ten years (five years in the case of an Incentive Stock Option granted to a Ten Percent Stockholder) from the date the option is granted. Page 4 of 10 7.3.4 EXERCISE OF OPTIONS. 7.3.4.1 Each option shall be made exercisable at such time or times as the Committee or the Board of Directors shall determine. In the case of an option made exercisable in installments, the Committee or the Board of Directors may later determine to accelerate the time at which one or more of such installments may be exercised. 7.3.4.2 Any exercise of an option shall be in writing signed by the proper person and delivered or mailed to the General Counsel of the Company, accompanied by an option exercise notice and payment in full for the number of shares in respect to which the option is exercised. 7.3.4.3 In the event an option is exercised by the executor or administrator of a deceased Participant, or by the person or persons to whom the option has been transferred by the Participant's will or the applicable laws of descent and distribution, the Company shall be under no obligation to deliver stock thereunder until the Company is satisfied that the person or persons exercising the option is or are the duly appointed executor or administrator of the deceased Participant or the person or persons to whom the option has been transferred by the Participant's will or by the applicable laws of descent and distribution. 7.3.4.4 The Committee or the Board of Directors may at the time of grant condition the exercise of an option upon agreement by the Participant to subject the Common Stock to any restrictions on transfer or repurchase rights in effect on the date of exercise, upon representations of continued employment and upon other terms not inconsistent with this Plan. Any such conditions shall be set forth in the option certificate or other document evidencing the option. 7.3.4.5 In the case of an option that is not an Incentive Stock Option, the Committee shall have the right to require that the individual exercising the option to remit to the Company an amount sufficient to satisfy any federal, state, or local withholding tax requirements (or makes other arrangements satisfactory to the Company with regard to such taxes) prior to the delivery of any Common Stock pursuant to the exercise of the option. In the case of an Incentive Stock Option, if at the time the Incentive Stock Option is exercised the Committee determines that under applicable law and regulations the Company could be liable for the withholding of any federal or state tax with respect to a disposition of the Common Stock received upon exercise, the Committee may require as a condition of exercise that the individual exercising the Incentive Stock Option agree (i) to inform the Company promptly of any Page 5 of 10 disposition (within the meaning of Section 422 (a) (1) of the Code and the regulations thereunder) of Common Stock received upon exercise, and (ii) to give such security as the Committee deems adequate to meet the potential liability of the Company for the withholding of tax, and to augment such security from time to time in any amount reasonably deemed necessary by the Committee to preserve the adequacy of such security. 7.3.4.6 In the case of an option that is exercised by an individual that is subject to taxation in a foreign jurisdiction, the Committee shall have the right to require the individual exercising the option to remit to the Company an amount sufficient to satisfy any federal or withholding requirement of that foreign jurisdiction (or make other arrangements satisfactory to the Company with regard to such taxes prior to the delivery of any Common Stock pursuant to the exercise of the option). 7.3.5 PAYMENT FOR AND DELIVERY OF STOCK. The shares of stock purchased on any exercise of an option granted hereunder shall be paid for in full in cash or, if expressly permitted by the terms of the option, in shares of unrestricted Common Stock at the time of such exercise or, if so permitted, a combination of such cash and Common Stock. A Participant shall not have the rights of a stockholder with respect to awards under the Plan except as to stock actually issued to him. 7.3.6 LISTING OF STOCK, WITHHOLDING AND OTHER LEGAL REQUIREMENTS. The Company shall not be obligated to deliver any stock until all federal and state laws and regulations which the Company may deem applicable have been complied with, nor, in the event the outstanding Common Stock is at the time listed upon any stock exchange, until the stock to be delivered has been listed or authorized to be added to the list upon official notice of issuance to such exchange. In addition, if the shares of stock subject to any option have not been registered in accordance with the Securities Act of 1933, as amended, the Company may require the person or persons who wishes or wish to exercise such option to make such representation or agreement with respect to the sale of stock acquired on exercise of the option as will be sufficient, in the opinion of the Company's counsel, to avoid violation of said Act, and may also require that the certificates evidencing said stock bear an appropriate restrictive legend. 7.3.7 NON-TRANSFERABILITY OF OPTIONS. No option may be transferred by the Participant otherwise than by will, by the laws of descent and distribution or pursuant to a qualified domestic relations order, and during the Participant's lifetime the option may be exercised only by him or her; PROVIDED, HOWEVER, that the Board of Directors or the Committee, as applicable, in its discretion, may allow for transferability of non-qualified stock options by the Participant to "Immediate Family Members." Immediate Family Members means children, Page 6 of 10 grandchildren, spouse or common law spouse, siblings or parents of the Participant or to bona fide trusts, partnerships or other entities controlled by and of which the beneficiaries are Immediate Family Members of the Participant. Any option grants that are transferable are further conditioned on the Participant and Immediate Family Members agreeing to abide by the Company's then current stock option transfer guidelines. 7.3.8 DEATH. If a Participant dies at a time when he is entitled to exercise an Incentive Stock Option, then at any time or times within three years after his death such Incentive Stock Option may be exercised, as to all or any of the shares which the Participant was entitled to purchase thereunder immediately prior to his death, by his executor or administrator or the person or persons to whom the Incentive Stock Option is transferred by will or the applicable laws of descent and distribution, and except as so exercised such Incentive Stock Option shall expire at the end of such three-year period. In no event, however, may any Incentive Stock Option granted under the Plan be exercised after the expiration of ten years (five years in the case of an Incentive Stock Option granted to a Ten Percent Stockholder) from the date the Incentive Stock Option was granted. 7.3.9 TERMINATION OF EMPLOYMENT. If the employment of a Participant terminates for any reason other than his death, all options held by the Participant shall thereupon expire at 5 p.m. United States eastern time on the date of termination unless the option by its terms, or the Committee or the Board of Directors by resolution, shall expressly allow the Participant to exercise any or all of the options held by him after termination; provided, that notwithstanding any such express allowance, any such option which is an Incentive Stock Option shall in any event expire no later than three months after such termination of employment, or after the expiration of ten years (five years in the case of an Incentive Stock Option granted to a Ten Percent Stockholder) from the date the Incentive Stock Option was granted, whichever occurs first. The Company shall have the sole discretion to set the date of termination for purposes of the Plan, without regard to any notice period or other obligation under the labor laws of the jurisdiction where the Participant is employed. If the Committee or the Board of Directors so decides, an option may provide that a leave of absence granted by the Company or Subsidiary is not a termination of employment for the purpose of this subsection 7.3.9, and in the absence of such a provision the Committee may in any particular case determine that such a leave of absence is not a termination of employment for such purpose. The Committee shall also determine all other matters relating to continuous employment. 7.3.10 CANCELLATION AND RESCISSION OF OPTIONS. The following provisions of this Section 7.3.10 shall apply to options granted on or after July 1, 1998 to (i) Participants who are classified by the Company or a Subsidiary as an executive officer, senior officer, or officer (collectively, an "Officer") of the Page 7 of 10 Company or a Subsidiary; and (ii) certain other Participants designated by the Committee or the Board of Directors to be subject to the terms of this Section 7.3.10 (such designated Participants together with Officers referred to collectively as "Senior Participants"). The Committee or the Board of Directors may cancel, rescind, suspend or otherwise limit or restrict any unexpired option at any time if the Senior Participant engages in "Detrimental Activity" (as defined below). Furthermore, in the event a Senior Participant engages in Detrimental Activity at any time prior to or during the six months after any exercise of an option, such exercise may be rescinded until the later of (i) two years after such exercise or (ii) two years after such Detrimental Activity. Upon such rescission, the Company at its sole option may require the Senior Participant to (i) deliver and transfer to the Company the shares of Common Stock received by the Senior Participant upon such exercise, (ii) pay to the Company an amount equal to any realized gain received by the Senior Participant from such exercise, or (iii) pay to the Company an amount equal to the market price (as of the exercise date) of the Common Stock acquired upon such exercise minus the respective exercise price. The Company shall be entitled to set-off any such amount owed to the Company against any amount owed to the Senior Participant by the Company. As used in this subsection 7.3.10, "Detrimental Activity" shall include: (i) the failure to comply with the terms of the Plan or certificate or agreement evidencing the option; (ii) the failure to comply with any term set forth in the Company's Key Employee Agreement (irrespective of whether the Senior Participant is a party to the Key Employee Agreement); (iii) any activity that results in termination of the Senior Participant's employment for cause; (iv) a violation of any rule, policy, procedure or guideline of the Company; or (v) the Senior Participant being convicted of, or entering a guilty plea with respect to a crime whether or not connected with the Company. Further, if the Company commences an action against such Senior Participant (by way of claim or counterclaim and including declaratory claims), in which it is preliminarily or finally determined that such Senior Participant engaged in Detrimental Activity or otherwise violated this Section 7.3.10, the Senior Participant shall reimburse the Company for all costs and fees incurred in such action, including but not limited to, the Company's reasonable attorneys' fees. 7.3.11 JURISDICTION AND GOVERNING LAW. The parties submit to the exclusive jurisdiction and venue of the federal or state courts of the Commonwealth of Massachusetts to resolve issues that may arise out of or relate to the Plan or the same subject matter. The Plan shall be governed by the laws of the Commonwealth of Massachusetts, excluding its conflicts or choice of law rules or principles that might otherwise refer construction or interpretation of this Plan to the substantive law of another jurisdiction. 