-----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, UNYCu/dstG9ix07tRDHC3Ebn2PG3twJoBDIpFxtnTz9CyjzzfKgAlcdVv2YvWPA5 0zCI3VLTegZuKW0BZJWQlA== 0000004427-97-000007.txt : 19970325 0000004427-97-000007.hdr.sgml : 19970325 ACCESSION NUMBER: 0000004427-97-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961227 FILED AS OF DATE: 19970324 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMDAHL CORP CENTRAL INDEX KEY: 0000004427 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 941728548 STATE OF INCORPORATION: DE FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07713 FILM NUMBER: 97561283 BUSINESS ADDRESS: STREET 1: 1250 E ARQUES AVE CITY: SUNNYVALE STATE: CA ZIP: 94088 BUSINESS PHONE: 4087466000 MAIL ADDRESS: STREET 1: 1250 E ARQUES AVE CITY: SUNNYVALE STATE: CA ZIP: 94088 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 27, 1996 Commission file number 1-7713 A M D A H L C O R P O R A T I O N (Exact name of registrant as specified in its charter) Delaware 94-1728548 (State of incorporation) (I.R.S. Employer Identification No.) 1250 East Arques Avenue Sunnyvale, California 94088-3470 (Address of principal (Zip Code) executive offices) Registrant's telephone number: (408) 746-6000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of class which registered - -------------- ------------------------ common stock American Stock Exchange, Inc. par value of $.05 London Stock Exchange per share Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] 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 [x] No [ ] Aggregate market value of the registrant's common stock held by non-affiliates, based on the closing sales price on March 3, 1997: $750,430,421. Number of shares of common stock, par value of $.05 per share, outstanding as of March 3, 1997: 122,280,788. DOCUMENTS INCORPORATED BY REFERENCE The following documents are incorporated by reference in those parts of this Annual Report on Form 10-K as set forth below, but only to the extent specifically stated in such parts: (1) Portions of Registrant's Annual Report to Stockholders for the fiscal year ended December 27, 1996 (the "Annual Report") into Parts I and II; and (2) Portions of Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 1, 1997 (the "Proxy Statement") into Part III. PART I ITEM 1. BUSINESS General Amdahl Corporation ("Amdahl" or the "Company") was organized in 1970. Its principal offerings consist of large-scale, high-performance, general-purpose computer systems, storage subsystems and related hardware services for both the IBM System/390 compatible mainframe market and the open systems market; and a broad array of professional and consulting services for the data processing industry. The Company also offers a variety of software products. Amdahl's customer base is diversified and includes large corporations, financial institutions, public utilities, government agencies and universities. Amdahl's initial product offerings consisted of IBM compatible mainframe systems which it first delivered in 1975. Since that time, the Company has continued to develop more advanced systems for this market. In the latter part of 1996, the Company introduced its newest family of compatible mainframes, the Millennium series, utilizing for the first time CMOS based technology. Also, in 1993 the Company began delivery of high-performance servers for the open systems market pursuant to a reseller agreement with Sun Microsystems. In 1996 the Company introduced its EnVista series, a family of high-performance servers based on Intel microprocessor technology and running the Microsoft Windows NT operating system. In November 1995 the Company acquired DMR Group Inc. based in Montreal, Quebec, Canada, a major provider of professional and consulting services in a number of important international markets. In April 1996 the Company acquired Trecom Business Systems, Inc. based in Edison, New Jersey, a major provider of professional and consulting services to a number of significant industry groups within the United States. These entities have been combined into a single organization known as the DMR Consulting Group ("DMR TRECOM" in the United States) through which the Company provides its professional and consulting services offerings. Applications development and maintenance services and "year 2000" conversion services are among the major offerings of this business unit. Since 1982 Amdahl has offered direct access storage subsystems for use with IBM compatible mainframe systems. In 1996 the Company introduced the Spectris series, its newest products in this line of IBM System/390 compatible storage devices. In 1996 the Company also introduced its LVS series of storage devices for the server market. In addition, Amdahl offers hardware maintenance and related operational services, and a number of software products. ObjectStar, a comprehensive application development system; the A+ family of performance and productivity tools intended primarily for the open systems environment; and UTS, a Unix based operating system for use on IBM System/390 compatible mainframes, are the Company's principal software offerings. Amdahl is organized along lines of business consisting of the Enterprise Computing Group, responsible for the development and marketing of the Company's processor and storage products and the provision of maintenance and other hardware related services; the DMR Consulting Group, responsible for the delivery of professional and consulting services; the Antares Alliance Group, a joint venture between Amdahl and Electronic Data Systems, responsible for the development and marketing of ObjectStar and certain other software products; and the A+ Software Group. The Company intends to continue to expand the scope of its product and service offerings through its own development efforts and, when appropriate, through partnerships and alliances with other companies. Fujitsu Limited ("Fujitsu"), a major Japanese manufacturer of computer systems, telecommunications equipment and electronic components, owns approximately 43% of the Company's outstanding common stock and is of substantial importance to Amdahl in the areas of technical assistance, product development and manufacturing. Fujitsu has primary design and manufacturing responsibility for the Company's Millennium, Spectris and follow-on products. Because of Amdahl's increased dependence on Fujitsu as its supplier of future compatible processors and Fujitsu's participation with the Company in certain other ongoing research and development activities, the ability to negotiate favorable pricing terms with respect to future product requirements and to maintain a satisfactory working relationship are important. Marketing The Company markets its products and services directly through its sales force to customers in the United States, Canada, Europe and Asia Pacific, through Fujitsu in Brazil, Japan, Malaysia and Spain and through other distributors in Indonesia, Saudi Arabia, Latin America and Korea. In 1996 approximately 51% of Amdahl's revenues were from international operations. The Company offers its products for sale and lease. For further information on leasing see "Note 4 - Equipment Leasing and Third Party Transactions" of the Annual Report. Service for Amdahl products is provided under service and parts warranty or separate maintenance agreements. For further information on warranties, see "Note 1 - Summary of Accounting Practices" of the Annual Report. While it may receive "letters of intent" and "orders" from potential customers for its large-scale systems, typically the Company does not have a firm contract with a customer until shortly before shipment. In addition, the Company in many cases will permit cancellation of an order without charge at any time until actual delivery, which is common practice in the industry. For these reasons, the Company does not believe indications of customer interest and "orders", other than for its professional and consulting services business, constitute a firm "backlog" and believes that a disclosure of a value of unfilled orders is not a meaningful indicator of revenues nor material to an understanding of its business. Backlog for professional and consulting services as of December 27, 1996 was $446 million of which $325 million is expected to be fulfilled beyond the next twelve months. Major Customer Information and Geographic Area Data The information under "Note 9 - Major Customer, Geographic Area and Product Line Data" of the Annual Report is incorporated by reference. Competition All segments of the Company's business are intensely competitive with the consequence that continuing attention must be paid to the Company's cost structure in order to achieve and maintain acceptable operating margins. Amdahl's consulting and professional services business competes with a significant number of other service organizations, the largest of which include companies such as IBM and Andersen Consulting. Professional service organizations are highly dependent on the skill of their personnel and the ability to recruit and retain such personnel and experience high levels of utilization. Competition for such personnel is intense. IBM and Hitachi Data Systems are Amdahl's principal competitors in the market for large-scale System/390 compatible mainframe systems. IBM is dominant in this segment of the industry. Competition is based primarily on price and performance, product enhancements and new product development, and customer service and support. The perceived financial strength and long-term viability of the supplier are also important. IBM competitive actions have historically taken the form of price reductions and shortened product life cycles. As a result, selling prices and residual values of mainframe systems have declined substantially over time. Moreover, because virtually all compatible mainframes operate under the control of IBM operating system software, the ability of IBM to extend favorable licensing terms to purchasers of competing IBM systems frequently requires Amdahl to offer substantial discounts on its own systems in order to compensate for the effect of such licensing terms. Also, the continuing introduction by IBM of certain modifications to the System/390 architecture requires that Amdahl make comparable changes to remain fully compatible. The growth in the market for large mainframe systems has been affected by rapid technological changes in recent years which have enabled smaller, less costly systems to compete for the development of application programs historically run in mainframe environments. Competitors in the market for the Company's hardware servers and software offerings include both highly specialized companies as well as fully integrated vendors such as IBM, Digital Equipment Corporation and Hewlett-Packard Company. New computer and storage products, particularly in the open systems marketplace, are subject to rapid technological changes, short product life cycles, frequent product enhancements and price reductions. For software products, ease of use, product reliability, quality of technical support and product capabilities are important. The strength and efficiency of distribution channels and brand name recognition are of particular importance. For further discussion of competitive conditions, see "Management's Discussion & Analysis - Results of Operations and Factors That May Affect Future Operating Results" of the Annual Report. Manufacturing Amdahl carries out limited assembly functions in Sunnyvale, California and Dublin, Ireland. Its principal hardware products are manufactured by Fujitsu to Amdahl specifications. If for a substantial period Fujitsu failed to deliver products to Amdahl or should Fujitsu fail to meet development or manufacturing schedules for future mainframe and storage products, serious interruptions to the Company's delivery schedules would occur, which would have a material adverse effect on the Company. The current supply agreements between Amdahl and Fujitsu generally provide for fixed U.S. dollar prices so long as the U.S.-Japanese currency exchange rate remains within a specified range. If the exchange rate fluctuates outside of this range, prices are to be adjusted pursuant to a formula under which Amdahl and Fujitsu will share equally any benefits or disadvantages. For further information regarding purchases from Fujitsu see "Note 2 - Relationship with Fujitsu Limited" of the Annual Report. Product Development The Company's future prospects depend upon its successful introduction of new products. During the last three years, the Company's product development costs, including amounts expended on development of both existing and new products,(excluding the write-off of purchased in-process engineering and development of $20,700,000 in 1996 and $27,296,000 in 1995) amounted to $125,825,000 in 1996, $149,610,000 in 1995 and $203,241,000 in 1994. The Company has substantially reduced certain of its product development activities and expects to rely on strategic alliances, partnering arrangements and original equipment manufacturer (OEM) relationships for major new products or product components. Patents, Licenses and Related Matters Amdahl has an active program to file applications for and obtain patents in the United States and in selected foreign countries where a potential market for its products exists. The Company's general policy has been to seek patent protection for those inventions and improvements likely to be incorporated into its products or otherwise expected to be of value. While Amdahl believes that its patents and applications have value, it also believes that its competitive position depends on the technical competence of its development personnel and the ability to successfully enter into partnering or OEM agreements with outside suppliers. Amdahl and IBM are parties to an agreement pursuant to which each grants to the other nonexclusive worldwide licenses as to certain of each other's patents to be issued on patent applications having an effective filing date prior to January 1, 1998. Under the agreement, which supersedes prior agreements between the companies, Amdahl is licensed under substantially all IBM patents relating to computer systems and software, communications networks and related semiconductor technology, generally covering the planned products of the Company while IBM is licensed under substantially all Amdahl patents. The Company has also entered into licensing agreements with others and contemplates entering into additional license agreements under patents or know-how in the routine conduct of its business. Employees As of February 21, 1997, the Company had approximately 9,900 full-time employees. Executive Officers of Amdahl The executive officers of the Company as of March 17, 1997 are as follows:
Name Age Position - ---- --- -------- John C. Lewis 61 Chairman of the Board, President and Chief Executive Officer David L. Anderson 49 Chief Technical Officer and Vice President, Corporate Technology Group Michael R. Carabetta 48 Vice President and General Manager, A+ Software Group William F. Ferone 52 Vice President, Customer Services William Flanagan 57 Vice President and General Manager, Compatible Business Group Charles E. Fonner 53 Vice President and General Manager, The SmartCard Group Gregory R. Grodhaus 49 Vice President and General Manager, Server Business Group Orval J. Nutt 56 Chief Marketing Officer and Vice President, Corporate Marketing Michael J. Poehner 50 Chief Executive Officer and President, DMR Consulting Group Inc. Anthony M. Pozos 56 Senior Vice President, Human Resources and Corporate Services William R. Riley 54 Vice President and General Manager, Worldwide Sales Bruce J. Ryan 53 Executive Vice President, Chief Financial Officer and Corporate Secretary Ernest B. Thompson 60 Vice President and Controller David B. Wright 47 Executive Vice President, Enterprise Computing Group
Mr. John C. Lewis was appointed Chairman of the Board in 1987 and was reelected President and Chief Executive Officer on March 15, 1996. He was President of Amdahl from 1977, when he joined the Company, until 1987. He was the Company's Chief Executive Officer from 1983 until 1992. Mr. David L. Anderson joined the Company in 1971 and was elected Vice President, Processor Product Management in 1987. In 1989 Mr. Anderson became Vice President of Advanced Systems and in 1992 became Vice President of Compatible Products Development. In 1993 he was appointed Vice President and General Manager of Compatible Systems, and in January 1996 became Chief Technical Officer and Vice President of Enterprise Server Development. In January 1997 he was appointed Vice President, Corporate Technology Group, while retaining his position as Chief Technical Officer Mr. Michael R. Carabetta joined the Company in 1994 as Vice President and General Manager of Open Enterprise Systems. In January 1997 he became Vice President and General Manager of the A+ Software Group. Prior to joining Amdahl, Mr. Carabetta worked at Digital Equipment Corporation, where he served as Vice President Finance and Administration, Business Systems from 1993 to 1994. He had previously been Group Manager at Digital Equipment Corporation. Mr. William F. Ferone joined the Company in 1978 and was elected Vice President of Customer Services in 1987. In 1988 he became Vice President of Unix Systems. Mr. Ferone was elected to the position of Vice President, Marketing, Open Systems Operations in 1990 and to the position of Vice President and General Manager of Customer Services 1992. In January 1996 he was appointed Vice President of Customer Services. Mr. William Flanagan joined the Company in 1973 and was elected Vice President of Manufacturing in 1985. In 1993 he became Vice President of Operations, Compatible Systems and in 1994 he was appointed Vice President, Business and Marketing, Compatible Systems. In January 1996 Mr. Flanagan became Vice President and General Manager of Compatible Systems. In January 1997 he was appointed Vice President and General Manager, Compatible Business Group. Mr. Charles E. Fonner joined the Company in 1979 and was elected Vice President of Systems Marketing in 1991. In 1992 Mr. Fonner became Vice President of Product Management and Marketing. In January 1996 he became Vice President of Business Development, and in November 1996 he was appointed Vice President and General Manager, The SmartCard Group. Mr. Gregory R. Grodhaus joined the Company in 1995 as Vice President and General Manager of Enterprise Storage Systems. In January 1997 he was appointed Vice President and General Manager, Server Business Group. Before joining Amdahl, he was the President and Chief Executive Officer of IPL Systems, prior to which he served in a variety of roles at Memorex Telex Corporation. Mr. Orval J. Nutt joined the Company in 1976 and was elected Vice President of Corporate Marketing in 1986 and Vice President and General Manager of U.S. Operations in 1991. In 1993 Mr. Nutt became Vice President and General Manager of Worldwide Field Operations. In January 1996 he became Chief Marketing Officer and Vice President of Corporate Marketing. Mr. Michael J. Poehner joined the Company in 1992 as Vice President and General Manager, East Area, Office of Field Operations. In 1994 he became Vice President and General Manager of the Business Solutions Group. In 1995 he was appointed President and Chief Operating Officer of DMR Group Inc. Then in June 1996 Mr. Poehner was appointed Chief Executive Officer, while retaining his position as President. Mr. Anthony M. Pozos has been Senior Vice President, Human Resources and Corporate Services since 1986. Mr. Pozos joined the Company in 1976 as Corporate Vice President, Industrial Relations, and in 1983 assumed responsibility for Corporate Services. Mr. William R. Riley joined the Company in 1980. He held positions of increasing responsibility within the Company until he was appointed Area General Manager, North America, Office of Field Operations in January 1996. In November 1996 Mr. Riley was appointed Vice President & General Manager, Worldwide Sales. Mr. Bruce J. Ryan joined the Company in 1994 as Senior Vice President, Chief Financial Officer and Corporate Secretary. In January 1996 he became Executive Vice President and retained his positions of Chief Financial Officer and Corporate Secretary. From 1993 through 1994 Mr. Ryan was Vice President of Industry Marketing at Digital Equipment Corporation, where prior to which he served as Vice President and Corporate Controller. Mr. Ernest B. Thompson joined the Company in 1978 as Controller. He was elected Vice President in 1980. Mr. David B. Wright joined the Company in 1987 as a regional Vice President of Sales. After being named Vice President of Commercial U.S. Sales in 1989 and Vice President and General Manager of European Operations in 1992, Mr. Wright was appointed Vice President and General Manager of Worldwide Field Operations in 1993. In January 1996 he became Executive Vice President of the Enterprise Computing Group. ITEM 2. PROPERTIES Amdahl's corporate headquarters is in Sunnyvale, California as are its principal United States manufacturing, engineering and educational facilities. Of these facilities, Amdahl owns 339,678 square feet and leases 722,436 square feet. Amdahl also leases approximately 104 sales and service offices throughout the United states, Canada, Europe and Asia Pacific. See also "Note 13 - Lease Commitments" of the Annual Report. An additional 46 locations were added worldwide due to the acquisitions of C.E. Services, Inc., DMR Group Inc. and Trecom Business Systems, Inc. Lease obligations assumed with the acquisition of C. E. Services cover approximately 300,000 square feet in seven locations, including major sites in Texas, Illinois and England. Obligations assumed in the acquisition of DMR Group and Trecom Business Systems cover approximately 472,000 square feet of leased space, including major sites in Georgia, New Jersey; Melbourne, Australia; and throughout Canada. A 15,000 square foot owned facility in Belgium was also acquired with DMR Group. Restructuring actions, which began in 1993, caused certain Company facilities and properties to be under utilized. Included within this group of facilities and properties are 494,693 square feet of leased properties worldwide, and two buildings in San Jose (168,536 square feet). The 494,693 square feet of leased properties are subleased or offered for sublease. The San Jose buildings are leased to third parties. ITEM 3. LEGAL PROCEEDINGS Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY OWNERS Not Applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information under "Common Stock Dividends and Price Range" of the Annual Report is incorporated by reference. ITEM 6. SELECTED FINANCIAL DATA The information under "Note 14 - Summarized Quarterly Financial Data" of the Annual Report is incorporated by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information under "Management's Discussion & Analysis" of the Annual Report is incorporated by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information contained in the following sections of the Annual Report is incorporated by reference: "Report of Independent Public Accountants," "Consolidated Balance Sheets," "Consolidated Statements of Operations," "Consolidated Statements of Cash Flows," "Consolidated Statements of Stockholders' Equity" and "Notes to Consolidated Financial Statements." ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information under "Certain Information with Respect to Directors and Executive Officers - Nominees to the Board of Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the Proxy Statement is incorporated by reference. Also refer to the item entitled "Executive Officers of Amdahl" in Part I of this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information under "Certain Information with Respect to Directors and Executive Officers - Director Compensation" and "Executive Compensation" (but excluding the information under "Compensation Committee and Stock Plan Administration Committee Report on Executive Compensation" and "Company Stock Price Performance") in the Proxy Statement is incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under "Principal Stockholders" and "Certain Information with Respect to Directors and Executive Officers Security Ownership" in the Proxy Statement is incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information under "Certain Information with Respect to Directors and Executive Officers - Compensation Committee Interlocks and Insider Participation," "Certain Transactions" and "Loans to Executive Officers" in the Proxy Statement is incorporated by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Financial Statements Consolidated Financial Statements The following consolidated financial statements and related notes, together with the report on the financial statements and related notes from the Company's independent public accountants, Arthur Andersen LLP, are incorporated by reference from the Annual Report: Consolidated Balance Sheets for December 27, 1996 and December 29, 1995; Consolidated Statements of Operations for each of the three years in the period ended December 27, 1996; Consolidated Statements of Cash Flows for each of the three years in the period ended December 27, 1996; and Consolidated Statements of Stockholders' Equity for each of the three years in the period ended December 27, 1996. (a)(2) Schedules Supporting Consolidated Financial Statements Report of Independent Public Accountants on Schedules Schedule II -- Valuation and Qualifying Accounts and Reserves Schedules not listed above have been omitted because they are not required or the information required in the schedules is included in the consolidated financial statements or the notes to the consolidated financial statements. (a)(3) Exhibits Exhibit Description ------- ----------- 3(a) Restated Certificate of Incorporation (incorporated by reference to Exhibit 3(a) to Form 10-K for the fiscal year ended December 30, 1994) *3(b) Restated By-Laws Executive Compensation Plans and Agreements -------------------------------------------- *10(a) Amdahl Corporation 1994 Stock Incentive Plan, as amended 10(b) Amdahl Corporation Long-Term Executive Incentive Performance Plan, as amended (incorporated by reference to Exhibit 10(c) to Form 10-Q for the fiscal period ended March 29, 1996) 10(c) Amdahl Corporation Short-Term Executive Incentive Performance Plan (incorporated by reference to Exhibit 10(a) to Form 10-Q for the fiscal period ended March 31, 1995) 10(d) Amdahl Corporation Officer Loan Program, as amended (incorporated by reference to Exhibit 10(c) to Form 10-K for the fiscal year ended December 30, 1994) 10(e) Amdahl Corporation Director Fee Deferral Election Plan, as amended (incorporated by reference to Exhibit 10(g) to Form 10-K for the fiscal year ended December 25, 1992) 10(f) Amdahl Corporation Deferral Election Plan, as amended (incorporated by reference to Exhibit 10(a) to Form 10-Q for the fiscal period ended June 30, 1995) 10(g) Amdahl Corporation Corporate Officer Severance Guidelines (incorporated by reference to Exhibit 10(f) to Form 10-K for the fiscal year ended December 30, 1994) 10(h) Form of Restricted Stock Purchase Agreement under the Restricted Stock Plan (incorporated by reference to Exhibit 4(k) of Registrant's Registration Statement 33-54171, filed June 17, 1994) 10(i) Agreement with Named Executive Officer (incorporated by reference to Exhibit 10(k) to Form 10-K for the fiscal year ended December 29, 1995) 10(j) Promissory Note with Named Executive Officer and Second Deed of Trust Securing the Note (incorporated by reference to Exhibit 10(l) to Form 10-K for the fiscal year ended December 29, 1995) 10(k) Summary of Terms of Resignation Agreement with Named Executive Officer dated March 14, 1996 (incorporated by reference to Exhibit 10(a) to Form 10-Q for the fiscal period ended March 29, 1996) 10(l) Amdahl Corporation 1996 Bonus Program for Officers, Vice Presidents, Seniors and Keys (incorporated by reference to Exhibit 10(b) to Form 10-Q for the fiscal period ended March 29, 1996) 10(m) Amdahl Corporation Restricted Stock Purchase Agreement with Named Executive Officer (incorporated by reference to Exhibit 10(d) to Form 10-Q for the fiscal period ended March 29, 1996) 10(n) Amdahl Corporation Stock Purchase Agreement with Named Executive Officer (incorporated by reference to Exhibit 10(e) to Form 10-Q for the fiscal period ended March 29, 1996) 10(o) Agreement with Named Executive Officer (incorporated by reference to Exhibit 10 to Form 10-Q for the fiscal period ended June 28, 1996) 10(p) Termination Agreement with Named Executive Officer (incorporated by reference to Exhibit 10 to Form 10-Q for the fiscal period ended September 27, 1996) *10(q) Form of Indemnification Agreement between the Company and its Executive Officers *10(r) Form of Indemnification Agreement between the Company and Members of the Board of Directors Other Material Agreements ------------------------- 10(s) Partnership Agreement dated June 21, 1993 between wholly-owned subsidiaries of Amdahl and Electronic Data Systems Corporation (Portions of this exhibit are deleted pursuant to a request for confidential treatment) (incorporated by reference to Exhibit 10(y) to Form 10-K for the fiscal year ended December 31, 1993) 10(t) Joint Development Agreement between Amdahl and Fujitsu dated December 8, 1993 (Portions of this exhibit are deleted pursuant to a request for confidential treatment) (incorporated by reference to Exhibit 10(aa) to Form 10-K for the fiscal year ended December 31, 1993) 10(u) Loan Agreement between Amdahl and Fujitsu dated January 29, 1994 (incorporated by reference to Exhibit 10(c) to Form 10-Q for the fiscal period ended April 1, 1994) Additional Exhibits ------------------- *13 Annual Report to Stockholders for fiscal year 1996 (only those portions incorporated by reference) *21 List of Subsidiaries *23 Consent of Arthur Andersen LLP *24 Power of Attorney *27 Financial Data Schedule *Filed herewith (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended December 27, 1996. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES To Amdahl Corporation: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Amdahl Corporation's Annual Report to Stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 28, 1997. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed under Item 14 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/Arthur Andersen LLP ---------------------- ARTHUR ANDERSEN LLP San Jose, California January 28, 1997
SCHEDULE II AMDAHL CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (in thousands) Additions Balance Charged Reserves at to Costs of Balance Beginning and Acquired Deduc- at end of Period Expenses Companies tions(2) of Period --------- -------- --------- -------- --------- Year Ended December 30, 1994: Doubtful Receivables $ 3,266 $ 2,080(1) $ --- $ 150 $ 5,196 Future Engineering ======== ========== ======== ======== ======= Changes $ 57,133 $ --- $ --- $ 18,490 $38,643 ======== ========== ======== ======== ======= Year Ended December 29, 1995: Doubtful Receivables $ 5,196 $ 656(1) $ 1,374 $ 1,262 $ 5,964 Future Engineering ======== ========== ======== ======== ======= Changes $ 38,643 $ --- $ --- $ 35,342 $ 3,301 ======== ========== ======== ======== ======= Year Ended December 27, 1996: Doubtful Receivables $ 5,964 $ 6,524(1) $ 425 $ 2,728 $10,185 Future Engineering ======== ========== ======== ======== ======= Changes $ 3,301 $ --- $ --- $ 751 $ 2,550 ======== ========== ======== ======== ======= (1) Estimated uncollectible accounts receivable. (2) The deductions represent charges against the reserves for the purposes for which the reserves were established. Doubtful receivables deductions also include changes in estimates.
