As filed with the Securities and Exchange Commission on December __, 1997
Registration No. 333-__________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-8 and FORM S-3
REGISTRATION STATEMENT
UNDER
SECURITIES ACT OF 1933
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Lumisys Incorporated
(Exact name of registrant as specified in its charter)
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Delaware 77-0133232
(State of Incorporation) (I.R.S. Employer Identification No.)
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Lumisys Incorporated
255 Humboldt Court
Sunnyvale, CA 94089
(408) 733-6565
(Address and telephone number of principal executive offices)
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Options Assumed by Lumisys Incorporated
Originally Granted under the CompuRAD, Inc.
1996 Stock Plan and CompuRAD, Inc.
Stock Option Plan and Shares Issued under the CompuRAD, Inc.
1996 Employee Stock Purchase Plan
Dean MacIntosh
Vice President, Finance
225 Humboldt Court
Sunnyvale, CA 94089
(408) 733-6565
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Andrei M. Manoliu, Esq.
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
(650) 843-5000
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CALCULATION OF REGISTRATION FEE
Title of Amount to Proposed Maximum Proposed Maximum Amount of
Securities to be Offering Price Aggregate Offering Registration be
Registered Registered Per Share Price Fee
- -------------- ---------- ----------------- -------------- ------------
Common Stock 401,760 $0.007184-$7.11(1) $1,663,769(1) $490.81
(par value $.001)
Common Stock 2515(3) $5.125(2) $12,889.38 $ 3.80
(par value $.001)
(1) Estimated solely for the purpose of calculating the amount of the
registration fee. The offering price is based upon the exercise prices for
shares previously granted under the CompuRAD, Inc. 1996 Stock Plan (271,580
shares at prices ranging from $5.66 to $7.11 per share) and the CompuRAD, Inc.
Stock Option Plan (130,180 shares purchased at $0.007184 per share) pursuant
to Rule 457(h) under the Securities Act of 1933, as amended (the "Act").
(2) Estimated in accordance with Rule 457(h) under the Act solely for the
purpose of calculating the registration fee. Computation based upon the
average of the high and low prices of the Common Stock as reported on the
Nasdaq National Market on December 9, 1997.
(3) This subtotal represents the number of shares previously issued to
employees pursuant to the CompuRAD, Inc. 1996 Employee Stock Purchase Plan
that are to be registered and offered by the Selling Stockholders.
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
REOFFER AND RESALE PROSPECTUS
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LUMISYS INCORPORATED
2,515 Shares
Common Stock, $.001 par value
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This Prospectus relates to two thousand five hundred fifteen (2,515) shares
(the "Shares") of the Common Stock, $.001 par value ("Common Stock"), of
Lumisys Incorporated (the "Company"), a Delaware corporation, which may be
offered from time to time by certain stockholders listed on the Selling
Stockholders table (the "Selling Stockholders") for their own benefit. It is
anticipated that the Selling Stockholders will offer the Shares for sale at
prevailing prices in The Nasdaq National Market or the over-the-counter market
on the date of sale. The Company will receive no part of the proceeds of sales
made hereunder. All expenses of registration incurred in connection with this
offering are being borne by the Company, but all selling and other expenses
incurred by the Selling Stockholders will be borne by such Selling
Stockholders. None of the Shares offered pursuant to this Prospectus has been
registered prior to the filing of the Registration Statement of which this
Prospectus is a part.
------------------
The Selling Stockholders and any broker executing selling orders on behalf of
the Selling Stockholders may be deemed to be an "underwriter" within the
meaning of the Securities Act of 1933, as amended (the "Securities Act"), in
which event commissions received by such broker may be deemed to be
underwriting commissions under the Securities Act.
The Common Stock of the Company is traded on The Nasdaq National Market. On
December 11, 1997, the closing price of the Company's Common Stock, as reported
by The Nasdaq National Market in The Wall Street Journal, was $5.00 (Nasdaq
Symbol: LUMI).
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. PROSPECTIVE
PURCHASERS SHOULD CAREFULLY REVIEW THE MATTERS SET FORTH IN "RISK FACTORS."
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS,
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFERING
DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
STOCKHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH
PERSON TO MAKE SUCH OFFER, SOLICITATION OR SALE. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
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The Company hereby undertakes to provide without charge to each person to whom
a copy of this Prospectus is delivered, upon written or oral request of any
such person, a copy of any and all of the information that has been or may be
incorporated by reference in this Prospectus, other than exhibits to such
documents. Requests for such copies should be directed to the Vice President,
Finance, Lumisys Incorporated, 225 Humboldt Court, Sunnyvale, CA 94089. The
Company's telephone number at that location is (408) 733-6565.
Except for the person set forth in the foregoing paragraph, the Company has not
authorized any person to give any information or make any representations,
other than those contained in this Prospectus, in connection with the Shares.
If given or made, such information or representations must not be relied upon
as having been authorized by the Company.
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The date of this Prospectus is December 11, 1997.
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith shall file reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information can be inspected and copied at the
Public Reference Room of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549 and may be available at the following Regional Offices of the
Commission: Chicago Regional Office, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, IL 60661; and the New York Regional Office, 7 World Trade
Center, 13th Floor, New York, NY 10048. Copies of such material can be obtained
from the Public Reference Section of the Commission, 450 Fifth Street,
Washington, D.C. 20549, at prescribed rates. The Company makes filings pursuant
to the Exchange Act with the Commission electronically, and such materials may
be inspected and copied at the Commission's Web site (http://www.sec.gov).
Material filed by the Company can also be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, DC 20006. Information, as of particular dates, concerning directors
and officers of the Company, their remuneration, options granted to them, the
principal holders of securities of the Company, and any material interest of
such persons in transactions with the Company will be disclosed in the proxy
statements to be distributed to stockholders of the Company and filed with the
Commission.
A Registration Statement on Form S-8 (the "Registration Statement") with
respect to the Shares offered by this Prospectus has been filed with the
Commission under the Securities Act. This Prospectus does not contain all of
the information contained in such Registration Statement, certain portions of
which have been omitted pursuant to the rules and regulations of the
commission. Accordingly, additional information concerning the Company and
such securities can be found in the Registration Statement, including various
exhibits and schedules thereto, which may be inspected at the Public Reference
Section of the Commission at 450 Fifth Street, Washington D.C. 20549.
LUMISYS INCORPORATED
THE COMPANY
The Company designs, manufactures and markets a family of precision digitizers
that convert medical images on film or video into digital format. Once in
digital form, the medical images can be stored, transmitted, viewed, enhanced,
manipulated and printed at any PC or workstation within a medical network. The
Company currently offers a comprehensive family of products for digitizing
medical film images under the Lumiscan label and video images under the
Imagraph name. These digitizers process images from all commercially available
medical imaging modalities, including x-ray, computed tomography ("CT"),
magnetic resonance imaging ("MRI"), ultrasound and nuclear medicine. The
Company is the leading supplier of laser-based film digitizers, with sales of
over 3,000 Lumiscan units since its first product was introduced in 1990. In
early 1996, the Company introduced its charge-coupled device ("CCD") based
digitizer. The Company also offers under the Imagraph label high quality
board-level digitization and compression products for the capture of video
images, which have applications in medical imaging as well as in scientific and
industrial inspection and multimedia imaging.
In 1996, the Company introduced a computed radiography ("CR") system for use in
the industrial inspection market. The CR system reads images from reusable
phosphor plates of pipes, valves, aircraft parts and other structural objects.
The Company intends to maintain and enhance its market leadership by leveraging
its reputation for high quality, reliable and cost-effective products,
broadening its product lines through internal products development, acquiring
complementary businesses or technologies and penetrating new geographic
markets. The Company sells its products primarily to OEMs and VARs, who then
integrate the Company's products into teleradiology and Picture Archiving and
Communication Systems ("PACS") networks. The Company has established close
working relationships with the leading suppliers of these systems including
Agfa Gavaert N.V. ("Agfa"), CEMAX-ICON Imation ("CEMAX"), a subsidiary of
Imation Corporation, E-Med Systems ("E-Med") and E-System Medical Electronics
Inc. company, which is a subsidiary of Raytheon Corp., Eastman Kodak Company
("Kodak"), Olicon Corporation ("Olicon") and Sterling Diagnostics ("Sterling,"
formerly the medical group of E.I. DuPont de Nemours and Company).