7.4 AUTHORITY OF THE COMMITTEE. The Committee shall have the authority, either generally or in particular instances, to waive compliance by a Participant with Page 8 of 11 any obligation to be performed by him under an option and to waive any condition or provision of an option, except that the Committee may not (i) increase the total number of shares covered by any Incentive Stock Option (except in accordance with Section 8), (ii) reduce the option price per share of any Incentive Stock Option (except in accordance with Section 8) or (iii) extend the term of any Incentive Stock Option to more than ten years, subject, however, to the provisions of Section 10. 8. CHANGES IN STOCK. In the event of a stock dividend, stock split or other change in corporate structure or capitalization affecting the Common Stock that becomes effective after the adoption of the Plan by the Board of Directors, the Committee shall make appropriate adjustments in (i) the number and kind of shares of stock on which options may thereafter be granted hereunder, (ii) the number and kind of shares of stock remaining subject to each option outstanding at the time of such change and (iii) the option price. The Committee's determination shall be binding on all persons concerned. Subject to any required action by the stockholders, if the Company shall be the surviving corporation in any merger or consolidation (other than a merger or consolidation in which the Company survives but in which a majority of its outstanding shares are converted into securities of another corporation or are exchanged for other consideration), any option granted hereunder shall pertain and apply to the securities which a holder of the number of shares of stock of the Company then subject to the option would have been entitled to receive, but a dissolution or liquidation of the Company or a merger or consolidation in which the Company is not the surviving corporation or in which a majority of its outstanding shares are so converted or exchanged shall cause every option hereunder to terminate; provided that if any such dissolution, liquidation, merger or consolidation is contemplated, the Company shall either arrange for any corporation succeeding to the business and assets of the Company to issue to the Participants replacement options (which, in the case of Incentive Stock Options, satisfy, in the determination of the Committee, the requirements of Section 424 of the Code) on such corporation's stock which will to the extent possible preserve the value of the outstanding options or shall make the outstanding options fully exercisable at least 20 days before the effective date of any such dissolution, liquidation, merger or consolidation. The existence of the Plan shall not prevent any such change or other transaction and no Participant thereunder shall have any right except as herein expressly set forth. 9. EMPLOYMENT RIGHTS. Neither the adoption of the Plan nor any grant of options confers upon any employee of the Company or a Subsidiary any right to continued employment with the Company or a Subsidiary, as the case may be, nor does it interfere in any way with the right of the Company or a Subsidiary to terminate the employment of any of its employees at any time. Page 9 of 10 10. DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION. The Committee or the Board of Directors may at any time discontinue granting options under the Plan and, with the consent of the Participant, may at any time cancel an existing option in whole or in part and grant another option to the Participant for such number of shares as the Committee or the Board of Directors specifies. The Board of Directors may at any time or times amend the Plan for the purpose of satisfying the requirements of any changes in applicable laws or regulations or for any other purpose which may at the time be permitted by law or may at any time terminate the Plan as to any further grants of options, provided that no such amendment shall without the approval of the stockholders of the Company (a) increase the maximum number of shares available under the Plan, (b) change the group of employees eligible to receive options under the Plan, (c) reduce the exercise price of outstanding incentive options or reduce the price at which incentive options may be granted, (d) extend the time within which options may be granted, (e) alter the Plan in such a way that incentive options granted or to be granted hereunder would not be considered incentive stock options under Section 422 of the Code, or (f) amend the provisions of this Section 10, and no such amendment shall adversely affect the rights of any employee (without his consent) under any option previously granted. 11. EFFECTIVE DATE. The Plan became effective immediately upon its approval by the stockholders of the Company at the Annual Meeting on May 12, 1993. Page 10 of 10 EX-10.4 6 a2084917zex-10_4.txt EXHIBIT 10-4 Exhibit 10.4 EMC CORPORATION 2001 STOCK OPTION PLAN, AS AMENDED JUNE 7, 2002 1. PURPOSE. The purpose of the EMC Corporation 2001 Stock Option Plan is to enable EMC Corporation to provide a special incentive to a limited number of key employees of the Company and its Subsidiaries, if any, who are in a position to have a significant effect upon the Company's business and earnings. In order to accomplish this purpose, the Plan authorizes the grant to such key employees of options to purchase Common Stock of the Company. Increased ownership of Common Stock will provide such key employees with an additional incentive to take into account the long-term interests of the Company. 2. DEFINITIONS. As used herein, the following words or terms have the meanings set forth below. The masculine gender is used throughout the Plan but is intended to apply to members of both sexes. 2.1 "Board of Directors" means the Board of Directors of the Company. 2.2 "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute. 2.3 "Committee" means the Committee appointed by the Board of Directors to administer the Plan or the Board of Directors as a whole if no appointment is made. 2.4 "Common Stock" means the Common Stock of the Company. 2.5 "Company" means EMC Corporation, a corporation established under the laws of The Commonwealth of Massachusetts. 2.6 "Fair Market Value" in the case of a share of Common Stock on a particular day, means the fair market value as determined from time to time by the Board of Directors or, where appropriate, by the Committee, taking into account all information which the Board of Directors, or the Committee, considers relevant. 2.7 "Incentive Stock Option" means a stock option that satisfies the requirements of Section 422 of the Code. 2.8 "Participant" means an individual holding a stock option or stock options granted to him under the Plan. 2.9 "Plan" means the EMC Corporation 2001 Stock Option Plan set forth herein. 2.10 "Subsidiary" or "Subsidiaries" means a corporation or corporations in which the Company owns, directly or indirectly, stock possessing 50 percent or more of the total combined voting power of all classes of stock. 2.11 "Ten Percent Stockholder" means any person who, at the time an option is granted, owns or is deemed to own stock (as determined in accordance with Sections 422 and 424 of the Code) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or its parent or a subsidiary. 3. ADMINISTRATION. 3.1 The Plan shall be administered by the Committee and, to the extent provided herein, the Board of Directors. A majority of the members of the Committee shall constitute a quorum, and all determinations of the Committee shall be made by a majority of its members. Any determination of the Committee under the Plan may be made without notice or meeting of the Committee by a writing signed by a majority of the Committee members. 3.2 Subject to the provisions set forth herein, each of the Committee and the Board of Directors shall have full authority to determine the provisions of options to be granted under the Plan. Subject to the provisions set forth herein, the Committee shall have full authority to interpret the terms of the Plan and of options granted under the Plan, to adopt, amend and rescind rules and guidelines for the administration of the Plan and for its own acts and proceedings and to decide all questions and settle all controversies and disputes which may arise in connection with the Plan; PROVIDED, HOWEVER, that any change to the terms of an option granted hereunder shall be approved by the Board of Directors to the extent such change would be deemed to be a new option grant or such terms relate to a subsequent transaction that would not be exempt from Section 16(b) of the Securities Exchange Act of 1934 in the absence of such approval. 3.3 The decision of the Committee or the Board of Directors, as applicable, on any matter as to which the Committee or the Board of Directors, as applicable, is given authority under subsection 3.2 shall be final and binding on all persons concerned. 3.4 Nothing in the Plan shall be deemed to give any officer or employee, or his legal representatives or assigns, any right to participate in the Plan, except to such extent, if any, as the Committee or the Board, as applicable, may have determined or approved pursuant to the provisions of the Plan. 2 4. SHARES SUBJECT TO THE PLAN. 4.1 The maximum number of shares of Common Stock that may be delivered upon the exercise of options granted under the Plan shall be 80,000,000, subject to adjustment in accordance with the provisions of Section 8. 4.2 If any option granted under the Plan terminates without having been exercised in full (including an option which terminates by agreement between the Company and the Participant), or if shares of Common Stock are reacquired by the Company upon the rescission of an exercise of an option, the number of shares of Common Stock as to which an option has not been exercised prior to termination, or have been reacquired upon the rescission of an option, shall be available for future grants within the limits set forth in subsection 4.1. 4.3 Shares of Common Stock delivered upon the exercise of options shall consist of shares of authorized and unissued Common Stock, except that the Board of Directors may from time to time in its discretion determine in any case the shares to be so delivered shall consist of shares of authorized and issued Common Stock reacquired by the Company and held in its Treasury. No fractional shares of Common Stock shall be delivered upon the exercise of an option. 5. ELIGIBILITY FOR OPTIONS. Employees eligible to receive options under the Plan shall be those key employees of the Company and its Subsidiaries, if any, who, in the opinion of the Committee, are in a position to have a significant effect upon the Company's business and earnings. Members of the Board of Directors of the Company or a Subsidiary who are not employed as regular salaried officers or employees of the Company or a Subsidiary may not participate in the Plan. 6. GRANT OF OPTIONS. 