INDEMNIFICATION OF DIRECTORS AND OFFICERS For the purposes of complying with the amendments to the rules governing Form S-8 under the Securities Act of 1933, the Company hereby undertakes as follows: Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or controlling persons of the Company, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities registered on the Form S-8 Registration Statements identified below, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue. The preceding undertaking is hereby incorporated by reference to outstanding Registration Statements Nos. 33-55460, 33-54171, 333-01943, 333-01945, 333-02009 and 333-08583 of the Company on Form S-8. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 24th day of March, 1997. AMDAHL CORPORATION /s/John C. Lewis ------------------ John C. Lewis Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures Title Date - ---------- ----- ---- /s/John C. Lewis Chairman of the Board, March 24, 1997 - ---------------- President and Chief John C. Lewis Executive Officer (Principal Executive Officer) /s/Ernest B. Thompson Vice President March 24, 1997 - --------------------- and Controller Ernest B. Thompson (Principal Accounting Officer) /s/Bruce J. Ryan Executive Vice March 24, 1997 - ---------------- President, Chief Bruce J. Ryan Financial Officer and Corporate Secretary (Principal Financial Officer) Directors: Michael R. Hallman* E. F. Heizer, Jr.* Kazuto Kojima* Burton G. Malkiel* Takeshi Maruyama* George R. Packard* Walter B. Reinhold* Takashi Takaya* J. Sidney Webb* *By: /s/Bruce J. Ryan Attorney-in-Fact March 24, 1997 ---------------- Bruce J. Ryan
Exhibit Index Item Description - ---- ----------- 3(b) Restated By-Laws 10(a) Amdahl Corporation 1994 Stock Incentive Plan, as amended 10(q) Form of Indemnification Agreement between the Company and its Executive Officers 10(r) Form of Indemnification Agreement between the Company and Members of the Board of Directors 13 Annual Report to Stockholders for fiscal year 1996 (only those portions incorporated by reference) 21 List of Subsidiaries 23 Consent of Arthur Andersen LLP 24 Power of Attorney 27 Financial Data Schedule EX-3.B 2 Exhibit 3(b) AMDAHL CORPORATION RESTATED BY-LAWS Article I OFFICES SECTION 1. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. SECTION 2. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of the Directors may from time to time determine or the business of the Corporation may require. Article II MEETING OF STOCKHOLDERS SECTION 1. All meetings of the stockholders for the election of directors shall be held in the City of Sunnyvale, State of California, at such place as may be fixed from time to time by the Board of Directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. SECTION 2. Annual meetings of stockholders shall be held on the third Tuesday in April, if not a legal holiday, and if a legal holiday, then on the next secular day following, at 10:00 a.m., or at such other date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which they shall elect a Board of Directors and transact such other business as may properly be brought before the meeting. SECTION 3. Written notice of the Annual Meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than fifty days before the date of the meeting. 1 SECTION 4. The office who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of the stockholders, and complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called by the Chairman of the Board or any two directors and shall be called by the Chairman of the Board or Secretary at the request in writing of one or more shareholders holding not less than one-third of the voting power of the Corporation. Such request shall state the purpose or purposes of the proposed meeting. SECTION 6. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than fifty days before the date of the meeting, to each stockholder entitled to vote at such meeting. SECTION 7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. SECTION 8. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 9. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before 2 such meeting, unless the question is one upon which by express provision of the statutes or of the Certificate of Incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question. SECTION 10. Except as may be otherwise provided in the Certificate of Incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for every share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on or after three years from its date, unless the proxy provides for a longer period. SECTION 11. Any action required or permitted, by statute or otherwise, to be taken at any annual or special meeting of the shareholders of this Corporation, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of such corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Article III DIRECTORS SECTION 1. The number of directors which shall constitute the whole Board shall be ten (10). The directors shall be elected at the Annual Meeting of the stockholders, except as provided in Section 2 of this Article, and each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders. SECTION 2. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless soon displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. 3 SECTION 3. The business of the Corporation shall be managed by its Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these by-laws directed or required to be exercised or done by the stockholders. MEETINGS OF THE BOARD OF DIRECTORS SECTION 4. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. SECTION 5. The first meeting of each newly elected Board of Directors shall be held immediately following and at the same place as the Annual Meeting of the stockholders and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event such meeting is not held at the time and place set forth above, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors. SECTION 6. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board. SECTION 7. Special meetings of the Board may be called by the Chairman of the Board on three days' notice to each director, either personally or by telegram or on five days' notice to each director by mail; special meetings shall be called by the Chairman of the Board or Secretary in like manner and on like notice on the written request of two directors. SECTION 8. At all meetings of the Board a majority of the total number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. SECTION 9. Unless otherwise restricted by the Certificate of Incorporation or these by-laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any Committee thereof may be taken without a meeting, if all members of the Board or Committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or Committee. 4 COMMITTEES OF DIRECTORS SECTION 10. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of two or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, that in the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. SECTION 11. Each committee shall keep regular minutes of its meeting and report the same to the Board of Directors when required. COMPENSATION OF DIRECTORS SECTION 12. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Article IV NOTICES SECTION 1. Whenever, under the provisions of the statutes or of the Certificate of Incorporation or of these by-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given personally or by telegram. SECTION 2. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation or of these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. 5 Article V OFFICERS SECTION 1. The officers of the Corporation shall be chosen by the Board of Directors and shall be a Chairman of the Board, a President, a Vice-President, a Secretary, and a Treasurer. The Board of Directors may also choose additional Vice-Presidents, and one or more Assistant Secretaries and Assistant Treasurers. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these by-laws otherwise provide. SECTION 2. The Board of Directors at its first meeting after each Annual Meeting of stockholders shall choose a Chairman of the Board, a President, one or more Vice-Presidents, a Secretary, and a Treasurer. SECTION 3. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. SECTION 4. The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors. The Board of Directors may appoint a committee of its members to fix such salaries. It may also appoint an officer to fix the salaries of subordinate officers and agents. SECTION 5. The officers of the Corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. THE CHAIRMAN OF THE BOARD SECTION 6. The Chairman of the Board shall, subject to the control of the board, and subject to the provisions below, and the by-laws of the Corporation, have and be vested with supervision and control over the business, affairs and property of the Corporation and over its other officers, agents and employees. The Chairman of the Board shall: (a) Have the right to preside at all meetings of the Board of Directors. (b) Have the right to preside at all meetings of stockholders. (c) Be responsible for all resolutions, orders and directives of the Board of Directors being carried into effect. 6 (d) Keep the Board of Directors and any committees of the board fully informed as to all matters within his knowledge which the interests of the Corporation may require to be brought to their notice and shall freely consult them concerning the affairs of the Corporation. (e) Be an ex-officio member of all committees of the board of which he is not otherwise a member. (f) Execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, and upon specific approval of the board for each instance, where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the Corporation. (g) Perform such other duties as these by-laws prescribe or as the Board of Directors may prescribe from time to time. THE PRESIDENT SECTION 7. The President shall, subject to the control of the Board, and subject to the provisions below and the by-laws of the Corporation, have and be vested with supervision and control over the Corporation's manufacturing and domestic marketing operations, as well as the design and development of the Corporation's products. The President shall: (a) In the absence of the Chairman of the Board, or at his request, preside at meetings of the Board of Directors or act as Chairman of meetings of stockholders. (b) At the request of the Chairman of the Board, or in the case of his absence or inability to act, perform the duties of the Chairman of the Board and when so acting shall have all the powers of, and be subject to all the restrictions upon, the Chairman of the Board. (c) From time to time report to the Chairman of the Board and the Board of Directors upon all matters within his knowledge which the interests of the Corporation may require to be brought to their notice. (d) Keep the Chairman of the Board, the Board of Directors and any committees of the Board fully informed as to all matters within his knowledge which the interests of the Corporation may require to be brought to their notice including, but not limited to, the operations of the Corporation, and shall freely consult them concerning the affairs of the Corporation. (e) Execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, and upon specific approval 7 of the Board for each instance, where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. (f) Perform all duties incident to the office President and such other duties as these by-laws prescribe, as the Board of Directors may prescribe from time to time and as may be assigned to him by the Chairman of the Board. THE VICE-PRESIDENTS SECTION 8. The Vice-President (or in the event there be more than one Vice-President, the Vice-Presidents in the order designated by the Board of Directors, or in the absence of such designation, then in the order designated by the Chairman of the Board) may assume and perform the duties of the President and when so acting, shall have all the powers of and be subject to all the restrictions upon the President in the absence of the President or in the event of his inability to act. The Vice-Presidents shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. THE SECRETARY AND ASSISTANT SECRETARIES SECTION 9. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the Chairman of the Board, under whose supervision he shall be. He shall have custody of the corporate seal of the Corporation and he, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any officer to affix the seal of the Corporation and to attest the affixing by his signature. SECTION 10. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. 8 THE TREASURER AND ASSISTANT TREASURERS SECTION 11. The Treasurer shall have the custody of the Corporation's funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. SECTION 12. He may disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chairman of the Board and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of transactions and of the financial condition of the Corporation. SECTION 13. If required by the Board of Directors, the Treasurer may give the Corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation SECTION 14. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Article VI CERTIFICATES OF STOCK SECTION 1. Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by, the Chairman of the Board or the President or a vice-president and the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. SECTION 2. Where a certificate is countersigned (1) by a transfer agent other than the Corporation or its employee, or, (2) by a registrar other than the Corporation or its employee, any other signature on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, 9 transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. LOST CERTIFICATES SECTION 3. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors, may in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. TRANSFERS OF STOCK SECTION 4. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority transfer, it shall be the duty of the Corporation, subject to restrictions on transfer of such shares, if any, to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. FIXED RECORD DATE SECTION 5. In order that the Corporation may determine the stockholders entitled to notice or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. REGISTERED STOCKHOLDERS SECTION 6. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of 10 shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall express or other notice thereof, except as otherwise provided by the laws of Delaware. Article VII GENERAL PROVISIONS DIVIDENDS SECTION 1. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. Upon the declaration of any dividend, the Board of Directors shall set a record date upon which the transfer agent of the Corporation shall take a record of all stockholders entitled to the dividend; the stock transfer books of the Corporation shall not be closed; and, all stockholders of record on the record date shall be entitled to the dividend notwithstanding any transfer on the books of the Corporation after the record date. SECTION 2. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. SECTION 3. The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the Corporation. CHECKS SECTION 4. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. FISCAL YEAR SECTION 5. The fiscal year of the Corporation shall begin on the Saturday immediately following the last Friday in December of each 11 calendar year, and shall end on the last Friday in December of the following calendar year. SEAL SECTION 6. The Corporate Seal shall have inscribed thereon the name of the Corporation, the date of its organization and the name of the State of Delaware. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Article VIII AMENDMENTS SECTION 1. These by-laws may be altered, amended or repealed or new bylaws may be adopted by the stockholders or by the Board of Directors, when such power is conferred upon the Board of Directors by the Certificate of Incorporation, at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new by-laws be contained in the notice of such special meeting. Article IX INDEMNIFICATION SECTION 1. Each person who is or was a director or officer of the Corporation and is or was made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another Corporation or a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, may be indemnified and held harmless by the Corporation as authorized in the specific case pursuant to the Delaware General Corporation Law, as the same exists or may hereafter be amended, and shall be indemnified and held harmless by the Corporation as may be provided pursuant to a written agreement between such director or officer and the Corporation. SECTION 2. Each person who is a director or officer of the Corporation may be paid by the Corporation the expenses incurred in defending any proceeding in advance of its final disposition pursuant to the Delaware General Corporation Law, as the same exists or may hereafter be amended, as the Board of Directors deems appropriate, and 12 shall be paid such expenses as may be provided pursuant to a written agreement between such director or officer and the Corporation. The Corporation may provide indemnification and advancement of expenses to employees and agents of the Corporation as the Board of Directors in its discretion deems appropriate. SECTION 3. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. SECTION 4. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another Corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. SECTION 5. The Corporation shall have the express authority to enter such agreements as the Board of Directors deems appropriate for the indemnification of present or future directors or officers of the Corporation in connection with their service to, or status with, the Corporation or any other Corporation, entity or enterprise with whom such person is serving at the express written request of the Corporation. 13 EX-10.A 3 AMDAHL CORPORATION 1994 STOCK INCENTIVE PLAN (As Amended through November 1, 1996) ARTICLE ONE GENERAL I. PURPOSE OF THE PLAN A. This 1994 Stock Incentive Plan (the "Plan") is intended to promote the interests of Amdahl Corporation, a Delaware corporation (the "Corporation"), by providing (i) key employees (including officers) of the Corporation (or its subsidiary corporations) who are responsible for the management, growth and financial success of the Corporation (or its subsidiary corporations); (ii) the non-employee members of the Corporation's Board of Directors or the board of directors of any subsidiary corporation; and (iii) those consultants and other independent contractors who provide valuable services to the Corporation (or its subsidiary corporations) with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to remain in the service of the Corporation (or its subsidiary corporations). B. The Plan became effective upon its approval by the Corporation's stockholders at the 1994 Annual Meeting held on May 5, 1994. Such date is hereby designated as the Effective Date of the Plan. C. This Plan shall serve as the successor to the Corporation's four previous stock programs - the Stock Option Plan (1971), the Stock Option Plan (1974), the Non-Qualified Stock Option Plan (1982) and the Restricted Stock Plan (collectively, the "Predecessor Plans"), and no further option grants or stock issuances shall be made under the Predecessor Plans after the Effective Date. All options outstanding under the Predecessor Plans and all unvested shares issued thereunder as of such Effective Date shall immediately be incorporated into this Plan and treated as outstanding options and share issuances under this Plan. However, each outstanding option and share issuance so incorporated shall continue to be governed solely by the express terms and conditions of the instrument evidencing such option grant or share issuance, and no provision of this Plan shall be deemed to affect or otherwise modify the rights or obligations of the holders of such incorporated options or share issuances with respect to their acquisition of shares of the Corporation's common stock, par value of $.05 per share, thereunder. II. DEFINITIONS For purposes of the Plan, the following definitions shall be in effect: 1934 Act: the Securities and Exchange Act of 1934, as amended. Award: the written notification provided by the Plan Administrator to a Participant in March 20, 1997 1 the Stock Issuance Program that shares of common stock are to be issued to such individual upon the attainment of one or more of the performance objectives specified in Article Six. Board: the Corporation's Board of Directors. Change in Control: a change in ownership or control of the Corporation effected through any of the following transactions: - a direct acquisition by any person (or related group of persons) of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than ten percent (10%) of the total combined voting power of the Corporation's outstanding securities; - the direct or indirect acquisition by any person or related group of persons, whether by tender or exchange offer made directly to the Corporation's stockholders, private purchases from one or more of the Corporation's stockholders, open market purchases or any other transaction, of additional securities of the Corporation which increases the beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of the total securities holdings of such person (or related group of persons) to a level of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities; or - the direct or indirect acquisition by any person or related group of persons, whether by tender or exchange offer made directly to the Corporation's stockholders, private purchases from one or more of the Corporation's stockholders, open market purchases or any other transaction, of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities of the Corporation possessing sufficient voting power in the aggregate to elect an absolute majority of the Board (rounded up to the next whole number). Code: the Internal Revenue Code of 1986, as amended. Committee: a committee of two (2) or more non-employee Directors appointed by the Board. Corporate Transaction: any of the following stockholder-approved transactions to which the Corporation is a party: - a merger or consolidation in which the Corporation is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Corporation is incorporated; - the sale, transfer or other disposition of all or substantially all of the assets of the Corporation in complete liquidation or dissolution of the Corporation; or March 20, 1997 2 - any reverse merger in which the Corporation is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger. Director: a member of the Board of Directors of Amdahl Corporation. Employee: an individual who performs services while in the employ of the Corporation or one or more Subsidiaries, subject to the control and direction of the employer entity not only as to the work to be performed but also as to the manner and method of performance. Exercise Date: the date on which the Corporation shall have received notice of the option exercise. Fair Market Value: the mean between the highest and lowest selling prices per share of common stock on the date in question on the principal exchange on which the common stock is then listed or admitted to trading, as the prices are officially quoted by the composite tape of transactions on such exchange. If there are no reported sales of the common stock on the date in question, then the Fair Market Value shall be the mean between the highest and lowest selling prices on the last previous date for which quotations exist. Hostile Take-Over: the direct or indirect acquisition by any person or related group of persons of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders which the Board does not recommend such stockholders to accept. Incentive Option: a stock option which satisfies the requirements of Code Section 422. Involuntary Termination: the termination of the Service of any Optionee or Participant which occurs by reason of: - such individual's involuntary dismissal or discharge by the Corporation for reasons other than Misconduct; or - such individual's voluntary resignation following (A) a change in his or her position with the Corporation which materially reduces his or her level of responsibility, (B) a reduction in his or her level of compensation (including base salary, fringe benefits and any non-discretionary and objective-standard incentive payment or bonus award) by more than five percent (5%) or (C) a relocation of such individual's place of employment by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected by the Corporation without the individual's consent. Misconduct: the commission of any act of fraud, embezzlement or dishonesty by the Optionee or Participant, any unauthorized use or disclosure by such individual of confidential March 20, 1997 3 information or trade secrets of the Corporation or its Subsidiaries, or any other intentional misconduct by such individual adversely affecting the business or affairs of the Corporation in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Corporation or any Subsidiary may consider as grounds for the dismissal or discharge of any Optionee, Participant or other individual in the Service of the Corporation. Newly Issued Shares: shares of common stock drawn from the Corporation's authorized but unissued shares of common stock. Non-Statutory Option: a stock option not intended to meet the requirements of Code Section 422. Optionee: any person to whom an option is granted under the Discretionary Option Grant, Automatic Option Grant or Salary Reduction Grant Program in effect under the Plan. Participant: any person who receives a direct issuance of common stock under the Stock Issuance Program in effect under the Plan. Permanent Disability or Permanently Disabled: the inability of the Optionee or the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. However, solely for purposes of the Automatic Option Grant Program in effect under Article Three and the Stock Fee Program in effect under Article Four, Permanent Disability or Permanently Disabled shall mean the inability of the Optionee to perform his or her normal duties as a Director by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. Plan Administrator: the committee of two (2) or more non-employee Directors appointed by the Board to administer the Discretionary Option Grant, the Salary Reduction and the Stock Issuance Programs. Service: the provision of services on a periodic basis to the Corporation or any Subsidiary in the capacity of an Employee, a non-employee director of the Board or an independent consultant or advisor, except to the extent otherwise specifically provided in the applicable stock option or stock issuance agreement. Subsidiary: each corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each such corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in any other corporation in such chain. For purposes of the grant of Non-Statutory Options and stock appreciation rights under the Discretionary Option Grant Program, the grant of Non-Statutory Options under the Salary Reduction Grant Program and direct stock issuances under the Stock Issuance Program, the term Subsidiary shall also include any partnership, joint venture or other March 20, 1997 4 business entity in which the Corporation owns, directly or indirectly through one or more Subsidiaries, a fifty percent (50%) or greater capital or profit interest. Take-Over Price: the greater of: (i) the Fair Market Value per share of common stock on the date the option is surrendered to the Corporation in connection with a Hostile Take-Over; or (ii) the highest reported price per share of common stock paid by the tender offeror in effecting such Hostile Take-Over. However, if the surrendered option is an Incentive Option, the Take-Over Price shall not exceed the clause (i) price per share. Treasury Shares: shares of common stock reacquired by the Corporation and held as treasury shares. III. STRUCTURE OF THE PLAN A. Stock Programs. The Plan shall be divided into five separate components: - The Discretionary Option Grant Program, under which eligible individuals may, at the discretion of the Plan Administrator, be granted options to purchase shares of common stock in accordance with the provisions of Article Two; - The Automatic Option Grant Program, under which non-employee Directors shall automatically receive special option grants at periodic intervals to purchase shares of common stock in accordance with the provisions of Article Three; - The Stock Fee Program, under which the non-employee Directors may elect to apply all or a portion of their annual retainer fee to the acquisition of shares of common stock in accordance with the provisions of Article Four; - The Salary Reduction Grant Program, under which eligible individuals may, pursuant to the provisions of Article Five, elect to have a portion of their base salary reduced each year in return for options to purchase shares of common stock at an aggregate discount from the Fair Market Value of the option shares on the grant date equal to the salary reduction amount; and - The Stock Issuance Program, under which eligible individuals may, pursuant to the provisions of Article Six, be issued shares of common stock directly: (i) through the immediate purchase of such shares at a price less than, equal to or greater than their Fair Market Value at the time of issuance; (ii) as a bonus tied to the performance of services or the attainment of financial or other objectives; or (iii) pursuant to the individual's election to receive such shares in lieu of base salary. B. General Provisions. Unless the context clearly indicates otherwise, the provisions of Articles One and Seven shall apply to the Discretionary Option Grant, Automatic Option Grant, Salary Reduction Grant, Stock Issuance and Stock Fee Programs and shall accordingly govern the March 20, 1997 5 interests of all individuals under the Plan. IV. ADMINISTRATION OF THE PLAN A. The Committee shall have sole and exclusive authority to administer the Discretionary Option Grant, Salary Reduction Grant and Stock Issuance Programs. Members of the Committee shall serve for such period as the Board may determine and shall be subject to removal by the Board at any time. B. The Plan Administrator shall have full power and discretion (subject to the express provisions of the Plan) to establish such rules and regulations as it may deem appropriate for the proper administration of the Discretionary Option Grant, Salary Reduction Grant and Stock Issuance Programs and to make such determinations under, and issue such interpretations of, the provisions of each such program and any outstanding option grants or stock issuances thereunder as it may deem necessary or advisable. Decisions of the Plan Administrator shall be final and binding on all parties who have an interest in the Discretionary Option Grant, Salary Reduction Grant or Stock Issuance Program or any outstanding option or stock issuance thereunder. C. Service on the Committee shall constitute service as a Director, and members of the Committee shall accordingly be entitled to full indemnification and reimbursement as Directors for their service on the Committee. No member of the Committee shall be liable for any act or omission made in good faith with respect to the Plan or any option granted or shares issued under the Plan. D. Administration of the Automatic Option Grant and the Stock Fee Programs shall be self-executing in accordance with the express terms and conditions of Articles Three and Four, respectively, and the Plan Administrator shall not exercise any discretionary functions with respect to the option grants or stock issuances made pursuant to such programs. V. ELIGIBILITY A. The persons eligible to participate in the Discretionary Option Grant Program under Article Two, the Salary Reduction Grant Program under Article Five and the Stock Issuance Program under Article Six are as follows: - officers and other key employees of the Corporation (or its Subsidiaries) who render services which contribute to the management, growth and financial success of the Corporation (or its Subsidiaries); - non-employee Directors; and - those consultants or other independent contractors who provide valuable services to the Corporation (or its Subsidiaries). B. Non-employee Directors shall also be eligible to participate in the Automatic Option March 20, 1997 6 Grant Program under Article Three and the Stock Fee Program under Article Four. C. The Plan Administrator shall have full authority to determine: (i) with respect to grants made under the Discretionary Option Grant and Salary Reduction Grant Programs, which eligible individuals are to receive such grants, the number of shares to be covered by each such grant, the status of any granted option as either an Incentive Option or a Non-Statutory Option, the time or times at which each granted option is to become exercisable and the maximum term for which the option may remain outstanding; and (ii) with respect to stock issuances under the Stock Issuance Program, which eligible individuals are to be selected for participation, the number of shares to be issued to each selected individual, the vesting schedule (if any) to be applicable to the issued shares and the consideration to be paid for such shares. VI. STOCK SUBJECT TO THE PLAN A. Shares of common stock shall be available for issuance under the Plan and shall be drawn from either the Corporation's authorized but unissued shares of common stock or from reacquired shares of common stock, including shares repurchased by the Corporation on the open market. The number of shares of common stock reserved for issuance over the term of the Plan shall initially be fixed at 14,300,000 shares, subject to adjustment from time to time in accordance with the provisions of this Section VI. Such authorized share reserve shall be comprised of: (i) the number of shares which remain available for issuance under the Predecessor Plans as of the Effective Date, including the shares subject to the outstanding options incorporated into this Plan and any other shares which would have been available for future option grants under the Predecessor Plans (estimated to be 12,900,000 shares in the aggregate); plus (ii) an additional increase of 1,400,000 shares of common stock. To the extent one or more outstanding options under the Predecessor Plans which have been incorporated into this Plan are subsequently exercised, the number of shares issued with respect to each such option shall reduce, on a share-for-share basis, the number of shares available for issuance under this Plan. B. The number of shares of common stock available for issuance under the Plan shall be subject to a series of automatic increases effected in accordance with the following provisions: - The number of shares of common stock available for issuance under the Plan shall automatically increase on the first trading day of each of the 1995, 1996 and 1997 calendar year, by an amount equal to one percent (1%) of the shares of common stock outstanding on December 31 of the immediately preceding calendar year; provided, however that each such one percent (1%) annual increase shall be subject to reduction to the extent necessary so that the maximum number of shares of common stock available immediately thereafter for future option grants and direct stock issuances under the Plan shall not exceed 5,000,000 shares, subject to adjustment from time to time in accordance with the provisions of this Section VI. None of the additional shares resulting from such annual increases may be made the subject of Incentive Options granted under the Plan; - The number of shares available for issuance under the Plan shall March 20, 1997 7 automatically increase on the date of the 1997 Annual Stockholders Meeting by an amount equal to two percent (2%) of the total number of shares of common stock outstanding on the immediately preceding trading day; and - The number of shares available for issuance under the Plan shall automatically increase on the first trading day of each calendar year during the remaining term of the Plan, beginning with the 1998 calendar year, by an amount equal to three percent (3%) of the shares of common stock outstanding on December 31 of the immediately preceding calendar year. Each such automatic increase to the share reserve under the Plan shall, however, be subject to reduction to the extent necessary to assure that the maximum number of shares of common stock available for future option grants and direct stock issuances under the Plan immediately after each such increase shall not exceed 6,000,000 shares, subject to adjustment from time to time in accordance with the provisions of this Section VI. None of the additional shares resulting from such annual increases may be made the subject of Incentive Options granted under the Plan. C. From and after the Effective Date, the total number of shares of common stock for which any one individual participating in the Plan may be granted stock options or concurrently or independently exercisable stock appreciation rights and may receive direct stock issuances shall be limited to 2,000,000 shares in the aggregate over the term of the Plan, subject to periodic adjustment for certain changes in the Company's capital structure in accordance with the provisions of this Section VI. D. Should one or more outstanding options under this Plan (including outstanding options under the Predecessor Plans incorporated into this Plan) expire or terminate for any reason prior to exercise in full (including any option cancelled in accordance with the cancellation-regrant provisions of Section IV of Article Two), then the shares subject to the portion of each option not so exercised shall be available for subsequent issuance under the Plan. Shares issued under the Plan which are subject to the Corporation's repurchase rights, or restricted, that are subsequently repurchased by the Corporation, at the original exercise or issue price paid per share, pursuant to the Corporation's repurchase rights under the Plan shall be added back to the number of shares of common stock reserved for issuance under the Plan and shall accordingly be available for reissuance through one or more subsequent option grants or direct stock issuances under the Plan. Shares subject to any stock appreciation rights exercised under the Plan shall not be available for subsequent issuance under the Plan. In addition, should the exercise price of an outstanding option under the Plan (including any option incorporated from the Predecessor Plans) be paid with shares of common stock or should shares of common stock otherwise issuable under the Plan be withheld by the Corporation in satisfaction of the withholding taxes incurred in connection with the exercise of an outstanding option under the Plan or the vesting of a share issuance under the Plan, then the number of shares of common stock available for issuance under the Plan shall be reduced by the gross number of shares for which the option is exercised or which vest under the share issuance, and not by the net number of shares of common stock actually issued to the holder of such option or share issuance. E. Should any change be made to the common stock issuable under the Plan by reason March 20, 1997 8 of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding common stock as a class without the Corporation's receipt of consideration, then appropriate adjustments shall be made to: (i) the maximum number and/or class of securities issuable under the Plan; (ii) the limit on the number and/or class of securities which are allowed to remain available for future option grants and direct stock issuances in connection with each automatic three percent (3%) increase to the share reserve effected annually under the Plan; (iii) the maximum number and/or class of securities for which any one individual participating in the Plan may be granted stock options, concurrently or independently exercisable stock appreciation rights and direct stock issuances in the aggregate over the term of the Plan; (iv) the number and/or class of securities for which automatic option grants are to be subsequently made to each newly elected or continuing non-employee Director under the Automatic Option Grant Program; and (v) the number and/or class of securities and price per share in effect under each option and stock appreciation right outstanding under the Plan (including each option incorporated into this Plan from the Predecessor Plans). Such adjustments to the outstanding options are to be effected in a manner which shall preclude the enlargement or dilution of rights and benefits under such options. The adjustments determined by the Plan Administrator shall be final, binding and conclusive. March 20, 1997 9 ARTICLE TWO DISCRETIONARY OPTION GRANT PROGRAM I. TERMS AND CONDITIONS OF OPTIONS Options granted pursuant to the Discretionary Option Grant Program shall be authorized by action of the Plan Administrator and may, at the Plan Administrator's discretion, be either Incentive Options or Non-Statutory Options. Individuals who are not Employees may only be granted Non- Statutory Options. Each granted option shall be evidenced by one or more instruments in the form approved by the Plan Administrator; provided, however, that each such instrument shall comply with the terms and conditions specified below. Each instrument evidencing an Incentive Option shall, in addition, be subject to the applicable provisions of Section II of this Article Two. A. Exercise Price. 