Through the acquisition of CompuRAD, Inc. in late 1997, the Company also became
a leading provider of software that enables healthcare clinicians to access
medical images and clinical information at any point of care. The Company
pioneered the use of personal computer software in the point to point, on call
teleradiology market, with the introduction of its PC Teleradiology product.
In response to the increasing acceptance of teleradiology and increasing demand
for multi-user and multi-access off-site teleradiology systems, the Company
introduced its iNET product line in late 1994. In 1997, the Company introduced
ClinicalWare, an Internet/Intranet software solution which provides secure
electronic access through a Web browser to clinical information systems at any
point of care.
The Company sells its software products both through a direct sales force and
indirectly through a network of VARs and large medical image equiment vendors.
The Company's resellers include Konica Medical Corporation ("Konica Medical")
and National Imaging Resources, a nationwide consortium of X-ray dealers. The
Company presently has licensed its products to hopitals, clinics and other
healthcare facilities and physician groups. The Company's customers include
New York University Medical Center, Alliant Heath Systems, Symphony Mobilex, a
subsidiary of Health Services, Inc. ("Symphony Mobilex") and The Nursing Home
Group plus many other leading healthcare facilities and organizations.
The principal executive offices of the Company are located at 225 Humboldt
Court, Sunnyvale, California 94089, and its telephone number is (408) 733-6565.
The Company was incorporated in California in 1987 and was reincorporated in
Delaware in 1995 prior to the completion of its initial public offering.
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE
SECURITIES OFFERED HEREBY.
SIGNIFICANT FLUCTUATIONS IN OPERATING RESULTS. There can be no assurance that
the Company will be profitable on a quarterly or annual basis in the future.
The Company has experienced quarterly fluctuations in operating results caused
by various factors, including the timing of orders by major customers, customer
inventory levels, shifts in product mix, the incurrence of acquisition-related
costs and general conditions in the healthcare industry which have reduced
capital equipment budgets and delayed or reduced the adoption of teleradiology,
and expects that these fluctuations will continue.
The Company typically does not obtain long-term volume purchase contracts from
its customers, and a substantial portion of the Company's backlog is scheduled
for delivery within 90 days or less. Customers may cancel orders and change
volume levels or delivery times without penalty. Quarterly sales and operating
results therefore depend on the volume and timing of the backlog as well as
bookings received during the quarter. A significant portion of the Company's
operating expenses are fixed, and planned expenditures are based primarily on
sales forecasts and product development programs. If sales do not meet the
Company's expectations in any given period, the material adverse impact on
operating results may be magnified by the Company's inability to adjust
operating expenses sufficiently or quickly enough to compensate for such a
shortfall. Furthermore, the Company gross margins may decrease in the future
due to increasing sales of lower margin products and volume discounts. Results
of operations in any period should not be considered indicative of the results
to be expected for any future period. Fluctuations in operating results may
also result in fluctuations in the price of the Company's Common Stock.
DEPENDENCE ON TELERADIOLOGY MARKET; UNCERTAINTY OF MARKET ACCEPTANCE. The
Company's success is dependent on market acceptance of its new and existing
products. The Company's revenues are derived from the sales of medical image
digitizers for the teleradiology and other medical markets. There can be no
assurance that sales of new products will achieve significant market acceptance
in the future. In addition, third party payers, such as governmental programs
and private insurance plans, can indirectly affect the pricing or the relative
attractiveness of the Company's' products by regulating the maximum amount of
reimbursement that they will provide for the taking, storing and interpretation
of medical images. A decrease in the reimbursement amounts for radiological
procedures may decrease the amount which physicians, clinics and hospitals are
able to charge patients for such services. As a result, adoption of
teleradiology may slow as capital investment budgets are reduced, thereby
significantly reducing the demand for the Company's products.
NEW PRODUCT DEVELOPMENT IN SOFTWARE PRODUCTS. The market for
Internet/Intranet-related software designed for use in healthcare environments
is in the early stages of development. Since this market is new, and because
current and future competitors are likely to introduce competing
Internet/Intranet software, it is difficult to predict the rate at which the
market will grow, if at all, or the rate at which new or increased competition
will result in market saturation. The Company's ClinicalWare product was only
recently introduced in 1997 and is highly dependent upon the market acceptance
of the Internet/Intranet technologies for healthcare environments. If the
market for such Internet/ Intranet software fails to grow or grows more slowly
than anticipated, the Company's business, financial condition and results of
operations would be materially adversely effected. The Company has had only
limited shipments of ClinicalWare and expects that the sales cycle for
ClinicalWare will be longer than that for its other existing products and that
the price for ClinicalWare will be higher than that for the Company's other
current products. Accordingly, the Company's quarterly revenues and operating
results may be subject to greater fluctuation as the Company begins to market
and sell ClinicalWare. Additionally, the Company faces greater challenges in
installing and supporting ClinicalWare because of the complexity of
Internet/Intranet related software and systems. The Company has limited
experience in marketing, installing and supporting Internet/Intranet clinical
information systems, and there can be no assurance that the Company can obtain
the necessary resources to market, install and support ClinicalWare in an
efficient, cost-effective and competitive manner. The failure of ClinicalWare
to achieve market acceptance for any reason could have a materially adverse
effect on the Company's business, financial condition and results of
operations.
SIGNIFICANT RISKS ASSOCIATED WITH FUTURE ACQUISITIONS. The Company expects to
pursue acquisitions of complementary technologies, product lines or businesses
in the future. The integration of any future acquisitions will require special
attention from management, which may temporarily distract its attention from
the day-to-day business of the Company. Any future acquisitions will also
require integration of the companies' product offerings and coordination of
research and development and sales and marketing activities. Furthermore, as a
result of acquisitions, the Company may enter markets in which it has little or
no direct prior experience. There can also be no assurance that the Company
will be able to retain key technical personnel of an acquired company or
recruit new management personnel for the acquired businesses, or that the
Company will, or may in the future, realize any benefits as a result of such
acquisitions. Future acquisitions by the Company may result in potentially
dilutive issuances of equity securities, the incurrence of debt, one-time
acquisition charges and amortization expenses related to goodwill and
intangible assets, each of which could be significant and could materially
adversely affect the Company's financial condition and results of operations.
In addition, the Company believes that it may be required to expand and enhance
its financial and management controls, reporting systems and procedures as it
integrates potential future acquisitions. There can be no assurance that the
Company will be able to do so effectively, and failure to do so when necessary
would have a material adverse effect upon the Company's business and results of
operations.
NEW PRODUCT DEVELOPMENT IN IMAGE DIGITIZERS; RAPID TECHNOLOGICAL CHANGE. The
market for the Company's products is characterized by rapid technological
advances, changes in customer requirements and frequent new product
introductions and enhancements. The Company's future success will depend upon
its ability to enhance its current products, to develop and introduce new
products that keep pace with technological developments and to respond to
evolving customer requirements. Any failure by the Company to anticipate or
respond adequately to technological developments by its competitors or to
changes in customer requirements, or any significant delays in product
development or introduction, could result in a loss of competitiveness or
revenues. In the past, the Company has occasionally experienced delays in the
development and introduction of new products and product enhancements, and
there can be no assurance that the Company will not experience such delays in
the future. In addition, new product introductions or enhancements by the
Company's competitors or the use of other technologies that do not depend on
film digitization could cause a decline in sales or loss of market acceptance
of the Company's products. In particular, computed radiography ("CR") systems
are currently available and have been sold for medical applications for over
ten years with limited acceptance. In addition, several companies have
announced developments leveraging the technology used in flat panel displays,
digital radiography ("DR"), to produce high-resolution, two dimensional image
sensor arrays that make it possible for x-ray images to be captured digitally
without film or chemical processing. While this emerging technology is
extensive, there can be no assurance that future advances in this technology or
other technologies will not produce systems better positioned for the
marketplace that will therefore reduce the digitizer market to the then
installed base of imaging systems. There can be no assurance that the Company
will be successful in developing and marketing new products or product
enhancements on a timely or cost-effective basis, and such failure could have a
material adverse effect on the Company's business and results of operations.