6.1 From time to time while the Plan is in effect, each of the Committee and the Board of Directors may, in its absolute discretion, select from among the persons eligible to receive options (including persons to whom options were previously granted) those persons to whom options are to be granted. 6.2 Each of the Committee and the Board of Directors shall, in its absolute discretion, determine the number of shares of Common Stock to be subject to each option granted by it under the Plan. 6.3 No Incentive Stock Option may be granted under the Plan after May 9, 2011, but options theretofore granted may extend beyond that date. 3 7. PROVISIONS OF OPTIONS. 7.1 INCENTIVE STOCK OPTIONS OR OTHER OPTIONS. Options granted under the Plan may be either Incentive Stock Options or options which do not qualify as Incentive Stock Options, as the Committee or the Board of Directors shall determine at the time of each grant of options hereunder. 7.2 STOCK OPTION CERTIFICATES OR AGREEMENTS. Options granted under the Plan shall be evidenced by certificates or agreements in such form as the Committee shall from time to time approve. Such certificates or agreements shall comply with the terms and conditions of the Plan and may contain such other provisions not inconsistent with the terms and conditions of the Plan as the Committee shall deem advisable. In the case of options intended to qualify as Incentive Stock Options, the certificates or agreements shall contain such provisions relating to exercise and other matters as are required of incentive stock options under the Code. 7.3 TERMS AND CONDITIONS. All options granted under the Plan shall be subject to the following terms and conditions to the extent applicable and to such other terms and conditions not inconsistent therewith as the Committee or the Board of Directors shall determine: 7.3.1 EXERCISE PRICE. The exercise price per share of Common Stock with respect to each option shall be as determined by the Committee but in the case of an Incentive Stock Option not less than 100% (110% in the case of an Incentive Stock Option granted to a Ten Percent Stockholder) of the Fair Market Value per share at the time the option is granted. In the case of an option which does not qualify as an Incentive Stock Option, the exercise price per share of Common Stock shall be not less than par value. 7.3.2 VALUE OF SHARES OF COMMON STOCK SUBJECT TO INCENTIVE STOCK OPTIONS. Each eligible employee may be granted Incentive Stock Options only to the extent that, in the aggregate under this Plan and all incentive stock option plans of the Company and any related corporation, such Incentive Stock Options do not become exercisable for the first time by such employee during any calendar year in a manner which would entitle the employee to purchase more than $100,000 in fair market value (determined at the time the Incentive Stock Options were granted) of Common Stock in that year. Any options granted to an employee in excess of such amount will be granted as Non-Qualified Options. 7.3.3 PERIOD OF OPTIONS. An option shall be exercisable during such period of time as the Committee or Board of Directors may specify (subject to subsection 7.4 below), but in the case of an Incentive Stock Option not after the expiration of ten years (five years in the case of an Incentive Stock Option granted to a Ten Percent Stockholder) from the date the option is granted. 4 7.3.4 EXERCISE OF OPTIONS. 7.3.4.1 Each option shall be made exercisable at such time or times as the Committee or the Board of Directors shall determine. In the case of an option made exercisable in installments, the Committee or the Board of Directors may later determine to accelerate the time at which one or more of such installments may be exercised. 7.3.4.2 Any exercise of an option shall be in writing signed by the proper person and delivered or mailed to the office of Stock Option Administration of the Company, accompanied by an option exercise notice and payment in full for the number of shares in respect to which the option is exercised. 7.3.4.3 In the event an option is exercised by the executor or administrator of a deceased Participant, or by the person or persons to whom the option has been transferred by the Participant's will or the applicable laws of descent and distribution, the Company shall be under no obligation to deliver stock thereunder until the Company is satisfied that the person or persons exercising the option is or are the duly appointed executor or administrator of the deceased Participant or the person or persons to whom the option has been transferred by the Participant's will or by the applicable laws of descent and distribution. 7.3.4.4 The Committee or the Board of Directors may at the time of grant condition the exercise of an option upon agreement by the Participant to subject the Common Stock to any restrictions on transfer or repurchase rights in effect on the date of exercise, upon representations of continued employment and upon other terms not inconsistent with this Plan. Any such conditions shall be set forth in the option certificate or other document evidencing the option. 7.3.4.5 In the case of an option that is not an Incentive Stock Option, the Committee shall have the right to require the individual exercising the option to remit to the Company an amount sufficient to satisfy any federal, state, or local withholding tax requirements (or to make other arrangements satisfactory to the Company with regard to such taxes) prior to the delivery of any Common Stock pursuant to the exercise of the option. In the case of an Incentive Stock Option, if at the time the Incentive Stock Option is exercised the Committee determines that under applicable law and regulations the Company could be liable for the withholding of any federal or state tax with respect to a disposition of the Common Stock received upon exercise, the Committee may require as a condition of exercise that the individual exercising the Incentive Stock Option agree (i) to inform the Company promptly of any disposition (within the meaning of Section 422(a)(1) of the Code and the regulations thereunder) of Common Stock received upon exercise, and (ii) to give such security as the Committee deems adequate to meet the potential liability of the Company for the withholding of tax, and to augment such security from time to time in any amount reasonably deemed necessary by the Committee to preserve the adequacy of such security. 5 7.3.4.6 In the case of an option that is exercised by an individual that is subject to taxation in a foreign jurisdiction, the Committee shall have the right to require the individual exercising the option to remit to the Company an amount sufficient to satisfy any federal or withholding requirement of that foreign jurisdiction (or to make other arrangements satisfactory to the Company with regard to such taxes prior to the delivery of any Common Stock pursuant to the exercise of the option). 7.3.5 PAYMENT FOR AND DELIVERY OF STOCK. The shares of stock purchased on any exercise of an option granted hereunder shall be paid for in full in cash or, if expressly permitted by the terms of the option, in shares of unrestricted Common Stock at the time of such exercise or, if so permitted, a combination of such cash and Common Stock. A Participant shall not have the rights of a stockholder with respect to awards under the Plan except as to stock actually issued to him. 7.3.6 LISTING OF STOCK, WITHHOLDING AND OTHER LEGAL REQUIREMENTS. The Company shall not be obligated to deliver any stock until all federal, state and international laws and regulations which the Company may deem applicable have been complied with, nor, in the event the outstanding Common Stock is at the time listed upon any stock exchange, until the stock to be delivered has been listed or authorized to be added to the list upon official notice of issuance to such exchange. In addition, if the shares of stock subject to any option have not been registered in accordance with the Securities Act of 1933, as amended, the Company may require the person or persons who wishes or wish to exercise such option to make such representation or agreement with respect to the sale of stock acquired on exercise of the option as will be sufficient, in the opinion of the Company's counsel, to avoid violation of said Act, and may also require that the certificates evidencing said stock bear an appropriate restrictive legend. 7.3.7 NON-TRANSFERABILITY OF OPTIONS. No option may be transferred by the Participant otherwise than by will, by the laws of descent and distribution or pursuant to a qualified domestic relations order, and during the Participant's lifetime the option may be exercised only by him or her; PROVIDED, HOWEVER, that the Board of Directors or the Committee, as applicable, in its discretion, may allow for transferability of non-qualified stock options by the Participant to "Immediate Family Members." Immediate Family Members means children, grandchildren, spouse or common law spouse, siblings or parents of the Participant or to bona fide trusts, partnerships or other entities controlled by and of which the beneficiaries are Immediate Family Members of the Participant. Any option grants that are transferable are further conditioned on the Participant and Immediate Family Members agreeing to abide by the Company's then current stock option transfer guidelines. 6 7.3.8 DEATH, DISABILITY OR RETIREMENT OF A PARTICIPANT. 7.3.8.1 If a Participant's employment terminates by reason of death, all options held by the Participant, to the extent exercisable on the date of his death, may be exercised by his executor or administrator or the person or persons to whom the option is transferred by will or the applicable laws of descent and distribution at any time or times within three years after the date of the Participant's death. The options shall expire at the end of such three-year period. 7.3.8.2 If a Participant's employment terminates by reason of "Disability" (as defined below), all options held by the Participant, to the extent exercisable on the date of termination by reason of Disability (the "Disability Date"), may be exercised by the Participant at any time or times within three years after the Disability Date. The options shall expire at the end of such three-year period. Notwithstanding the foregoing, in the event the Participant fails to exercise an Incentive Stock Option within twelve months after the Disability Date, such option will be treated as an option which does not qualify as an Incentive Stock Option. Disability means the disability of the Participant within the meaning of Section 22(e)(3) of the Code. 7.3.8.3 If a Participant's employment terminates by reason of "Retirement" (as defined below), all options held by the Participant, to the extent exercisable on the date of termination by reason of Retirement (the "Retirement Date"), may be exercised by the Participant at any time or times within three years after the Retirement Date, The options shall expire at the end of such three-year period. Notwithstanding the foregoing, in the event the Participant fails to exercise an Incentive Stock Option within three months after the Retirement Date, such option will be treated as an option which does not qualify as an Incentive Stock Option. Retirement means the voluntary retirement by a Participant from service with the Company or any of its Subsidiaries (i) after the Participant has attained at least fifty-five years of age and at least five years of continuous service with the Company or any of its Subsidiaries or (ii) after the Participant has attained at least twenty years of continuous service with the Company or any of its Subsidiaries. 