1. The exercise price per share under this Article Two shall be fixed by the Plan Administrator in accordance with the following provisions: (i) The exercise price per share of common stock subject to an Incentive Option shall in no event be less than one hundred percent (100%) of the Fair Market Value of such common stock on the grant date; and (ii) The exercise price per share of common stock subject to a Non- Statutory Option shall be the amount determined by the Plan Administrator at the time of grant and may be less than, equal to or greater than the Fair Market Value of such common stock on the grant date. 2. The exercise price shall become immediately due upon exercise of the option and, subject to the provisions of Section I of Article Seven and the instrument evidencing the grant, shall be payable in one of the alternative forms specified below: (i) full payment in cash or check made payable to the Corporation's order; (ii) full payment in shares of common stock held for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date; (iii) full payment in a combination of shares of common stock held for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date and cash or check made payable to the Corporation's order; or March 20, 1997 10 (iv) to the extent the option is exercised for vested shares, full payment through a broker-dealer sale and remittance procedure pursuant to which the Optionee shall provide irrevocable instructions: (a) to a Corporation-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable federal, state and local income and employment taxes required to be withheld by the Corporation in connection with such purchase; and (b) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction (the "Immediate Sale Program"). B. Term and Exercise of Options. Each option granted under this Article Two shall be exercisable at such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the instrument evidencing such option. No Incentive Option shall, however, have a maximum term in excess of ten (10) years, and no Non- Statutory Option shall have a maximum term in excess of fifteen (15) years. An Incentive Option shall be exercisable only by the Optionee during his or her lifetime and shall not be assignable or transferable except for a transfer of the option effected by will or by the laws of descent and distribution following the Optionee's death. Non-Statutory Options may be granted under the Plan which are assignable or transferable in whole or in part by the Optionee during his or her lifetime, subject to such restrictions or limitations as the Plan Administrator may impose at the time of grant. C. Termination of Service. 1. Should an Optionee cease Service for any reason (including death or Permanent Disability) while holding one or more outstanding options under this Article Two, then none of those options shall (except to the extent otherwise provided pursuant to subparagraph I.C.7 below) remain exercisable for more than a thirty-six (36)-month period (or such shorter period determined by the Plan Administrator and set forth in the instrument evidencing the grant) measured from the date of such cessation of Service. 2. Any option held by the Optionee under this Article Two and exercisable in whole or in part on the date of his or her death may be subsequently exercised by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. However, the right to exercise such option shall lapse upon the earlier of: (i) the third anniversary of the date of the Optionee's death (or such shorter period determined by the Plan Administrator and set forth in the instrument evidencing the grant); or (ii) the specified expiration date of the option term. Accordingly, upon the occurrence of the earlier event, the option shall terminate and cease to remain outstanding. 3. Under no circumstances shall any such option be exercisable after the specified expiration date of the option term. 4. During the applicable post-Service exercise period, the option may not be March 20, 1997 11 exercised in the aggregate for more than the number of shares (if any) in which the Optionee is vested at the time of his or her cessation of Service. Upon the expiration of the limited post-Service exercise period or (if earlier) upon the specified expiration date of the option term, each such option shall terminate and cease to remain outstanding with respect to any vested shares for which the option has not otherwise been exercised. However, each outstanding option shall, immediately upon the Optionee's cessation of Service, terminate and cease to remain outstanding with respect to any shares for which the option is not otherwise at that time exercisable or in which the Optionee is not otherwise at that time vested. 5. Should the Optionee's Service be terminated for Misconduct, all outstanding options held by the Optionee under this Article Two shall terminate immediately and cease to remain outstanding. 6. The Plan Administrator shall have complete discretion, exercisable either at the time the option is granted or at any time while the option remains outstanding, to permit one or more options held by the Optionee under this Article Two to be exercised, during the limited post- Service exercise period applicable under this Section I.C, not only with respect to the number of vested shares of common stock for which each such option is exercisable at the time of the Optionee's cessation of Service but also with respect to one or more subsequent installments for which the option would otherwise have become exercisable or in which the Optionee would otherwise have vested had such cessation of Service not occurred. 7. The Plan Administrator shall have full power and authority, exercisable either at the time the option is granted or at any time while the option remains outstanding, to extend the period of time for which the option is to remain exercisable following the Optionee's cessation of Service or death from the limited period in effect under subparagraphs I.C.1 and I.C.2 above to such greater period of time as the Plan Administrator shall deem appropriate. In no event, however, shall such option be exercisable after the specified expiration date of the option term. D. Stockholder Rights. An Optionee shall have none of the rights of a stockholder with respect to any option shares until such individual shall have exercised the option and paid the exercise price for the purchased shares. E. Repurchase Rights. The shares of common stock acquired under this Article Two may be subject to repurchase by the Corporation in accordance with the following provisions: 1. The Plan Administrator shall have the discretion to grant options which are exercisable for unvested shares of common stock under this Article Two. Should the Optionee cease Service while holding any unvested shares purchased under such options, then the Corporation shall have the right to repurchase any or all of those unvested shares at the exercise price paid per share. The terms and conditions upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the instrument evidencing such repurchase right; March 20, 1997 12 2. All of the Corporation's outstanding repurchase rights under this Article Two shall automatically terminate, and all shares subject to such terminated rights shall immediately vest in full, upon the occurrence of a Corporate Transaction, except to the extent: (i) any such repurchase right is expressly assigned to the successor corporation (or parent thereof) in connection with the Corporate Transaction; or (ii) such accelerated vesting is precluded by other limitations imposed by the Plan Administrator at the time the repurchase right is issued; and 3. The Plan Administrator shall have the discretionary authority, exercisable either before or after the Optionee's cessation of Service, to cancel the Corporation's outstanding repurchase rights with respect to one or more shares purchased or purchasable by the Optionee under this Article Two and thereby accelerate the vesting of such shares in whole or in part at any time. II. INCENTIVE OPTIONS The terms and conditions specified below shall be applicable to all Incentive Options granted under this Article Two. Incentive Options may only be granted to individuals who are Employees. Options which are specifically designated as Non-Statutory Options when issued under the Plan shall not be subject to such terms and conditions. A. Dollar Limitation. The aggregate Fair Market Value (determined as of the respective date or dates of grant) of the common stock for which one or more options granted to any Employee under this Plan (or any other option plan of the Corporation or its Subsidiaries) may for the first time become exercisable as incentive stock options under the federal tax laws during any one calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such options as incentive stock options under the federal tax laws shall be applied on the basis of the order in which such options are granted. Should the number of shares of common stock for which any Incentive Option first becomes exercisable in any calendar year exceed the applicable One Hundred Thousand Dollar ($100,000) limitation, then the option may nevertheless be exercised in that calendar year for the excess number of shares as a Non-Statutory Option under the federal tax laws. B. 10% Stockholder. If any individual to whom an Incentive Option is granted is the owner of stock (as determined under Section 424(d) of the Code) possessing ten percent (10%) or more of the total combined voting power of all classes of stock of the Corporation or any one of its Subsidiaries, then the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of common stock on the grant date and the option term shall not exceed five (5) years measured from the grant date. Except as modified by the preceding provisions of this Section II, the provisions of Articles One, Two and Seven shall apply to all Incentive Options granted hereunder. March 20, 1997 13 III. CORPORATE TRANSACTIONS/CHANGES IN CONTROL/HOSTILE TAKE-OVER A. In the event of any Corporate Transaction, each option which is at the time outstanding under this Article Two shall automatically accelerate so that each such option shall, immediately prior to the specified effective date for such Corporate Transaction, become fully exercisable with respect to the total number of shares of common stock at the time subject to such option and may be exercised for all or any portion of such shares. However, an outstanding option under this Article Two shall not so accelerate if and to the extent: (i) such option is, in connection with the Corporate Transaction, either to be assumed by the successor corporation or parent thereof or to be replaced with a comparable option to purchase shares of the capital stock of the successor corporation or parent thereof; (ii) such option is to be replaced with a cash incentive program of the successor corporation which preserves the option spread existing at the time of the Corporate Transaction and provides for subsequent payout in accordance with the same vesting schedule applicable to such option; or (iii) the acceleration of such option is subject to other limitations imposed by the Plan Administrator at the time of the option grant. The determination of option comparability under clause (i) above shall be made by the Plan Administrator, and its determination shall be final, binding and conclusive. B. The Plan Administrator shall have the discretionary authority, exercisable either at the time the option is granted or at any time while the option remains outstanding, to provide for the automatic acceleration of one or more outstanding options under this Article Two upon the occurrence of a Corporate Transaction, whether or not those options are to be assumed or replaced in the Corporate Transaction, or alternatively to provide for the subsequent acceleration of any outstanding options under this Article Two which do not otherwise accelerate at the time of the Corporate Transaction, should the Optionee's Service terminate through an Involuntary Termination effected within a designated period following the effective date of such Corporate Transaction. The Plan Administrator shall also have the authority to provide for the immediate termination of any of the Corporation's outstanding repurchase rights under this Article Two which do not otherwise terminate at the time of the Corporate Transaction, upon the subsequent termination of the Optionee's Service through an Involuntary Termination effected within a designated period following the effective date of such Corporate Transaction. C. Immediately following the consummation of the Corporate Transaction, all outstanding options under this Article Two shall terminate and cease to remain outstanding, except to the extent assumed by the successor corporation or its parent company. D. Each outstanding option under this Article Two that is assumed in connection with the Corporate Transaction or is otherwise to continue in effect shall be appropriately adjusted, immediately after such Corporate Transaction, to apply and pertain to the number and class of securities which would have been issued to the option holder, in consummation of such Corporate Transaction, had such person exercised the option immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to the exercise price payable per share, provided the aggregate exercise price payable for such securities shall remain the same. In addition, the class and number of securities available for issuance under the Plan on both an aggregate and per individual basis following the consummation of the Corporate Transaction shall be appropriately adjusted. March 20, 1997 14 E. The Plan Administrator shall have the discretionary authority, exercisable either at the time the option is granted or at any time while the option remains outstanding, to provide for the automatic acceleration of one or more outstanding options under this Article Two (and the termination of one or more of the Corporation's outstanding repurchase rights under this Article Two) upon the occurrence of a Change in Control or Hostile Take-Over. The Plan Administrator shall also have full power and authority to condition any such option acceleration (and the termination of any outstanding repurchase rights) upon the subsequent termination of the Optionee's Service through an Involuntary Termination effected within a specified period following the Change in Control or Hostile Take-Over. F. Any options accelerated in connection with the Change in Control or Hostile Take- Over shall remain fully exercisable until the expiration or sooner termination of the option term or the surrender of such option in accordance with Section V of this Article Two. G. The grant of options under this Article Two shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. H. The portion of any Incentive Option accelerated under this Section III in connection with a Corporate Transaction, Change in Control or Hostile Take-Over shall remain exercisable as an incentive stock option under the federal tax laws only to the extent the dollar limitation of Section II of Article Two is not exceeded. To the extent such dollar limitation is exceeded, the accelerated portion of such option shall be exercisable as a non-statutory option under the federal tax laws. IV. CANCELLATION AND REGRANT OF OPTIONS The Plan Administrator shall have the sole and exclusive authority to effect, at any time and from time to time, with the consent of the affected Optionees, the cancellation of any or all outstanding options under this Article Two (including outstanding options under the Predecessor Plans incorporated into this Plan) and to grant in substitution new options under the Plan covering the same or different numbers of shares of common stock but with an exercise price per share based upon the Fair Market Value of the common stock on the new grant date. V. STOCK APPRECIATION RIGHTS A. The Plan Administrator shall have full power and authority, exercisable in its sole discretion, to grant to selected Optionees or other individuals eligible to receive option grants under the Discretionary Option Grant Program stock appreciation rights. B. Four types of stock appreciation rights shall be authorized for issuance under the Plan: (i) Tandem Stock Appreciation Rights ("Tandem Rights"), Concurrent Stock Appreciation Rights ("Concurrent Rights"), Independent Stock Appreciation Rights ("Independent Rights") and Limited Stock Appreciation Rights ("Limited Rights"). March 20, 1997 15 C. The following terms and conditions shall govern the grant and exercise of Tandem Rights under this Article Two. 1. One or more Optionees may be granted the Tandem Right, exercisable upon such terms and conditions as the Plan Administrator may establish, to elect between the exercise of the underlying Article Two stock option for shares of common stock and the surrender of that option in exchange for a distribution from the Corporation in an amount equal to the excess of: (i) the Fair Market Value (on the option surrender date) of the number of shares in which the Optionee is at the time vested under the surrendered option (or surrendered portion thereof) over; (ii) the aggregate exercise price payable for such vested shares; 2. No such option surrender shall be effective unless it is approved by the Plan Administrator. If the surrender is so approved, then the distribution to which the Optionee shall accordingly become entitled under this Section V may be made in shares of common stock valued at Fair Market Value on the option surrender date, in cash, or partly in shares and partly in cash, as the Plan Administrator shall in its sole discretion deem appropriate; and 3. If the surrender of an option is rejected by the Plan Administrator, then the Optionee shall retain whatever rights the Optionee had under the surrendered option (or surrendered portion thereof) on the option surrender date and may exercise such rights at any time prior to the later of: (i) five (5) business days after the receipt of the rejection notice; or (ii) the last day on which the option is otherwise exercisable in accordance with the terms of the instrument evidencing such option, but in no event may such rights be exercised more than ten (10) years after the date of the option grant. D. The following terms and conditions shall govern the grant and exercise of Concurrent Rights under this Article Two: 1. One or more Optionees may be granted, upon such terms and conditions as the Plan Administrator may establish, the Concurrent Right to automatically receive an appreciation distribution from the Corporation at the same time the underlying stock option under this Article Two is exercised for the shares of common stock subject to such right. Accordingly, the Optionee shall, upon exercise of the option, receive both the purchased shares of common stock and the appreciation distribution payable on the covered shares; 2. The amount of the distribution payable upon exercise of the Concurrent Right shall not exceed an amount equal to the excess of: (i) the Fair Market Value (on the option exercise date) of the number of shares for which the option is exercised over; (ii) the aggregate exercise price payable for such shares under that option; and 3. The distribution to which the Optionee shall become entitled under this Section V may be made in shares of common stock valued at Fair Market Value on the option exercise date, in cash, or partly in shares and partly in cash, as the Plan Administrator shall in its sole discretion deem appropriate. March 20, 1997 16 E. The following terms and conditions shall govern the grant and exercise of Independent Rights under this Article Two: 1. One or more individuals eligible to participate in the Discretionary Option Grant Program may be granted an Independent Right not tied to any underlying Article Two stock option. The Independent Right shall be exercisable upon such terms and conditions as the Plan Administrator may establish and shall entitle the holder to receive a distribution from the Corporation in an amount equal to the excess of: (i) the aggregate Fair Market Value (on the exercise date of such right) of the shares of common stock subject to the exercised right over; (ii) the aggregate base price in effect for those shares; 2. The number of shares subject to the Independent Right and the base price in effect for those shares shall be determined by the Plan Administrator in its sole discretion at the time the Independent Right is granted. The base price may be less than, equal to or greater than the Fair Market Value (on the grant date of the right) of the shares subject to that right; and 3. The distribution to which the holder of the Independent Right shall become entitled under this Section V may be made in shares of common stock valued at Fair Market Value on the exercise date of such right, in cash, or partly in shares and partly in cash, as the Plan Administrator shall in its sole discretion deem appropriate. F. The following terms and conditions shall govern the grant and exercise of Limited Rights under this Article Two: 1. One or more officers of the Corporation subject to the short-swing profit restrictions of the federal securities laws may, in the Plan Administrator's sole discretion, be granted Limited Rights with respect to their outstanding options under this Article Two; 2. Upon the occurrence of a Hostile Take-Over, each such officer holding one or more options with such a Limited Right shall have the unconditional right (exercisable for a thirty (30)-day period following such Hostile Take-Over) to surrender each such option to the Corporation, to the extent the option is at the time exercisable for fully vested shares of common stock. The officer shall in return be entitled to a cash distribution from the Corporation in an amount equal to the excess of: (i) the Take-Over Price of the vested shares of common stock at the time subject to each surrendered option (or surrendered portion of such option) over; (ii) the aggregate exercise price payable for such vested shares. Such cash distribution shall be made within five (5) days following the option surrender date; and 3. The Plan Administrator shall pre-approve, at the time the Limited Right is granted, the subsequent exercise of that right in accordance with the terms of the grant and the provisions of this Section V.F of Article Two. No additional approval of the Plan Administrator or the Board shall be required at the time of the actual option surrender and cash distribution. Any unsurrendered portion of the option shall continue to remain outstanding and become exercisable in accordance with the terms of the instrument evidencing such grant. March 20, 1997 17 G. The shares of common stock subject to any stock appreciation right exercised under this Section V shall not be available for subsequent issuance under the Plan. March 20, 1997 18 ARTICLE THREE AUTOMATIC OPTION GRANT PROGRAM I. ELIGIBILITY A. Eligible Optionees. The individuals eligible to receive automatic option grants pursuant to the provisions of this Article Three shall be limited to: (i) those individuals who are first elected as non-employee Directors at the 1994 Annual Meeting of Stockholders; (ii) those individuals who are first elected or appointed as non-employee Directors after the date of such Annual Meeting, whether through appointment by the Board or election by the Corporation's stockholders; and (iii) those individuals who are re-elected to serve as non-employee Directors at one or more Annual Stockholder Meetings beginning with the 1994 Annual Meeting. Any non-employee Director eligible to participate in the Automatic Option Grant Program pursuant to the foregoing criteria shall be designated an Eligible Director for purposes of this Article Three. II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS A. Grant Dates. Options shall be granted under this Article Three as follows: 1. Each individual who is first elected as an Eligible Director at the 1994 Annual Meeting of Stockholders shall automatically be granted on the date of such Annual Meeting a Non- Statutory Option to purchase 5,000 shares of common stock upon the terms and conditions of this Article Three; 2. Each individual who first becomes an Eligible Director after the date of the 1994 Annual Meeting of Stockholders, whether through election by the Corporation's stockholders or appointment by the Board, shall automatically be granted, at the time of such initial election or appointment, a Non-Statutory Option to purchase 5,000 shares of common stock upon the terms and conditions of this Article Three; and 3. On the date of each Annual Meeting of Stockholders, beginning with the 1994 Annual Meeting, each individual who is at that time re-elected as a non-employee Director shall automatically be granted a Non-Statutory Option to purchase an additional 5,000 shares of common stock upon the terms and conditions of this Article Three, provided such individual has served as a Director for at least twelve (12) months. B. No Limitation. There shall be no limit on the number of such 5,000-share annual option grants any one Eligible Director may receive over his or her period of Board service. The number of shares for which the automatic option grants are to be made to newly elected or continuing Eligible Directors shall be subject to periodic adjustment pursuant to the applicable provisions of Section VI.E. of Article One. March 20, 1997 19 C. Exercise Price. The exercise price per share of common stock of each automatic option grant made under this Article Three shall be equal to one hundred percent (100%) of the Fair Market Value per share of common stock on the automatic grant date. D. Payment. The exercise price shall be payable in any of the alternative forms authorized under Section I.A.2 of Article Two. To the extent the option is exercised for any unvested shares, the Optionee must execute and deliver to the Corporation a stock purchase agreement for those unvested shares which provides the Corporation with the right to repurchase, at the exercise price paid per share, any unvested shares held by the Optionee at the time of cessation of Board service and which precludes the sale, transfer or other disposition of the purchased shares at any time while those shares remain subject to the Corporation's repurchase right. E. Option Term. Each automatic grant made under this Article Three prior to the 1995 Annual Stockholders Meeting shall have a maximum term of ten (10) years measured from the automatic grant date. Each automatic grant made at the 1995 Annual Stockholders Meeting or at any time after the date of that Annual Meeting shall have a maximum term of fifteen (15) years measured from the automatic grant date. F. Exercisability/Vesting. Each automatic grant shall be immediately exercisable for any or all of the option shares. However, any shares purchased under the option shall be subject to repurchase by the Corporation, at the exercise price paid per share, upon the Optionee's cessation of Board service prior to vesting in those shares. The shares subject to the initial automatic grant made to each non-employee Director upon his or her initial appointment or election to the Board shall vest, and the Corporation's repurchase right shall lapse, in two (2) equal and successive annual installments over the Optionee's period of continued service as a Director, with the first such installment to vest upon Optionee's completion of one (1) year of Board service measured from the automatic grant date. The shares subject to each additional automatic grant made to the non-employee Director upon his or her re-election to the Board at one or more Annual Stockholder Meetings shall vest, and the Corporation's repurchase right shall lapse, in two (2) successive equal installments over the Optionee's period of continued service as a Director, with the first such installment to vest upon Optionee's continuation in Board service through the day immediately preceding the date of the first Annual Stockholders Meeting following the grant date of the option and with the second such installment to vest upon Optionee's continuation in Board service through the day immediately preceding the date of the second Annual Stockholders Meeting following the grant date of the option. Vesting of the option shares shall be subject to acceleration as provided in Section II.H.3, Section II.H.4 and Section III of this Article Three. In no event shall any additional option shares vest after the Optionee's cessation of Board service, except as otherwise provided pursuant to Section II.H.3 or Section II.H.4 of this Article Three. G. Transferability. During the lifetime of the Optionee, the automatic option grant, together with the limited stock appreciation right pertaining to such option, shall be exercisable only by the Optionee and shall not be assignable or transferable except for: March 20, 1997 20 (i) a transfer of the option effected by will or by the laws of descent and distribution following the Optionee's death; or (ii) a transfer of the option (granted on or after the 1997 Annual Meeting of Stockholders) effected during Optionee's lifetime for estate planning purposes to a member of his or her immediate family or to a trust established for one or more such family members. H. Termination of Board Service. 1. Except as otherwise provided in subparagraph 2, 3 or 4 below, should the Optionee cease to serve as a Director for any reason while holding one or more automatic option grants under this Article Three, then such individual shall have a six (6)-month period following the date of such cessation of Board service in which to exercise each such option for any or all of the option shares in which the Optionee is vested at the time of such cessation of Board service. However, each such option shall, immediately upon the Optionee's cessation of Board service, terminate and cease to remain outstanding with respect to any option shares in which the Optionee is not otherwise at that time vested under such option. 2. Should an Optionee with less than four (4) years of service on the Board die within the six (6)-month period following the date of his or her cessation of Board service, then any automatic option grant held by the Optionee at the time of his or her death may subsequently be exercised, for any or all of the option shares in which the Optionee is vested at the time of his or her cessation of Board service (less any option shares subsequently purchased by the Optionee prior to death), by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. The right to exercise each such option shall lapse upon the expiration of the twelve (12)- month period measured from the date of the Optionee's death. 3. If the Optionee ceases to serve as a Director for any reason (other than removal for cause) after completion of four (4) or more years of Board service, then the shares of common stock at the time subject to each automatic option grant held by the Optionee shall immediately vest in full (and the Corporation's repurchase right with respect to those shares shall terminate), and the Optionee (or the representative of the Optionee's estate or the person or persons to whom the option is transferred upon the Optionee's death) shall have until the expiration date of the option term in which to exercise such option for any or all of those vested shares of common stock. 4. Should the Optionee die or become Permanently Disabled while serving as a Director, then the shares of common stock at the time subject to each automatic option grant held by the Optionee shall immediately vest in full (and the Corporation's repurchase right with respect to those shares shall terminate), and the Optionee (or the representative of the Optionee's estate or the person or persons to whom the option is transferred upon the Optionee's death) shall have until the expiration date of the option term in which to exercise such option for any or all of those vested shares of common stock. March 20, 1997 21 5. In no event shall any automatic grant under this Article Three remain exercisable after the expiration date of the option term. Upon the expiration of the applicable post- service exercise period under subparagraphs 1 through 4 above or (if earlier) upon the expiration of the option term, the automatic grant shall terminate and cease to be outstanding for any option shares in which the Optionee is vested at the time of his or her cessation of Board service but for which such option is not otherwise exercised. I. Stockholder Rights. The holder of an automatic option grant under this Article Three shall have none of the rights of a stockholder with respect to any shares subject to that option until such individual shall have exercised the option and paid the exercise price for the purchased shares. J. Remaining Terms. The remaining terms and conditions of each automatic option grant shall be as set forth in the form Automatic Stock Option Agreement attached as Exhibit A to the Plan. III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER A. In the event of any Corporate Transaction, the shares of common stock at the time subject to each outstanding option under this Article Three but not otherwise vested shall automatically vest in full and the Corporation's repurchase right with respect to those shares shall terminate, so that each such option shall, immediately prior to the specified effective date for the Corporate Transaction, become fully exercisable for all of the shares of common stock at the time subject to that option and may be exercised for all or any portion of such shares as fully vested shares of common stock. Immediately following the consummation of the Corporate Transaction, all automatic option grants under this Article Three shall terminate and cease to remain outstanding, except to the extent one or more such grants are assumed by the successor entity or its parent corporation. B. In connection with any Change in Control or Hostile Take-Over of the Corporation, the shares of common stock at the time subject to each outstanding option under this Article Three but not otherwise vested shall automatically vest in full and the Corporation's repurchase right with respect to those shares shall terminate, so that each such option shall, immediately prior to the specified effective date for the Change in Control or Hostile Take-Over, become fully exercisable for all of the shares of common stock at the time subject to that option and may be exercised for all or any portion of such shares as fully vested shares of common stock. Each option shall remain so exercisable for all the option shares following the Change in Control or Hostile Take-Over until the expiration or sooner termination of the option term. C. Upon the occurrence of a Hostile Take-Over, the Optionee shall also have a thirty (30)-day period in which to surrender to the Corporation each option held by him or her under this Article Three. The Optionee shall in return be entitled to a cash distribution from the Corporation in an amount equal to the excess of: (i) the Take-Over Price of the shares of common stock at the time subject to the surrendered option over; (ii) the aggregate exercise price payable for such shares. Such cash distribution shall be paid within five (5) days following the surrender of the option to the March 20, 1997 22 Corporation. Stockholder approval of the November 1, 1996 amendments to the Plan shall constitute pre-approval of the subsequent grant of each such option surrender right under this Automatic Option Grant Program and the subsequent exercise of that right in accordance with the terms and provisions of this Section II.C. No additional approval of the Board or any Plan Administrator shall be required at the time of the actual option surrender and cash distribution. The shares of common stock subject to each option surrendered in connection with the Hostile Take-Over shall not be available for subsequent issuance under the Plan. D. The automatic option grants outstanding under this Article Three shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. March 20, 1997 23 ARTICLE FOUR STOCK FEE PROGRAM I. ELIGIBILITY Each individual serving as a non-employee Director shall be eligible to elect to apply all or any portion of the annual retainer fee otherwise payable to such individual in cash to the acquisition of unvested shares of common stock upon the terms and conditions of this Article Four. II. ELECTION PROCEDURE A. Filing. The non-employee Director must make the stock-in-lieu-of-fee election prior to the start of the calendar year for which the election is to be effective. The first calendar year for which any such election may be filed shall be the 1995 calendar year. The election, once filed, shall be irrevocable. The election for any upcoming calendar year may be filed at any time prior to the start of that year, but in no event later than December 31 of the immediately preceding calendar year. The non-employee Director may file a standing election to be in effect for two (2) or more consecutive calendar years or to remain in effect indefinitely until revoked by written instrument filed with the Plan Administrator prior to the start of the first calendar year for which such standing election is no longer to remain in effect. B. Election Form. The election must be filed with the Plan Administrator on the appropriate form provided for this purpose. On the election form, the non-employee Director must indicate the percentage or dollar amount of his or her annual retainer fee to be applied to the acquisition of unvested restricted shares under this Article Six Program. III. SHARE ISSUANCE A. Issue Date. On the first trading day in January of the calendar year for which the election is effective, the portion of the retainer fee subject to such election shall automatically be applied to the acquisition of shares of common stock by dividing the elected dollar amount by the Fair Market Value per share of common stock on that trading day. The number of issuable shares shall be rounded down to the next whole share, and the issued shares shall be held in escrow by the Secretary of the Corporation as partly-paid shares until the non-employee Director vests in those shares. The non-employee Director shall have full shareholder rights, including voting, dividend and liquidation rights, with respect to all issued shares held in escrow on his or her behalf, but such shares shall not be assignable or transferable while they remain unvested. B. Vesting. Upon completion of each calendar month of Board service during the year for which the election is in effect, the non-employee Director shall vest in one-twelfth (1/12) of the issued shares, and the stock certificate for those shares shall be released from escrow. Immediate vesting in all the issued shares shall occur in the event: (i) the non-employee Director should die or March 20, 1997 24 become Permanently Disabled during his or her period of Board service; or (ii) there should occur a Corporate Transaction, Change in Control or Hostile Take-Over occur while such individual remains in Board service. Should such individual cease Board service prior to vesting in one or more monthly installments of the issued shares, then those unvested shares shall be cancelled by the Corporation, and the non-employee Director shall not be entitled to any cash payment or other consideration from the Corporation with respect to the cancelled shares and shall have no further shareholder rights with respect to such shares. March 20, 1997 25 ARTICLE FIVE SALARY REDUCTION GRANT PROGRAM I. ELIGIBILITY The Plan Administrator shall have plenary authority to select, prior to the start of each calendar year, the particular key employees who shall be eligible for participation in the Salary Reduction Grant Program for that calendar year. In order to participate for a particular calendar year, each selected individual must, prior to the start of that calendar year, file with the Plan Administrator (or its designate) an irrevocable authorization directing the Corporation to reduce his or her base salary for that calendar year by a designated multiple of one percent (1%), but in no event less than five percent (5%). The Plan Administrator shall review the filed authorizations and determine whether to approve, in whole or in part, one or more of those authorizations. To the extent the Plan Administrator approves one or more authorizations, the individuals who filed those authorizations shall be granted options under this Salary Reduction Grant Program. To the extent one or more authorizations are not approved by the Primary Committee, those authorizations shall have no force or effect and no options shall be granted under this Article Five to the individuals who filed those authorizations. To the extent options are granted under the Salary Reduction Grant Program, such options shall be Non-Statutory Options evidenced by instruments in such form as the Primary Committee shall from time to time approve; provided, however, that each such instrument shall comply with and incorporate the terms and conditions specified below. II. TERMS AND CONDITIONS OF OPTION A. Exercise Price. 