RISKS ASSOCIATED WITH SOFTWARE PRODUCTS. Software and systems as complex as
those offered by the Company frequently contain undetected errors or failures
when first introduced or when new versions are released. The Company has in
the past discovered bugs and system errors in certain of its software
enhancements, both before and after initial shipment. There can be no
assurance that, despite testing by the Company, errors will not occur in the
Company's products resulting in loss of, or delay in, market acceptance. Any
such loss or delay could have a material adverse effect on the Company's
business, financial condition and results of operations. Peripherals and
hardware from third party manufacturers also may contain defects and
incompatibilities which could adversely affect market acceptance of the
Company's software products.
LONG SALES CYCLES. The sales cycle for medical image management systems is
lengthy. The sales cycle of the Company's products is subject to delays
associated with changes or the anticipation of changes in the regulatory
environment affecting healthcare enterprises, changes in the customer's
strategic system initiatives, competing information systems projects within the
customer organization, consolidation in the healthcare industry in general, the
highly sophisticated nature of the Company's software and competition in the
medical image management and healthcare information systems markets in general.
The time required from initial contact to purchase order typically ranges from
one to six months, and the time from purchase order to delivery and recognition
of revenue typically ranges from one to six months. During the sales process,
the Company expends substantial time, effort and funds preparing a contract
proposal, demonstrating the software and negotiating the purchase order. For
these and other reasons, the Company cannot predict when or if the sales
process with a prospective customer will result in a purchase order.
COMPETITION. Although to date competition in the United States laser-based
film digitizer market has not been significant, a new company, Clinical Laser
Systems ("CLS") entered the market in 1996 with a product similar to the laser-
based film digitizers offered by the Company. In addition, several Japanese
competitors, such as Konica Corporation ("Konica"), Nishimoto Sangyo Co., Ltd.
("Nishimoto Sangyo") and Abe Sekkei Inc. ("Abe Sekkei"), offer competitive
products on an international basis and may decide in the future to devote
additional resources to marketing competitive products in the United States.
The markets for medical film digitizers incorporating charge-coupled devices
("CCDs") are highly competitive. The Company faces competition from companies
such as Vidar Systems Inc., Canon Inc., Vision Ten Inc., Hell Linotype and
Howtek in the CCD-based film digitizer market. There can be no assurance that
the Company's competitors will not develop enhancements to, or future
generations of, competitive products that will offer superior price or
performance features that render the Company's products less competitive or
obsolete.
In addition, large domestic companies, such as Kodak, Imation Corporation
("Imation"), Sterling and General Electric Co. ("GE"), and European companies,
such as Siemens, Philips Electrics N.V. ("Philips") and Agfa Gavaert N.V.
("Agfa"), have the technical and financial ability to design and market
digitizer products competitive with the Company's products, and some of them
have in the past produced and marketed such products. While most of these
companies currently purchase products from the Company, the Company believes
that it will be required to continue to improve the price and performance
characteristics of its products to retain their business especially in view of
the fact that these customers are not contractually required to purchase their
digitizers exclusively or at all from the Company. All of these companies have
significantly greater financial, marketing and manufacturing resources than the
Company and would be significant competitors if they decided to enter this
market.
The markets for medical video image digitizers are also highly competitive.
Competitors in the video digitizer market are Precision Digital Images Corp.,
Epix, Inc. and Matrox Electronic Systems Ltd.
Competition in the markets for medical image management products and healthcare
information systems and services is also intense and is expected to increase.
The Company's competitors include other providers of medical image management
and healthcare information products. The Company's principal competitors in the
medical image management industry are E-Med, CEMAX, Applicare Medical Imaging
B.V. and Access Radiology Corporation. Furthermore, other major healthcare
information and equipment companies not presently offering competing products
may enter the Company's markets. In addition, the emerging market for
Internet/Intranet clinical information systems is expected to be highly
competitive, and the Company's competitors in this market could include many of
its competitors in the medical image management systems market as well as other
providers of healthcare information systems and new entrants into the
marketplace. Increased competition could result in price reductions, reduced
gross margins and loss of market share, any of which could materially adversely
effect the Company's business, financial condition and results of operations.
In addition, many of the Company's competitors and potential competitors have
significantly greater financial, technical, product development, marketing and
other resources and market recognition than the Company in the
Internet/Intranet clinical information systems area. Many of the Company's
competitors also currently have, or may develop or acquire, substantial
installed customer bases in the healthcare industry. As a result of these
factors, the Company's competitors may be able to respond more quickly to new
or emerging technologies and changes in customer requirements or to devote
greater resources to the development, promotion and sale of their products than
the Company. There can be no assurances that the Company will be able to
compete successfully against current and future competitors or that competitive
pressures faced by the Company will not have a materially adverse effect on its
business, financial condition or results of operations.
PROPRIETARY RIGHTS. The Company relies on a combination of trade secrets,
copyright and trademark laws, nondisclosure and other contractual provisions to
protect its proprietary rights. The Company currently has no patents covering
its technology and it has not registered any of its trademarks. There can be no
assurance that measures taken by the Company to protect its intellectual
property will be adequate or that the Company's competitors will not
independently develop systems and services that are substantially equivalent or
superior to those of the Company. Substantial litigation regarding intellectual
property rights exists in the software industry, and the Company expects that
software products may be increasingly subject to third party infringement
claims as the number of competitors in the Company's industry segment grows and
the functionality of systems overlap. Although the Company believes that its
systems and applications do not infringe upon the proprietary rights of third
parties, there can be no assurance that third parties will not assert
infringement claims against the Company in the future, that the Company would
prevail in any such dispute or that a license or similar agreement will be
available on reasonable terms in the event of an unfavorable ruling on any such
claim. In addition, any such claim may require the Company to incur substantial
litigation expenses or subject the Company to significant liabilities and could
have a material adverse effect on the Company's business, financial condition
and results of operations.
CUSTOMER CONCENTRATION; RELIANCE ON OEMS. A significant portion of the
Company's net sales is derived from a small number of customers. For the
period indicated, each of the following customers accounted for more than 10%
of the Company's revenues: in 1994, E-Med, Kodak, CEMAX and Agfa; and in 1995,
E-Med, Kodak and CEMAX. In 1996, Symphony Mobilex, Kodak, E-Med and CEMAX also
accounted for a significant portion of the Company's net sales although none
accounted for more than 10%. Large customers also accounted for a significant
portion of the Company's backlog at December 31, 1996. The Company expects to
continue to depend upon its principal customers for a significant portion of
its sales, although there can be no assurance that the Company's principal
customers will continue to purchase products and services from the Company at
current levels, if at all. The loss of one or more major customers or a change
in their buying patterns could have a material adverse effect on the Company's
business and results of operations.
SINGLE-SOURCE SUPPLIERS. The Company purchases industry-standard parts and
components for the assembly of its products, generally from multiple vendors.
Although the Company relies on single-source suppliers for certain components,
such as lasers, photomultiplier tubes and certain electronic components
primarily to control price and quality, the Company believes that alternate
sources of supply are available from other vendors for such components and has
qualified second source suppliers for some, but not all, single-sourced parts.
The Company maintains good relationships with its vendors and, to date, has
not experienced any material supply problems. While the Company seeks to
maintain an adequate inventory of single-sourced components there can be no
assurance that such inventories will be sufficient or that delays in part or
component deliveries will not occur in the future, which could result in delays
or reductions in product shipments. Furthermore, even if currently single-
sourced components could be replaced by other qualified parts, product redesign
and testing could be costly and time consuming. These factors could have a
material adverse effect on the Company's business, financial condition and
results of operations.
GOVERNMENT REGULATION. The manufacturing and marketing of the Company's
digitizers are subject to extensive government regulation in the United States
and in other countries, and the process of obtaining and maintaining required
regulatory approvals is lengthy, expensive and uncertain. If a medical device
manufacturer can establish that a newly developed device is "substantially
equivalent" to a device that was legally marketed prior to May 1976, the date
on which the Medical Device Amendments of 1976 were enacted, or to a device the
Food and Drug Administration ("FDA") found to be substantially equivalent to a
legally marketed pre-1976 device, the manufacturer may seek marketing clearance
from the FDA to market the device by filing a 510(k) premarket notification.