7.3.8.4 The provisions of this Section 7.3.8 shall not apply to options held by a Participant who engages or has engaged in Detrimental Activity (as defined in Section 7.3.10). 7.3.8.5 Notwithstanding anything in this Section 7.3.8 to the contrary, (i) no option granted under the Plan may be exercised beyond the date on which such option would otherwise expire pursuant to the terms thereof, and (ii) no Incentive Stock Option granted under the Plan may be exercised after the expiration of ten years (five years in the case of an Incentive Stock Option granted to a Ten Percent Stockholder) from the date the Incentive Stock Option was granted. 7 7.3.9 TERMINATION OF EMPLOYMENT. If the employment of a Participant terminates for any reason other than his death, Disability or Retirement, all options held by the Participant shall thereupon expire at 5 p.m. United States eastern time on the date of termination unless the option by its terms, or the Committee or the Board of Directors by resolution, shall expressly allow the Participant to exercise any or all of the options held by him after termination; provided, that notwithstanding any such express allowance, any such option which is an Incentive Stock Option shall in any event expire no later than three months after such termination of employment, or after the expiration of ten years (five years in the case of an Incentive Stock Option granted to a Ten Percent Stockholder) from the date the Incentive Stock Option was granted, whichever occurs first. The Company shall have the sole discretion to set the date of termination for purposes of the Plan, without regard to any notice period or other obligation under the labor laws of the jurisdiction where the Participant is employed. If the Committee or the Board of Directors so decides, an option may provide that a leave of absence granted by the Company or Subsidiary is not a termination of employment for the purpose of this subsection 7.3.9, and in the absence of such a provision the Committee may in any particular case determine that such a leave of absence is not a termination of employment for such purpose. The Committee shall also determine all matters relating to continuous employment. 7.3.10 CANCELLATION AND RESCISSION OF OPTIONS. The following provisions of this Section 7.3.10 shall apply to options granted to (i) Participants who are classified by the Company or a Subsidiary as an executive officer, senior officer, or officer (collectively, an "Officer") of the Company or a Subsidiary; and (ii) certain other Participants designated by the Committee or the Board of Directors to be subject to the terms of this Section 7.3.10 (such designated Participants together with Officers referred to collectively as "Senior Participants"). The Committee or the Board of Directors may cancel, rescind, suspend or otherwise limit or restrict any unexpired option at any time if the Senior Participant engages in "Detrimental Activity" (as defined below). Furthermore, in the event a Senior Participant engages in Detrimental Activity at any time prior to or during the six months after any exercise of an option, such exercise may be rescinded until the later of (i) two years after such exercise or (ii) two years after such Detrimental Activity. Upon such rescission, the Company at its sole option may require the Senior Participant to (i) deliver and transfer to the Company the shares of Common Stock received by the Senior Participant upon such exercise, (ii) pay to the Company an amount equal to any realized gain received by the Senior Participant from such exercise, or (iii) pay to the Company an amount equal to the market price (as of the exercise date) of the Common Stock acquired upon such exercise minus the respective exercise price. The Company shall be entitled to set-off any such amount owed to the Company against any amount owed to the Senior Participant by the Company. Further, if the Company commences an action against such Senior Participant (by way of claim or counterclaim and including declaratory claims), in which it is preliminarily or finally determined that such Senior Participant engaged in Detrimental Activity or otherwise violated this Section 7.3.10, the Senior Participant shall reimburse the Company for all costs and fees incurred in such action, including but not limited to, the Company's 8 reasonable attorneys' fees. As used in this subsection 7.3.10, "Detrimental Activity" shall include: (i) the failure to comply with the terms of the Plan or certificate or agreement evidencing the option; (ii) the failure to comply with any term set forth in the Company's Key Employee Agreement (irrespective of whether the Senior Participant is a party to the Key Employee Agreement); (iii) any activity that results in termination of the Senior Participant's employment for cause; (iv) a violation of any rule, policy, procedure or guideline of the Company; or (v) the Senior Participant being convicted of, or entering a guilty plea with respect to a crime whether or not connected with the Company. 7.3.11 JURISDICTION AND GOVERNING LAW. The parties submit to the exclusive jurisdiction and venue of the federal or state courts of the Commonwealth of Massachusetts to resolve issues that may arise out of or relate to the Plan or the same subject matter. The Plan shall be governed by the laws of the Commonwealth of Massachusetts, excluding its conflicts or choice of law rules or principles that might otherwise refer construction or interpretation of this Plan to the substantive law of another jurisdiction. 7.4 AUTHORITY OF THE COMMITTEE. The Committee shall have the authority, either generally or in particular instances, to waive compliance by a Participant with any obligation to be performed by him under an option and to waive any condition or provision of an option, except that the Committee may not (i) increase the total number of shares covered by any Incentive Stock Option (except in accordance with Section 8), (ii) reduce the option price per share of any Incentive Stock Option (except in accordance with Section 8) or (iii) extend the term of any Incentive Stock Option to more than ten years, subject, however, to the provisions of Section 10. 8. CHANGES IN STOCK. In the event of a stock dividend, stock split or other change in corporate structure or capitalization affecting the Common Stock that becomes effective after the adoption of the Plan by the Board of Directors, the Committee shall make appropriate adjustments in (i) the number and kind of shares of stock on which options may thereafter be granted hereunder, (ii) the number and kind of shares of stock remaining subject to each option outstanding at the time of such change and (iii) the option price. The Committee's determination shall be binding on all persons concerned. Subject to any required action by the stockholders, if the Company shall be the surviving corporation in any merger or consolidation (other than a merger or consolidation in which the Company survives but in which a majority of its outstanding shares are converted into securities of another corporation or are exchanged for other consideration), any option granted hereunder shall pertain and apply to the securities which a holder of the number of shares of stock of the Company then subject to the option would have been entitled to receive, but a dissolution or liquidation of the Company or a merger or consolidation in which the Company is not the surviving corporation or in which a majority of its outstanding shares are so converted or exchanged shall cause every option hereunder to terminate; provided that if any such 9 dissolution, liquidation, merger or consolidation is contemplated, the Company shall either arrange for any corporation succeeding to the business and assets of the Company to issue to the Participants replacement options (which, in the case of Incentive Stock Options, satisfy, in the determination of the Committee, the requirements of Section 424 of the Code) on such corporation's stock which will to the extent possible preserve the value of the outstanding options or shall make the outstanding options fully exercisable at least 20 days before the effective date of any such dissolution, liquidation, merger or consolidation. The existence of the Plan shall not prevent any such change or other transaction and no Participant thereunder shall have any right except as herein expressly set forth. 9. EMPLOYMENT RIGHTS. Neither the adoption of the Plan nor any grant of options confers upon any employee of the Company or a Subsidiary any right to continued employment with the Company or a Subsidiary, as the case may be, nor does it interfere in any way with the right of the Company or a Subsidiary to terminate the employment of any of its employees at any time. 10. DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION. The Committee or the Board of Directors may at any time discontinue granting options under the Plan and, with the consent of the Participant, may at any time cancel an existing option in whole or in part and grant another option to the Participant for such number of shares as the Committee or the Board of Directors specifies. The Board of Directors may at any time or times amend the Plan for the purpose of satisfying the requirements of any changes in applicable laws or regulations or for any other purpose which may at the time be permitted by law or may at any time terminate the Plan as to any further grants of options, provided that no such amendment shall without the approval of the stockholders of the Company (a) increase the maximum number of shares available under the Plan, (b) change the group of employees eligible to receive options under the Plan, (c) reduce the exercise price of outstanding incentive options or reduce the price at which incentive options may be granted, (d) extend the time within which options may be granted, (e) alter the Plan in such a way that incentive options granted or to be granted hereunder would not be considered incentive stock options under Section 422 of the Code, or (f) amend the provisions of this Section 10, and no such amendment shall adversely affect the rights of any employee (without his consent) under any option previously granted. 11. EFFECTIVE DATE. The Plan will become effective immediately upon its approval by the stockholders of the Company at the Annual Meeting on May 9, 2001. 10 EX-10.5 7 a2084917zex-10_5.txt EXHIBIT 10-5 Exhibit 10.5 EMC CORPORATION EXECUTIVE DEFERRED COMPENSATION RETIREMENT PLAN, AS AMENDED JUNE 7, 2002 EMC CORPORATION EXECUTIVE DEFERRED COMPENSATION RETIREMENT PLAN, AS AMENDED JUNE 7, 2002 ARTICLE 1. INTRODUCTION 1.1. ADOPTION OF PLAN. The EMC Corporation Executive Deferred Compensation Retirement Plan has been adopted effective as of January 1, 2001. The Plan has been amended effective as of June 7, 2002. 1.2. PURPOSE OF PLAN. The Company (as defined below) has adopted the Plan (as defined below) to provide a competitive level of retirement benefits to certain designated employees and directors of the Company or any of its Subsidiaries by allowing them to defer receipt of designated percentages of their Compensation (as defined below) and to provide, in the sole discretion of the Company, Company Credits (as defined below). 