1. The exercise price per share shall be thirty-three and one-third percent (33- 1/3%) of the Fair Market Value per share of common stock on the grant date. 2. The exercise price shall become immediately due upon exercise of the option and shall be payable in any of the alternative forms authorized under Section I.A.2 of Article Two. B. Number of Option Shares. The number of shares of common stock for which each grant under this Article Five is to be made to a selected Optionee shall be determined pursuant to the following formula (rounded down to the nearest whole number): X = A / (B x 66-2/3%), where X is the number of option shares; March 20, 1997 26 A is the dollar amount of the approved reduction in the Optionee's base salary for the calendar year; and B is the Fair Market Value per share of common stock on the date of the grant. C. Term and Exercise of Options. 1. Each option shall have a maximum term of ten (10) years measured from the grant date. Provided the Optionee continues in Service, the option shall become exercisable for: (i) fifty percent (50%) of the option shares on the last day of June in the calendar year for which the option is granted; and for (ii) the balance of the option shares in a series of six (6) successive equal monthly installments on the last day of each of the next six (6) calendar months. 2. One or more options granted under this Salary Reduction Grant Program may be structured so as to be assignable or transferable in whole or in part by the Optionee during his or her lifetime, subject to such restrictions or limitations as the Plan Administrator may impose at the time of grant. Otherwise, the options shall be exercisable only by the Optionee during his or her lifetime and shall not be assignable or transferable other than by transfer of the option effected by will or by the laws of descent and distribution following the Optionee's death. D. Effect of Termination of Service. 1. Should an Optionee cease Service for any reason after his or her outstanding option under this Article Five has become exercisable in whole or in part, then that option shall remain exercisable, for any or all of the shares for which the option is exercisable on the date of such cessation of Service, until the expiration of the ten (10)-year option term or its sooner termination under Section III.A. of this Article Five. Following the Optionee's death, such option may be exercised, for any or all of the shares for which the option is exercisable at the time of the Optionee's death, by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. Such right of exercise shall lapse, and the option shall terminate, upon the expiration of the ten (10)-year option term or its sooner termination under Section III.A. of this Article Five. 2. Should the Optionee die before his or her outstanding option under this Article Five becomes exercisable for any of the option shares, then the personal representative of the Optionee's estate or the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution shall nevertheless have the right to exercise such option for up to that number of option shares equal to: (i) one-twelfth (1/12) of the total number of option shares multiplied by; (ii) the number of full calendar months which have elapsed between the first day of the calendar year for which the option was granted and the last day of the calendar month during which the Optionee ceases Service. Such right of exercise shall lapse, and the option shall terminate, upon the earliest to occur of: (i) the specified expiration date of the option term; (ii) the termination of the option under Section III.A. of this Article Five; or (iii) the third March 20, 1997 27 anniversary of the date of the Optionee's death. However, the option shall, with respect to any and all option shares for which it is not exercisable at the time of the Optionee's cessation of Service, terminate immediately upon such cessation of Service and shall cease to remain outstanding with respect to those option shares. 3. Should the Optionee become Permanently Disabled and cease by reason thereof to remain in Service before his or her outstanding option under this Article Five becomes exercisable for any of the option shares, then the Optionee shall nevertheless have the right to exercise such option for up to that number of option shares equal to: (i) one-twelfth (1/12) of the total number of option shares multiplied by; (ii) the number of full calendar months which have elapsed between the first day of the calendar year for which the option was granted and the last day of the calendar month during which the Optionee ceases Service. Such right of exercise shall lapse, and the option shall terminate, upon the expiration of the ten (10)-year option term or its sooner termination under Section III.A. of this Article Five. However, the option shall, with respect to any and all option shares for which it is not exercisable at the time of the Optionee's cessation of Service, terminate immediately upon such cessation of Service and shall cease to remain outstanding with respect to those option shares. 4. Except to the limited extent specifically provided in subparagraphs 2 and 3 above, should the Optionee cease for any reason to remain in Service before his or her outstanding option under this Article Five first become exercisable for one or more option shares, then that option shall immediately terminate upon such cessation of Service and shall cease to remain outstanding. E. Stockholder Rights. The Optionee shall have none of the rights of a stockholder with respect to any option shares until such individual shall have exercised the option and paid the exercise price for those shares. III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER A. Should any Corporate Transaction occur while the Optionee remains in Service, then each outstanding option held by such Optionee under this Article Five shall become exercisable, immediately prior to the specified effective date of such Corporate Transaction, for all of the shares at the time subject to such option and may be exercised for any or all of such shares as fully-vested shares of common stock. Immediately following the consummation of the Corporate Transaction, each such option shall terminate unless assumed by the successor entity or its parent corporation. B. Upon the occurrence of: (i) a Hostile Take-Over while the Optionee remains in Service; or (ii) the Involuntary Termination of the Optionee's Service following a Change in Control, each outstanding option held by such Optionee under this Article Five shall immediately become exercisable for all of the shares at the time subject to such option and may be exercised for any or all of such shares as fully-vested shares of common stock. The option shall remain so exercisable until the expiration of the ten (10)-year option term. March 20, 1997 28 C. Option grants under this Article Five shall not affect the Corporation's right to adjust, reclassify, reorganize or change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer any or all of its assets. March 20, 1997 29 ARTICLE SIX STOCK ISSUANCE PROGRAM I. TERMS AND CONDITIONS OF STOCK ISSUANCES Shares of common stock may be issued under the Stock Issuance Program through direct and immediate purchases without any intervening stock option grants. The issued shares shall be evidenced by a Stock Issuance Agreement ("Issuance Agreement") that complies with the terms and conditions of this Article Six. A. Consideration 1. Newly Issued Shares shall be issued under the Stock Issuance Program for one or more of the following items of consideration that the Plan Administrator may deem appropriate in each individual instance: (i) full payment in cash or check made payable to the Corporation's order; (ii) a promissory note payable to the Corporation's order in one or more installments, which may be subject to cancellation in whole or in part upon terms and conditions established by the Plan Administrator; or (iii) past services rendered to the Corporation or any Subsidiary. 2. Newly Issued Shares may, in the absolute discretion of the Plan Administrator, be issued for consideration with a value less than, equal to or greater than the Fair Market Value of such shares at the time of issuance, but in no event less than the par value per issued share of common stock. 3. Treasury Shares may be issued under the Stock Issuance Program for such consideration (including one or more of the items of consideration specified in subparagraph 1 above) as the Plan Administrator may deem appropriate, whether such consideration is in an amount less than, equal to or greater than the Fair Market Value of the Treasury Shares at the time of issuance. Treasury Shares may, in lieu of any cash consideration, be issued subject to such vesting requirements tied to the Participant's period of future Service. 4. Treasury Shares may also, in the Plan Administrator's absolute discretion, be issued pursuant to an irrevocable election by the Participant to receive a portion of his or her base salary in shares of common stock in lieu of such base salary. Any such issuance shall be effected in accordance with the following guidelines: - On the first trading day in January of the calendar year for which the election March 20, 1997 30 is effective, the portion of base salary subject to such election shall automatically be applied to the acquisition of common stock by dividing the elected dollar amount by the Fair Market Value per share of the common stock on that trading day. The number of issuable shares shall be rounded down to the next whole share, and the issued shares shall be held in escrow by the Secretary of the Corporation until the Participant vests in those shares. The Participant shall have full stockholder rights, including voting, dividend and liquidation rights, with respect to all issued shares held in escrow on his or her behalf, but such shares shall not be assignable or transferable while they remain unvested; and - Upon completion of each calendar month of Service during the year for which the election is in effect, the Participant shall vest in one-twelfth (1/12) of the issued shares, and the stock certificate for those shares shall be released from escrow. All the issued shares shall immediately vest upon: (i) the occurrence of a Corporate Transaction or Hostile Take-Over while such individual remains in Service; or (ii) the Involuntary Termination of the Participant's Service following a Change in Control. Should the Participant otherwise cease Service prior to vesting in one or more monthly installments of the issued shares, then those unvested shares shall immediately be surrendered to the Corporation for cancellation, and the Participant shall not be entitled to any cash payment or other consideration from the Corporation with respect to the cancelled shares and shall have no further stockholder rights with respect to such shares. 5. In lieu of the immediate issuance of shares of common stock under the Stock Issuance Program, the Plan Administrator may condition the actual issuance of those shares upon the attainment by the Corporation, any designated Subsidiary or division of the Corporation or the individual Participant of one or more performance objectives established by the Plan Administrator at the time the Participant is provided with the notice of such contingent Award. B. Vesting Provisions 1. The shares of common stock issued under the Stock Issuance Program (other than shares issued in lieu of salary) may, in the absolute discretion of the Plan Administrator, be fully and immediately vested upon issuance or may vest in installments over the Participant's period of Service. The Plan Administrator shall have the authority to condition either the actual issuance of the shares of common stock subject to an Award made under the Stock Issuance Program or the subsequent vesting of any unvested shares of common stock issued under the Stock Issuance Program upon the attainment by the Corporation, any designated Subsidiary or division of the Corporation or the individual Participant of one or more following performance objectives: - - earnings per share - return on assets - - revenue - market share - - stock price - customer satisfaction - - operating income - time to market - - consolidated pre-tax profit - employee development - - operating profit margin - quality March 20, 1997 31 - - return on equity - cash - - inventory - employee satisfaction - - gross margin - market perception The Plan Administrator shall have complete discretion to condition either the actual issuance of the shares of common stock subject to the Award or the subsequent vesting of the issued shares upon the attainment of: (i) one particular performance objective; (ii) one of a series of alternative performance objectives; or (iii) any combination of two or more performance objectives, as the Plan Administrator deems appropriate in each instance. The specific target for each selected performance objective shall be established by the Plan Administrator either: (i) at the time the Award is made, if the shares subject to that Award are not to be issued unless the target or targets are achieved; or (ii) at the time the shares of common stock are issued, if the subsequent vesting of those shares is subject to the attainment of the specified target or targets. 2. The remaining elements of the vesting schedule applicable to any unvested shares of common stock issued under the Stock Issuance Program, namely: (i) any Service period to be completed by the Participant; (ii) the number of installments in which the shares are to vest; (iii) the interval or intervals (if any) which are to lapse between installments; and (iv) the effect which death, Permanent Disability or oher event designated by the Plan Administrator is to have upon the vesting schedule, shall be determined by the Plan Administrator and incorporated into either: (i) the Award, if the shares subject to that Award are not to be issued until the applicable vesting requirements are satisfied; or (ii) the Issuance Agreement executed by the Corporation and the Participant, if the shares are to be issued initially as unvested shares. 3. The Participant shall have full stockholder rights with respect to any shares of common stock issued to him or her under the Stock Issuance Program, whether or not his or her interest in those shares is vested. Accordingly, the Participant shall have the right to vote such shares and to receive any regular cash dividends paid on such shares. Any new, additional or different shares of stock or other property (including money paid other than as a regular cash dividend) which the Participant may have the right to receive with respect to his or her unvested shares by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding common stock as a class without the Corporation's receipt of consideration shall be issued, subject to: (i) the same vesting requirements applicable to the Participant's unvested shares; and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate. 4. Should the Participant cease to remain in Service while holding one or more March 20, 1997 32 unvested shares of common stock under the Stock Issuance Program, then those shares shall be immediately cancelled by the Corporation, and the Participant shall have no further stockholder rights with respect to those shares. To the extent the cancelled shares were previously issued to the Participant for consideration paid in cash or cash equivalent (including the Participant's purchase- money promissory note), the Corporation shall repay to the Participant the cash consideration paid for the surrendered shares and shall cancel the unpaid principal balance of any outstanding purchase- money note of the Participant attributable to such cancelled shares. The cancelled shares may, at the Plan Administrator's discretion, be retained by the Corporation as Treasury Shares or may be retired to authorized but unissued share status. 5. The Plan Administrator may in its discretion elect to waive the cancellation of one or more unvested shares of common stock (or other assets attributable thereto) which would otherwise occur upon the non-completion of any Service requirement incorporated into the vesting schedule applicable to those shares. Such waiver shall result in the immediate vesting of the Participant's interest in the shares of common stock as to which the waiver applies. Such waiver may be effected at any time, whether before or after the Participant's cessation of Service. However, the Plan Administrator shall not waive any performance objectives specified in Section I.B.1 above which serve as a condition to either the issuance of shares of common stock under the Stock Issuance Program or the subsequent vesting of any unvested shares actually issued under such Program. II. CORPORATE TRANSACTIONS/CHANGE IN CONTROL/HOSTILE TAKE-OVER A. Upon the occurrence of any Corporate Transaction, all unvested shares of common stock at the time outstanding under this Stock Issuance Program (other than shares issued in lieu of base salary) shall immediately vest in full and the Corporation's repurchase rights shall terminate, except to the extent: (i) any such repurchase right is expressly assigned to the successor corporation (or parent thereof) in connection with the Corporate Transaction; or (ii) such termination is precluded by other limitations imposed in the Issuance Agreement. B. The Plan Administrator shall have the discretionary authority, exercisable at any time while unvested shares remain outstanding under this Stock Issuance Program, to provide for the immediate and automatic vesting of those unvested shares in whole or in part, and the termination of the Corporation's repurchase rights with respect to those shares, upon the occurrence of a Change in Control or Hostile Take-Over. The Plan Administrator shall also have full power and authority to condition any such accelerated vesting upon the subsequent termination of the Participant's Service through an Involuntary Termination effected within a specified period following the Change in Control or Hostile Take-Over. III. TRANSFER RESTRICTIONS/SHARE ESCROW A. Unvested shares may, in the Plan Administrator's discretion, be held in escrow by the Corporation until the Participant's interest in such shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing such unvested shares. To the extent March 20, 1997 33 an escrow arrangement is utilized, the unvested shares and any securities or other assets issued with respect to such shares (other than regular cash dividends) shall be delivered in escrow to the Corporation to be held until the Participant's interest in such shares (or other securities or assets) vests. Alternatively, if the unvested shares are issued directly to the Participant, the restrictive legend on the certificates for such shares shall read substantially as follows: "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE UNVESTED AND ARE SUBJECT TO: (i) CERTAIN TRANSFER RESTRICTIONS; AND (ii) CANCELLATION OR REPURCHASE IN THE EVENT THE REGISTERED HOLDER (OR HIS/HER PREDECESSOR IN INTEREST) CEASES TO REMAIN IN THE CORPORATION'S SERVICE. SUCH TRANSFER RESTRICTIONS AND THE TERMS AND CONDITIONS OF SUCH CANCELLATION OR REPURCHASE ARE SET FORTH IN A STOCK ISSUANCE AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER (OR HIS/HER PREDECESSOR IN INTEREST) DATED , A COPY OF WHICH IS ON FILE AT AT THE PRINCIPAL OFFICE OF THE CORPORATION." B. The Participant shall have no right to transfer any unvested shares of common stock issued to him or her under the Stock Issuance Program. For purposes of this restriction, the term "transfer" shall include (without limitation) any sale, pledge, assignment, encumbrance, gift, or other disposition of such shares, whether voluntary or involuntary. Upon any such attempted transfer, the unvested shares shall immediately be cancelled in accordance with substantially the same procedures in effect under Section I.B.3 of this Article Six, and neither the Participant nor the proposed transferee shall have any rights with respect to such cancelled shares. However, the Participant shall have the right to make a gift of unvested shares acquired under the Stock Issuance Program to the Participant's spouse or issue, including adopted children, or to a trust established for such spouse or issue, provided the transferee of such shares delivers to the Corporation a written agreement to be bound by all the provisions of the Stock Issuance Program and the Issuance Agreement applicable to the transferred shares. March 20, 1997 34 ARTICLE SEVEN MISCELLANEOUS I. LOANS OR INSTALLMENT PAYMENTS A. The Plan Administrator may, in its discretion, assist any Optionee or Participant (including an Optionee or Participant who is an officer of the Corporation), in the exercise of one or more options granted to such Optionee under the Discretionary Option Grant Program or the Salary Reduction Grant Program or the purchase of one or more shares issued to such Participant under the Stock Issuance Program, including the satisfaction of any federal, state and local income and employment tax obligations arising therefrom, by: (i) authorizing the extension of a loan from the Corporation to such Optionee or Participant; or (ii) permitting the Optionee or Participant to pay the exercise price or purchase price for the acquired shares in installments over a period of years. The terms of any loan or installment method of payment (including the interest rate and terms of repayment) shall be upon such terms as the Plan Administrator specifies in the applicable option or issuance agreement or otherwise deems appropriate under the circumstances. Loans or installment payments may be authorized with or without security or collateral. However, the maximum credit available to the Optionee or Participant may not exceed the exercise or purchase price of the acquired shares (less the par value of such shares) plus any federal, state and local income and employment tax liability incurred by the Optionee or Participant in connection with the acquisition of such shares. B. The Plan Administrator may, in its absolute discretion, determine that one or more loans extended under this financial assistance program shall be subject to forgiveness by the Corporation in whole or in part upon such terms and conditions as the Plan Administrator may deem appropriate. II. AMENDMENT OF THE PLAN AND AWARDS A. The Board has complete and exclusive power and authority to amend or modify the Plan (or any component thereof) in any or all respects whatsoever. However, no such amendment or modification shall adversely affect rights and obligations with respect to stock options, stock appreciation rights or unvested stock issuances at the time outstanding under the Plan, unless the Optionee or Participant consents to such amendment. In addition, certain amendments may require stockholder approval pursuant to applicable laws or regulations. B. Options to purchase shares of common stock may be granted under the Discretionary Option Grant Program and the Salary Reduction Grant Program and shares of common stock may be issued under the Stock Issuance Program, which are in excess of the number of shares then available for issuance under the Plan, provided any excess shares actually issued under the Discretionary Option Grant Program, the Salary Reduction Grant Program or the Stock Issuance Program are held in escrow until stockholder approval is obtained for a sufficient increase in the number of shares available for issuance under the Plan. If such stockholder approval is not obtained March 20, 1997 35 within twelve (12) months after the date the first such excess option grants or excess share issuances are made, then: (i) any unexercised excess options shall terminate and cease to be exercisable; and (ii) the Corporation shall promptly refund the purchase price paid for any excess shares actually issued under the Plan and held in escrow, together with interest (at the applicable short term federal rate) for the period the shares were held in escrow. III. TAX WITHHOLDING A. The Corporation's obligation to deliver shares of common stock upon the exercise of stock options or stock appreciation rights or the direct issuance or vesting of such shares under the Plan shall be subject to the satisfaction of all applicable federal, state and local income tax and employment tax withholding requirements. B. The Plan Administrator may, in its discretion and in accordance with the provisions of this Section III and such supplemental rules as the Plan Administrator may from time to time adopt (including the applicable safe-harbor provisions of Securities and Exchange Commission Rule 16b-3), provide any or all holders of Non-Statutory Options (other than the automatic option grants made pursuant to Article Three) or unvested shares under the Stock Issuance Program with the right to use shares of common stock in satisfaction of all or part of the federal, state and local income and employment tax liabilities (the "Taxes") incurred by such holders in connection with the exercise of their options or the vesting of their shares. Such right may be provided to any such holder in either or both of the following formats: - Stock Withholding: The holder of the Non-Statutory Option or unvested shares may be provided with the election to have the Corporation withhold, from the shares of common stock otherwise issuable upon the exercise of such Non-Statutory Option or the vesting of such shares, a portion of those shares with an aggregate Fair Market Value equal to the percentage of the Taxes (up to one hundred percent (100%)) specified by such holder. - Stock Delivery: The holder of the Non-Statutory Option or the unvested shares may be provided with the election to deliver to the Corporation, at the time the Non- Statutory Option is exercised or the shares vest, one or more shares of common stock previously acquired by such individual (other than in connection with the option exercise or share vesting triggering the Taxes) with an aggregate Fair Market Value equal to the percentage of the Taxes (up to one hundred percent (100%)) specified by such holder. IV. EFFECTIVE DATE AND TERM OF PLAN A. This Plan became effective upon approval by the Corporation's stockholders at the 1994 Annual Meeting held on May 5, 1994. The Plan shall serve as the successor to the Predecessor Plans, and no further option grants or stock issuances shall be made under the Predecessor Plans from and after the date of 1994 Annual Meeting. B. On January 25, 1995, the Board approved an amendment to the Plan to: March 20, 1997 36 (i) extend the term for which options granted under the Automatic Option Grant Program may be exercised from ten (10) years to fifteen (15) years from the date of grant; (ii) provide for the immediate vesting of all shares purchased or purchasable by a non-employee Director under the Automatic Option Grant Program in the event such individual's service on the Board terminates for any reason (other than removal for cause) after his or her completion of at least four (4) years of Board service, and allow any outstanding options held by such non-employee Director under the Automatic Option Grant Program to remain exercisable for fully-vested shares until the expiration of the option term; and (iii) identify a series of performance goals upon which the Plan Administrator may condition either the issuance of shares of common stock under the Stock Issuance Program or the subsequent vesting of any unvested shares actually issued under such Program. The amendment was approved by the stockholders at the 1995 Annual Meeting. The item (ii) change is to be in effect for all outstanding options under the Automatic Option Grant Program, whether made before or after the date of the amendment. The item (i) change is to apply only to options granted on or after the date of the 1995 Annual Meeting. C. On November 1, 1996, the Board approved an amendment to the Plan, subject to stockholder approval at the 1997 Annual Meeting, to effect the following changes: - The number of shares available for issuance under the Plan is to increase automatically on the date of the 1997 Annual Stockholders Meeting by an amount equal to 2% of the total number of shares of common stock outstanding on the immediately preceding trading day; - The number of shares of common stock available for issuance under the Plan is to automatically increase on the first trading day of each calendar year, beginning with the 1998 calendar year, by an amount equal to 3% of the total number of shares of common stock outstanding on December 31 of the immediately preceding calendar year; - Each such automatic increase to the share reserve will, however, be subject to reduction to the extent necessary to assure that the maximum number of shares of common stock available immediately thereafter for future option grants and direct stock issuances under the Plan (net of all options then outstanding) will not exceed 6,000,000 shares; - allow one or more Non-Statutory Options, whether currently outstanding or subsequently granted, to be assignable or transferable by the Optionee during his or her lifetime, subject to such restrictions and limitations as the Plan Administrator may impose; March 20, 1997 37 - allow the option grants made on or after the 1997 Annual Meeting of Stockholders to non-employee Directors under the Automatic Option Grant Program to be transferable during Optionee's lifetime for estate planning purposes to a member of his or her immediate family or to a trust established for one or more such family members; - allow non-employee Directors to receive discretionary grants and stock issuances under the Discretionary Option Grant and Stock Issuance Programs; - eliminate the restriction that the individuals who serve as the Plan Administrator may not receive any option grants or direct stock issuances from the Corporation during their period of service as such or during the twelve (12)-month period preceding their appointment as Plan Administrator; - liberalize the requirements for the withholding of shares of common stock in satisfaction of tax withholding obligations incurred in connection with the exercise of Non-Statutory Options or the vesting of unvested stock issuances so that the only condition to the exercise of those withholding rights is the approval of the Plan Administrator, either at the time those rights are exercised or at any earlier time; - require stockholder approval of future amendments to the Plan only to the extent necessary to satisfy applicable laws or regulations; - eliminate both the six (6)-month holding period requirement and the ten (10) business day "window" period requirement for the exercise of any stock appreciation rights granted under the Plan; and - allow unvested shares reacquired by the Corporation upon the Optionee's or Participant's cessation of Service prior to vesting in those shares to be added back to the share reserve available for future issuance under the Plan. D. Each option issued and outstanding under the Predecessor Plans and each unvested share issued thereunder immediately prior to the Effective Date of this Plan shall be incorporated into this Plan and treated as an outstanding option or share issuance under this Plan, but each such option and share issuance shall continue to be governed solely by the terms and conditions of the instrument evidencing such grant or issuance, and nothing in this Plan shall be deemed to affect or otherwise modify the rights or obligations of the holders of such options or share issuances with respect to their acquisition of shares of common stock thereunder. E. One or more provisions or features of this Plan may, in the Plan Administrator's discretion, be extended to any or all stock options or share issuances outstanding under the Predecessor Plans on the Effective Date and incorporated into this Plan. F. The Plan shall terminate upon the earlier of: (i) December 31, 2008; or (ii) the date on which all shares available for issuance under the Plan shall have been issued or cancelled pursuant March 20, 1997 38 to the exercise of options or stock appreciation rights or the issuance of shares (whether vested or unvested) under the Plan. If the date of termination is determined under clause (i) above, then all option grants and unvested stock issuances outstanding on such date shall thereafter continue to have force and effect in accordance with the provisions of the instruments evidencing such grants or issuances. V. USE OF PROCEEDS Any cash proceeds received by the Corporation from the sale of shares pursuant to option grants or stock issuances under the Plan shall be used for general corporate purposes. VI. REGULATORY APPROVALS A. The implementation of the Plan, the granting of any option or stock appreciation right under the Plan, the issuance of any shares under the Stock Issuance Program, and the issuance of common stock upon the exercise of the stock options and stock appreciation rights granted hereunder shall be subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the stock options and stock appreciation rights granted under it and the common stock issued pursuant to it. B. No shares of common stock or other assets shall be issued or delivered under this Plan unless and until there shall have been compliance with all applicable requirements of federal and state securities laws, including the filing and effectiveness of the Form S-8 registration statement for the shares of common stock issuable under the Plan, and all applicable listing requirements of any securities exchange on which the common stock is then listed for trading. VII. NO EMPLOYMENT/SERVICE RIGHTS Neither the action of the Corporation in establishing the Plan, nor any action taken by the Plan Administrator hereunder, nor any provision of the Plan shall be construed so as to grant any individual the right to remain in the Service of the Corporation (or Subsidiary) for any period of specific duration, and the Corporation (or any Subsidiary retaining the services of such individual) may terminate such individual's Service at any time and for any reason, with or without cause. March 20, 1997 39 ADDENDUM I AMDAHL CORPORATION 1994 STOCK INCENTIVE PLAN UNITED KINGDOM STOCK OPTION SCHEME March 20, 1997 40 ADDENDUM I AMDAHL CORPORATION 1994 STOCK INCENTIVE PLAN UNITED KINGDOM STOCK OPTION SCHEME Preamble This scheme (the "Scheme") is for the benefit of those employees of Amdahl Corporation and its subsidiary corporations who are subject to taxation in the United Kingdom. The terms and conditions of the Scheme are established in order to render the Scheme capable of approval as an approved share option scheme under Schedule 9 of the United Kingdom Income and Corporation Taxes Act 1988 ("Taxes Act") ("Schedule 9"). Accordingly, the terms and conditions of the Scheme shall be interpreted in a manner consistent with Schedule 9. All options subject to the provisions of the Scheme shall be specifically designated as "Approved UK Stock Options." The Scheme is an addendum to the 1994 Stock Incentive Plan (the "Plan") and should be read in conjunction with the Plan. Accordingly, any options specifically designated as Approved UK Stock Options will be subject to the terms and conditions of the Plan except to the extent that such terms and conditions differ from (or are otherwise in conflict with) the express provisions of the Scheme in which event, the rules of the Scheme shall prevail. Any term not otherwise defined in the Scheme shall have the meaning set forth in Section II, Article One of the Plan. For the avoidance of doubt only Articles One, Two Section IC and Seven shall apply to the Scheme except to the extent that its terms and conditions differ or are otherwise in conflict with the Scheme. (a) Eligibility The individuals eligible to receive Approved UK Stock Options shall be limited to: i) any Director except for a non-employee Director of the Corporation or one or more of its Subsidiaries who normally devotes not less than an aggregate of 25 hours per week (excluding meal breaks) to the duties of such directorships; and ii) any non-director employee of the Corporation or its Subsidiaries who is required under his terms of employment to provide not less than an aggregate of 20 hours per week of service (excluding meal breaks) to the Corporation or its subsidiaries. An individual may not be granted, nor may an individual exercise, an Approved UK Stock Option if such individual has at the time (or had at any time during the preceding twelve (12) months) a material interest (as defined in Section 187(3) Taxes Act 1988) in a close company (as defined under Chapter I of Part XI of the Taxes Act disregarding