The 510(k) premarket notification must be supported by appropriate data
establishing the claim of substantial equivalence to the satisfaction of the
FDA. Receipt of 510(k) clearance normally takes at least three months, but may
take much longer and may require the submission of clinical safety and efficacy
data to the FDA. All of the Company's laser-based film digitizers, the CCD
based film digitizer and the QR2000 software products that are commercially
available have received 510(k) clearance. There can be no assurance that
510(k) clearance for any future product or any modification of an existing
product will be granted, or that the process will not be unduly lengthy. In
the future, the FDA may require manufacturers of certain medical devices to
engage in a more thorough and time consuming approval process than the 510(k)
process, which could have a material adverse effect on the Company's business
and results of operations.
The Company is also required to register as a Class II medical device
manufacturer with the FDA and state agencies, such as the California Department
of Health Services ("CDHS"). As such, the Company may be inspected on a
routine basis by both the FDA and the CDHS for compliance with the FDA's GMP
and other applicable regulations. These regulations require that the Company
manufacture its products and maintain its documents in a prescribed manner with
respect to manufacturing, reporting of product malfunctions and other matters.
If the FDA believes that a company is not in compliance with federal
regulatory requirements, it can institute proceedings to detain or seize
products, issue a recall, prohibit marketing and sales of the company's
products and assess civil and criminal penalties against the company, its
officers or its employees. Failure to comply with the regulatory requirements
could have a material adverse effect on the Company's business and results of
operations. The Company was inspected by the FDA in 1996 and was found to be
compliant with the FDA's GMP regulations but has not been inspected by CDHS to
date.
The Company also relies on 510(k) pre-market notification for its current
internally developed products. Additionally, the Company relies on 510(k)
clearance and the finding by the FDA of substantial equivalence for the Image
Management System ("IMS") and the Film Image ScanSoftware ("FISS") technologies
acquired from Star Technologies, Inc. in July 1997. However, the Company
believes that its success depends upon commercial sales of new versions of its
medical image management software which may be subject to clearance or approval
from the FDA and its foreign counterparts. There can be no assurance that a
similar 510(k) clearance for any future product or enhancement of an existing
product will be granted or that the process will not be lengthy. If the Company
cannot establish that a product is "substantially equivalent" to certain
legally marketed devices, the 510(k) clearance procedure may be unavailable and
the Company may be required to utilize the longer and more expensive PMA
process. Failure to receive or delays in receipt of FDA clearances or
approvals, including the need for additional data as a prerequisite to
clearance or approval, could have a material adverse effect on the Company's
business, operating results and financial condition.
Sales of the Company's products outside the United States are subject to
foreign regulatory requirements that vary from country to country. Additional
approvals from foreign regulatory authorities may be required, and there can be
no assurance that the Company will be able to obtain foreign approvals on a
timely basis or at all, or that it will not be required to incur significant
costs in obtaining or maintaining its foreign regulatory approvals. In Europe,
the Company will be required to obtain certifications necessary to enable the
"CE" mark to be affixed to the Company's products by mid 1998 to continue
commercial sales in member countries of the European Union. The CE mark is an
international symbol of quality and complies with applicable European medical
device directives. The Company has not obtained such certifications, and there
can be no assurance it will be able to obtain such certifications or any other
international regulatory approvals in a timely manner, or at all. Failure to
comply with foreign regulatory requirements could have a material adverse
effect on the Company's business, financial condition and results of
operations.
LITIGATION. On July 9, 1997 and July 10, 1997, two class action complaints
were filed in the Superior Court of the State of California, County of Santa
Clara, and the U.S. District Court for the Northern District of California,
respectively, against the Company, several of its current and former officers
and directors, and its underwriters. The complaints are brought on behalf of
all persons who purchased the Company Common Stock during the putative class
periods, November 15, 1995 to July 11, 1996. The complaints allege that,
during the class period, defendants made material misstatements and omitted to
disclose material information concerning the Company's actual and expected
performance and results, causing the price of the Company Common Stock to be
artificially inflated. The federal complaint alleges claims under Sections
10(b) and 20(a) of the Exchange Act, and SEC Rule 10b-5 promulgated thereunder;
the state complaint alleges claims under California state law. Neither the
federal nor the state complaint specifies the amount of damages sought. The
Company and the other defendants vigorously deny all allegations of wrongdoing,
and intend to defend themselves aggressively. On September 19, 1997,
defendants filed a motion to dismiss the federal complaint. On October 10,
1997, defendants filed demurrers to the state complaint. There can be no
assurance that the Company will prevail in this action or that the plaintiffs
will not recover damages.
THIRD-PARTY REIMBURSEMENT. Third-party payers, such as governmental programs
and private insurance plans, can indirectly affect the pricing or the relative
attractiveness of the Company's products by regulating the maximum amount of
reimbursement that they will provide for the taking, storing and interpretation
of medical images. In recent years, healthcare costs have risen substantially,
and third-party payers have come under increasing pressure to reduce such
costs. In this regard, extensive studies undertaken by the Clinton
Administration, even though not successfully translated into regulatory action,
have stimulated widespread analysis and reaction in the private sector focused
on healthcare cost reductions, which may involve reductions in reimbursement
rates in radiology. A decrease in the reimbursement amounts for radiological
procedures may decrease the amount which physicians, clinics and hospitals are
able to charge patients for such services. As a result, adoption of
teleradiology and PACS may slow as capital investment budgets are reduced, and
the demand for the Company's products could be significantly reduced.
PRODUCT LIABILITY AND INSURANCE. The manufacture and sale of medical products
entails significant risk of product liability claims. While the Company
believes that its current insurance coverage is appropriate, there can be no
assurance that such coverage is adequate to protect the Company from any
liabilities it might incur in connection with the sale of the Company's
products. In addition, the Company may require increased product liability
coverage as additional products are commercialized. Such insurance is
expensive and in the future may not be available on acceptable terms, if at
all. A successful product liability claim or series of claims brought against
the Company in excess of its insurance coverage could have a material adverse
effect on the Company's business and results of operations.
VOLATILITY OF STOCK PRICES. The market price of the Company's Common Stock has
been and may continue to be volatile. This volatility may result from a number
of factors, including fluctuations in the Company's quarterly revenues and net
income, announcements of technical innovations or new commercial products by
the Company or its competitors, and conditions in the market for medical image
digitizers and the teleradiology and health care industry and for medical image
management products and healthcare information systems and services. Also, the
stock market has experienced and continues to experience extreme price and
volume fluctuations which have affected the market prices of securities,
particularly those of medical technology companies, and which often have been
unrelated to the operating performance of the companies. These broad market
fluctuations, as well as general economic and political conditions, may
adversely affect the market price of the Company's Common Stock in future
periods.
SELLING STOCKHOLDERS
The following table shows the names of the Selling Stockholders and the number
of Shares to be sold by them pursuant to this Prospectus:
Name Number of Shares
- ---------------------------------------------------- ----------------
Certain unnamed non-affiliates of the Company(1).... 2,515
(1) Each unnamed non-affiliate holds up to or less than 1,000 shares of the
Shares and may use this reoffer prospectus to sell up to the number of shares
such non-affiliate currently holds.
PLAN OF DISTRIBUTION
The Company has been advised by the Selling Stockholders that they intend to
sell all or a portion of the shares offered hereby from time to time on The
Nasdaq National Market or in the over-the-counter market and that sales will be
made at prices prevailing at the times of such sales. The Selling Stockholders
may also make private sales directly or through a broker or brokers, who may
act as agent or as principal. In connection with any sales, the Selling
Stockholders and any brokers participating in such sales may be deemed to be
underwriters within the meaning of the Securities Act.
Any broker-dealer participating in such transactions as agent may receive
commissions from the Selling Stockholders (and, if such broker acts as agent
for the purchaser of such shares, from such purchaser). Usual and customary
brokerage fees will be paid by the Selling Stockholders. Broker-dealers may
agree with the Selling Stockholders to sell a specified number of shares at a
stipulated price per share, and, to the extent such a broker-dealer is unable
to do so acting as agent for the Selling Stockholders, to purchase as principal
any unsold shares at the price required to fulfill the broker-dealer commitment
to the Selling Stockholders. Broker-dealers who acquire shares as principal may
thereafter resell such shares from time to time in transactions (which may
involve crosses and block transactions and which may involve sales to and
through other broker-dealers, including transactions of the nature described
above) in the over-the-counter market, in negotiated transactions or otherwise
at market prices prevailing at the time of sale or at negotiated prices, and in
connection with such resales may pay to or receive from the purchasers of such
shares commissions computed as described above.