1.3. STATUS OF PLAN. The Plan is intended to be "a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees" within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA (as defined below), and shall be interpreted and administered to the fullest extent possible in a manner consistent with that intent. ARTICLE 2. DEFINITIONS Wherever used herein, the following terms shall have the meanings set forth below, unless a different meaning is clearly required by the context: 2.1. "ACCOUNT" means, for each Participant, the account established for his or her benefit under Section 5.1. 2.2. "ADMINISTRATOR" means initially the Executive Compensation and Stock Option Committee of the Board (as defined below) as it may be constituted from time to time, or otherwise means a committee comprised of such members of the Board or executive officers of the Company as may be appointed by the Board or the Company's President or Chief Executive Officer from time to time. 2.3. "BOARD" means the Board of Directors of the Company, as it may be constituted from time to time. 1 2.4. "CHANGE OF CONTROL" means the determination by the Administrator, in its sole discretion, that any of the following shall have occurred: (a) a reorganization, consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which the Company's common stock, par value $.01 per share (the "Common Stock") is converted into cash, securities or other property, in either case other than a reorganization, consolidation or merger of the Company in which the holders of Common Stock immediately prior to the reorganization, consolidation or merger hold, directly or indirectly, at least a majority of the voting stock of the continuing or surviving corporation immediately after such reorganization, consolidation or merger; or (b) the sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company. 2.5. "CODE" means the Internal Revenue Code of 1986, as amended from time to time. Reference to any section or subsection of the Code includes reference to any comparable or succeeding provisions of any legislation which amends, supplements or replaces such section or subsection. 2.6. "COMPANY" means EMC Corporation, a corporation formed under the laws of The Commonwealth of Massachusetts. 2.7. "COMPANY CREDIT" means any credit from the Company which is received by a Participant under Section 4.2. 2.8. "COMPANY CREDIT SUBACCOUNT" means the subaccount within the Participant's Account to which Company Credits and allocable earnings credits, if any, are credited. 2.9 "COMPANY CREDIT ELIGIBLE EMPLOYEE" means an employee of the Company or any of its Subsidiaries selected by the Administrator as eligible for Company Credits under Section 4.2 from among the group of highly compensated or managerial employees of the Company or any of its Subsidiaries. 2.10. "COMPANY STOCK" means the Company's common stock, par value $.01 per share. 2.11. "COMPENSATION" means any cash bonuses and directors' fees payable from time to time by the Company or any of its Subsidiaries to a Participant and a Participant's income from exercised vested stock options to purchase Company Stock; provided, however, that with respect to each Participant, the Administrator in its sole discretion may determine which specific types of Compensation may be deferred under the Plan by such Participant; provided further, however, that the Administrator may, in its sole discretion, amend this Section 2.11 to cover other types of compensation payable from time to time by the Company or any of its Subsidiaries to a Participant, including, without limitation, cash commissions and salary. 2 2.12. "ELECTIVE DEFERRAL" means the portion of Compensation which is deferred by a Participant under Section 4.1. 2.13. "ELECTIVE DEFERRAL SUBACCOUNT" means the subaccount within the Participant's Account to which Elective Deferrals and allocable earnings credits are credited. 2.14. "ELECTIVE DEFERRAL ELIGIBLE EMPLOYEE" means an employee of the Company or any of its Subsidiaries selected by the Administrator as eligible for Elective Deferrals under Section 4.1 from among the group of highly compensated or managerial employees of the Company or any of its Subsidiaries. 2.15 "ELIGIBLE EMPLOYEE" means an employee of the Company or any of its Subsidiaries who is a Company Credit Eligible Employee, an Elective Deferral Eligible Employee, or both. 2.16 "ELIGIBLE DIRECTOR" means any member of the Board. 2.17. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. Reference to any section or subsection of ERISA includes reference to any comparable or succeeding provisions of any legislation which amends, supplements or replaces such section or subsection. 2.18. "PARTICIPANT" means any individual who participates in the Plan in accordance with Article 3. 2.19. "PLAN" means the EMC Corporation Executive Deferred Compensation Retirement Plan as set forth herein and all subsequent amendments hereto. 2.20. "PLAN YEAR" means in the case of the first Plan Year, the period beginning January 1, 2001 and ending on December 31, 2001, and thereafter, the 12-month period ending each December 31. 2.21. "RESIGNATION OF SERVICE" means the voluntary resignation from service for the Company by an Eligible Director. 2.22. "RETIREMENT" means the voluntary retirement by a Participant from service with the Company (a) after such Participant has attained 55 years of age and five years of service with the Company or (b) after such Participant has attained twenty years of service with the Company or any of its Subsidiaries; provided, in each such case, that such Participant complies with the terms set forth in the Company's form of Key Employee Agreement (which agreement (i) shall be deemed to apply to such Participant whether or not such Participant is a party to a Key 3 Employee Agreement and (ii) is expressly incorporated by reference herein and made a part of the Plan). 2.23. "SUBSIDIARY" OR "SUBSIDIARIES" means a corporation or corporations in which the Company owns, directly or indirectly, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock. ARTICLE 3. PARTICIPATION 3.1. COMMENCEMENT OF PARTICIPATION. Any individual who is an Eligible Employee or an Eligible Director and who has elected to defer part of his or her Compensation for the Plan Year in accordance with Section 4.1, or who has been selected by the Company in its sole discretion to receive a Company Credit in accordance with Section 4.2, shall become a Participant on the date such election or credit is made. 3.2. CONTINUED PARTICIPATION. Subject to Section 3.3, an individual who has become a Participant in the Plan shall continue to be a Participant so long as any amount remains credited to his or her Account. 3.3. TERMINATION OF PARTICIPATION. The Administrator may terminate a Participant's participation in the Plan prospectively or retroactively for any reason, including but not limited to the Administrator's determination that such termination is necessary in order to maintain the Plan as a "plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees" within the meaning of sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. Upon termination of a Participant's participation in the Plan, amounts credited to a Participant's Account, if any, shall be paid to a Participant in a single lump sum payment comprised of cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock. ARTICLE 4. DEFERRALS AND CREDITS 4.1. ELECTIVE DEFERRALS (a) IN GENERAL. An Elective Deferral Eligible Employee or Eligible Director may elect to defer a designated portion of his or her Compensation to be earned or payable during a Plan Year, by filing a written election with the Administrator prior to the first day of the Plan Year in which such Compensation is to be earned or by such other date as may be determined by the Administrator in its sole discretion; provided, however, that with respect to each Participant, the Administrator in its sole discretion may determine which specific types of Compensation may be deferred under the Plan by such Participant. An individual who first becomes an Elective Deferral Eligible Employee or 4 Eligible Director on or after the first day of any Plan Year may elect to defer a designated portion of his or her Compensation to be earned during the Plan Year by filing a written election with the Administrator by such date as may be determined by the Administrator in its sole discretion. (b) NATURE OF ELECTION. Each election under this Section 4.1 for a Plan Year (or the balance of a Plan Year) shall be made on a form prescribed or approved by the Administrator, shall be irrevocable by the Participant for the applicable Plan Year, and shall apply only to Compensation earned after the date the election form is completed and filed with the Administrator. The election form shall specify the whole percentage or flat dollar amount of each type of Compensation that is to be deferred for the applicable Plan Year. In accordance with Article 6, each Participant shall indicate on the election form when the amount that is to be deferred for the applicable Plan Year is to be paid (e.g., upon Retirement or Resignation of Service, upon a fixed distribution date pursuant to Section 6.6, or upon a Change of Control) and the method of payment (e.g., in a single lump sum payment, in a number of annual installments or in any other method approved by the Administrator). The deferred amounts shall be credited to the Participant's Elective Deferral Subaccount as of the date such Compensation would otherwise have been paid to the Participant. 4.2. COMPANY CREDITS. Notwithstanding any other provisions of the Plan, the Company shall not be obligated to credit a Company Credit to the Company Credit Subaccount of a Company Credit Eligible Employee. The Company may determine from time to time, in its sole discretion, to credit a Company Credit, in an amount the Company may determine in its sole discretion, to the Company Credit Subaccount of a Company Credit Eligible Employee. ARTICLE 5. ACCOUNTS; INTEREST 5.1. ACCOUNTS. The Administrator shall establish an Account for each Participant consisting of an Elective Deferral Subaccount and Company Credit Subaccount, reflecting Elective Deferrals and Company Credits, respectively, and any adjustments hereunder. As soon as reasonably practical after the end of each Plan Year, the Administrator shall provide the Participant with a statement of his or her Account. 5.2. EARNINGS MEASUREMENT. The Administrator shall identify one or more funds (such as mutual funds or bank collective funds) from time to time for the purpose of measuring earnings credits to Participants' Accounts. Each Participant may specify which one or more of such funds he or she wishes to be used as a measuring vehicle for designated percentages of his or her Account, in such form and manner, and with such notice, as the Administrator may prescribe, provided that such directions may be given on a prospective basis only, and further provided that any deferrals of stock option gain Compensation shall be invested exclusively and permanently in Company Stock. Changes in Participant directions hereunder may be made by a 5 Participant no more than once every thirty (30) days or at such other times or as frequently as the Administrator may prescribe. Each Participant's Account shall be adjusted from time to time (at least quarterly) to reflect the fair market value that would be ascribed to the Account if the amounts credited to the Account were actually invested in the funds as directed by the Participant. For purposes of Company Credits, earnings credits (if any) shall begin to accrue as of the actual date of contribution and investment by the Company of such funds into a grantor trust pursuant to Section 9.1. 