section 414(1)(a) and 415) whose shares may be acquired on the exercise of rights obtained under the Scheme or which has control March 20, 1997 41 of such a company or is a member of a consortium (as defined in Section 187(7) of the Taxes Act 1988) which owns such a company. (b) Grant of Options Approved UK Stock Options granted under the Scheme by the Plan Administrator shall be granted by deed and the exercise price per share of stock subject to an Approved UK Stock Option ("the Option Shares") shall in no event be less than one hundred per cent. (100%) of the Fair Market Value of such Option Shares on the grant date or such earlier date as is agreed with the Inland Revenue. Each Approved UK Stock Option shall be exercisable at such time or times, during such period and for such number of Option Shares as shall be determined by the Plan Administrator and set forth in the instrument evidencing such option. No Approved UK Stock Option shall, however, have a maximum term in excess of ten (10) years. No Approved UK Stock Option may be transferred, assigned, or charged and any purported transfer, assignment or charge shall be void ab initio. (c) Stock issued pursuant to exercise of approved UK stock options The Option Shares issued pursuant to the exercise of Approved UK Stock Options shall not be subject to any restrictions (as such term is defined in Schedule 9) other than restrictions which apply to all outstanding Option Shares. The issuance of such Option Shares must be effected within thirty (30) days after the date of exercise of the Approved UK Stock Options. (d) Loans or guarantee of loans Notwithstanding the provisions of Section I, Article Seven of the Plan: i) no financing shall be provided directly or indirectly by the Corporation or any of its Subsidiaries to the holder of Approved UK Stock Options for the purposes of assisting such individuals in the exercise of their Approved UK Stock Options; and ii) no holder of an Approved UK Stock Option shall be permitted to pay in instalments the purchase price of Option Shares acquired pursuant to the exercise of such option. (e) Termination of Service Should an Optionee cease service for any reason (excluding death and Misconduct) while holding one or more outstanding Approved UK Stock Options then those Approved UK Stock Options shall terminate upon the earlier of: (i) the expiration of ten (10) years after the grant date of this option; March 20, 1997 42 (ii) the expiration of thirty-six (36) months after the cessation of service; or (iii)the expiration of such period following cessation of service as determined by the Plan Administrator at the date of grant. If Optionee's employment is terminated by reason of Misconduct within the specified term of the Approved UK Stock Option, then the option shall lapse immediately. (f) Limitation of rights Except as may subsequently be permitted by amendment to Schedule 9, the grant of an Approved UK Stock Option under the Plan shall be limited and take effect so that the grant of such option would not, at the time of grant, cause the Fair Market Value (as of the date of grant) of the Option Shares purchasable under all Approved UK Stock Options granted to such Optionee by: i) the Corporation; ii) any company which controls (or at any time within the preceding twelve (12) months controlled) the Corporation; iii) any company which is controlled by (or within the twelve (12) months was controlled by) the Corporation; or iv) any company which is (or within the preceding twelve (12) months was) under the control of the same person or persons as control the Corporation; to exceed in the aggregate for Approved UK Stock Options granted on or after 17 July 1995 Li.30,000 taking into account the Fair Market Value (as at the date of grant) of the Option Shares purchasable under all Approved UK Stock Options granted to the Optionee before 17 July 1995. For the purposes of the Scheme "Control" shall mean: (i) a person shall be taken to have control of a company if he exercises, or is able to exercise, or is entitled to acquire, direct or indirect control over the company's affairs, and in particular, but without prejudice to the generality of the preceding words, if he possesses or is entitled to acquire- (a) the greater part of the share capital or issued share capital of the company or of the voting power in the company; (b) such part of the issued share capital of the company as would, if the whole of the income of the company were in fact distributed among the participators (without regard to any rights which he or any other person has as a loan creditor), entitle him to receive the greater part of the amount so distributed; or March 20, 1997 43 (c) such rights as would, in the event of the winding-up of the company or in any other circumstances, entitle him to receive the greater part of the assets of the company which would then be available for distribution among the participators. For the purposes of calculating the limits in this rule (f) the exchange rate for the conversion of US dollars to pounds sterling shall be the Financial Times pound spot rate forward as of the date of grant of the Approved UK Stock Option to which the Option Shares are subject or on the last previous date for which such rate exists. (g) Changes in Capitalisation No change or adjustment shall be effected pursuant to Section VI, Article One of the Plan to: i) the number of Option Shares or other securities covered by an outstanding Approved UK Stock Option; or ii) the exercise price payable per Option Share under an outstanding Approved UK Stock Option; unless any adjustment has been confirmed in writing by the Corporation's auditors to be fair and reasonable, the aggregate exercise price payable by each Optionee is not increased and any adjustment, whilst the Scheme is intended to remain approved, has been approved by the Board of Inland Revenue. (h) Amendment of the Scheme Whilst it is intended to remain approved by the Inland Revenue, the Scheme may not be amended without prior Inland Revenue approval. Accordingly, unless Board of Inland Revenue approval shall have been obtained for any amendment to the Plan, the terms and conditions of the Scheme shall be determined by reference to the provisions of the Plan as in existence prior to such amendment. (i) Surrender of Approved UK Stock Options Notwithstanding Sections III and V, Article Two and Section III, Article Three of the Plan, no Approved UK Stock Option may be surrendered for cash or stock payment from the Corporation. However, Approved UK Stock Options may be surrendered, cancelled or renounced by their holders at any time prior to exercise. (j) Exercise upon death Notwithstanding Section IC of Article Two and Section II H of Article Three of the Plan, upon the Optionee's death an Approved UK Stock Option may; March 20, 1997 44 i) in no event remain outstanding for more than one (1) year; and ii) be exercised only by the deceased Optionee's personal representatives. (k) Share limitations Notwithstanding Section II B, Article Seven of the Plan, no Approved UK Stock Option may be granted pursuant to the provisions of the Scheme to purchase Option Shares in excess of the number of shares then available for issuance under the Scheme. (l) Stock subject to the scheme No Approved UK Stock Option may be granted pursuant to the provisions of the Scheme to purchase stock which does not satisfy the requirements of paragraphs 10 to 14 of Schedule 9. (m) Manner of exercise An Optionee may exercise an Approved UK Stock Option by sending his option certificate together with the exercise price in cash or by cheque to the Corporation. Notwithstanding any rights determined by reference to a record date preceding the date of issue, stock issued on the exercise of an Approved UK Stock Option shall rank pari passu with the other shares as the same class in issue at the date of issue. If any shares are listed or quoted on any recognised stock exchange, no approved UK Stock Option may be granted or exercised in contravention of the terms of such rules of such body as may be in force from time to time. (n) Service Rights Rights and obligations of any Optionee under the terms of his office or employment with the Corporation and its subsidiaries shall not be affected by participation in the Scheme or any right to participate therein. Any Optionee who participates therein shall waive any and all rights to compensation or damages and consequence of the termination of his office or employment for any reason whatsoever in so far as those rights arise or may arise from his ceasing to have rights under or be entitled to exercise any Approved UK Stock Option under the Scheme as the result of such termination. (o) Takeovers If any person obtains Control of the Corporation as a result of making; (i) a general offer to acquire the whole of the issued share capital of the Corporation (other than that which is already owned by him) which is unconditional or which is made on a condition such that if it is satisfied the person making the offer will have Control of the Corporation; or March 20, 1997 45 (ii) a general offer to acquire all of the shares (other than shares which are already owned by him) in the Corporation which are of the same class as the shares Then the Plan Administrator shall notify all Optionees of the offer and shall use its best efforts to have the options assumed by the acquiring entity, and any Approved UK Stock Option so assumed may be exercised upon receipt of this notice up to the expiry of a period ending 6 months from the time when the person making the offer has obtained Control of the Corporation and any conditions subject to which the offer has been made has been satisfied. If as a result of the events specified above, a company has obtained Control of the Corporation, the Optionee may, if that other company ("the Acquiring Company") so agrees release any Approved UK Stock Options he holds in consideration of the grant of a new option over shares in the Acquiring Company or some other company falling within paragraph 10(b) or 10(c) of Schedule 9, providing such new option meets the requirements of paragraph 15 (3)(a) to (d) of Schedule 9 and that such release and grant occur within the "appropriate period" as defined by paragraph 15 (2) Schedule 9. A new option issued in consideration of the release of an Approved UK Stock Option shall be evidenced by an option certificate which shall import the relevant provisions of the Plan subject to the consequent amendments (including, without prejudice to the generality of the foregoing, the amendment of the terms "Corporation", "share" and "Approved UK Stock Option") necessary to accommodate the new options and to comply with paragraph 15(3) Schedule 9. A new option shall, for all other purposes of the Scheme, be treated as having been acquired at the same time as the corresponding released options. For the purpose of this paragraph a person shall be deemed to have obtained Control of the Corporation if he, and other acting in concert with him have obtained Control of it. (p) Corporate Transactions, Hostile Takeovers and Changes in Control In the event of a Corporate Transaction or an Involuntary Termination as a result of the Corporate Transaction any option shall be exercisable for the period specified by the Plan Administrator, and on expiry of such period the option shall lapse. March 20, 1997 46 EXHIBIT A AUTOMATIC STOCK OPTION AGREEMENT March 20, 1997 47 NOTICE OF AUTOMATIC STOCK OPTION GRANT Notice is hereby given of the following stock option (the "Option") to purchase shares of the common stock of Amdahl Corporation (the "Corporation") which has been granted pursuant to the Automatic Option Grant Program in effect under the Corporation's 1994 Stock Incentive Plan ( the "Plan"): Optionee: Grant Date: Type of Option: Non-Statutory Stock Option Exercise Price: $______ (100% of Fair Market Value on Grant Date) Shares Granted: 5,000 Expiration Date: Exercise Schedule: The Option is immediately exercisable for all the Option Shares. Vesting Schedule: The Option Shares shall initially be unvested and subject to repurchase by the Corporation, at the Exercise Price paid per share, upon Optionee's cessation of service as a member of the Corporation's Board of Directors (the "Board") prior to vesting in the Option Shares. Optionee shall acquire a vested interest in the Option Shares, and the Corporation's repurchase right with respect to the Option Shares shall lapse, in two (2) equal and successive annual installments over Optionee's continued period of Board service, with the first such installment to vest upon Optionee's completion of one (1) year of Board service measured from the Grant Date. Optionee understands and agrees that the Option is granted subject to and in accordance with the express terms and conditions of the Plan governing automatic option grants to Board members. Optionee further agrees to be bound by the terms and conditions of the Plan and the terms and conditions of the Option as set forth in the Automatic Stock Option Agreement attached hereto as Exhibit A. Optionee hereby acknowledges receipt of a copy of the official Plan Summary and Prospectus. A copy of the Plan is also available upon request made to the Corporate Secretary at the Corporate Offices at 1250 East Arques Avenue, P.O. Box 3470, Sunnyvale, California 94088-3470. March 20, 1997 48 REPURCHASE RIGHT. OPTIONEE HEREBY AGREES THAT ALL UNVESTED OPTION SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL NOT BE TRANSFERABLE AND SHALL BE SUBJECT TO REPURCHASE BY THE CORPORATION AND ITS ASSIGNS, AT THE EXERCISE PRICE PAID PER SHARE, UPON OPTIONEE'S CESSATION OF SERVICE AS A MEMBER OF THE CORPORATION'S BOARD OF DIRECTORS. THE TERMS AND CONDITIONS OF SUCH REPURCHASE RIGHT SHALL BE SET FORTH IN A STOCK ISSUANCE AGREEMENT, IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION, EXECUTED BY OPTIONEE AT THE TIME OF THE OPTION EXERCISE. No provision of this Notice of Automatic Stock Option Grant or the attached Automatic Stock Option Agreement shall in any way be construed or interpreted so as to affect adversely or otherwise impair the right of the Corporation or the stockholders to remove Optionee from the Board at any time in accordance with the provisions of applicable law. DATED: , 199__ AMDAHL CORPORATION By: OPTIONEE Attachments: Exhibit A: Automatic Stock Option Grant Agreement March 20, 1997 49 EXHIBIT A AMDAHL CORPORATION AUTOMATIC STOCK OPTION GRANT AGREEMENT RECITALS A. The Corporation has approved an Automatic Option Grant Program under the 1994 Stock Incentive Plan (the "Plan"), pursuant to which special option grants are to be made to non-employee Directors of the Corporation's Board of Directors (the "Board") at periodic intervals over their period of Board service in order to encourage such individuals to remain in the Corporation's service. B. Optionee is an Eligible Director in accordance with Article Three of the Plan, and this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the automatic grant of a stock option to purchase shares of the Corporation's common stock, par value of $.05 per share ("common stock") under the Plan. C. The granted option is intended to be a non-statutory option which does not meet the requirements of Section 422 of the Internal Revenue Code and is designed to provide Optionee with a meaningful incentive to continue to serve as a member of the Board. NOW, THEREFORE, it is hereby agreed as follows: 1. Grant of Option. Subject to and upon the terms and conditions set forth in this Agreement, there is hereby granted to Optionee, as of the date of grant (the "Grant Date") specified in the accompanying Notice of Automatic Stock Option Grant (the "Grant Notice"), a stock option to purchase up to the number of shares of common stock (the "Option Shares") as is specified in the Grant Notice. The Option Shares shall be purchasable from time to time during the option term at the price per share (the "Exercise Price") specified in the Grant Notice. 2. Option Term. This option shall have a maximum term of fifteen (15) years measured from the Grant Date and shall expire at the close of business on the Expiration Date specified in the Grant Notice, unless terminated earlier pursuant to Paragraph 5, 7 or 8. 3. Limited Transferability. This option, together with the special stock appreciation right provided under Paragraph 8.b, shall be transferable or assignable by Optionee: (i) during Optionee's lifetime for estate planning purposes to a member of his or her immediate family or to a trust established for one or more such family members; and (ii) by will or by the laws of descent and distribution following Optionee's death. March 20, 1997 50 4. Exercisability/Vesting. This option shall be immediately exercisable for any or all of the Option Shares, whether or not the Option Shares are at the time vested in accordance with the Vesting Schedule set forth in the Grant Notice. However, any shares purchased under this option shall be subject to repurchase by the Corporation, at the exercise price paid per share, upon the Optionee's termination of Board service prior to vesting in those shares. This option shall remain exercisable until the Expiration Date unless it is fully exercised or terminated earlier pursuant to Paragraphs 5, 7 or 8. In no event shall this option be exercisable after the Expiration Date. The Option Shares will vest in accordance with the Vesting Schedule set forth in the Grant Notice. Vesting of the Option Shares shall be subject to acceleration as provided in Paragraphs 5, 7 or 8. In no event, however, shall any additional Option Shares vest following Optionee's termination of service as a Director, except as otherwise provided pursuant to Paragraph 5, 7 or 8 of this Agreement. 5. Termination of Board Service. a. Should Optionee cease to serve as a Director for any reason (other than death or permanent disability) prior to completing at least four (4) years of Board service while holding this option, then Optionee shall have a six (6) month period commencing with the date of such termination of Board service in which to exercise any outstanding Option Shares under this option which are vested at the time of Optionee's termination of Board service, but in no event shall this option be exercisable at any time after the Expiration Date. b. Should Optionee, with less than four (4) years of service on the Board, die within the six (6)-month period following the date of his or her termination of Board service, then the personal representative of Optionee's estate, or the person or persons to whom the option is transferred pursuant to Optionee's will or in accordance with the laws of descent and distribution, shall have a twelve (12) month period to exercise any outstanding Option Shares under this option which are vested at the time of Optionee's termination of Board service, but in no event shall this option be exercisable at any time after the Expiration Date. c. Should Optionee cease to serve as a Director for any reason (other than removal for cause) following his or her completion of four (4) or more years of Board service, then any outstanding Option Shares under this option at the time of such termination of Board service shall immediately vest in full (and the Corporation's repurchase right with respect to such Option Shares shall terminate), and Optionee or the personal representative of Optionee's estate or the person or persons to whom this option is transferred pursuant to Optionee's will or in accordance with the laws of descent and distribution shall have the right to exercise any outstanding Option Shares prior to the Expiration Date. d. Should Optionee die or become permanently disabled while serving as a Director, then any outstanding Option Shares at the time of such termination of Board service shall immediately vest in full (and the Corporation's repurchase rights with respect to March 20, 1997 51 the Option Shares shall terminate), and Optionee or the personal representative of Optionee's estate or the person or persons to whom the option is transferred pursuant to Optionee's will or in accordance with the laws of descent and distribution shall have until the expiration date of the option term in which to exercise any outstanding Option Shares. e. Optionee shall be deemed to be permanently disabled if Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. 6. Adjustment in Option Shares. a. Should any change be made to the common stock issuable under the Plan by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting such common stock as a class without the Corporation's receipt of consideration, then the number and class of securities purchasable under this option and the Exercise Price payable per share shall be appropriately adjusted to prevent the dilution or enlargement of Optionee's rights hereunder; provided, however, the aggregate Exercise Price shall remain the same. b. To the extent this option is assumed in connection with any Corporate Transaction under Paragraph 7 or is otherwise to continue in effect, this option shall be appropriately adjusted, immediately after such Corporate Transaction, to apply and pertain to the number and class of securities which would have been issued to Optionee, in consummation of such Corporate Transaction, had this option been exercised immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to the Exercise Price payable per share, provided the aggregate Exercise Price payable for such securities shall remain the same. 7. Corporate Transaction. In the event of any of the following stockholder-approved transactions to which the Corporation is a party (a "Corporate Transaction"): a. a merger or consolidation in which the Corporation is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Corporation is incorporated; b. the sale, transfer or other disposition of all or substantially all of the assets of the Corporation in complete liquidation or dissolution of the Corporation; or c. any reverse merger in which the Corporation is the surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger; March 20, 1997 52 all outstanding Option Shares under this option shall automatically vest in full (and the Corporation's repurchase right with respect to those shares shall immediately terminate) immediately prior to the specified effective date for the Corporate Transaction, and this option may be exercised for any outstanding Option Shares. Immediately following the consummation of the Corporate Transaction, this option shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof). 8. Change in Control/Hostile Takeover. Any outstanding Option Shares under this option at the time of a Change in Control or Hostile Take-Over (as such terms are defined below) shall automatically vest in full (and the Corporation's repurchase right with respect to such Option Shares shall terminate). This option shall remain exercisable until the earliest to occur of (i) the Expiration Date, (ii) the early termination of this option in accordance with Paragraph 5 or 7, or (iii) the surrender of this option under Paragraph 8.b. Optionee shall also have the unconditional right (exercisable during the thirty (30)-day period immediately following the consummation of such Hostile Take-Over) to surrender this option to the Corporation in exchange for a cash distribution from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the Option Shares at the time subject to the surrendered option over (ii) the aggregate Exercise Price payable for such shares ("limited stock appreciation right"). To exercise this limited stock appreciation right, Optionee must, during the applicable thirty (30)-day exercise period, provide the Corporation with written notice of the option surrender in which there is specified the number of Option Shares as to which the option is being surrendered. Such notice must be accompanied by the return of Optionee's copy of this Agreement, together with any written amendments to such Agreement. The cash distribution shall be paid to Optionee within five (5) days following such delivery date, and neither the approval of the Plan Administrator nor the consent of the Board shall be required in connection with the option surrender and cash distribution. Upon receipt of such cash distribution, this option shall be cancelled with respect to the shares subject to the surrendered option (or the surrendered portion), and Optionee shall cease to have any further right to acquire those Option Shares under this Agreement. However, should this option be surrendered for only a portion of the Option Shares at the time subject to the option, a new stock option agreement (substantially in the form of this Agreement) shall be issued by the Corporation for the balance of the Option Shares for which this option is not surrendered. This limited stock appreciation right shall in all events terminate upon the expiration or sooner termination of the option term. Definitions: For purposes of this Agreement, the following definitions shall be in effect: March 20, 1997 53 Change in Control: a change in ownership or control of the Corporation effected through either of the following transactions: - a direct acquisition by any person (or related group of persons) of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Act of 1934, as amended (the "1934 Act")), of securities possessing more than ten percent (10%) of the total combined voting power of the Corporation's outstanding securities, - the direct or indirect acquisition by any person or related group of persons, whether by tender or exchange offer made directly to the Corporation's stockholders, private purchases from one or more of the Corporation's stockholders, open market purchases or any other transaction, of additional securities of the Corporation which increases the beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of the total securities holdings of such person (or related group of persons) to a level of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities, or - the direct or indirect acquisition by any person or related group of persons, whether by tender or exchange offer made directly to the Corporation's stockholders, private purchases from one or more of the Corporation's stockholders, open market purchases or any other transaction, of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities of the Corporation possessing sufficient voting power in the aggregate to elect an absolute majority of the Board (rounded up to the next whole number). Hostile Take-Over: a change in ownership of the Corporation effected through the following transaction: - the direct or indirect acquisition by any person or related group of persons of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders which the Board does not recommend such stockholders to accept, and - more than fifty percent (50%) of the acquired securities are accepted from holders other than the officers and directors of the Corporation subject to the short-swing profit restrictions of Section 16 of the 1934 Act. March 20, 1997 54 Take-Over Price: the greater of: (i) the Fair Market Value (as defined in subparagraph 9.b. below) per share of common stock on the date the option is surrendered to the Corporation in connection with the Hostile Take-Over; or (ii) the highest reported price per share of common stock paid by the tender offeror in effecting such Hostile Take-Over. 9. Manner of Exercising Option. a. In order to exercise this option for all or any part of the Option Shares for which the option is at the time exercisable, Optionee (or in the case of exercise after Optionee's death, Optionee's executor, administrator, heir or legatee, as the case may be) must take the following actions: (i) To the extent the option is exercised for vested Option Shares, the Secretary of the Corporation shall be provided with written notice of the option exercise (the "Exercise Notice"), in substantially the form of Exhibit I attached hereto, in which there is specified the number of vested Option Shares which are to be purchased under the exercised option. To the extent the option is exercised for one or more unvested Option Shares, Optionee (or other person exercising the option) shall deliver to the Secretary of the Corporation a stock issuance agreement (in form and substance satisfactory to the Corporation) which grants the Corporation the right to repurchase, at the Exercise Price, any and all unvested Option Shares held by Optionee at the time of his or her cessation of Board service and which precludes the sale, transfer or other disposition of any purchased Option Shares subject to such repurchase right (the "Issuance Agreement"); (ii) The aggregate Exercise Price for the purchased shares shall be paid in one of the following alternative forms: (a) full payment in cash or check made payable to the Corporation's order; (b) full payment in shares of common stock held by Optionee for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date (as defined below); (c) full payment in a combination of shares of common stock held for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date and cash or check made payable to the Corporation's order; or (d) to the extent the option is exercised for vested Option Shares, full payment effected through the Immediate Sale Program: a broker-dealer sale and remittance procedure pursuant to which Optionee shall provide irrevocable instructions (i) to a Corporation-designated brokerage firm to effect the immediate sale of the vested shares purchased under the option and remit to the Corporation, out of the sale proceeds available March 20, 1997 55 on the settlement date, sufficient funds to cover the aggregate Exercise Price payable for those shares; and (ii) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale; and (iii) Appropriate documentation evidencing the right to exercise this option shall be furnished to the Corporation if the person or persons exercising the option is other than Optionee. b. For purposes of subparagraph 9.a. above and for all other valuation purposes under this Agreement, the Fair Market Value per share of common stock on any relevant date shall be the mean between the highest and lowest selling prices per share on the date in question on the principal exchange on which the common stock is then listed or admitted to trading, as such prices are reported on the composite tape of transactions on such exchange. If there are no reported sales of the common stock on the date in question, then the Fair Market Value shall be the mean between the highest and lowest selling prices on the last preceding date for which such quotations exist. c. The Exercise Date shall be the date on which the Exercise Notice is delivered to the Secretary of the Corporation, together with the appropriate Issuance Agreement for any unvested shares acquired under the option. Except to the extent the Immediate Sale Program specified above is utilized in connection with the exercise of the option for vested Option Shares, payment of the Exercise Price for the purchased shares must accompany such notice. d. As soon as practical after the Exercise Date, the Corporation shall issue to or on behalf of Optionee (or other person or persons exercising this option) a certificate or certificates representing the purchased Option Shares. To the extent any such Option Shares are unvested, the certificates for those Option Shares shall be endorsed with an appropriate legend evidencing the Corporation's repurchase rights and may be held in escrow with the Corporation until such shares vest. e. In no event may this option be exercised for any fractional share. 10. Stockholder Rights. The holder of this option shall not have any of the rights of a stockholder with respect to the Option Shares until such individual shall have exercised this option and paid the Exercise Price for the purchased shares. 11. No Impairment of Rights. This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise make changes in its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. Nor shall this Agreement in any way be construed or interpreted so as to affect adversely or otherwise impair the right of the Corporation or the stockholders to remove Optionee from the Board at any time in accordance with the provisions of applicable law. March 20, 1997 56 12. Compliance with Laws and Regulations. The exercise of this option and the issuance of the Option Shares upon such exercise shall be subject to compliance by the Corporation and Optionee with all applicable requirements of law relating thereto and with all applicable regulations of any securities exchange on which shares of the common stock may be listed for trading at the time of such exercise and issuance. 13. Successors and Assigns. Except to the extent otherwise provided in Paragraph 3 or 7, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of Optionee and the Corporation's successors and assigns. 14. Discharge of Liability. The inability of the Corporation to obtain approval from any regulatory body having authority deemed by the Corporation to be necessary to the lawful issuance and sale of any common stock pursuant to this option shall relieve the Corporation of any liability with respect to the non-issuance or sale of the common stock as to which such approval shall not have been obtained. However, the Corporation shall use its best efforts to obtain all such applicable approvals. 15. Notices. Any notice required to be given or delivered to the Corporation under the terms of this Agreement shall be in writing and addressed to the Corporation in care of the Corporate Secretary at the Corporate Offices at 1250 East Arques Avenue, P.O. Box 3470, Sunnyvale, California 94088-3470. Any notice required to be given or delivered to Optionee shall be in writing and addressed to Optionee at the address indicated below Optionee's signature line on the Grant Notice. All notices shall be deemed to have been given or delivered upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified. 16. Construction/Governing Law. This Agreement and the option evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the express terms and provisions of the Plan, including the Automatic Option Grant Program provisions of Article Three of the Plan. The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of California without resort to that State's conflict-of-laws provisions. March 20, 1997 57 EXHIBIT I NOTICE OF EXERCISE OF AUTOMATIC STOCK OPTION I hereby notify Amdahl Corporation (the "Corporation") that I elect to purchase ____________ shares of the Corporation's common stock par value of $0.05 per share (the "Purchased Shares") at the option exercise price of $______ per share (the "Exercise Price") pursuant to that certain option (the "Option") granted to me under the Corporation's 1994 Stock Incentive Plan on ___________, 199_ to purchase up to 5,000 shares of the Corporation's common stock. Concurrently with the delivery of this Exercise Notice to the Secretary of the Corporation, I shall hereby pay to the Corporation the Exercise Price for the Purchased Shares in accordance with the provisions of my agreement with the Corporation evidencing the Option and shall deliver whatever additional documents may be required by such agreement as a condition for exercise. Alternatively, I may utilize the special Immediate Sale procedure specified in my agreement to effect payment of the Exercise Price for any Purchased Shares in which I am vested at the time of exercise. Date Optionee Address: Print name in exact manner it is to appear on the stock certificate: Address to which certificate is to be sent, if different from address above: Social Security Number: March 20, 1997 58 EX-10.Q 4 Exhibit 10(q) Indemnification Agreement THIS AGREEMENT is made and entered into this ___ day of November, 1996 between Amdahl Corporation, a Delaware corporation ("Corporation"), and ______________("Officer"). Witnesseth That: WHEREAS, Officer, an officer of Corporation, performs a valuable service in such capacity for Corporation; and WHEREAS, Corporation has adopted By-Laws (the "By-Laws") providing for the indemnification of the officers and directors of Corporation pursuant to the Delaware General Corporation Law, as amended (the "Code"); and WHEREAS, the Code by its non-exclusive nature and the By-Laws by express provision, permit contracts between Corporation and its directors and officers with respect to indemnification of such officers; and WHEREAS, in accordance with the authorization as provided by the Code, Corporation has purchased and presently maintains a policy or policies of Directors and Officers Liability Insurance ("D & O Insurance"), covering certain liabilities which may be incurred by its directors and officers in their performance as directors and officers of Corporation; and WHEREAS, there exists general uncertainty as to the extent of protection which will be afforded officers of the Corporation by such D & O Insurance and by statutory and bylaw indemnification provisions; and WHEREAS, in order to induce Officer to continue to serve as an officer of Corporation, Corporation has determined and agreed to enter into this contract with Officer; NOW, THEREFORE, in consideration of Officer's continued service as an officer after the date hereof, the parties hereto agree as follows: 1. Indemnity of Officer. Pursuant to the By-Laws and subject only to the exclusions set forth in Section 2 hereof, Corporation hereby agrees to hold harmless and indemnify Officer against any and all expenses and loss (including inter alia, attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) actually and reasonably incurred by Officer in connection with the investigation, defense or appeal of any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of Corporation) to which Officer is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that Officer is or was an officer of Corporation, or is or was serving or at any time serves at the request of Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. 2. Limitations on Indemnity. No indemnity pursuant to Section 1 hereof shall be paid by Corporation: (a) except to the extent the aggregate of losses to be indemnified pursuant to Section 1 exceeds the amount of such losses for which Officer is indemnified either pursuant to the Code or pursuant to any D & O Insurance purchased and maintained by Corporation; (b) in respect to remuneration paid to Officer if such remuneration was in violation of law; (c) on account of any suit in which judgment is rendered against Officer for an accounting of profits made from the purchase or sale by Officer of securities of Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; (d) on account of Officer's conduct which Corporation's Board of Directors determines was knowingly fraudulent, deliberately dishonest, knowingly contrary to Corporation's policies, or constituted willful misconduct; or (e) if a final decision by a court having jurisdiction in the matter shall determine that such indemnification is not lawful. 3. Continuation of Obligations. All agreements and obligations of Corporation contained herein shall continue during the period Officer is an officer of Corporation (or is or was serving at the request of Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) and shall continue thereafter so long as Officer shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative, by reason of the fact that Officer was an officer of Corporation or serving in any other capacity referred to herein. 