The Company has advised the Selling Stockholders that Regulation M promulgated
under the Exchange Act may apply to sales in the market, has furnished the
Selling Stockholders with a copy of this Regulation and has informed them of
the need for delivery of copies of this Prospectus. The Selling Stockholders
may indemnify any broker-dealer that participates in transactions involving the
sale of the shares against certain liabilities, including liabilities arising
under the Securities Act. Any commissions paid or any discounts or concessions
allowed to any such broker-dealers, and, if any such broker-dealers purchase
shares as principal, any profits received on the resale of such shares, may be
deemed to be underwriting discounts and commissions under the Securities Act.
Upon the Company's being notified by the Selling Stockholders that any material
arrangement has been entered into with a broker-dealer for the sale of shares
through a cross or block trade, the Company may, in its discretion, file a
supplemental prospectus under Rule 424(c) under the Securities Act, setting
forth the name of the participating broker-dealer(s), the number of shares
involved, the price at which such shares were sold by the Selling Stockholders,
the commissions paid or discounts or concessions allowed by the Selling
Stockholders to such broker-dealer(s), and where applicable, that such
broker-dealer(s) did not conduct any investigation to verify the information
set out in this Prospectus.
Any securities covered by this Prospectus which qualify for sale pursuant to
Rule 144 under the Securities Act may be sold under that Rule rather than
pursuant to this Prospectus.
There can be no assurances that the Selling Stockholders will sell any or all
of the shares of Common Stock offered hereunder.
SECURITIES TO BE OFFERED
The Shares offered hereby are shares of Common Stock, $.001 par value, of the
Company.
COMPANY COMMON STOCK. Holders of Company Common Stock are entitled to one vote
per share on all matters to be voted upon by the stockholders. The holders of
Company Common Stock are entitled to receive ratably such dividends, if any, as
may be declared from time to time by the Company's Board of Directors (the
"Company Board") out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, the holders of Company
Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidiation preference, if any, of any
outstanding shares of Company Preferred Stock. There are no redemption or
sinking fund provisions applicable to the Company Common Stock. All
outstanding shares of Company Common Stock are fully paid and non-assessable.
COMPANY PREFERRED STOCK. The Company Board has the authority to issue up to
5,000,000 shares of Company Preferred Stock in one or more series and to fix
the rights, preferences, privileges and restrictions granted to or imposed on
any unissued and undesignated shares of Company Preferred Stock and to fix the
number of shares constituting a series and the designations of such series,
without any further vote or action by the stockholders. Although it presently
has no intention to do so, the Company Board, without stockholder approval, can
issue Company Preferred Stock with voting and conversion rights which could
adversely affect the voting power or other rights of the holders of Company
Common Stock. The issuance of Company Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company. The
Company has no present plans to issue Company Preferred Stock.
REGISTRATION RIGHTS. Pursuant to an agreement between the Company and a small
number of holders (or their permitted transferees) ("Holders") of a limited
amount of Company Common Stock, the Holders are entitled to certain rights with
respect to the registration of such shares under the Securities Act. If the
Company proposes to register any of its securities under the Securities Act,
either for its own account or for the account of other security holders, the
Holders are entitled to notice of the registration and are entitled to include,
at the Company's expense, such shares therein, provided, among other
conditions, that the underwriters have the right to limit the number of such
shares included in the registration. In addition, certain of the Holders may
require the Company at its expense on not more than two occasions, to file a
registration statement under the Securities Act with respect to their shares of
Company Common Stock, and the Company is required to use its best efforts to
effect the registration, subject to certain restrictions and limitations.
Further, certain of the Holders may require the Company, at its expense, to
register their shares on a Registration Statement on Form S-3 when such form
becomes available to the Company, subject to certain conditions and
limitations.
INFORMATION INCORPORATED BY REFERENCE
There are hereby incorporated by reference into this Registration Statement and
into the Prospectus relating to this Registration Statement pursuant to Rule
428 the following documents and information heretofore filed with the
Commission:
1. The Company's Registration Statement on Form S-1 (File No. 03397230) under
the Securities Act, in the form declared effective on November 13, 1995.
2. The description of the Company's Common Stock contained in the Company's
Registration Statement on Form 8-A (File No. 00026832) as filed with the
Commission on September 22, 1995, filed pursuant to Section 12 of the Exchange
Act.
3. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
4. The Company's Quarterly Report on Form 10-Q for the quarters ended March
31, 1997, June 30, 1997, and September 30, 1997.
5. The Registration Statement on Form S-4, filed with the Commission on
November 4, 1997.
6. The Current Report on Form 8-K filed with the Commission on October 6,
1997.
7. The Current Report on Form 8-K filed with the Commission on December 10,
1997.
8. All reports and other documents filed by the Company pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act, after the date hereof, and
prior to the filing of a post-effective amendment which indicates that all
securities offered have been sold or which deregisters all securities then
remaining unsold, shall be deemed to be incorporated by reference herein and to
be part of this registration statement from the date of filing of such reports
and documents.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed upon
for the Company by Cooley Godward LLP, Palo Alto, California. Andrei M.
Manoliu, Ph.D., a partner of Cooley Godward LLP, is the Secretary of the
Company.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Annual Report of the Company on Form 10-K for the year ended
December 31, 1996 and for each of the three years ended December 31, 1996 have
been so incorporated in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
The stock options to be registered hereunder have been assumed by the Company
pursuant to an Agreement and Plan of Merger and Reorganization, dated as of
September 28, 1997, among the Company, SAC Acquisition Corporation, a Delaware
corporation and wholly-owned subsidiary of the Company, and CompuRAD, Inc., a
Delaware corporation ("CompuRAD"). The options were originally granted to
employees and consultants of CompuRAD under its 1996 Stock Plan and Stock
Option Plan.
Item 3. Incorporation Of Documents By Reference
The following documents filed by the Company with the Commission are
incorporated by reference into this Registration Statement:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, including all material incorporated by reference therein;
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, including all material incorporated by reference therein;
(c) The Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, including all material incorporated by reference therein;
(d) The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1997, including all material incorporated by reference therein;
(e) The Company's Current Report on Form 8-K filed with the Commission on
October 6, 1997;
(f) The Company's Current Report on Form 8-K filed with the Commission on
December 10, 1997; and
(g) The description of the Company's Common Stock contained in the
Registration Statement on Form S-4 filed with the Commission on November 4,
1997.
All reports and other documents subsequently filed by Lumisys pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act Exchange Act prior to
the filing of a post-effective amendment which indicates that all securities
offered have been sold or which deregisters all securities then remaining
unsold, shall be deemed to be incorporated by reference herein and to be a part
of this registration statement from the date of the filing of such reports and
documents.
Item 4. Description of Securities
Not applicable.
Item 5. Interests of Named Experts and Counsel
The validity of the shares of Common Stock offered hereby will be passed upon
for the Company by Cooley Godward LLP, Palo Alto, California. Andrei M.
Manoliu, Ph.D., a partner of Cooley Godward LLP, is the Secretary of the
Company.
Item 6. Indemnification of Directors and Officers
Under Section 145 of the Delaware General Corporation Law, the Company has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Act. The
Company's Bylaws also provide that the Company will indemnify its directors and
executive officers and may indemnify its other officers, employees and other
agents to the fullest extent not prohibited by Delaware law.
The Company's Certificate of Incorporation provides for the elimination of
liability for monetary damages for breach of the directors' fiduciary duty of
care to the Company and its stockholders. These provisions do not eliminate
the directors' duty of care and, in appropriate circumstances, equitable
remedies such as injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Company, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision does not affect a director's responsibilities under any
other laws, such as the federal securities laws or state or federal
environmental laws.