5.3. PAYMENTS. Each Participant's Account shall be reduced by the amount of any payment made to or on behalf of the Participant under Article 6 as of the date such payment is made. 5.4. VESTING. A Participant will at all times be 100% vested in his or her Elective Deferral Subaccount. A Participant will earn an interest to be vested in his or her Company Credit Subaccount according to any vesting schedule(s) adopted by the Company in its sole discretion; provided, however, that in the event (a) that a Participant becomes totally and permanently disabled as determined in the sole discretion of the Company or (b) of a Change of Control a Participant will become 100% vested in his or her Company Credit Subaccount. 5.5 DETRIMENTAL ACTIVITY. (a) Notwithstanding any other provisions of the Plan, in the event that a Participant engages in "Detrimental Activity" (as defined below) at any time, the Administrator may in its sole discretion (i) direct the Company to pay the balance of the Participant's Account in the form of a single lump sum payment comprised of cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock; and (ii) cancel, rescind, suspend or otherwise limit or restrict at any time all amounts, if any, credited to such Participant's Company Credit subaccount, whether or not fully vested. Furthermore, in the event that a Participant engages in Detrimental Activity at any time during the twelve (12) months after the termination of his or her employment with the Company or any of its Subsidiaries for any reason or termination of service as a director of the Company for any reason, as the case may be, the Company may require such Participant at any time until the later of (A) two years after such Participant's termination of employment for any reason or termination of service as a director of the Company for any reason, as the case may be, or (B) two years after such Participant engaged in Detrimental Activity to pay to the Company (1) an amount equal to any distributions previously made by the Company to such Participant from such Participant's Company Credit Account and (2), if the Company commences an action against such Participant (by way of a claim or counterclaim and including declaratory claims), in which it is preliminarily or finally determined that such Participant engaged in Detrimental Activity or otherwise violated this Section 5.5, an amount equal to the Company's costs and fees incurred in such action, including but not limited to, the Company's reasonable attorneys' fees. The Company shall be entitled to set off any such amounts owed to the Company against any amounts owed to such 6 Participant by the Company, including without limitation, any amounts to be distributed from such Participant's Elective Deferral Subaccount. For this purpose "Detrimental Activity" means, in the Company's sole determination, that the Participant has, directly or indirectly, (a) become associated in any capacity with any enterprise that is, or may be deemed to be, in competition with any business of the Company or any of its Subsidiaries, (b) solicited, induced or attempted to induce, in any enterprise that is competitive with the Company or any of its Subsidiaries, any customers or employees of the Company to curtail or discontinue their relationship with the Company or any of its Subsidiaries, (c) disclosed, communicated or misused, to the detriment of the Company or any of its Subsidiaries, any confidential or proprietary information relating to the Company or any of its Subsidiaries to any person or entity not associated with the Company or any of its Subsidiaries, (d) failed to comply with the terms of the Plan, (e) failed to comply with any term set forth in the Company's Key Employee Agreement (irrespective of whether the Participant is a party to the Key Employee Agreement), (f) engaged in any activity that results in termination of the Participant's employment for cause, (g) violated any rule, policy, procedure or guideline of the Company or any of its Subsidiaries, or (h) been convicted of, or has entered a guilty plea with respect to, a crime whether or not connected with the Company or any of its Subsidiaries. (b) Notwithstanding anything herein to the contrary, this Section 5.5 shall not in any way amend, modify or affect any other plan, agreement, instrument or understanding, including without limitation, any of the Company's stock option plans, or any of the rights of the Company or any of its Subsidiaries thereunder with respect to any Detrimental Activity or similar activity committed by a Participant. The Company expressly reserves all of its rights under any such other plan, agreement, instrument or understanding and this Section 5.5 shall not be construed in any way as a waiver of any such rights. ARTICLE 6. - PAYMENTS 6.1 PAYMENT UPON RETIREMENT OR RESIGNATION OF SERVICE. In the event a Participant's employment with the Company or any of its Subsidiaries is terminated due to the Participant's Retirement, or in the event that a Participant's service as a director of the Company is terminated due to the Participant's Resignation of Service, then as soon as administratively practicable thereafter, payments will be made to the Participant as follows: (a) With respect to the Participant's Elective Deferral Subaccount, unless the Participant elects an alternative form of payment as described in Section 6.1(c) either in the initial Elective Deferral election described in Section 4.1 or at least 13 months prior to Retirement or Resignation of Service, payments to be made upon Retirement or Resignation of Service will be made in a single lump sum payment comprised of cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock. 7 (b) With respect to the vested portion, if any, of the Participant's Company Credit Subaccount, unless the Participant elects an alternative form of payment as described in Section 6.1(c) at least 13 months prior to Retirement, payments to be made upon Retirement will be made in a single lump sum cash payment. The unvested portion, if any, of the Participant's Company Credit Subaccount shall be forfeited automatically upon Retirement. (c) A Participant may elect, either in the initial Elective Deferral election described in Section 4.1 or at least 13 months prior to the Participant's Retirement or Resignation of Service, to receive the balance of the Participant's Account in payments of five, ten or fifteen annual installment payments comprised of cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock. A Participant shall elect, either in the initial Elective Deferral election described in Section 4.1 or at least 13 months prior to the Participant's Retirement or Resignation of Service, the date upon which the first installment shall be made following Retirement or Resignation of Service and succeeding installments shall be made on the next four anniversaries of the date of Retirement or Resignation of Service (for a total of five installments), on the next nine anniversaries of the date of Retirement or Resignation of Service (for a total of ten installments), or on the next fourteen anniversaries of the date of Retirement or Resignation of Service (for a total of fifteen installments). If a Participant shall fail to elect the date upon which the first installment shall be made following Retirement or Resignation of Service, then the first installment shall be made as soon as administratively practicable following Retirement or Resignation of Service and succeeding installments shall be made on the next four anniversaries of the date of Retirement or Resignation of Service (for a total of five installments), on the next nine anniversaries of the date of Retirement or Resignation of Service (for a total of ten installments), or on the next fourteen anniversaries of the date of Retirement or Resignation of Service (for a total of fifteen installments). The amount of each installment shall be determined by dividing the Participant's applicable Account balance (adjusted through the day before the installment is paid) by the number of installments remaining. Notwithstanding the foregoing, subject to the prior approval of the Administrator in its sole discretion, a Participant make elect, either in the initial Elective Deferral election described in Section 4.1 or at least 13 months prior to the Participant's Retirement or Resignation of Service, to receive the balance of the Participant's Account in such amounts and at such times as the Participant shall describe in such election. Any election made under this Section 6.1(c) shall be made in writing on a form prescribed or approved by the Administrator, and may be revoked in writing on a form prescribed or approved by the Administrator at any time if such revocation is made at least 13 months prior to the Participant's Retirement or Resignation of Service. Notwithstanding the foregoing, the Administrator may, in its sole discretion, at any time after the Participant's Retirement or Resignation of Service, direct the Company to pay the balance of the 8 Participant's Account in the form of a single lump sum payment comprised of cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock. 6.2 PAYMENT UPON TERMINATION OF EMPLOYMENT OR SERVICE AS A DIRECTOR DUE TO DISABILITY. In the event a Participant's employment with the Company or any of its Subsidiaries or service as a director of the Company is terminated due to the Participant's disability as determined by the Administrator in its sole discretion ("Disability"), then as soon as administratively practicable thereafter, payments will be made to the Participant as follows: (a) With respect to the Participant's Elective Deferral Subaccount, payments will made at the same time and in the same manner as if the Participant's employment had terminated due to his or her Retirement or as if the Participant's service as a director of the Company had terminated due to his or her Resignation of Service. (b) With respect to the vested portion (after any acceleration of vesting pursuant to Section 5.4, if applicable), if any, of the Participant's Company Credit Subaccount, payments will made at the same time and in the same manner as if the Participant's employment had terminated due to his or her Retirement. The unvested portion, if any, of the Participant's Company Credit Subaccount shall be forfeited automatically upon termination of the Participant's employment with the Company of any of its Subsidiaries due to Disability. Notwithstanding the foregoing, the Administrator may, in its sole discretion, at any time after the termination of the Participant's employment with the Company or any of its Subsidiaries or service as a director of the Company due to Disability, direct the Company to pay the balance of the Participant's Account in the form of a single lump sum payment comprised of cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock. 6.3 PAYMENT UPON TERMINATION OF EMPLOYMENT OR SERVICE AS A DIRECTOR DUE TO DEATH. In the event a Participant's employment with the Company or any of its Subsidiaries or service as a director of the Company is terminated due to the Participant's death, then as soon as administratively practicable thereafter, payments will be made to the Participant's beneficiary or estate, in accordance with Section 6.3(c), as follows: (a) With respect to the Participant's Elective Deferral Subaccount, payments will be made at the same time and in the same manner as if the Participant's employment had terminated due to his or her Retirement or as if the Participant's service as a director of the Company had terminated due to his or her Resignation of Service. 