4. Notification and Defense of Claim. Promptly after receipt by Officer of notice of the commencement of any action, suit or proceeding, Officer will, if a claim in respect thereof is to be made against Corporation under this Agreement, notify Corporation of the commencement thereof; but the omission so to notify Corporation will not relieve it from any liability which it may have to Officer otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which Officer notifies Corporation of the commencement thereof: (a) Corporation will be entitled to participate therein at its own expense; (b) except as otherwise provided below, to the extent that it may wish, Corporation jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel satisfactory to Officer. After notice from Corporation to Officer of its election so as to assume the defense thereof, Corporation will not be liable to Officer under this Agreement for any legal or other expenses subsequently incurred by Officer in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. Officer shall have the right to employ its counsel in such action, suit or proceeding but the fees and expenses of such own counsel incurred after notice from Corporation of its assumption of the defense thereof shall be at the expense of Officer unless (i) the employment of counsel by Officer has been authorized by Corporation, (ii) Corporation shall have reasonably concluded that there may be a conflict of interest between Corporation and Officer in the conduct of the defense of such action or (iii) Corporation shall not in fact have employed counsel to assume the defense of such action for which indemnification is provided by this Agreement, in each of which cases the fees and expenses of counsel shall be at the expense of Corporation. Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of Corporation or as to which Corporation shall have made the conclusion provided for in (ii) above; and (c) Corporation shall not be liable to indemnify Officer under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. Corporation shall not settle any action or claim in any manner which would impose any penalty or limitation on Officer without Officer's written consent. Neither Corporation nor Officer will unreasonably withhold its consent to any proposed settlement. 5. Advancement and Repayment of Expenses. (a) In the event that Officer employs his own counsel pursuant to Section 4(b) (i) through (iii) above in any action other than one by Corporation (except a shareholders' derivative action), Corporation shall advance to Officer, prior to any final disposition of any threatened or pending action, suit or proceeding, whether civil, criminal, administrative or investigative, and prior to any determination by Corporation's Board of Directors pursuant to Section 2(d) above, any and all reasonable expenses (including legal fees and expenses) incurred in investigating or defending any such action, suit or proceeding within ten (10) days after receiving copies of invoices presented to Officer for such expenses. (b) Officer agrees that Officer will reimburse Corporation for all reasonable expenses paid by Corporation in defending any civil or criminal action, suit or proceeding against Officer in the event and only to the extent it shall be ultimately determined that Officer is not entitled, under the provisions of the Code, the By-Laws, this Agreement or otherwise, to be indemnified by Corporation for such expenses. 6. Enforcement. Corporation expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on Corporation hereby in order to induce Officer to continue as an officer of Corporation, and acknowledges that Officer is relying upon this Agreement in continuing in such capacity. 7. Separability. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof. 8. Governing Law. This Agreement shall be interpreted and enforced in accordance with the laws of the State of Delaware. 9. Binding Effect. This Agreement shall be binding upon Officer and upon Corporation, its successors and assigns, and shall inure to the benefit of Officer, his heirs, personal representatives and assigns and to the benefit of Corporation, its successors and assigns. 10. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written. AMDAHL CORPORATION By: [ ] Chairman of the Board and [ ] Officer EX-10.R 5 Exhibit 10(r) Indemnification Agreement THIS AGREEMENT is made and entered into this ___ day of __________, 199__ between Amdahl Corporation, a Delaware corporation ("Corporation"), and ______________("Director"). Witnesseth That: WHEREAS, Director, a member of the Board of Directors of Corporation, performs a valuable service in such capacity for Corporation; and WHEREAS, the stockholders of Corporation have adopted Bylaws (the "Bylaws") providing for the indemnification of the officers and directors of Corporation to the maximum extent authorized by the Delaware General Corporation Law, as amended ("Code"); and WHEREAS, the Code by its non-exclusive nature and the Bylaws by express provision, permit contracts between Corporation and the members of its Board of Directors with respect to indemnification of such directors; and WHEREAS, in accordance with the authorization as provided by the Code, Corporation has purchased and presently maintains a policy or policies of Directors and Officers Liability Insurance ("D & O Insurance"), covering certain liabilities which may be incurred by its directors and officers in their performance as directors or officers of Corporation; and WHEREAS, as a result of recent developments affecting the terms, scope and availability of D & O Insurance there exists general uncertainty as to the extent of protection afforded members of the Board of Directors by such D & O Insurance and by statutory and bylaw indemnification provisions; and WHEREAS, in order to induce Director to continue to serve as a member of the Board of Directors of Corporation, Corporation has determined and agreed to enter into this contract with Director; NOW, THEREFORE, in consideration of Director's continued service as a director after the date hereof, the parties hereto agree as follows: 1. Indemnity of Director. Corporation hereby agrees to hold harmless and indemnify Director to the fullest extent authorized or permitted by the provisions of the Code, as may be amended from time to time. 2. Additional Indemnity. Pursuant to the Bylaws and subject only to the exclusions set forth in Section 3 hereof, Corporation hereby further agrees to hold harmless and indemnify Director: (a) against any and all expenses and loss (including inter alia, attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) actually and reasonably incurred by Director in connection with the investigation, defense or appeal of any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of Corporation) to which Director is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that Director is, was or at any time becomes a director, officer, employee or agent of Corporation, or is or was serving or at any time serves at the request of Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise; and (b) otherwise to the fullest extent as may be provided to Director by Corporation under the non-exclusivity provisions of Section 4 of Article IX of the Bylaws of Corporation and the Code. 3. Limitations on Additional Indemnity. No indemnity pursuant to Section 2 hereof shall be paid by Corporation: (a) except to the extent the aggregate of losses to be indemnified thereunder exceeds the amount of such losses for which the Director is indemnified either pursuant to Section 1 hereof or pursuant to any D & O Insurance purchased and maintained by Corporation; (b) in respect to remuneration paid to Director if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law; (c) on account of any suit in which judgment is rendered against Director for an accounting of profits made from the purchase or sale by Director of securities of Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; (d) on account of Director's conduct which is finally adjudged to have been knowingly fraudulent or deliberately dishonest, or to constitute willful misconduct; or (e) if a final decision by a court having jurisdiction in the matter shall determine that such indemnification is not lawful. 4. Contribution. If the indemnification provided in Sections 1 and 2 is unavailable and may not be paid to Director for any reason other than those set forth in paragraphs (b), (c) and (d) of Section 3, then in respect of any threatened, pending or completed action, suit or proceeding in which Corporation is jointly liable with Director (or would be if joined in such action, suit or proceeding), Corporation shall contribute to the amount of expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by Director in such proportion as is appropriate to reflect (i) the relative benefits received by Corporation on the one hand and Director on the other hand from the transaction from which such action, suit or proceeding arose, and (ii) the relative fault of Corporation on the one hand and of Director on the other in connection with the events which resulted in such expenses, judgments, fines or settlement amounts, as well as any other relevant equitable considerations. The relative fault of Corporation on the one hand and of Director on the other shall be determined by reference to, among other things, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such expenses, judgments, fines or settlement amounts. Corporation agrees that it would not be just and equitable if contribution pursuant to this Section 4 were determined by pro rata allocation or any other method of allocation which does not take account of the foregoing equitable considerations. 5. Continuation of Obligations. All agreements and obligations of Corporation contained herein shall continue during the period Director is a director, officer, employee or agent of Corporation (or is or was serving at the request of Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) and shall continue thereafter so long as Director shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative, by reason of the fact that Director was a director of Corporation or serving in any other capacity referred to herein. 6. Notification and Defense of Claim. Promptly after receipt by Director of notice of the commencement of any action, suit or proceeding, Director will, if a claim in respect thereof is to be made against Corporation under this Agreement, notify Corporation of the commencement thereof; but the omission so to notify Corporation will not relieve it from any liability which it may have to Director otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which Director notifies Corporation of the commencement thereof: (a) Corporation will be entitled to participate therein at its own expense; (b) except as otherwise provided below, to the extent that it may wish, Corporation jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel satisfactory to Director. After notice from Corporation to Director of its election so as to assume the defense thereof, Corporation will not be liable to Director under this Agreement for any legal or other expenses subsequently incurred by Director in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. Director shall have the right to employ its counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from Corporation of its assumption of the defense thereof shall be at the expense of Director unless (i) the employment of counsel by Director has been authorized by Corporation, (ii) Director shall have reasonably concluded that there may be a conflict of interest between Corporation and Director in the conduct of the defense of such action or (iii) Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel shall be at the expense of Corporation. Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of Corporation or as to which Director shall have made the conclusion provided for in (ii) above; and (c) Corporation shall not be liable to indemnify Director under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. Corporation shall not settle any action or claim in any manner which would impose any penalty or limitation on Director without Director's written consent. Neither Corporation nor Director will unreasonably withhold its consent to any proposed settlement. 7. Advancement and Repayment of Expenses. (a) In the event that Director employs his own counsel pursuant to Section 6(b) (i) through (iii) above, Corporation shall advance to Director, prior to any final disposition of any threatened or pending action, suit or proceeding, whether civil, criminal, administrative or investigative, any and all reasonable expenses (including legal fees and expenses) incurred in investigating or defending any such action, suit or proceeding within ten (10) days after receiving copies of invoices presented to Director for such expenses. (b) Director agrees that Director will reimburse Corporation for all reasonable expenses paid by Corporation in defending any civil or criminal action, suit or proceeding against Director in the event and only to the extent it shall be ultimately determined that Director is not entitled, under the provisions of the Code, the Bylaws, this Agreement or otherwise, to be indemnified by Corporation for such expenses. 8. Enforcement (a) Corporation expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on Corporation hereby in order to induce Director to continue as a director of Corporation, and acknowledges that Director is relying upon this Agreement in continuing in such capacity. (b) In the event Director is required to bring any action to enforce rights or to collect monies due under this Agreement and is successful in such action, Corporation shall reimburse Director for all of Director's reasonable fees and expenses in bringing and pursuing such action. 9. Separability. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof. 10. Governing Law. This Agreement shall be interpreted and enforced in accordance with the laws of the State of Delaware. 11. Binding Effect. This Agreement shall be binding upon Director and upon Corporation, its successors and assigns, and shall inure to the benefit of Director, his heirs, personal representatives and assigns and to the benefit of Corporation, its successors and assigns. 12. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written. Amdahl Corporation By: John C. Lewis Chairman of the Board and [ ] Director EX-13 6 Exhibit 13 MANAGEMENT'S DISCUSSION AND ANALYSIS Words such as "anticipates," "expects" and "believes" in the Letter to Stockholders and the following discussion identify forward-looking statements. These statements, and the Company's future results, are subject to certain risks and uncertainties that could cause actual results to differ materially from those expected. These risks and uncertainties are discussed in the section below entitled "Factors That May Affect Future Operating Results" and in the Company's reports filed with the Securities and Exchange Commission, including its Report on Form 10-K for the fiscal year ended December 27, 1996 under the caption "Business". RESULTS OF OPERATIONS 1996 COMPARED TO 1995 Revenues Total revenues increased 8% or $115 million from 1995 to 1996, as increases in services revenues more than offset declines in equipment sales. Equipment sales decreased 33% or $265 million from 1995 to 1996 and were 33% and 53% of total revenues in 1996 and 1995, respectively. This decrease reflected the Company's transition to new products in its principal hardware lines during 1996. Processor equipment sales decreased 44% due to significant declines in both pricing and volumes for the ECL-technology 5995M processor as it approached the end of its product life cycle. This decrease was partially offset by revenues from the Company's new CMOS-technology Millennium mainframe system, which first went into volume production in the fourth quarter of 1996. Revenues from storage equipment sales decreased 5% in 1996 compared to 1995 due to year-to-year pricing declines, which more than offset increased volumes in the second half of 1996 from a new generation of Amdahl storage products for the IBM System/390- compatible and open systems markets. Equipment sales of high-performance servers, most of which were acquired under original equipment manufacturer (OEM) arrangements with Sun Microsystems, increased 26% or $20 million year-to-year. Service, software and other revenues increased 53% or $380 million from 1995 to 1996 and were 67% and 47% of total revenues in 1996 and 1995, respectively. Professional services revenues increased $418 million principally due to the acquisitions of DMR Group Inc. (DMR) in the fourth quarter of 1995 and Trecom Business Systems, Inc. (Trecom) in the second quarter of 1996. Maintenance revenues decreased $40 million or 8% from a combination of price declines and the gradual reduction of the installed base of certain older technology mainframe systems. Software and implementation services revenues declined $3 million reflecting nonrecurring sales of certain software to Fujitsu in 1995 (see Note 2 to the Consolidated Financial Statements). Approximately 51% of the Company's revenues came from outside the United States in 1996 and was recorded in local currency (see Note 9 to the Consolidated Financial Statements). 1996 revenues were favorably impacted by approximately $13 million from a weaker U.S. dollar, as international revenues denominated in foreign currencies translated into more dollars in 1996, when compared to 1995. The Company uses a variety of financial hedging instruments to minimize currency risk from international revenue transactions (see Note 5 to the Consolidated Financial Statements). Gross Margins Total gross margin as a percentage of revenues decreased from 37% in 1995 to 16% in 1996. Gross margin on equipment sales as a percentage of equipment sales revenues decreased from 33% in 1995 to a negative 4% in 1996 due to severe 5995M price declines, which resulted in a charge of $130 million to cost of equipment sales in the second quarter of 1996 to reduce 5995M inventories and leased systems to estimated market values. The Company took a similar charge of $26 million in the fourth quarter of 1995. Gross margins on storage product sales improved by $3 million in 1996 over 1995 despite lower revenues year-to-year, largely because the new generation of storage products shipped in the second half of 1996 had significantly lower unit costs than the previous generation products. Gross margins on service, software and other revenues as a percentage of related revenues decreased from 41% in 1995 to 25% in 1996, reflecting the shift to professional services which generate lower gross margins as a percent of sales than maintenance services. 24 Amdahl Corporation Operating Expenses In the second quarter of 1996, related to the acquisition of Trecom, Amdahl recorded a charge to operating expenses of $21 million to write off purchased in-process engineering and development expenses (see Note 3 to the Consolidated Financial Statements). A similar charge of $27 million was recorded in the fourth quarter of 1995 relating to the acquisition of DMR (see Note 3 to the Consolidated Financial Statements). In the fourth quarter of 1996 the Company also recorded a $40-million restructuring charge to cover the planned costs of reducing certain sectors of its workforce and facilities. Operating expenses in 1996 and 1995, excluding these charges, were 32% and 34% of revenues, respectively. Excluding the charges for purchased in-process engineering and development expenses associated with the acquisitions of Trecom and DMR, engineering and development expenses decreased $24 million or 16% when compared to 1995, primarily due to agreements with Fujitsu for the joint development of the next generation of IBM-compatible processor and storage systems (see Note 2 to the Consolidated Financial Statements). 1996 marketing, general and administrative expenses increased $32 million or 9% when compared to 1995. The increase resulted primarily from the acquisitions of DMR and Trecom, and included $8 million for amortization of excess costs over net assets (goodwill). Interest Income/Expense and Income Taxes Net interest income decreased $23 million or 55% from 1995, reflecting lower average cash balances in 1996 compared to 1995. This decline was largely caused by the cash payments made to acquire DMR and Trecom, plus the net cash outflow needed to fund 1996 operations. The effective annual income tax rate was a negative 4% in 1996, compared to 43% in 1995. The 1996 tax rate included a provision for taxes currently payable in foreign, state and local jurisdictions. The tax provision did not reflect a tax benefit for the loss incurred during the year. A valuation allowance was recorded in 1996 to reduce the deferred tax assets of the Company to an amount realizable based on taxes paid for prior years without relying on future income. RESULTS OF OPERATIONS 1995 COMPARED TO 1994 Revenues Total revenues decreased 7% from 1994 to 1995, and equipment sales decreased 23% or $247 million from 1994 to 1995 and were 53% and 64% of total revenues in 1995 and 1994, respectively. Processor equipment sales decreased 22% due to a higher percentage of sales of 5995M processor upgrades than in 1994 and a significant decline in pricing experienced in the fourth quarter of 1995. Overall, 5995M prices declined 32% in 1995. Equipment sales of the older lines of mainframe computers also decreased. Revenues from storage product equipment sales decreased 59% in 1995 when compared to 1994 as a result of pricing and volume declines associated with delays in the introduction of new storage products. Equipment sales of high-performance servers acquired under OEM arrangements with Sun Microsystems, which were 10% and 3% of total equipment sales revenues in 1995 and 1994, respectively, increased 186% or $50 million from 1994 to 1995. Service, software and other revenues increased 21% or $124 million from 1994 to 1995 and were 47% and 36% of total revenues in 1995 and 1994, respectively. The increase in revenues consisted of increased professional services revenues of $77 million, increased maintenance revenues of $26 million from a larger customer installed base, and increased software and implementation services revenues of $33 million, of which $15 million was of a nonrecurring nature (see Note 2 to the Consolidated Financial Statements). This was offset by a decrease in operating lease revenues of $12 million. DMR, which the Company acquired in November 1995, contributed $35 million to services revenues (see Note 3 to the Consolidated Financial Statements). 1995 revenues were favorably impacted by approximately $36 million by a weakened U.S. dollar, as international revenues denominated in foreign currencies translated into more dollars in 1995, when compared to 1994. 25 Amdahl Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gross Margins Gross margin as a percentage of revenues increased from 36% in 1994 to 37% in 1995. Gross margin on equipment sales as a percentage of equipment sales revenues increased from 32% in 1994 to 33% in 1995, due in part to lower manufacturing costs and a higher percentage of sales of 5995M processor upgrades, which yield better gross margins than sales of complete new systems. However, as a result of the severe 5995M price declines experienced in the fourth quarter of 1995, the Company charged cost of equipment sales for $26 million to reduce 5995M inventories to market value. In addition, gross margins on storage product sales were adversely affected by significant pricing declines. Gross margins on service, software and other revenues as a percentage of revenues decreased from 44% in 1994 to 41% in 1995, due primarily to lower gross margins on services revenues and revenues from the new MultiVendor Enterprise Services business. Operating Expenses In the fourth quarter of 1995 the Company recorded a charge to operating expenses of $27 million to write off purchased in-process engineering and development expenses associated with the acquisition of DMR that had no alternative future use (see Note 3 to the Consolidated Financial Statements). Operating expenses in 1995 and 1994, excluding these charges, were 34% and 32% of revenues, respectively. Excluding the charge for purchased engineering and development expenses, engineering and development expenses decreased $54 million or 26% when compared to 1994, primarily due to the agreement with Fujitsu for the joint development of the next generation of IBM-compatible systems. 1995 marketing, general and administrative expenses increased $43 million or 13% when compared to 1994 due to increased marketing efforts directed toward the Company's newer lines of business. Interest Income/Expense and Income Taxes Net interest income increased $24 million or 150% from 1994 to 1995 due to increased interest income from higher average cash and investment levels. The effective annual income tax rate increased from 7% in 1994 to 43% in 1995, due to the write off of purchased engineering and development discussed above and the current mix of international and domestic income, which limited the Company's utilization of net operating loss carryforwards and deferred tax assets in 1995 when compared to 1994. FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS During the latter part of 1996 Amdahl completed the introduction of its principal new hardware products, the Millennium CMOS-based mainframe systems and Spectris storage systems, for the IBM System/390-compatible market. Although based on limited experience, since the Millennium systems did not begin to ship in volume until late in the fourth quarter of 1996, many initial shipments were of smaller configurations as customers tended to add incremental computing capacity rather than replace entire older bipolar mainframes. These systems were also subject to the competitive pricing pressures characteristic of the System/390 market. A continuation of these factors, coupled with IBM's announced intention to deliver more powerful CMOS systems in mid-1997, could adversely affect the level of growth in this segment of the Company's business over the near term. Moreover, the Company no longer has available for marketing any significant number of its older 5995M mainframe systems, which contributed significantly to fourth-quarter results in 1996. Also, in light of the transition from older technology systems to CMOS-based mainframes, the Company expects traditional hardware maintenance revenues to continue to decline from historic levels. Sales of the Spectris storage systems have been subject to extreme pricing pressures since their introduction in volume in the third quarter of 1996. As a consequence, the Company is required to offer product enhancements on an ongoing basis in order to remain competitive in this market. Any delays in its current development schedules would adversely impact Amdahl's competitive position. While the Company's consulting and professional services business exhibited strong growth during 1996, its continued growth will depend in considerable part on the ability to recruit and retain sufficient skilled 26 Amdahl Corporation personnel to meet ongoing customer demand for applications development and maintenance projects, particularly those related to the year-2000 date conversion problem. Significant competition exists in the marketplace for such personnel and failure by the Company to achieve its planned hiring goals would adversely affect future rates of growth. Also, while Amdahl believes that year-2000 projects represent a significant business opportunity for the Company, it will be difficult to ascertain their level of success until the Company has gained a greater level of experience in this area. Amdahl has a continuing requirement to improve the performance and profitability of its other product lines, and to review and consider adjustments to its overall business model. At the present time the Company is unable to assess the impact of such adjustments, if any, on future operating results. In general, Amdahl's business is subject to the inherent risks and uncertainties characteristic of high-technology industries. The introduction of new hardware products is always subject to technological risks which can have a significant impact on product reliability and performance, as well as on the timing of when such products become available, notwithstanding planned or announced introduction dates. Moreover, the ability to deliver new products with their attendant functional capabilities can also impact product acceptance. Development of major software systems is quite commonly subject to schedule delays and it is not uncommon for product deficiencies and reliability problems to be recognized after product delivery to a number of installations. Product reliability problems, in the case of both hardware and software systems, can place added burdens on existing support staff and can also adversely impact the completion of follow-on projects. Consulting and professional services are often performed under fixed-price contracts which demand a high degree of accuracy in assessing the scope of customer projects. Organizations which grow through acquisitions or joint venturing arrangements with other companies may be unable to realize expected synergies which can adversely affect planned financial performance. Finally, the market for the Company's products and services can be subject to sudden and unexpected changes in demand due to actions of the Company's competitors as well as changes in general economic conditions which can often cause customers to defer or cancel major product acquisitions or project expenditures. FINANCIAL CONDITION December 27, 1996 Compared to December 29, 1995 The Company's net cash position (cash and short-term investments net of short-term and long-term debt, excluding capitalized lease obligations) decreased by $252 million from December 29, 1995 to December 27, 1996. Cash, cash equivalents and short-term investments decreased $235 million, reflecting $102 million used to fund 1996 operating activities, $72 million used to purchase capital assets (net of $32 million in proceeds from the sale of retired assets), and $68 million used for the initial payment for the acquisition of Trecom (see Note 3 to the Consolidated Financial Statements). Receivables increased $179 million, primarily due to higher revenues in the fourth quarter of 1996 plus a slower overall collection period due to higher levels of professional services revenues, which have an inherently slower collection cycle than the Company's traditional hardware businesses. Inventories decreased $146 million, reflecting significant reductions in processor inventories from end-of-life 5995M sales activity and a writedown of 5995M assets to market value in the second quarter of 1996. The reductions in 5995M inventories were partially offset by $34 million in Millennium inventories at year-end 1996. The cost of property and equipment decreased $80 million because retirements of buildings, leasehold improvements, and capitalized equipment exceeded the purchase of new property and equipment in 1996. New capital spending for leased systems, capitalized spares and other property and equipment was approximately equal to depreciation in 1996 except for the acquisition of Trecom. The acquisition of Trecom added $8 million in property and equipment cost and $2 million in accumulated depreciation at December 27, 1996. Overall, the net value of property and equipment decreased $28 million in 1996 due to asset disposals and a $25-million charge in the second quarter of 1996 to reduce certain leased systems to market value. At December 27, 1996 the excess of cost over net assets acquired (goodwill), net of accumulated amortization, was $201 million, which included an increase of $95 million from the acquisition of Trecom in the second quarter of 1996 (see Note 3 to the Consolidated Financial Statements). 27 Amdahl Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) The cash, cash equivalents and short-term investments balances as of December 27, 1996 included approximately $171 million currently invested outside the United States. Repatriation of these investments and cash would give rise to federal taxable income for the year of transfer (the accrued taxes for which have been provided). See Note 12 to the Consolidated Financial Statements regarding foreign subsidiaries' earnings on which taxes have not been provided. The Company's valuation allowance against worldwide operating losses, deferred tax assets and tax credit carryforwards which may expire before the Company can utilize them increased from $89 million at December 29, 1995 to $208 million at December 27, 1996. The Company believes sufficient uncertainty exists regarding the realizability of these items and accordingly has continued to provide a valuation allowance for them. Accounts payable to vendors other than Fujitsu increased $30 million, due in part to accounts payable assumed upon the acquisition of Trecom ($19 million at December 27, 1996). Accounts payable to Fujitsu increased $39 million, primarily due to increased purchases associated with the new Millennium processor and Spectris storage products. Accrued liabilities increased $110 million due in part to a $64 million liability for the acquisition of Trecom which is payable in the second quarter of 1997 (see Note 3 to the Consolidated Financial Statements). Accrued restructuring costs decreased from $55 million at December 29, 1995 to $43 million at December 27, 1996, as current year charges of $52 million were partially offset by an additional $40-million reserve established in the fourth quarter of 1996 (see Note 8 to the Consolidated Financial Statements). Excluding capitalized lease obligations, Amdahl had no long-term debt at December 27, 1996 compared to $80 million at December 29, 1995. The decrease resulted from a reclassification to current debt of $80 million outstanding under a Fujitsu loan agreement, since the debt amount was payable in January 1997. Subsequent to December 27, 1996, Amdahl renegotiated the terms of this loan and it is now payable in January 1998 (see Note 2 to the Consolidated Financial Statements). Liquidity The nature of the information-technology industry, combined with the current economic environment, makes it very difficult for the Company to predict future liquidity requirements with certainty. However, the Company believes that existing cash will be adequate to finance continuing operations, investments in property and equipment, inventories and spare parts, expenditures for the development of new products and repayment of the remaining liability for the acquisition of Trecom, at least through 1997. Over the longer term, Amdahl must successfully execute its plans to generate significant positive cash flows if it is to sustain adequate liquidity without impairing growth or requiring the infusion of additional funds, either from external sources of cash or from the sale of business assets. Additionally, a major expansion of the business such as would occur with the acquisition of a major new subsidiary might also require recourse to external funding, which could include additional debt or equity capital. In the first quarter of 1996 the Board of Directors authorized the Company to buy back up to $100 million of the Company's common stock. As of December 27, 1996, no common shares had been repurchased under this program and Amdahl will not consider a repurchase of stock until the Company has demonstrated sustained positive cash flows. The Company has no significant commitments with vendors other than Fujitsu (see Note 2 to the Consolidated Financial Statements). 28 Amdahl Corporation REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO AMDAHL CORPORATION: We have audited the accompanying consolidated balance sheets of Amdahl Corporation (a Delaware corporation) and subsidiaries as of December 27, 1996 and December 29, 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 27, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Amdahl Corporation and subsidiaries as of December 27, 1996 and December 29, 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 27, 1996 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP San Jose, California January 28, 1997 29 Amdahl Corporation
CONSOLIDATED BALANCE SHEETS December 27, 1996 and December 29, 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands) ASSETS Current assets: Cash and cash equivalents $ 134,646 $ 192,980 Restricted cash 57,126 -- Short-term investments 210,671 444,006 Receivables, net of allowances of $10,185 in 1996 and $5,964 in 1995 498,851 319,777 Inventories 128,755 274,813 Prepaid expenses and deferred tax assets 86,360 69,115 - ------------------------------------------------------------------------------------------------------------------------------------ Total current assets 1,116,409 1,300,691 - ------------------------------------------------------------------------------------------------------------------------------------ Long-term receivables and other assets 33,647 28,083 - ------------------------------------------------------------------------------------------------------------------------------------ Property and equipment: Leased systems 41,582 37,937 System spares 368,209 379,797 Production and data processing equipment 318,527 327,051 Office furniture, equipment and improvements 140,050 173,691 Land and buildings 82,318 111,715 - ------------------------------------------------------------------------------------------------------------------------------------ 950,686 1,030,191 Less - accumulated depreciation and amortization 705,723 757,523 - ------------------------------------------------------------------------------------------------------------------------------------ Property and equipment, net 244,963 272,668 - ------------------------------------------------------------------------------------------------------------------------------------ Excess of cost over net assets acquired, net of accumulated amortization of $8,368 in 1996 and $692 in 1995 201,385 106,756 - ------------------------------------------------------------------------------------------------------------------------------------ $ 1,596,404 $1,708,198 ==================================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and short-term debt $ 45,053 $ 22,026 Short-term debt - stockholder (Fujitsu Limited) 80,000 -- Accounts payable 141,697 111,871 Accounts payable - stockholder (Fujitsu Limited) 68,625 29,152 Accrued liabilities 541,743 431,600 - ------------------------------------------------------------------------------------------------------------------------------------ Total current liabilities 877,118 594,649 - ------------------------------------------------------------------------------------------------------------------------------------ Long-term debt - stockholder (Fujitsu Limited) -- 80,000 Long-term debt and liabilities 43,663 51,152 - ------------------------------------------------------------------------------------------------------------------------------------ Deferred income taxes 62,375 48,573 - ------------------------------------------------------------------------------------------------------------------------------------ Stockholders' equity: Common stock, $.05 par value Authorized - 200,000,000 shares Outstanding - 121,753,000 shares in 1996 and 119,259,000 shares in 1995 6,088 5,963 Additional paid-in capital 555,690 542,269 Retained earnings 44,313 370,995 Cumulative translation adjustments 9,300 10,932 Unrealized holding gains (losses) on available-for-sale securities (2,143) 3,665 - ------------------------------------------------------------------------------------------------------------------------------------ Total stockholders' equity 613,248 933,824 - ------------------------------------------------------------------------------------------------------------------------------------ $ 1,596,404 $1,708,198 ==================================================================================================================================== The accompanying notes are an integral part of these financial statements.