The Company has entered into agreements with its directors and executive
officers that require the Company to indemnify such persons against expenses,
judgments, fines, settlements and other amounts actually and reasonably
incurred (including expenses of a derivative action) in connection with any
proceeding, whether actual or threatened, to which any such person may be made
a party by reason of the fact that such person is or was a director or officer
of the Company or any of its affiliated enterprises, provided such person acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to be best interests of the Company and, with respect to any criminal
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The indemnification agreements also set forth certain procedures that will
apply in the event of a claim for indemnification thereunder.
Item 7. Exemption from Registration Claimed
The 2515 shares to be reoffered or resold pursuant to this Registration
Statement (the "Securities"), were issued in a transaction exempt from
registration pursuant to Section 4(2) of the Securities Act, based on the
following facts: such shares were issued only to twelve persons who (i)
acquired such shares for investment purposes only (ii) are or had been
employees of CompuRAD, a wholly owned subsidiary of the Company, holding
positions in CompuRAD such as midlevel salespersons, administrators and
engineers and (iii) based on their employment with CompuRAD and their past
experience, had sufficient knowledge and experience in financial and business
matters that they were capable of evaluating the merits and risks of the
investment.
The Securities were issued when securities of CompuRAD were converted by
operation of law into Company Common Stock pursuant to the terms of an
Agreement and Plan of Merger and Reorganization entered into by the Company and
CompuRAD (pursuant to which a wholly owned subsidiary of the Company merged
with and into CompuRAD and CompuRAD became a wholly owned subsidiary of the
Company (the "Merger")). The CompuRAD securities originally issued to the
holders of the Securities were issued immediately prior to the consummation of
the Merger under the terms of an employee stock purchase plan of CompuRAD.
These securities were not, therefore, outstanding on the record date for the
CompuRAD stockholder vote on the Merger and holders of such securities could
not vote them in connection with the Merger.
Item 8. Exhibits
Exhibit
Number Description
5.1 Opinion of Cooley Godward LLP.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24 Power of Attorney is contained on the signature pages.
99.1 CompuRAD, Inc. 1996 Stock Plan, Form of Notice of Stock Option Grant.
99.2 CompuRAD, Inc. Stock Option Plan, Form of Notice of Stock Option Grant.
99.3 Prospectus for Options Granted Under the CompuRAD, Inc. 1996 Stock Plan
assumed by Lumisys Incorporated.
99.4 Prospectus for Options Granted Under the CompuRAD, Inc. Stock Option
Plan assumed by Lumisys Incorporated.
Item 9. Undertakings
The undersigned registrant hereby undertakes:
To file, during any period in which offers or sales are being made, a post-
effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
commission pursuant to Rule 424(b) (section 230.424(b) of this
chapter) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
PROVIDED, HOWEVER, that paragraphs (a)(i) and (a)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8 and the information required
to be included in a post-effective amendment by those paragraphs is contained
in periodic reports filed by the issuer pursuant to Section 13 or Section 15(d)
of the Exchange Act that are incorporated by reference in the registration
statement.
That, for the purpose of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
To remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act, each filing of the registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the Registration Statement shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the provisions described in Item 6 above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, 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
Securities Act and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-8 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Sunnyvale, State of California, on
December 12, 1997.
LUMISYS INCORPORATED
By:/s/ Stephen J. Weiss
-------------------------
Stephen J. Weiss
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen J. Weiss and Craig L. Klosterman, and
each or any one of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents, or any of them, or their or his substitutes or substitute,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons and in the
capacities and on the dates indicated.
Signature Title Date
/s/Stephen J. Weiss Chief Executive Officer December 12, 1997
- ----------------------- and Director
Stephen J. Weiss (Principal Executive Officer)
/s/ Phillip Berman President and Director December 12, 1997
- ----------------------- (Principal Executive Officer)
Dr. Phillip Berman
/s/ Craig L. Klosterman Chief Operating and Chief December 12, 1997
- ----------------------- Financial Officer
Craig L. Klosterman (Principal Financial Officer)
/s/ Dean MacIntosh Vice President, Finance December 12, 1997
- ----------------------- (Principal Accounting Officer)
Dean MacIntosh
/s/ Douglas DeVivo Director December 12, 1997
- -----------------------
Douglas DeVivo, PhD.
/s/ C. Richard Kramlich Director December 12, 1997
- -----------------------
C. Richard Kramlich
/s/ Matthew Miller Director December 12, 1997
- -----------------------
Matthew Miller, PhD.
/s/ Austin E. Vanieri Director December 12, 1997
- -----------------------
Austin E. Vanchieri
/s/ David Lapan Director December 12, 1997
- -----------------------
Dr. David Lapan
EXHIBIT INDEX
Exhibit Description
Number
- ------- --------------------------------------------------------------------
5.1 Opinion of Cooley Godward LLP.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24 Power of Attorney is contained on the signature pages.
99.1 CompuRAD, Inc. 1996 Stock Plan, Form of Notice of Stock Option Grant.
99.2 CompuRAD, Inc. Stock Option Plan, Form of Notice of Stock Option
Grant.
99.3 Prospectus for Options Granted Under the CompuRAD, Inc. 1996 Stock
Plan
assumed by Lumisys Incorporated.
99.4 Prospectus for Options Granted Under the CompuRAD, Inc. Stock Option
Plan assumed by Lumisys Incorporated.
EXHIBIT 5.1
ATTORNEYS AT LAW SAN FRANCISCO, CA
415 693-2000
FIVE PALO ALTO SQUARE MENLO PARK, CA
3000 EL CAMINO REAL 415 843-5000
PALO ALTO, CA SAN DIEGO, CA
94306-2155 619 550-6000
MAIN 415 843-5000 BOULDER, CO
FAX 415 857-0663 303 546-4000
WEB HTTP://WWW.COOLEY.COM DENVER, CO
303 606-4800
December 11, 1997
Lumisys Incorporated
225 Humboldt Court
Sunnyvale, CA 94089
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Lumisys Incorporated (the "Company") of a Registration
Statement on Form S-8 and Form S-3 on or about December 11, 1997 (the
"Registration Statement") with the Securities and Exchange Commission covering
the offering of up to four hundred four thousand two hundred seventy five
(402,275) shares of the Company's Common Stock, $.001 par value per share (i)
issuable upon exercise of options originally granted by CompuRAD, Inc., a
wholly-owned subsidiary of the Company, under its 1996 Stock Plan and Stock
Option Plan (the "Plans")(the "Option Shares"), and (ii) issued pursuant to the
CompuRAD Employee Stock Purchase Plan (the "Stock Purchase Shares").
In connection with this opinion, we have examined the Registration Statement,
your Certificate of Incorporation and Bylaws, as amended, and such other
documents, records, certificates, memoranda and other instruments as we deem
necessary as a basis for this opinion. We have assumed the genuineness and
authenticity of all documents submitted to us as originals, the conformity to
originals of all documents submitted to us as copies thereof, and the due
execution and delivery of all documents where due execution and delivery are a
prerequisite to the effectiveness thereof.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Option Shares, when sold and issued in accordance with the Plans and
the Registration Statement, will be, and the Stock Purchase Shares are, validly
issued, fully paid, and nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
Cooley Godward LLP
Andrei M. Manoliu
EXHIBIT 23.1
Consent of Independent Public Accountants
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 and the Prospectus constituting part of this
Registration Statement on Form S-3 of our report dated January 22, 1997
appearing on page 19 of Lumisys Incorporated's Annual Report on Form 10-K for
the year ended December 31, 1996. We also consent to the reference to us
under the heading "Experts" in such Prospectus constituting part of this
Registration Statement on Form S-3.
PRICE WATERHOUSE LLP
San Jose, California
December 10, 1997
EXHIBIT 99.1
COMPURAD, INC.