9 (b) With respect to the vested portion of the Participant's Company Credit Subaccount, payments, if any, will made at the same time and in the same manner as if the Participant's employment had terminated due to his or her Retirement. The unvested portion of the Participant's Company Credit Subaccount shall be forfeited automatically upon termination of the Participant's employment with the Company or any of its Subsidiaries due to death. (c) A Participant shall designate his or her beneficiary or beneficiaries who, in the event of the Participant's death, shall be entitled to receive the balance of the Participant's Account. Such designation shall be made in writing on a form prescribed or approved by the Administrator, and may be revoked in writing on a form prescribed or approved by the Administrator at any time prior to the Participant's death. If a Participant fails to designate a beneficiary or no designated beneficiary survives the Participant, then payments hereunder shall be made to the Participant's estate. Notwithstanding the foregoing, the Administrator may, in its sole discretion, at any time after the Participant's death, direct the Company to pay the balance of the Participant's Account to the Participant's beneficiary or estate, as the case may be, in the form of a single lump sum payment comprised of cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock. 6.4 PAYMENT UPON TERMINATION OF EMPLOYMENT OR SERVICE AS A DIRECTOR FOR ANY OTHER REASON. In the event a Participant's employment with the Company or any of its Subsidiaries or service as a director of the Company is terminated for any reason other than Retirement, Resignation of Service, Disability or death, then as soon as administratively practicable thereafter, payments will be made to the Participant as follows: (a) With respect to the Participant's Elective Deferral Subaccount, payment will be made in a single lump sum payment comprised of cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock. (b) With respect to the vested portion, if any, of the Participant's Company Credit Subaccount, payment will be made in a single lump sum cash payment. The unvested portion of the Participant's Company Credit Subaccount shall be forfeited automatically upon the termination of the Participant's employment with the Company or any of its Subsidiaries for any reason other than Retirement, Disability or death. Notwithstanding the foregoing, the Administrator may, in its sole discretion, at any time after the termination of the Participant's employment with the Company or any of its Subsidiaries for any reason other than Retirement, Disability or death, direct the Company to pay the balance of the Participant's Account as if the Participant's employment had terminated due to his or her 10 Retirement or as if the Participant's service as a director of the Company had terminated due to his or her Resignation of Service. 6.5 SEVERE FINANCIAL HARDSHIP DISTRIBUTION. At any time, a Participant who believes he or she is suffering a severe financial hardship may apply to the Administrator for a distribution under the Plan in order to alleviate such hardship. The Administrator, in its sole discretion (but after taking into account, among other factors, the nature and foreseeability of the alleged hardship, the Participant's other resources, and the effect of making a distribution on the intended tax status of the deferrals made under the Plan), may direct the Company to pay to the Participant an amount which it determines is necessary or appropriate, not to exceed the Participant's Elective Deferral Subaccount balance, if any, and the Company shall pay such amount to the Participant in a single lump sum distribution to be paid in cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock. 6.6 IN-SERVICE DISTRIBUTION. In connection with his or her election to defer Compensation pursuant to Section 4.1, a Participant may specify a fixed distribution date for the commencement of payment of his or her Elective Deferral Subaccount which may be prior to termination of employment or termination of service as a director of the Company, which shall be payable in a single lump sum distribution or in five annual installments commencing on the fixed distribution date; provided, however, that such fixed distribution date shall not be earlier than the third anniversary of the last day of the Plan Year in which such Compensation was deferred. Any lump sum or installment distributions shall be paid in cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock. Such distribution dates may be extended to later dates so long as elections to extend are made at least 13 months prior to the fixed distribution date. If such distribution is to be paid in five annual installments, then the first installment shall be made on the fixed distribution date and succeeding installments shall be made on the next four anniversaries of the fixed distribution date (for a total of five installments). The amount of each installment shall be determined by dividing the Participant's applicable Account balance (adjusted through the day before the installment is paid) by the number of installments remaining. Any election made under this Section 6.6 shall be made in writing on a form prescribed or approved by the Administrator and may be revoked in writing on a form prescribed or approved by the Administrator at any time if such revocation is made at least 13 months prior to the fixed distribution date. In the event the Participant's employment with the Company or any of its Subsidiaries or service as a director of the Company is terminated prior to the fixed distribution date, then no payments shall be made pursuant to this Section 6.6 and, instead, the balance of the Participant's Elective Deferral Subaccount shall be paid based on the Participant's termination of employment by reason of Retirement, Disability, death or otherwise, or termination of service as a director of the Company by reason of Resignation of Service, Disability, death or otherwise, as the case may 11 be. In the event the Participant's employment with the Company or any of its Subsidiaries is terminated by reason of Retirement, Disability or death or the Participant's service as a director of the Company is terminated by reason of Resignation of Service, Disability or death, as the case may be, after the fixed distribution date has occurred and the Participant had elected to receive such distribution under this Section 6.6 in five annual installments, then payments shall be made at the same time and in the same manner as elected by the Participant under this Section 6.6. In the event the Participant's employment with the Company or any of its Subsidiaries is terminated for any reason other than Retirement, Disability or death or the Participant's service as a director of the Company is terminated for any reason other than Resignation of Service, Disability or death after the fixed distribution date has occurred and the Participant had elected to receive such distribution under this Section 6.6 in five annual installments, then notwithstanding such election, the remaining portion of the distribution shall be made in a single lump sum payment to the Participant as soon as administratively practicable after the Participant's employment with the Company or any of its Subsidiaries is terminated for any reason other than Retirement, Disability or death or the Participant's service as a director of the Company is terminated for any reason other than Resignation of Service, Disability or death. Notwithstanding the foregoing, the Administrator may, in its sole discretion, at any time after the termination of the Participant's employment for any reason or the termination of the Participant's service as a director of the Company for any reason, direct the Company to pay the balance of the Participant's Account in the form of a single lump sum payment. Any lump sum or installment distributions shall be paid in cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock. 6.7 IMMEDIATE DISTRIBUTION. At any time, a Participant may elect to have all or any portion of the balance of the Participant's Elective Deferral Subaccount distributed in a single lump sum distribution payable in cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock. Such distribution shall be made as soon as administratively practicable following the Administrator's receipt of the Participant's election. Any election made under this Section 6.7 shall be made in writing on a form prescribed or approved by the Administrator. The actual amount to be distributed to the Participant hereunder shall equal ninety percent (90%) of the elected distribution amount and the remaining ten percent (10%) of the elected distribution amount shall be forfeited to the Company. The Participant shall not be eligible to make any elective deferrals into the Plan at any time during the twelve month period immediately following the date of such distribution. 6.8 PAYMENT UPON A CHANGE OF CONTROL. In connection with his or her election to defer Compensation pursuant to Section 4.1, a Participant may elect to receive the balance of the Participant's Account in a single lump sum distribution payable in cash and (in the case of any portion of an Elective Deferral Subaccount attributable to deferrals of stock option gain Compensation) Company Stock upon a Change of Control. Any election made under this Section 6.8 shall be made in writing on a form prescribed or approved by the Administrator and 12 may be revoked in writing on a form prescribed or approved by the Administrator at any time if such revocation is made at least 13 months prior to the Change of Control. 6.9. PAYMENTS TO A PARTICIPANT WHO IS AN ELIGIBLE DIRECTOR AND AN ELIGIBLE EMPLOYEE. Notwithstanding anything in this Article 6 to the contrary, in the event that payments are to be made from a Participant's Account pursuant to this Article 6 and such Participant is or was both an Eligible Director and an Eligible Employee, then, subject to the discretion of the Administrator, the payments shall be made such that the portion of the balance of the Participant's Account attributable to Compensation earned by the Participant as an employee of the Company or any of its Subsidiaries shall be paid in accordance with the applicable provisions of this Article 6 relating to the termination of such Participant's employment by reason of Retirement, Disability, death or otherwise, as the case may be, and the portion of the balance of the Participant's Account attributable to Compensation earned by the Participant for his or her service as a director of the Company shall be paid in accordance with the applicable provisions of this Article 6 relating to the termination of such Participant's service as a director by reason of Resignation of Service, Disability, death or otherwise, as the case may be. ARTICLE 7. ADMINISTRATOR 7.1. PLAN ADMINISTRATION AND INTERPRETATION. The Administrator shall oversee the administration of the Plan. The Administrator shall have complete discretionary control and authority to administer all aspects of the Plan and to determine the rights and benefits and all claims, demands and actions arising out of the provisions of the Plan of any Participant, beneficiary, deceased Participant, or any other person having or claiming to have any interest under the Plan. The Administrator shall have the exclusive discretionary power to interpret the Plan and to decide all matters under the Plan. The Administrator also shall have the exclusive discretionary power to adopt, amend and rescind rules and guidelines for the administration of the Plan and for its own acts and proceedings. Such interpretation and decision shall be final, conclusive and binding on all Participants and any person claiming under or through any Participant, in the absence of clear and convincing evidence that the Administrator acted arbitrarily and capriciously. Any individual serving as Administrator, or on a committee acting as Administrator, who is a Participant, shall not vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Administrator shall be entitled to conclusively rely on information furnished by a Participant, a beneficiary, or any other person or entity. The Administrator shall be deemed to be the Plan administrator with responsibility for complying with any reporting and disclosure requirements of ERISA. The Administrator may employ such counsel, agents and advisers, and obtain such administrative, clerical and other services, as it may deem necessary or appropriate in carrying out the provisions of the Plan and its duties hereunder. 