30 Amdahl Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Years Ended December 27, 1996 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands, except per common share amounts) REVENUES Equipment sales $ 538,934 $ 803,567 $ 1,050,236 Service, software and other 1,092,615 712,821 588,377 - ------------------------------------------------------------------------------------------------------------------------------------ 1,631,549 1,516,388 1,638,613 - ------------------------------------------------------------------------------------------------------------------------------------ COST OF REVENUES Equipment sales 559,229 540,541 716,144 Service, software and other 815,257 419,046 327,420 - ------------------------------------------------------------------------------------------------------------------------------------ 1,374,486 959,587 1,043,564 - ------------------------------------------------------------------------------------------------------------------------------------ Gross margin 257,063 556,801 595,049 - ------------------------------------------------------------------------------------------------------------------------------------ OPERATING EXPENSES Engineering and development 125,825 149,610 203,241 Marketing, general and administrative 402,484 370,771 327,917 Purchased in-process engineering and development 20,700 27,296 -- Restructuring costs 40,000 -- -- - ------------------------------------------------------------------------------------------------------------------------------------ 589,009 547,677 531,158 - ------------------------------------------------------------------------------------------------------------------------------------ Income (loss) from operations (331,946) 9,124 63,891 - ------------------------------------------------------------------------------------------------------------------------------------ INTEREST Income 28,996 51,334 26,305 Expense (10,732) (10,481) (9,942) - ------------------------------------------------------------------------------------------------------------------------------------ 18,264 40,853 16,363 - ------------------------------------------------------------------------------------------------------------------------------------ Income (loss) before provision for income taxes (313,682) 49,977 80,254 PROVISION FOR INCOME TAXES 13,000 21,450 5,450 - ------------------------------------------------------------------------------------------------------------------------------------ NET INCOME (LOSS) $ (326,682) $ 28,527 $ 74,804 ==================================================================================================================================== EARNINGS (LOSS) PER COMMON SHARE $ (2.71) $ .24 $ .63 Average outstanding shares and equivalents 120,510,000 120,383,000 118,909,000 The accompanying notes are an integral part of these financial statements.
31 Amdahl Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Years Ended December 27, 1996 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands, except note data) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR $ 192,980 $ 358,006 $ 149,484 - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) (326,682) 28,527 74,804 Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation and amortization 104,980 108,552 132,864 Write-down of inventories and leased systems to market 130,000 26,000 -- Purchased in-process engineering and development 20,700 27,296 -- Restructuring charges 40,000 -- -- Deferred income tax provision 13,816 (3,201) (7,083) Gain on sales of assets (559) (343) (8,524) Change in assets and liabilities net of effects of business acquisitions: (Increase) decrease in receivables (141,335) 33,771 (2,384) Decrease in inventories 22,211 4,391 271,872 Increase in prepaid expenses and deferred tax assets (11,059) (12,157) (1,781) (Increase) decrease in long-term receivables and other assets (9,065) 10,981 9,992 Increase (decrease) in accounts payable 66,776 (13,407) 68,964 Decrease in accrued liabilities (11,834) (113,955) (49,774) Increase (decrease) in long-term liabilities 283 (11,853) (2,287) - ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided by (used for) operating activities (101,768) 84,602 486,663 - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchases of available-for-sale short-term investments (178,664) (376,503) (47,016) Purchases of held-to-maturity short-term investments -- (287,067) (519,684) Proceeds from sales of available-for-sale short-term investments 60,440 107,411 40,677 Proceeds from maturities of short-term investments 287,917 458,116 286,075 Payments for business acquisitions, net of cash acquired (68,204) (136,692) -- Capital expenditures: Leased systems (38,222) (27,156) (18,200) System spares (20,464) (16,559) (8,584) Other property and equipment (44,627) (38,159) (40,841) Proceeds from property and equipment sales 31,716 30,158 62,352 - ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided by (used for) investing activities 29,892 (286,451) (245,221) - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Increase in notes payable and short-term borrowings 3,669 11,070 2,521 Long-term borrowings -- -- 80,000 Repayments of borrowings under revolving credit agreement (1,665) -- (130,000) Sale of common stock and exercise of options 13,546 22,544 12,064 - ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided by (used for) financing activities 15,550 33,614 (35,415) - ------------------------------------------------------------------------------------------------------------------------------------ Effect of exchange rate changes on cash (2,008) 3,209 2,495 - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in cash and cash equivalents (58,334) (165,026) 208,522 - ------------------------------------------------------------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 134,646 $ 192,980 $ 358,006 ==================================================================================================================================== Non-cash investing and financing activities: transfers of Amdahl-manufactured systems from net property and equipment to inventories were $16,290,000 in 1996, $17,423,000 in 1995, and $46,225,000 in 1994. The accompanying notes are an integral part of these financial statements.
32 Amdahl Corporation
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the Three Years Ended December 27, 1996 - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands) Unrealized Additional Cumulative Holding Common Paid-in Retained Translation Gains Stock Capital Earnings Adjustments (Losses) Total BALANCE AT DECEMBER 31, 1993 $ 5,729 $ 507,895 $ 267,664 $ 8,918 $ -- $ 790,206 Sale of 2,057,964 shares, net of repurchases, of common stock under employee stock benefit plans 103 9,513 -- -- -- 9,616 Income tax benefit arising from employee stock option plans -- 2,448 -- -- -- 2,448 Net income -- -- 74,804 -- -- 74,804 Translation adjustments -- -- -- (57) -- (57) Unrealized holding losses on available -for-sale securities -- -- -- -- (762) (762) - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 30, 1994 5,832 519,856 342,468 8,861 (762) 876,255 Sale of 2,622,920 shares, net of repurchases, of common stock under employee stock benefit plans 131 17,513 -- -- -- 17,644 Income tax benefit arising from employee stock option plans -- 4,900 -- -- -- 4,900 Net income -- -- 28,527 -- -- 28,527 Translation adjustments -- -- -- 2,071 -- 2,071 Unrealized holding gains on available -for-sale securities -- -- -- -- 4,427 4,427 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 29, 1995 5,963 542,269 370,995 10,932 3,665 933,824 Sale of 2,494,398 shares, net of repurchases, of common stock under employee stock benefit plans 125 13,421 -- -- -- 13,546 Net loss -- -- (326,682) -- -- (326,682) Translation adjustments -- -- -- (1,632) -- (1,632) Unrealized holding losses on available -for-sale securities -- -- -- -- (5,808) (5,808) - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 27, 1996 $ 6,088 $ 555,690 $ 44,313 $ 9,300 $ (2,143) $ 613,248 ==================================================================================================================================== The accompanying notes are an integral part of these financial statements.
33 Amdahl Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 SUMMARY OF ACCOUNTING PRACTICES Amdahl Corporation and subsidiaries (the Company or Amdahl) is a multinational company that provides large-scale, high-performance, general-purpose computer systems, storage, software and communications products, and client-server hardware systems for the open systems marketplace. The Company also provides equipment maintenance, consulting and professional services. See Note 9 for information on revenues by classes of products and services and by geographic area. The Company's markets are worldwide and include the communications, banking, finance and insurance, services and government industries. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported components of results of operations during the reporting period. These estimates include, but are not limited to, inventory reserves, amortization of intangible assets, restructuring reserves and income tax assets and liabilities. Actual results could differ from those estimates. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. Intercompany accounts and transactions have been eliminated. Fiscal Year The Company's fiscal year ends on the last Friday in December. Translation of Foreign Currencies The financial position and results of operations of the Company's non-U.S. subsidiaries are measured using local currency as the functional currency. Accordingly, all assets and liabilities are translated into U.S. dollars at current exchange rates as of the respective balance sheet date. Revenue and expense items are translated at the average exchange rates prevailing during the period. Cumulative translation gains and losses are reported as a separate component of stockholders' equity. Gains from foreign exchange transactions were $348,000, $247,000 and $81,000 in 1996, 1995 and 1994, respectively, and were included in marketing, general and administrative expenses. Revenues Revenues from equipment sales and sales-type leases are generally recognized when the equipment has been shipped, installed and financing arrangements have been completed. Revenues from operating leases are recognized over the term of the respective contracts. Service for Amdahl products is provided under service and parts warranty or separate maintenance agreements. The large-scale computer systems normally carry a one-year service and parts warranty, and the storage and other products usually have shorter warranty periods. Where material, a portion of equipment sales revenue is deferred and recognized over the warranty period as service is provided. Following the warranty period, Amdahl provides maintenance service under separate contracts which typically can be terminated by the customer on ninety days notice. Revenues from maintenance contracts are recognized over the term of the respective contracts as service is provided. Revenues from consulting and professional services are generally recognized as the service is performed or on the percentage-of-completion method of accounting, depending on the nature of the project. The Company accounts for software revenues in accordance with the American Institute of Certified Public Accountants' Statement of Position 91-1, Software Revenue Recognition. Revenues earned under software license agreements with end users are generally recognized when the software has been shipped, payment is due within one year, collectibility is probable, and there are no significant obligations remaining. 34 Amdahl Corporation Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. Systems in process and finished goods include material, labor and manufacturing overhead. Year-end inventories consisted of the following:
1996 1995 - -------------------------------------------------------------------------------- (In thousands) Purchased materials $ 30,766 $ 18,879 Systems in process 26,407 168,322 Finished goods 71,582 87,612 - -------------------------------------------------------------------------------- $128,755 $274,813 ================================================================================
Inventories contained components and assemblies in excess of the Company's current estimated requirements and were fully reserved at December 27, 1996 and December 29, 1995. Also as a result of severe price declines, the Company charged cost of equipment sales for $105 million in 1996 and $26 million in 1995 to reduce 5995M inventories to estimated market value. Due to competitive pressures, it is reasonably possible that these estimates could change in the near term. Property and Equipment Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over estimated useful lives (or, for leasehold improvements and assets recorded under capital lease obligations, over the remaining lease terms or estimated useful lives, whichever is shorter) as follows:
Years - -------------------------------------------------------------------------------- System spares 5 Production and data processing equipment 3-15 Office furniture, equipment and improvements 3-20 Buildings 20-40
Intangible Assets Excess of cost over net assets acquired (goodwill) is amortized by the straight-line method over twenty-five years. The realizability of goodwill is evaluated periodically as events or circumstances indicate a possible inability to recover its carrying amount. Such evaluation is based on various analyses, including cash flow and profitability projections that incorporate, as applicable, the impact on existing lines of business. The analyses involve a significant level of management judgment in order to evaluate the ability of an acquired business to perform within projections. Certain software development costs have been capitalized and amortized over the life of the product. At December 27, 1996 and December 29, 1995 software development costs that had been capitalized were immaterial. Long-Lived Assets Effective December 1995 the Company adopted the provisions of Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. This statement requires that long-lived assets and certain identifiable intangibles to be held and used or disposed of by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. During 1996 the Company determined that no impairment loss needed to be recognized for applicable assets of continuing operations. Earnings (Loss) Per Common Share Earnings (loss) per common share have been computed based on the weighted average number of common and common equivalent shares outstanding. Common equivalent shares result from the assumed exercise of stock options which would have a dilutive effect in years where there are earnings. Primary and fully diluted earnings per common share amounts are substantially the same. 35 Amdahl Corporation NOTES TO CONSOLIDATED STATEMENTS (continued) NOTE 2 RELATIONSHIP WITH FUJITSU LIMITED At December 27, 1996 Fujitsu Limited (Fujitsu) owned approximately 43% of the Company's outstanding stock. The Company has entered into various transactions with Fujitsu, as follows: A. Amdahl purchases under contracts with Fujitsu certain finished products, certain subassemblies and substantially all of its large-scale integrated semiconductor components and high-density printed circuit boards. The Company's primary products are manufactured by Fujitsu to Amdahl specifications. The cost of computer equipment, subassemblies and spare parts purchased from Fujitsu and the amount included in cost of revenues for equipment sales were as follows:
Cost of Purchases Revenues - -------------------------------------------------------------------------------- (In thousands) 1996 $160,092 $326,380 1995 $282,913 $275,707 1994 $218,925 $374,224
Amdahl was committed to purchase manufacturing material and other equipment from Fujitsu totaling approximately $34,000,000 at December 27, 1996. Prices for these manufacturing materials and other equipment are subject to adjustment if the U.S. dollar-Japanese yen exchange rate fluctuates outside of specified ranges. The Company has entered into hedging arrangements designed to protect against currency exchange risks associated with anticipated product purchases from Fujitsu in 1997. B. Under joint development efforts, Fujitsu supplies Amdahl with services and material related to the Company's development of current and future products, which resulted in charges to engineering and development expense of $7,371,000 in 1996, $2,399,000 in 1995, and $6,443,000 in 1994. In 1996 Fujitsu entered into an agreement to reimburse Amdahl for certain specific engineering development activities performed by Amdahl from time to time related to products which are being jointly developed by Amdahl and Fujitsu. In connection with these development efforts, Amdahl recorded $24,000,000 as an offset to engineering and development expense in 1996. No such reimbursements occurred in 1995 and 1994. Amdahl and Fujitsu have an agreement pursuant to which Amdahl and Fujitsu participate in the joint development of the Company's next generation of IBM-compatible systems. Under the agreement, Fujitsu has primary responsibility for the design and manufacture of these systems. C. Fujitsu markets Amdahl's computer equipment in Brazil, Japan, Malaysia and Spain under distributorship arrangements. Sales in 1996, 1995 and 1994 by the Company of computer systems and complementary storage products to Fujitsu contributed $23,325,000, $37,290,000 and $38,682,000 to equipment sales and $4,793,000, $17,190,000 and $14,405,000 to gross margin, respectively. In 1995 the Company entered into a contract-manufacturing agreement with HaL Computer Systems, Inc. (HaL), a wholly-owned subsidiary of Fujitsu, whereby Amdahl agreed to manufacture high-end open system workstations for HaL. The Company also performed circuit board assembly for Ross Technology, Inc., a majority-owned subsidiary of Fujitsu. In 1996 and 1995 these agreements contributed $5,629,000 and $9,375,000 to equipment sales and ($2,210,000) and $1,035,000 to gross margin, respectively. Both of these agreements were completed by the end of 1996. In the fourth quarter of 1995 Fujitsu agreed to pay Amdahl $14,800,000 for the right and license to use certain software diagnostic tools developed by Amdahl and $1,000,000 for the right to market certain storage products in Japan. These amounts were recognized in the fourth quarter of 1995 as software revenue and equipment sales revenue, respectively. In 1996 Fujitsu paid the company $2,000,000 for the right to market Millennium processors in Japan. This amount was recognized in the third quarter of 1996 as equipment sales revenue. 36 Amdahl Corporation At December 27, 1996 and December 29, 1995 receivables included $43,906,000 and $35,795,000, respectively, from Fujitsu. D. In January 1994 the Company entered into an agreement with Fujitsu under which Fujitsu agreed to provide loans to the Company in an aggregate amount not to exceed $100,000,000. Such loans bear interest at a rate based upon the London Interbank Offered Rate (6.78% as of December 27, 1996). As of December 27, 1996 and December 29, 1995, $80,000,000 in principal was outstanding under this agreement (see Note 7). Subsequent to December 27, 1996 Amdahl renegotiated the terms of this loan and it is now payable in January 1998 and cannot exceed $80,000,000. Interest expense associated with the loan was $5,680,000 in 1996, $5,745,000 in 1995 and $4,238,000 in 1994, of which $919,000 and $958,000 was payable and was included in accrued liabilities at December 27, 1996 and December 29, 1995, respectively. NOTE 3 ACQUISITIONS Trecom Business Systems, Inc. On April 22, 1996 the Company acquired all of the outstanding shares of Trecom Business Systems, Inc. (Trecom), a provider of information technology services. Under the merger agreement between the Company and Trecom, approximately $66 million of the purchase price was paid in April 1996 and approximately $65 million is payable without interest in April 1997. The Company has pledged cash with a custodian as security for approximately $57 million of the April 1997 payment. This amount was classified as restricted cash on the Company's balance sheet at December 27, 1996. Additionally, up to $2 million was payable in the event that Trecom achieves certain financial goals during the one year period ending March 31, 1997 (the contingent payment). The present value of the aggregate purchase price at the acquisition date, including acquisition costs and payment to the shareholders, and excluding the contingent payment, was approximately $130 million. In April 1996, the Company also paid down $15 million of Trecom's debt. The Company funded the April 1996 payments and intends to fund the April 1997 payment with existing cash. The acquisition was accounted for using the purchase method of accounting. Accordingly, the results of Trecom's operations have been combined with those of the Company since the date of acquisition. In addition, a portion of the purchase price was allocated to the net assets acquired based on their estimated fair values. The fair value of tangible assets acquired and liabilities assumed was $49 million and $34 million, respectively. In addition, $20,700,000 of the purchase price was allocated to in-process engineering and development projects that had not reached technological feasibility and had no probable alternative future uses, which the Company expensed at the date of acquisition. The balance of the purchase price, $94 million, was recorded as excess of cost over net assets acquired (goodwill) and is being amortized over twenty-five years on a straight-line basis. During the third quarter of 1996 Trecom achieved certain financial goals resulting in an additional payment of $1,200,000 to Trecom shareholders. These payments have been allocated to costs in excess of net assets acquired. Due to the uncertainty of meeting the remaining performance targets, the remaining $800,000 was not recorded as a liability in these financial statements. The following table reflects unaudited pro forma combined results of operations of the Company and Trecom on the basis that the acquisition had taken place at the beginning of the fiscal year for each of the periods presented:
1996 1995 - ---------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per common share amounts) Revenues $1,668,896 $1,655,723 Net income (loss) $(333,378) $26,967 Net income (loss) per common share $(2.77) $.22 Shares used in computation 120,510,000 120,383,000
37 Amdahl Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) DMR Group Inc. On November 15, 1995 the Company acquired all of the outstanding shares of DMR Group Inc. (DMR), a multinational information technology consulting company, for $140 million. The acquisition was funded with existing cash. The acquisition was accounted for using the purchase method of accounting. Accordingly, results of DMR's operations have been combined with those of the Company since the date of acquisition. In addition, a portion of the purchase price was allocated to the net assets acquired based on their estimated fair values. The fair value of tangible assets acquired and liabilities assumed was $60 million and $55 million, respectively. In addition, $27,296,000 of the purchase price was allocated to in-process engineering and development projects that had not reached technological feasibility and had no probable alternative future uses, which the Company expensed at the date of acquisition. The balance of the purchase price, $108 million, was recorded as excess of cost over net assets acquired (goodwill) and is being amortized over twenty-five years on a straight-line basis. During 1996 the DMR opening balance sheet reserves were increased by $5,395,000 and additional acquisition costs of $2,145,000 were incurred. As a result, the goodwill was increased by $7,540,000. The following table reflects unaudited pro forma combined results of operations of the Company and DMR on the basis that the acquisition had taken place and the related charge, noted above, was recorded at the beginning of the fiscal year for each of the periods presented:
1995 1994 - -------------------------------------------------------------------------------- (Dollars in thousands, except per common share amounts) Revenues $ 1,693,912 $ 1,857,880 Net income $ 20,783 $ 38,777 Net income per common share $ .17 $ .33 Shares used in computation 120,383,000 118,909,000
In management's opinion, the unaudited pro forma combined results of operations are not indicative of the actual results that would have occurred had the acquisitions been consummated at the beginning of the years presented or of future operations of the combined companies under the ownership and management of the Company. NOTE 4 EQUIPMENT LEASING AND THIRD PARTY TRANSACTIONS The Company is the lessor of equipment under operating leases for periods generally less than four years. Certain operating leases contain provisions for early termination with a penalty or with conversion to another system. The cost of leased systems is depreciated to a zero value on a straight-line basis over two to four years. Accumulated depreciation on leased systems was $21,629,000 at December 27, 1996 and $12,462,000 at December 29, 1995. In 1996 the Company charged leased systems cost of sales for $24,700,000 to reduce the cost of certain 5995M leased systems to market value. The Company also leases equipment to customers under sales-type leases as defined in Statement of Financial Accounting Standards No. 13, Accounting for Leases. The current portion of the net investment in sales-type leases is included in receivables and the long-term portion is included in long-term receivables and other assets. The components of the net investment in sales-type leases were as follows:
1996 1995 - -------------------------------------------------------------------------------- (In thousands) Minimum rentals receivable $ 16,577 $ 8,020 Estimated residual values of leased equipment (unguaranteed) 839 2,500 Less unearned interest income (3,975) (1,116) - -------------------------------------------------------------------------------- Net investment in sales-type leases $ 13,441 $ 9,404 ================================================================================
38 Amdahl Corporation Minimum rentals receivable under existing leases as of December 27, 1996 were as follows:
Sales-Type Operating - -------------------------------------------------------------------------------- (In thousands) 1997 $ 6,585 $14,217 1998 5,488 9,519 1999 2,382 1,062 2000 1,769 -- 2001 353 -- Thereafter -- -- - -------------------------------------------------------------------------------- $16,577 $24,798 ================================================================================
In addition, during the periods presented, the Company sold certain equipment subject to operating leases and financed certain sales-type equipment leases and installment contracts with financing institutions (Third Parties). The Company sometimes agrees to perform certain services and obligations with respect to the equipment and related leases, such as general lease administration, invoicing and collection of rentals, payment of insurance and personal property taxes, maintenance services and non-priority remarketing of equipment that comes off lease. For these services and obligations, the Company generally receives its normal maintenance charges and a remarketing and administration fee. Many of the agreements with Third Parties provide the Company with residual rights in revenues, if any, derived from the equipment after the Third Parties have received a designated return. Equipment sales revenues arising from these transactions with Third Parties were approximately $42,000,000, $48,000,000 and $71,000,000 in 1996, 1995 and 1994, respectively. NOTE 5 FINANCIAL INSTRUMENTS The Company invests in a variety of financial instruments but does not hold or issue financial instruments for trading purposes. Off-Balance Sheet Financial Instruments The Company hedges certain portions of its exposure to foreign currency fluctuations through a variety of strategies and financial instruments, including the use of forward foreign exchange contracts and currency swap agreements. These contracts and swaps generally have maturities that do not exceed three months and two years, respectively. At December 27, 1996 and December 29, 1995 the Company had approximately $187,000,000 and $57,000,000, respectively, in notional principal of forward foreign exchange contracts outstanding. The Company had $20,000,000 of currency swap agreements outstanding at December 27, 1996 and December 29, 1995. The gains and losses associated with currency rate changes on forward foreign exchange contracts and currency swap agreements are recorded currently in income as they offset corresponding gains and losses on the foreign currency-denominated assets and liabilities being hedged. Therefore, the carrying value of forward foreign exchange contracts and currency swap agreements approximates their fair value, which was immaterial at December 27, 1996 and December 29, 1995. The Company enters into foreign currency options to protect against currency exchange risks associated with its probable anticipated, but not firmly committed, non-U.S. intercompany sales and with both inventory purchase commitments and probable anticipated inventory purchases from Fujitsu. Realized and unrealized gains and losses on such contracts and the associated cash flows that qualify as hedges are reported as components of the related transactions. These option contracts generally have maturities that do not exceed one year. At December 27, 1996 and December 29, 1995 the Company had approximately $129,000,000 and $80,000,000 in notional principal of purchased option contracts outstanding, respectively. The net income effect deferred on foreign currency option contracts represents the amount by which the carrying value of the option contracts exceeded their fair value and was immaterial as of December 27, 1996 and December 29, 1995. 39 Amdahl Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The Company enters into interest rate swap agreements to extend the effective duration of a portion of the Company's investments in available-for-sale debt securities and accrues the differential to be paid or received under the agreements as interest rates change over the life of the contracts. These agreements generally have maturities that do not exceed three years. Notional principal outstanding under these agreements was zero as of December 27, 1996 and approximately $12,000,000 as of December 29, 1995. The fair value of interest rate swaps is the estimated amount that the Company would receive or pay to terminate the swap agreements at the reporting date, taking into account current interest rates. The fair value of interest rate swaps at December 27, 1996 and December 29, 1995 was immaterial. Balance Sheet Financial Instruments Substantially all cash equivalents consist of investments in major bank time deposits, certificates of deposit and commercial paper with initial maturities of three months or less. Substantially all short-term investments consist of major bank time deposits, certificates of deposit, commercial paper and U.S. government securities which the Company intends to hold between three and twelve months. In November 1995 the Financial Accounting Standards Board issued a Special Report, A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities (Special Report). Concurrent with the issue of the Special Report the Company reassessed the appropriateness of the classifications of its securities investments and reclassified all of its held-to-maturity securities to the available-for-sale category. Amortized cost of the securities transferred was $161,033,000 and the related unrealized gain was $225,000. At December 27, 1996 the Company's available-for-sale securities had contractual maturities of overnight to fifteen years and the average maturity was one year. The fair value of available-for-sale securities was determined based on quoted market prices at the reporting date for those instruments. At December 27, 1996 and December 29, 1995 the amortized cost basis, aggregate fair value and gross unrealized holding gains and losses by major security type were as follows:
Amortized Aggregate Unrealized 1996 Cost Fair Value Gains (Losses) - -------------------------------------------------------------------------------- (In thousands) Available-for-Sale Securities Equity securities $ 2,152 $ 985 $(1,167) Debt securities issued by U.S. Treasury and other U.S. government agencies 195,134 194,402 (732) Debt securities issued by foreign governments 71,718 71,888 170 Corporate debt securities 50,899 50,562 (337) Mortgage-backed securities 15,706 15,629 (77) - -------------------------------------------------------------------------------- Total investments in debt and equity securities $335,609 $333,466 $(2,143) ================================================================================
40 Amdahl Corporation
Amortized Aggregate Unrealized 1995 Cost Fair Value Gains - -------------------------------------------------------------------------------- (In thousands) Available-for-Sale Securities Equity securities $ 2,582 $ 2,894 $ 312 Debt securities issued by U.S. Treasury and other U.S. government agencies 222,036 223,553 1,517 Debt securities issued by foreign governments 1,821 2,020 199 Corporate debt securities 283,877 285,285 1,408 Mortgage-backed securities 17,096 17,325 229 - -------------------------------------------------------------------------------- Total investments in debt and equity securities $527,412 $531,077 $3,665 ================================================================================
In 1996, 1995 and 1994 proceeds from sales of available-for-sale securities were $60,440,000, $107,411,000 and $40,677,000, respectively. Gross realized gains of $3,264,000 and $832,000 in 1996 and 1995, respectively, and gross realized losses of $2,171,000 in 1994 were recognized on those sales and were included in marketing, general and administrative expenses. The Company used specific identification as the cost basis in computing realized gains and losses. At December 27, 1996 and December 29, 1995 the carrying value of notes payable, short-term debt and long-term debt approximated fair value because of the variable interest rate nature of these instruments. Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade receivables. The Company has cash investment policies that limit the amount of credit exposure to any one financial institution and restrict placement of these investments to financial institutions evaluated as highly creditworthy. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base and their dispersion across many different industries and geographies. NOTE 6 ACCRUED LIABILITIES Accrued liabilities consisted of the following:
1996 1995 - -------------------------------------------------------------------------------- (In thousands) Payroll and vacation $138,472 $125,482 Restructuring costs (Note 8) 43,311 55,110 Income taxes 54,986 38,085 Deferred income 106,778 95,968 Acquisition price payable (Note 3) 64,174 -- Other 134,022 116,955 - -------------------------------------------------------------------------------- $541,743 $431,600 ================================================================================
41 Amdahl Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 7 LONG-TERM DEBT AND LIABILITIES AND BANK CREDIT AGREEMENTS Long-term debt and liabilities consisted of the following:
1996 1995 - -------------------------------------------------------------------------------- (In thousands) Long-term debt - stockholder (Fujitsu) (Note 2) $ 80,000 $ 80,000 Bank loans at DMR 749 7,444 Capitalized lease obligations (Note 13) 17,988 19,856 Long-term liabilities 27,252 26,970 - -------------------------------------------------------------------------------- 125,989 134,270 Less current maturities 82,326 3,118 - -------------------------------------------------------------------------------- Long-term debt and liabilities $ 43,663 $131,152 ================================================================================
Bank loans at DMR primarily consist of installment loans and have maturity dates ranging from 1997 to 1999. Bank loans at DMR on December 29, 1995 primarily consisted of the outstanding balance on a $14,700,000 revolving term line of credit having an original maturity of five years and bearing interest at a rate based upon the Canadian Bankers' Acceptance Rate. In 1996 the revolving term line of credit was refinanced to short-term borrowings and was included in the short-term debt balance. The Company has credit agreements with a number of banks providing for short-term borrowings in U.S. dollars and various foreign currencies at varying interest rates. At December 27, 1996 and December 29, 1995, $42,727,000 and $18,908,000, respectively, were outstanding under these agreements. Interest paid on all borrowings was $10,731,000, $10,460,000 and $9,098,000 in 1996, 1995 and 1994, respectively. Long-term liabilities included deferred equipment maintenance revenues and long-term amounts accrued under the Executive Incentive Performance Plan. NOTE 8 RESTRUCTURING OF OPERATIONS In the fourth quarter of 1996, the Company recorded a restructuring charge based on an evaluation of the competitive conditions in the markets for large-scale computing systems, consulting services and software. The Company looked at future costs in line with anticipated levels of business in 1997 and beyond, and determined that a restructuring charge of $40 million was required to cover the costs of reducing certain sectors of its workforce and facilities to levels more appropriate to current business requirements. At December 27, 1996, $43.3 million of restructuring charges remained in accrued liabilities. The balance was comprised of $34.4 million for the reduction of approximately 300 employees to be completed in 1997, $7.5 million for closing excess facilities and $1.4 million for other non-cash write-downs of recorded assets, of which $41.9 million represents estimated future cash outflows. A summary of the restructuring activity is presented below:
- -------------------------------------------------------------------------------- (In thousands) Balance at December 31, 1993* $ 180,743 1994 activity: Non-cash write-downs of property, equipment and inventories (11,113) Reduction in workforce and other cash outflows (53,460) - -------------------------------------------------------------------------------- Balance at December 30, 1994 116,170 1995 activity: Restructuring reserve associated with the acquisition of DMR 2,272 Non-cash write-downs of property, equipment and inventories (17,004) Reduction in workforce and other cash outflows (22,170) - -------------------------------------------------------------------------------- Balance at December 29, 1995 79,268 1996 provision 40,000 1996 activity: Non-cash write-downs of property, equipment and inventories (43,191) Reduction in workforce and other cash outflows (32,766) - -------------------------------------------------------------------------------- Balance at December 27, 1996 $ 43,311 ================================================================================ * Balance of restructuring accrual recorded in 1993.