1996 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are:
- to attract and retain the best available personnel for positions of
substantial responsibility,
- to provide additional incentive to Employees, Directors and Consultants,
and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Administrator at the time of grant. Stock
Purchase Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
a. "Administrator" means the Board or any of its Committees as shall be
administering the Plan, in accordance with Section 4 of the Plan.
b. "Applicable Laws" means the requirements relating to the administration of
stock option plans under U. S. state corporate laws, U.S. federal and state
securities laws, the Code, any stock exchange or quotation system on which the
Common Stock is listed or quoted and the applicable laws of any foreign
country or jurisdiction where Options or Stock Purchase Rights are, or will
be, granted under the Plan.
c. "Board" means the Board of Directors of the Company.
d. "Code" means the Internal Revenue Code of 1986, as amended.
e. "Committee" means a committee of Directors appointed by the Board in
accordance with Section 4 of the Plan.
f. "Common Stock" means the Common Stock of the Company.
g. "Company" means CompuRAD, Inc., a Delaware corporation.
h. "Consultant" means any person, including an advisor, engaged by the
Company or a Parent or Subsidiary to render services to such entity.
i. "Director" means a member of the Board.
j. "Disability" means total and permanent disability as defined in Section
22(e)(3) of the Code.
k. "Employee" means any person, including Officers and Directors, employed by
the Company or any Parent or Subsidiary of the Company. A Service Provider
shall not cease to be an Employee in the case of (i) any leave of absence
approved by the Company or (ii) transfers between locations of the Company or
between the Company, its Parent, any Subsidiary, or any successor. For
purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by
the Company is not so guaranteed, on the 181st day of such leave any Incentive
Stock Option held by the Optionee shall cease to be treated as an Incentive
Stock Option and shall be treated for tax purposes as a Nonstatutory Stock
Option. Neither service as a Director nor payment of a director's fee by the
Company shall be sufficient to constitute "employment" by the Company.
l. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
m. "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
- If the Common Stock is listed on any established stock exchange or a
national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair
Market Value shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such exchange or system for the
last market trading day prior to the time of determination, as reported in The
Wall Street Journal or such other source as the Administrator deems reliable;
- If the Common Stock is regularly quoted by a recognized securities
dealer but selling prices are not reported, the Fair Market Value of a Share
of Common Stock shall be the mean between the high bid and low asked prices
for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
- In the absence of an established market for the Common Stock, the Fair
Market Value shall be determined in good faith by the Administrator.
n. "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
o. "Nonstatutory Stock Option" means an Option not intended to qualify as an
Incentive Stock Option.
p. "Notice of Grant" means a written or electronic notice evidencing certain
terms and conditions of an individual Option or Stock Purchase Right grant.
The Notice of Grant is part of the Option Agreement.
q. "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
r. "Option" means a stock option granted pursuant to the Plan.
s. "Option Agreement" means an agreement between the Company and an Optionee
evidencing the terms and conditions of an individual Option grant. The Option
Agreement is subject to the terms and conditions of the Plan.
t. "Option Exchange Program" means a program whereby outstanding options are
surrendered in exchange for options with a lower exercise price.
u. "Optioned Stock" means the Common Stock subject to an Option or Stock
Purchase Right.
v. "Optionee" means the holder of an outstanding Option or Stock Purchase
Right granted under the Plan.
w. "Parent" means a "parent corporation," whether now or hereafter existing,
as defined in Section 424(e) of the Code.
x. "Plan" means this 1996 Stock Plan.
y. "Restricted Stock" means shares of Common Stock acquired pursuant to a
grant of Stock Purchase Rights under Section 11 below.
z. "Restricted Stock Purchase Agreement" means a written agreement between
the Company and the Optionee evidencing the terms and restrictions applying to
stock purchased under a Stock Purchase Right. The Restricted Stock Purchase
Agreement is subject to the terms and conditions of the Plan and the Notice of
Grant.
aa. "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
ab. "Section 16(b)" means Section 16(b) of the Exchange Act.
ac. "Service Provider" means an Employee, Director or Consultant.
ad. "Share" means a share of the Common Stock, as adjusted in accordance with
Section 13 of the Plan.
ae. "Stock Purchase Right" means the right to purchase Common Stock pursuant
to Section 11 of the Plan, as evidenced by a Notice of Grant.
af. "Subsidiary" means a "subsidiary corporation", whether now or hereafter
existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of the
Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 400,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable without
having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued
under the Plan, whether upon exercise of an Option or Right, shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if Shares of Restricted Stock are repurchased by
the Company at their original purchase price, such Shares shall become
available for future grant under the Plan.
4. Administration of the Plan.
a. Procedure.
- Multiple Administrative Bodies. The Plan may be administered by
different Committees with respect to different groups of Service Providers.
- Section 162(m). To the extent that the Administrator determines it to
be desirable to qualify Options granted hereunder as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the Plan shall
be administered by a Committee of two or more "outside directors" within the
meaning of Section 162(m) of the Code.
- Rule 16b-3. To the extent desirable to qualify transactions hereunder
as exempt under Rule 16b-3, the transactions contemplated hereunder shall be
structured to satisfy the requirements for exemption under Rule 16b-3.
- Other Administration. Other than as provided above, the Plan shall
be administered by (A) the Board or (B) a Committee, which committee shall be
constituted to satisfy Applicable Laws.
b. Powers of the Administrator. Subject to the provisions of the Plan, and
in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
- to determine the Fair Market Value;
- to select the Service Providers to whom Options and Stock Purchase
Rights may be granted hereunder;
- to determine the number of shares of Common Stock to be covered by
each Option and Stock Purchase Right granted hereunder;
- to approve forms of agreement for use under the Plan;
- to determine the terms and conditions, not inconsistent with the terms
of the Plan, of any Option or Stock Purchase Right granted hereunder. Such
terms and conditions include, but are not limited to, the exercise price, the
time or times when Options or Stock Purchase Rights may be exercised (which
may be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any
Option or Stock Purchase Right or the shares of Common Stock relating thereto,
based in each case on such factors as the Administrator, in its sole
discretion, shall determine;
- to reduce the exercise price of any Option or Stock Purchase Right to
the then current Fair Market Value if the Fair Market Value of the Common
Stock covered by such Option or Stock Purchase Right shall have declined since
the date the Option or Stock Purchase Right was granted;
- to institute an Option Exchange Program;
- to construe and interpret the terms of the Plan and awards granted
pursuant to the Plan;
- to prescribe, amend and rescind rules and regulations relating to the
Plan, including rules and regulations relating to sub-plans established for
the purpose of qualifying for preferred tax treatment under foreign tax laws;
- to modify or amend each Option or Stock Purchase Right (subject to
Section 15(c) of the Plan), including the discretionary authority to extend
the post-termination exercisability period of Options longer than is otherwise
provided for in the Plan;
- to allow Optionees to satisfy withholding tax obligations by electing
to have the Company withhold from the Shares to be issued upon exercise of an
Option or Stock Purchase Right that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of
the Shares to be withheld shall be determined on the date that the amount of
tax to be withheld is to be determined. All elections by an Optionee to have
Shares withheld for this purpose shall be made in such form and under such
conditions as the Administrator may deem necessary or advisable;
- to authorize any person to execute on behalf of the Company any
instrument required to effect the grant of an Option or Stock Purchase Right
previously granted by the Administrator;
- to make all other determinations deemed necessary or advisable for
administering the Plan.
c. Effect of Administrator's Decision. The Administrator's decisions,
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
a. Each Option shall be designated in the Option Agreement as either an
Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
b. Neither the Plan nor any Option or Stock Purchase Right shall confer upon
an Optionee any right with respect to continuing the Optionee's relationship
as a Service Provider with the Company, nor shall they interfere in any way
with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
c. The following limitations shall apply to grants of Options:
- No Service Provider shall be granted, in any fiscal year of the
Company, Options to purchase more than 200,000 Shares.
- In connection with his or her initial service, a Service Provider may
be granted Options to purchase up to an additional 150,000 Shares which shall
not count against the limit set forth in subsection (i) above.
- The foregoing limitations shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 13.
- If an Option is cancelled in the same fiscal year of the Company in
which it was granted (other than in connection with a transaction described in
Section 13), the cancelled Option will be counted against the limits set forth
in subsections (i) and (ii) above. For this purpose, if the exercise price of
an Option is reduced, the transaction will be treated as a cancellation of the
Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become
effective upon its adoption by the Board. It shall continue in effect for a
term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be provided
in the Option Agreement. Moreover, in the case of an Incentive Stock Option
granted to an Optionee who, at the time the Incentive Stock Option is granted,
owns stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
a. Exercise Price. The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be determined by the Administrator,
subject to the following:
- In the case of an Incentive Stock Option
A. granted to an Employee who, at the time the Incentive Stock
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
B. granted to any Employee other than an Employee described in
paragraph (A) immediately above, the per Share exercise price shall be no less
than 100% of the Fair Market Value per Share on the date of grant.