13 7.2. CLAIMS PROCEDURE. (a) IN GENERAL. If any person believes he or she has been denied any rights or benefits under the Plan, such person may file a claim in writing with the Administrator. If any such claim is wholly or partially denied, the Administrator will notify such person of its decision in writing. Such notification will be given within 90 days after the claim is received by the Administrator (or within 180 days, if special circumstances require an extension of time for processing the claim, and if written notice of such extension and circumstances is given to such person within the initial 90 day period). Notwithstanding the foregoing, if such notification is not given within such 90 or 180 day period, the claim will be considered denied as of the last day of such period and such person may request a review of his or her claim in accordance with Section 7.2(b). (b) APPEALS. Within 60 days after the date on which a person receives a written notice of a denied claim (or, if applicable, within 60 days after the date on which such denial is considered to have occurred) such person (or his or her duly authorized representative) may file a written request with the Administrator for a review of his or her denied claim. The Administrator will notify such person of its decision on review in writing. The decision on review will be made within 60 days after the request for review is received by the Administrator (or within 120 days, if special circumstances require an extension of time for processing the request, such as an election by the Administrator to hold a hearing, and if written notice of such extension and circumstances is given to such person within the initial 60 day period). Notwithstanding the foregoing, if the decision on review is not made within such 60 or 120 day period, the claim will be considered denied. The Administrator may, in its sole discretion amend or revise this Section 7.2, provided, that the claims procedure for the Plan pursuant to which persons may claim an interest in the Plan and appeal denials of such claims, as amended or changed, shall meet the minimum standards of Section 503 of ERISA. 7.3. INDEMNIFICATION OF ADMINISTRATOR. The Company shall indemnify and defend to the fullest extent permitted by law any director, officer or employee of the Company or its Subsidiaries who serves as the Administrator or as a member of a committee appointed to serve as Administrator, or who assists the Administrator in carrying out its duties (including any such individual who formerly served in any such capacity) against any and all liabilities, damages, costs and expenses (including attorneys' fees and amounts paid in settlement of any claims approved in writing by the Company) arising out of or relating to any act or omission to act in connection with the Plan, if such act or omission is in good faith. 14 ARTICLE 8. AMENDMENT, TERMINATION AND ASSIGNMENT 8.1. AMENDMENTS. Prior to a Change of Control, the Company shall have the right to amend the Plan from time to time, subject to Section 8.3, by an instrument in writing which has been executed on its behalf by the Administrator or by vote of the Board. No amendment to the Plan with respect to any Participant may be made after a Change of Control without the written consent of such Participant (or beneficiary, if applicable). 8.2. TERMINATION OF PLAN. The Company currently intends to continue the Plan indefinitely. However, the Plan is voluntary on the part of the Company and the Company expressly reserves the right to terminate the Plan at any time, subject to Section 8.3, for any reason whatsoever. Subject to Section 8.1, the Company from time to time may, by amendment to the Plan, suspend the Plan or discontinue provisions thereof. The Company may terminate the Plan at any time by an instrument in writing which has been executed on its behalf by the Administrator or by vote of the Board. 8.3. EXISTING RIGHTS. No amendment or termination of the Plan shall adversely affect the rights of any Participant with respect to amounts credited to his or her Account as of the date of such amendment or termination (subject to future adjustments as a result of investment measurements). 8.4. ASSIGNMENT. The rights and obligations of the Company shall inure to the benefit of and shall be binding upon its successors and assigns. ARTICLE 9. - MISCELLANEOUS 9.1. GRANTOR TRUST. The Company may establish a trust of which the Company is treated as the owner under Subpart E of Subchapter J, Chapter 1 of the Code (a "grantor trust"), and may deposit with the trustee of the grantor trust an amount of cash or marketable securities sufficient to cause the fair market value of the assets held in the grantor trust to be not less than the sum of the Account balances under the Plan. Notwithstanding the foregoing, nothing in this Plan will be construed to create a trust or to obligate the Company, any of its Subsidiaries or any other person or entity to segregate a fund, purchase an insurance contract, or in any other way currently to fund the future payment of any distributions or payments hereunder, nor will anything herein be construed to give any employee or any other person any right to any specific assets of the Company, any of its Subsidiaries or of any other person or entity. Any distributions or payments which become payable hereunder that are not paid out of the grantor trust shall be paid from the general assets of the Company. 9.2. NATURE OF CLAIM FOR PAYMENT. Each Participant and beneficiary will be an unsecured general creditor of the Company with respect to any distributions or payments to be made under the Plan. Nothing in the Plan will be construed to give any person any right to any specific assets of the Company, any of its Subsidiaries or any other person or entity. 15 9.3. NONALIENATION OF BENEFITS. No Participant, beneficiary or any other person having any interest under the Plan shall alienate, anticipate, commute, pledge, encumber, assign or otherwise transfer ("Alienate") any right or interest under the Plan, including, without limitation, with respect to rights to or interests in any payments, distributions, claims or other benefits which he or she may expect to receive, contingently or otherwise, under this Plan ("Rights"). Any attempt to Alienate any Right shall be ineffective. No Right shall be subject to any claim of, subject to attachment, execution, garnishment or other legal process by, any creditor of such Participant, beneficiary or other person. 9.4. NO EMPLOYMENT OR SERVICE CONTINUATION RIGHTS. Neither the adoption or the establishment and maintenance of the Plan, the participation in the Plan nor any action of the Company, any Subsidiary or the Administrator, shall be held or construed to confer upon any employee or director of the Company or any of its Subsidiaries any right to continued employment or service with the Company or any of its Subsidiaries, as the case may be, nor does it interfere in any way with the right of the Company or any of its Subsidiaries to terminate the services of any of its employees or directors at any time. Each of the Company and its Subsidiaries expressly reserves the right to terminate or discharge any of its employees or directors at any time. 9.5. RECEIPT AND RELEASE. Any payment or distribution to any Participant or beneficiary in accordance with the provisions of the Plan shall be, to the extent thereof, in full satisfaction of all claims against the Company, its Subsidiaries and the Administrator under the Plan, and the Administrator may require such Participant or beneficiary, as a condition precedent to such payment, to execute a receipt and release to such effect. If any Participant or beneficiary is determined by the Administrator to be incompetent by reason of physical or mental disability (including minority) to give a valid receipt and release, the Administrator may cause the payment or payments becoming due to such person to be made to another person for his or her benefit without responsibility on the part of the Administrator or the Company to follow the application of such funds. 9.6. SEVERABILITY OF PROVISION. If any provision of the Plan shall be held by a court of competent jurisdiction to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Plan shall be construed and enforced to the fullest extent possible as if such provision had not been included. 9.7. GOVERNMENT REGULATIONS. It is intended that the Plan comply with all applicable laws and government regulations. Neither the Company, any of its Subsidiaries, nor the Administrator shall not be obligated to perform any obligation hereunder in any case where, in the opinion of the Company's counsel, such performance would result in the violation of any law or regulation. 16 9.8. GOVERNING LAW; JURISDICTION. This Plan shall be construed, administered, and governed in all respects under and by the laws of The Commonwealth of Massachusetts without regard to the conflict of law provisions thereof. The Company, the Administrator, the Participants and their beneficiaries, and any persons having or claiming to have any interest under the Plan submit to the exclusive jurisdiction and venue of the federal or state courts of The Commonwealth of Massachusetts to resolve any and all issues that may arise out of or relate to the Plan or the same subject matter. 9.9 HEADINGS AND SUBHEADINGS. Headings and subheadings in this Plan are inserted for convenience only and are not to be considered in the construction of the provisions hereof. 9.10 EXPENSES AND TAXES. Expenses, including fees and expenses associated with the grantor trust, associated with the administration or operation of the Plan shall be paid by the Company from its general assets unless, in the sole discretion of the Administrator, the Administrator elects to charge such expenses against the appropriate Participant's Account or Participants' Accounts. Any taxes allocable to an Account (or subaccount or portion thereof) maintained under the Plan which are payable prior to the distribution of the Account (or subaccount or portion thereof), as determined by the Administrator in its sole discretion, shall be charged against the appropriate Participant's Account or Participants' Accounts. 17 -----END PRIVACY-ENHANCED MESSAGE-----