42 Amdahl Corporation NOTE 9 MAJOR CUSTOMER, GEOGRAPHIC AREA AND PRODUCT LINE DATA No single customer accounted for 10% or more of total revenues in 1996, 1995 or 1994. The Company's operations by geographical area for the three years ended December 27, 1996 were as follows:
United Asia Pacific Adjustments 1996 States Canada Europe & Other & Eliminations Consolidated - ------------------------------------------------------------------------------------------------------------------------------------ (In thousands) Revenues: Customers $ 797,766 $ 166,680 $ 488,474 $ 178,629 $ -- $ 1,631,549 Intercompany 280,686 5,971 22,978 -- (309,635) -- - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues $ 1,078,452 $ 172,651 $ 511,452 $ 178,629 $ (309,635) $ 1,631,549 ==================================================================================================================================== Income (loss) from operations $ (319,121) $ 2,733 $ 18,853 $ (2,172) $ (32,239) $ (331,946) Interest income, net 18,264 ----------- Loss before income taxes $ (313,682) =========== Identifiable assets $ 969,039 $ 402,670 $ 1,123,018 $ 73,989 $(1,344,809) $ 1,223,907 Corporate assets 372,497 ----------- Total assets $ 1,596,404 ===========
United Asia Pacific Adjustments 1995 States Canada Europe & Other & Eliminations Consolidated - ------------------------------------------------------------------------------------------------------------------------------------ (In thousands) Revenues: Customers $ 872,153 $ 52,731 $ 455,216 $ 136,288 $ -- $ 1,516,388 Intercompany 236,477 1,016 10,998 -- (248,491) -- - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues $ 1,108,630 $ 53,747 $ 466,214 $ 136,288 $ (248,491) $ 1,516,388 ==================================================================================================================================== Income (loss) from operations $ (24,390) $ (23,563) $ 40,309 $ 1,641 $ 15,127 $ 9,124 Interest income, net 40,853 ----------- Income before income taxes $ 49,977 =========== Identifiable assets $ 666,019 $ 202,484 $ 945,553 $ 56,118 $ (738,903) $ 1,131,271 Corporate assets 576,927 ----------- Total assets $ 1,708,198 ===========
United Asia Pacific Adjustments 1994 States Canada Europe & Other & Eliminations Consolidated - ------------------------------------------------------------------------------------------------------------------------------------ (In thousands) Revenues: Customers $ 955,090 $ 62,433 $ 506,526 $ 114,564 $ -- $1,638,613 Intercompany 241,468 (88) 7,428 -- (248,808) -- - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues $1,196,558 $ 62,345 $ 513,954 $ 114,564 $ (248,808) $1,638,613 ==================================================================================================================================== Income from operations $ 49,908 $ 4,444 $ 3,256 $ 3,672 $ 2,611 $ 63,891 Interest income, net 16,363 ---------- Income before income taxes $ 80,254 ========= Identifiable assets $ 663,205 $ 23,051 $ 681,193 $ 32,128 $ (354,320) $1,045,257 Corporate assets 673,778 ---------- Total assets $1,719,035 ==========
43 Amdahl Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The Company's operations are structured to achieve consolidated objectives. As a result, significant interdependencies and overlaps exist among the Company's operating units. Accordingly, the revenue, operating income (loss) and identifiable assets shown for each geographic area may not be indicative of the amounts that would have been reported if the operating units were independent of one another. Intercompany sales and transfers of manufacturing materials and finished systems between areas are accounted for based on established intercompany sales prices. Operating income (loss) is revenue less related costs and direct and allocated operating expenses, excluding interest and, for all areas except the United States, the unallocated portion of corporate expenses. United States operating income (loss) is net of corporate engineering and development and administrative expenses. The United States' 1996 operating loss includes the write-off of purchased in-process engineering and development recorded upon the acquisition of Trecom (see Note 3) and the corporate restructuring charge (see Note 8). The United States' 1996 identifiable assets included the excess of cost over new assets acquired related to the acquisition of Trecom. Canada's 1995 loss from operations includes the write-off of purchased in-process engineering and development. Canada's 1995 and 1996 identifiable assets include the excess of cost over net assets acquired related to the acquisition of DMR (see Note 3). Corporate assets include assets maintained for general purposes, principally cash equivalents and short-term investments. The Company operates in the large-scale computer system and related storage and communications products segment of the data processing industry. The Company also continues to make the transition to being a more service and solutions oriented business. Revenues for similar classes of products or services within this one business segment for the most recent three years are presented below:
1996 1995* 1994* - -------------------------------------------------------------------------------- (In millions) Processor equipment sales** $ 363 $ 643 $ 820 Storage product equipment sales 79 83 203 Server equipment sales 97 77 27 - -------------------------------------------------------------------------------- Total equipment sales 539 803 1,050 - -------------------------------------------------------------------------------- Maintenance services revenues 435 475 449 Consulting and professional services revenues 559 141 64 Lease revenues 23 18 30 Software and implementation services revenues *** 76 79 46 - -------------------------------------------------------------------------------- Total service, software and other revenues 1,093 713 589 - -------------------------------------------------------------------------------- $1,632 $1,516 $1,639 ================================================================================ * Reclassified to conform to 1996 presentation. ** Includes Systems/390-compatible mainframe processors and certain related hardware products. *** Includes all software revenue and services performed to implement the software environment at customer sites (excludes application services). 1995 included $15 million of nonrecurring software sales to Fujitsu (see Note 2).
44 Amdahl Corporation NOTE 10 CAPITAL STOCK There are 200,000,000 authorized shares of common stock, par value of $.05 per share, of which 121,753,000 shares were issued and outstanding as of December 27, 1996. As of December 27, 1996 the Company had reserved shares of its common stock for the following purposes:
Description Shares Reserved - -------------------------------------------------------------------------------- Stock Option Plans - Stock options outstanding 8,279,873 Stock options and restricted stock available for grant 2,031,114 Employee Stock Purchase Plan 6,069,960 - -------------------------------------------------------------------------------- 16,380,947 ================================================================================
On November 1, 1996 the Board of Directors authorized, subject to stockholder approval at the annual meeting on May 1, 1997, an increase to the shares available for grant under the 1994 Stock Incentive Plan by 2% of the shares of common stock outstanding on May 1, 1997. The Board of Directors also authorized, subject to stockholder approval, ongoing annual increases to the shares available for grant on the first trading day of each calendar year beginning with 1998. The annual increases will be 3% of the shares of common stock outstanding on December 31 of the immediately preceding calendar year, provided that each annual increase will be limited so that the shares available for future option grants and share issuances will not exceed 6,000,000 shares at the time of each annual increase. On May 2, 1996 the stockholders approved an increase of 5,000,000 shares in the number of shares issuable under the Employee Stock Purchase Plan. On February 8, 1996 the Board of Directors authorized the Company to buy back up to $100 million of the Company's common stock. No shares were repurchased under this authorization in 1996. There are 5,000,000 authorized shares of Preferred Stock, par value of $1 per share. This stock, if issued, will carry liquidation preferences and other rights, as determined by the Board of Directors. As of December 27, 1996 no Preferred Stock had been issued. NOTE 11 EMPLOYEE STOCK OPTIONS AND BENEFIT PLANS Under the Company's stock option plans, options generally become exercisable in cumulative annual installments beginning one year after the date of grant, are fully exercisable after four or five years and expire after ten or fifteen years. Options are granted to non-employee directors under the Automatic Option Grant Program. The Company accounts for these plans under APB Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for these plans been determined consistent with Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), the Company's net income (loss) and earnings (loss) per share would have been adjusted to the following pro forma amounts:
1996 1995 - -------------------------------------------------------------------------------- (In thousands, except per share amounts) Net income (loss): As Reported $(326,682) $28,527 Pro Forma $(331,997) $28,165 Earnings (loss) per share: As Reported $ (2.71) $ .24 Pro Forma $ (2.75) $ .23
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1996 and 1995, respectively: risk-free interest rates of 5.6 and 6.7 percent; expected dividend yields of 0 and 0 percent; expected lives of 4.4 and 4.5 years; and expected volatility of 37.6 and 37.6 percent. Because the SFAS No. 123 method of accounting has not been applied to options granted prior to fiscal 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. 45 Amdahl Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Under the Employee Stock Purchase Plan, the Company's employees, subject to certain restrictions, may purchase shares of common stock at a price per share that is the lesser of 85% of the fair market value as of the first day or the last day of each three-month purchase period. The Company sold 755,000 shares, 619,000 shares, and 1,031,000 shares in 1996, 1995 and 1994, respectively. The weighted average fair value of shares sold in 1996 was $10.08. Activity in the Company's option plans excluding restricted stock is summarized as follows:
1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------- Wtd Avg Wtd Avg Wtd Avg Shares Ex Price* Shares Ex Price* Shares Ex Price* - ------------------------------------------------------------------------------------------------------------------------- (Shares in thousands) Options outstanding at Beginning of year 6,875 $ 6.13 8,996 $ 5.77 10,736 $ 5.57 Granted 3,576 8.05 377 11.07 391 7.24 Exercised (1,464) 5.34 (2,032) 5.49 (935) 4.94 Expired or canceled (707) 7.43 (466) 6.01 (1,196) 5.13 - ------------------------------------------------------------------------------------------------------------------------ Options outstanding at end of year 8,280 $ 6.98 6,875 $ 6.13 8,996 $ 5.77 - ------------------------------------------------------------------------------------------------------------------------ Exercisable at end of year 3,716 3,114 3,262 Weighted average fair value of options granted $ 3.51 $ 4.58 - ------------------------------------------------------------------------------------------------------------------------ *Weighted Average Exercise Price
The following summarizes the stock options outstanding at December 27, 1996:
Options Outstanding Options Exercisable -------------------------------------------------------------- -------------------------------- Actual Range of Number Weighted-Average Number Exercise Prices Outstanding Remaining Weighted-Average Exercisable Weighted-Average ($5 increments) 12/27/96 Contractual Life Exercise Price 12/27/96 Exercise Price - ------------------------------------------------------------------------------------------------------------------------------------ $ 2.57 - 4.81 3,760,003 6.1 $ 4.65 2,481,377 $ 4.72 $ 5.31 - 9.91 3,460,186 12.4 $ 7.80 724,825 $ 7.13 $10.06 -14.72 970,684 10.1 $ 12.14 425,829 $ 12.82 $15.00 -18.88 89,000 3.6 $ 17.18 84,200 $ 17.21 - ------------------------------------------------------------------------------------------------------------------------------------ $ 2.57 -18.88 8,279,873 9.2 $ 6.98 3,716,231 $ 6.40 ====================================================================================================================================
As of December 27, 1996 the Company had 356,701 shares of restricted common stock outstanding with certain officers and key employees under the 1994 Stock Incentive Plan. These shares carry certain restrictions on transferability, which will lapse over periods as determined by the Board of Directors at the time of award. The difference between the fair market value at the date of grant and the purchase price of the shares (generally, $.05 per share) is recorded as compensation expense ratably over the period from the date of grant to the date the restrictions lapse. The Company has a Capital Accumulation Plan available to all its North American employees to which it contributes based on its profits. The Company also has a savings plan for domestic employees whereby it matches 25% of employee contributions up to specified limits. In addition, under the Executive Incentive Performance Plan, amounts up to 2% of income before taxes are accrued for selected key employees instead of their participation in the Capital Accumulation Plan. Approximately half of the award vests over the following four years and the remainder vests over a service period of up to twenty years. The total cost of these plans charged to operations was $1,322,000 in 1996, $10,303,000 in 1995 and $9,025,000 in 1994. 46 Amdahl Corporation NOTE 12 INCOME TAXES Income (loss) before taxes and the provision for (benefit from) income taxes were comprised of the following:
1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ (In thousands) Income (loss) before provision for income taxes: Domestic $(268,098) $ 18,104 $ 65,941 Foreign (45,584) 31,873 14,313 - ------------------------------------------------------------------------------------------------------------------------------------ $(313,682) $ 49,977 $ 80,254 ==================================================================================================================================== Provision for (benefit from) income taxes: Federal- Current $ (6,244) $ 25,804 $ 20,531 Deferred, net 6,244 (12,918) (4,895) - ------------------------------------------------------------------------------------------------------------------------------------ -- 12,886 15,636 - ------------------------------------------------------------------------------------------------------------------------------------ State- Current 5,390 4,328 (7,284) Deferred, net (1,890) (2,328) 8,484 - ------------------------------------------------------------------------------------------------------------------------------------ 3,500 2,000 1,200 - ------------------------------------------------------------------------------------------------------------------------------------ Foreign- Current 11,659 6,291 (744) Deferred, net (2,159) 273 (10,642) - ------------------------------------------------------------------------------------------------------------------------------------ 9,500 6,564 (11,386) - ------------------------------------------------------------------------------------------------------------------------------------ Net tax provision $ 13,000 $ 21,450 $ 5,450 ====================================================================================================================================
The effective income tax provision differed from the statutory federal provision due to the following (prior year amounts have been reclassified to conform to current-year presentation):
1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ (In thousands) Statutory federal tax provision (benefit) $(109,789) $ 17,492 $ 28,089 State tax provisions, net of federal tax benefit 2,275 1,300 780 Foreign losses in excess of available benefits 27,163 13,132 4,199 Unutilized (utilized) deductible temporary differences 82,427 (20,055) (40,484) Foreign subsidiaries' earnings taxed at rates in excess of the statutory federal rate 169 235 8,750 Write-off of purchased in-process engineering and development 7,245 9,554 -- Goodwill amortization 2,693 -- -- Other 817 (208) 4,116 - ------------------------------------------------------------------------------------------------------------------------------------ Net tax provision $ 13,000 $ 21,450 $ 5,450 ==================================================================================================================================== Net effective tax rate (4%) 43% 7% ====================================================================================================================================
47 Amdahl Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Net income tax refunds of $6,104,000 and $12,340,000 were received by the Company in 1996 and 1994, respectively, and net income taxes of $26,050,000 were paid by the Company in 1995. The components of the net deferred tax liability at December 27, 1996 and December 29, 1995 were as follows:
1996 1995 - -------------------------------------------------------------------------------- (In thousands) Deferred tax liabilities: Taxes on foreign income $ (35,174) $ (18,520) Depreciation (44,975) (26,173) Revenue timing (3,149) (12,450) - -------------------------------------------------------------------------------- Total deferred tax liability (83,298) (57,143) - -------------------------------------------------------------------------------- Deferred tax assets: Reserves 137,916 84,594 Net operating loss and credit carryforwards 142,762 40,423 Other 7,493 20,860 - -------------------------------------------------------------------------------- 288,171 145,877 Valuation allowance (207,700) (89,367) - -------------------------------------------------------------------------------- Total deferred tax assets 80,471 56,510 - -------------------------------------------------------------------------------- Net deferred tax liability $ (2,827) $ (633) ================================================================================
No tax benefit was recorded for losses other than recoverable taxes or future taxable income from the reversal of deferred items. The valuation allowance at December 27, 1996 and December 29, 1995 provided reserves against worldwide operating losses, deferred tax assets, and tax credit carryforwards which may expire before the Company can utilize them. The Company believes sufficient uncertainty exists regarding the realizability of these items and accordingly has continued to provide a valuation allowance for them. Cumulative undistributed earnings of foreign subsidiaries for which no United States income or foreign withholding taxes have been recorded, because such earnings are expected to be reinvested indefinitely, amounted to $105,200,000 at December 27, 1996. The Company provides in full for United States income taxes on the earnings of foreign subsidiaries not considered indefinitely invested outside the United States. At December 27, 1996 the Company had U.S. federal net operating loss carryforwards of $136,900,000 which expire in the year 2011. State net operating loss carryforwards approximate $347,200,000 which expire in the years 1997 through 2011. Foreign net operating loss carryforwards of $71,900,000 expire at various dates from 1997 through 2006 and $70,700,000 can be carried forward indefinitely. In 1994 the Internal Revenue Service (IRS) issued a notice of deficiency to the Company for disputed items related to the 1983 through 1986 tax years, the most significant of which related to the treatment of system spares. In the fourth quarter of 1996 the Company was notified that the IRS was no longer contesting the Company's treatment of system spares. The remaining disputed items are immaterial. The IRS field audit of the Company's 1987 through 1990 tax years is in process. In the opinion of management, the final resolution of the matters raised by the IRS field audit will not result in any material adverse impact to the Company's results of operations or financial position. It is reasonably possible that the Company's estimate of the final impact of these matters will change in the near term upon the completion of the IRS field audit. 48 Amdahl Corporation NOTE 13 LEASE COMMITMENTS The Company leases a substantial portion of its principal facilities under capital lease agreements extending through the year 2008. Capitalized facilities leases totaling $18,571,000 and $32,995,000 with accumulated amortization of $17,408,000 and $24,176,000 were included in the land and buildings classification on the balance sheets at December 27, 1996 and December 29, 1995, respectively. The lease agreements provide for renewal options extending the lease terms beyond the initial terms in five-year increments. The Company also leases certain equipment and sales and service facilities under operating leases. The minimum lease commitments as of December 27, 1996 were as follows:
Capital Operating Leases Leases - -------------------------------------------------------------------------------- (In thousands) 1997 $ 3,717 $ 38,547 1998 3,390 30,742 1999 2,624 23,539 2000 2,626 16,864 2001 2,626 12,935 After 2001 15,760 19,539 - -------------------------------------------------------------------------------- Total minimum lease commitments 30,743 $142,166 ======== Less imputed interest (9.25% to 13.74%) (12,755) - ---------------------------------------------------------- Present value of minimum lease commitments (Note 7) $17,988 =========================================================
Minimum obligations have not been reduced by minimum rentals of $6,020,000 and $ 20,691,000 receivable in the future under noncancelable subleases of capital leases and operating leases, respectively, as of December 27, 1996. Rental expense charged to income was as follows:
1996 1995 1994 - -------------------------------------------------------------------------------- (In thousands) Minimum rent $ 46,108 $ 37,701 $ 38,768 Less sublease rent (463) (6,276) (4,073) - -------------------------------------------------------------------------------- Total $ 45,645 $ 31,425 $ 34,695 ================================================================================
49 Amdahl Corporation NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 14 SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth Year - ------------------------------------------------------------------------------------------------------------------------------------ (In thousands, except per common share amounts and note data) FISCAL QUARTER AND YEAR 1996 Revenues $ 317,028 $ 382,854 $ 439,819 $ 491,848 $ 1,631,549 Gross margin $ 72,582 $ (76,894) $ 123,449 $ 137,926 $ 257,063 (Loss) before taxes $ (48,153) $ (228,436) $ (4,201) $ (32,892) $ (313,682) Net (loss) $ (38,523) $ (249,436) $ (4,833) $ (33,890) $ (326,682) Net (loss) per common share $ (.32) $ (2.07) $ (.04) $ (.28) $ (2.71) FISCAL QUARTER AND YEAR 1995 Revenues $ 371,526 $ 378,666 $ 350,016 $ 416,180 $ 1,516,388 Gross margin $ 145,315 $ 148,271 $ 142,469 $ 120,746 $ 556,801 Income (loss) before taxes $ 26,394 $ 33,642 $ 25,707 $ (35,766) $ 49,977 Net income (loss) $ 20,594 $ 26,242 $ 20,057 $ (38,366) $ 28,527 Net income (loss) per common share $ .17 $ .22 $ .17 $ (.32) $ .24 Notes: Second-quarter 1996 results of operations included charges of $20,700,000 or $.17 per share to write off in-process engineering and development at Trecom Business Systems, Inc., and $130,000,000 or $1.08 per share to reduce 5995M assets to estimated market value. Fourth-quarter 1996 results of operations included a restructuring charge of $40,000,000 or $.33 per share. Fourth-quarter 1995 results of operations included charges of $27,296,000 or $.23 per share to write off in-process engineering and development at DMR Group Inc. and $26,000,000 or $.22 per share to reduce inventories to estimated market value.
- -------------------------------------------------------------------------------- COMMON STOCK DIVIDENDS AND PRICE RANGE (UNAUDITED) Dividends Dividends declared per share for the most recent five years were $.05 in 1993 and $.10 in 1992. No dividends were declared or paid in 1996, 1995 or 1994. Payment of future dividends will be dependent upon the Company's earnings, capital requirements, financial condition and other factors. Market Price The common stock is listed on both the American and London Stock Exchanges. The following table sets forth, for the periods indicated, the range of high and low sale prices on the American Stock Exchange Composite Transactions, as reported by The Wall Street Journal:
1996 High Low - -------------------------------------------------------------------------------- First Quarter $ 9 3/8 $6 3/4 Second Quarter $13 1/2 $8 7/16 Third Quarter $10 7/8 $8 1/8 Fourth Quarter $14 $8 11/16 1995 High Low - -------------------------------------------------------------------------------- First Quarter $12 1/4 $ 9 7/8 Second Quarter $13 5/8 $10 1/2 Third Quarters $11 3/4 $ 8 5/8 Fourth Quarter $10 3/4 $ 8 1/8
At December 27, 1996 there were approximately 15,000 holders of record of Amdahl common stock. - ------------------------------------------------------- Amdahl and UTS are registered trademarks and Millennium, Spectris, LVS 4000, LVS 4500, LVS 4100, EnVista, A+ Software, A+Edition, and A+FailSafe are trademarks of Amdahl Corporation. ObjectStar and CrossView are registered trademarks and Antares Alliance and EdgeworX are trademarks of Antares Alliance Group. Sun, Sun Microsystems, Solaris, and Ultra Enterprise are trademarks or registered trademarks of Sun Microsystems. UltraSPARC is a trademark of SPARC International, licensed exclusively to Sun Microsystems, Inc. SPARC is a registered trademark of SPARC International. Products bearing SPARC trademarks are based upon an architecture developed by Sun Microsystems, Inc. Microsoft, Windows NT, and Visual Basic are trademarks or registered trademarks of Microsoft Corporation. IBM, System/390, ESCON, CICS, and Parallel Sysplex are trademarks or registered trademarks of IBM. UNIX is a registered trademark in the U.S. and other countries, licensed exclusively through X/Open Company Limited. Intel and Pentium are registered trademarks of Intel Corporation. All other trademarks and product names are the property of their respective owners. 50 Amdahl Corporation EX-21 7 Exhibit 21 Office of the Corporate Secretary Amdahl Corporation December 27, 1996 AMDAHL CORPORATION SUBSIDIARIES
JURISDICTION SUBSIDIARY - ------------ ---------- Australia Amdahl Australia Pty. Ltd. Australia Amdahl Imports Pty. Ltd. Australia Amdahl Pacific Services Pty. Ltd. Australia Amdahl Superannuation (Australia) Pty. Ltd. Australia Antares Alliance Group, Australia PTY Limited Australia DMR Group Australia Pty. Ltd. Australia DMR Group Development Pty. Ltd. Australia Emsys International Pty. Ltd. Australia Qadrant International Pty. Ltd. Australia RailTek Australia Pty. Ltd. Austria Amdahl Computersysteme Gesellschaft m.b.H. Belgium Amdahl Belgium S.A./N.V. Belgium DMR Group (Belgium) S.A.-N.V. Bermuda Amdahl Ireland Limited Bermuda Amdahl Middle East Operations Limited Canada Amdahl Canada Finance NRO Inc. Canada DMR AMS Inc. Canada DMR Group (Europe) Inc. Canada DMR Group Inc. Canada DMR Quebec Inc. Ontario, Canada Amdahl Canada Limited Ontario, Canada Amdahl Communications Inc. Ontario, Canada Antares Alliance Group Canada Limited Quebec, Canada 2638-6193 Quebec Inc. (APSI) Quebec, Canada The IT Macroscope Inc. Denmark Amdahl Danmark Computer Systems A/S France Amdahl France S.A. France Group DMR S.A. Germany Amdahl Deutschland GmbH Germany Amdahl Mittel-und Osteuropa GmbH Hong Kong Amdahl (China) Limited Ireland Amdahl Ireland Limited Italy Amdahl Italia S.p.A. Malaysia Amdahl Asia Services SDN BHD Malaysia DMR Group Malaysia SDN BHD Netherlands Amdahl Europe B.V. Netherlands Amdahl Nederland B.V. Netherlands Antilles Amdahl Overseas Capital Corporation N.V. New Zealand DMR Group New Zealand Limited Norway Amdahl Norge A/S South Africa Amdahl South Africa (Pty) Limited Switzerland Amdahl (Schweiz) AG United Kingdom AG Solutions Limited United Kingdom Amdahl Communications Systems Limited United Kingdom Amdahl International Management Services Limited United Kingdom Amdahl (U.K.) Limited United Kingdom C E Services (Europe) Limited United Kingdom DMR Group Limited United Kingdom Landmark Communications Systems Limited California, U.S.A Amdahl Asia, Inc. California, U.S.A Amdahl Finance Corporation California, U.S.A Amdahl International Corporation California, U.S.A Amdahl International Services Corporation California, U.S.A Amdahl Investment Corporation California, U.S.A Amdahl North Atlantic, Inc. California, U.S.A Amdahl Pacific Basin Operations, Inc. California, U.S.A Amsub Inc. California, U.S.A Amtemp, Inc. California, U.S.A Tran Communications, Inc. Delaware, U.S.A Amdahl Federal Service Corporation Delaware, U.S.A Antares Alliance Group Delaware, U.S.A Antares Alliance Group, Europe, L.L.C. Delaware, U.S.A Antares Alliance Group Holdings, Inc. Delaware, U.S.A DMR TRECOM, Inc. Texas, U.S.A C.E. Services, Inc.
EX-23 8 Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our reports included (or incorporated by reference) in this Form 10-K into the Company's previously filed Registration Statement Nos. 33-55460, 33-54171, 333-01943, 333-01945, 333-02009 and 333-08583 on Form S-8. /s/Arthur Andersent LLP ----------------------- ARTHUR ANDERSEN LLP San Jose, California March 21, 1997 EX-24 9 Exhibit 24 AMDAHL CORPORATION POWER OF ATTORNEY The undersigned directors of Amdahl Corporation, a Delaware corporation, do hereby appoint John C. Lewis and Bruce J. Ryan, each of them their lawful attorneys-in-fact and agents for signature with power to execute the Corporation's Annual Report on Form 10-K filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. The power granted herewith includes the power and authority to sign the names of the undersigned directors to any and all amendments filed to the Annual Report. Each of the undersigned hereby ratifies and confirms all that said attorneys and agents shall do pursuant to this power. This Power of Attorney may be signed in several counterparts. IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of January 30, 1997. /s/ Michael R. Hallman /s/ Takeshi Maruyama - ------------------------------- ------------------------------ Michael R. Hallman Takeshi Maruyama /s/ E.F. Heizer, Jr. /s/ George R. Packard, Ph.D. - ------------------------------ ------------------------------ E. F. Heizer, Jr. George R. Packard, Ph.D. /s/ Kazuto Kojima /s/ Waler B. Reinhold - ------------------------------ ------------------------------ Kazuto Kojima Walter B. Reinhold /s/ John C. Lewis /s/ Takashi Takaya - ------------------------------ ------------------------------ John C. Lewis Takashi Takaya /s/ Burton G. Malkiel, Ph.D. /s/ J. Sidney Webb - ------------------------------ ------------------------------ Burton G. Malkiel, Ph.D. J. Sidney Webb EX-27 10
5 1,000 12-MOS DEC-31-1996 DEC-31-1996 191,772 210,671 509,036 10,185 128,755 1,116,409 950,686 705,723 1,596,404 877,118 12 0 0 6,088 607,160 1,596,404 538,934 1,631,549 559,229 1,374,486 589,009 0 10,732 (313,682) 13,000 (326,682) 0 0 0 (326,682) (2.71) (2.71)
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