- In the case of a Nonstatutory Stock Option, the per Share exercise
price shall be determined by the Administrator. In the case of a Nonstatutory
Stock Option intended to qualify as "performance-based compensation" within
the meaning of Section 162(m) of the Code, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
- Notwithstanding the foregoing, Options may be granted with a per Share
exercise price of less than 100% of the Fair Market Value per Share on the
date of grant pursuant to a merger or other corporate transaction.
b. Waiting Period and Exercise Dates. At the time an Option is granted, the
Administrator shall fix the period within which the Option may be exercised
and shall determine any conditions which must be satisfied before the Option
may be exercised.
c. Form of Consideration. The Administrator shall determine the acceptable
form of consideration for exercising an Option, including the method of
payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
- cash;
- check;
- promissory note;
- other Shares which (A) in the case of Shares acquired upon exercise of
an option, have been owned by the Optionee for more than six months on the
date of surrender, and (B) have a Fair Market Value on the date of surrender
equal to the aggregate exercise price of the Shares as to which said Option
shall be exercised;
- consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan;
- a reduction in the amount of any Company liability to the Optionee,
including any liability attributable to the Optionee's participation in any
Company-sponsored deferred compensation program or arrangement;
- any combination of the foregoing methods of payment; or
- such other consideration and method of payment for the issuance of
Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
a. Procedure for Exercise; Rights as a Shareholder. Any Option granted
hereunder shall be exercisable according to the terms of the Plan and at such
times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave
of absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i) written or
electronic notice of exercise (in accordance with the Option Agreement) from
the person entitled to exercise the Option, and (ii) full payment for the
Shares with respect to which the Option is exercised. Full payment may
consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares
issued upon exercise of an Option shall be issued in the name of the Optionee
or, if requested by the Optionee, in the name of the Optionee and his or her
spouse. Until the Shares are issued (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. The Company shall issue (or cause to be issued)
such Shares promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the Shares are issued, except as provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
b. Termination of Relationship as a Service Provider. If an Optionee ceases
to be a Service Provider, other than upon the Optionee's death or Disability,
the Optionee may exercise his or her Option within such period of time as is
specified in the Option Agreement to the extent that the Option is vested on
the date of termination (but in no event later than the expiration of the term
of such Option as set forth in the Option Agreement). In the absence of a
specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option
within the time specified by the Administrator, the Option shall terminate,
and the Shares covered by such Option shall revert to the Plan.
c. Disability of Optionee. If an Optionee ceases to be a Service Provider as
a result of the Optionee's Disability, the Optionee may exercise his or her
Option within such period of time as is specified in the Option Agreement to
the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the
Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by
the unvested portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
d. Death of Optionee. If an Optionee dies while a Service Provider, the
Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of
such Option as set forth in the Notice of Grant), by the Optionee's estate or
by a person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to his
or her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the
person(s) entitled to exercise the Option under the Optionee's will or the
laws of descent or distribution. If the Option is not so exercised within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
e. Buyout Provisions. The Administrator may at any time offer to buy out for
a payment in cash or Shares, an Option previously granted based on such terms
and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Purchase Rights.
a. Rights to Purchase. Stock Purchase Rights may be issued either alone, in
addition to, or in tandem with other awards granted under the Plan and/or cash
awards made outside of the Plan. After the Administrator determines that it
will offer Stock Purchase Rights under the Plan, it shall advise the offeree
in writing or electronically, by means of a Notice of Grant, of the terms,
conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid,
and the time within which the offeree must accept such offer. The offer shall
be accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
b. Repurchase Option. Unless the Administrator determines otherwise, the
Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
c. Other Provisions. The Restricted Stock Purchase Agreement shall contain
such other terms, provisions and conditions not inconsistent with the Plan as
may be determined by the Administrator in its sole discretion.
d. Rights as a Shareholder. Once the Stock Purchase Right is exercised, the
purchaser shall have the rights equivalent to those of a shareholder, and
shall be a shareholder when his or her purchase is entered upon the records of
the duly authorized transfer agent of the Company. No adjustment will be made
for a dividend or other right for which the record date is prior to the date
the Stock Purchase Right is exercised, except as provided in Section 13 of the
Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right
may not be sold, pledged, assigned, hypothecated, transferred, or disposed of
in any manner other than by will or by the laws of descent or distribution and
may be exercised, during the lifetime of the Optionee, only by the Optionee.
If the Administrator makes an Option or Stock Purchase Right transferable,
such Option or Stock Purchase Right shall contain such additional terms and
conditions as the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset
Sale.
a. Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or
Stock Purchase Right, as well as the price per share of Common Stock covered
by each such outstanding Option or Stock Purchase Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option or Stock Purchase Right.
b. Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, the Administrator shall notify each Optionee as
soon as practicable prior to the effective date of such proposed transaction.
The Administrator in its discretion may provide for an Optionee to have the
right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares
as to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall
lapse as to all such Shares, provided the proposed dissolution or liquidation
takes place at the time and in the manner contemplated. To the extent it has
not been previously exercised, an Option or Stock Purchase Right will
terminate immediately prior to the consummation of such proposed action.
c. Merger or Asset Sale. In the event of a merger of the Company with or
into another corporation, or the sale of substantially all of the assets of
the Company, each outstanding Option and Stock Purchase Right shall be assumed
or an equivalent option or right substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Option or Stock
Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable.
If an Option or Stock Purchase Right becomes fully vested and exercisable in
lieu of assumption or substitution in the event of a merger or sale of assets,
the Administrator shall notify the Optionee in writing or electronically that
the Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For
the purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned
Stock subject to the Option or Stock Purchase Right immediately prior to the
merger or sale of assets, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets by holders of
Common Stock for each Share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares); provided,
however, that if such consideration received in the merger or sale of assets
is not solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or
Stock Purchase Right, to be solely common stock of the successor corporation
or its Parent equal in fair market value to the per share consideration
received by holders of Common Stock in the merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other
later date as is determined by the Administrator. Notice of the determination
shall be provided to each Optionee within a reasonable time after the date of
such grant.
15. Amendment and Termination of the Plan.
a. Amendment and Termination. The Board may at any time amend, alter,
suspend or terminate the Plan.
b. Shareholder Approval. The Company shall obtain shareholder approval of
any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.
c. Effect of Amendment or Termination. No amendment, alteration, suspension
or termination of the Plan shall impair the rights of any Optionee, unless
mutually agreed otherwise between the Optionee and the Administrator, which
agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to
exercise the powers granted to it hereunder with respect to options granted
under the Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
a. Legal Compliance. Shares shall not be issued pursuant to the exercise of
an Option or Stock Purchase Right unless the exercise of such Option or Stock
Purchase Right and the issuance and delivery of such Shares shall comply with
Applicable Laws and shall be further subject to the approval of counsel for
the Company with respect to such compliance.
b. Investment Representations. As a condition to the exercise of an Option
or Stock Purchase Right, the Company may require the person exercising such
Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan
is adopted. Such shareholder approval shall be obtained in the manner and to
the degree required under Applicable Laws.
1996 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted _________________________
Total Exercise Price $_________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest each month thereafter, subject to the Optionee continuing to be a Service
Provider on such dates.
Termination Period:
This Option may be exercised for 30 days after Optionee ceases to be a Service
Provider. Upon the death or Disability of the Optionee, this Option may be
exercised for such longer period as provided in the Plan. In no event shall
this Option be exercised later than the Term/Expiration Date as provided
above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby grants to
the Optionee named in the Notice of Grant attached as Part I of this Agreement
(the "Optionee") an option (the "Option") to purchase the number of Shares, as
set forth in the Notice of Grant, at the exercise price per share set forth in
the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 15(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option ("ISO"),
this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an
Incentive Stock Option, to the extent that it exceeds the $100,000 rule of
Code Section 422(d) it shall be treated as a Nonstatutory Stock Option
("NSO").
2. Exercise of Option.
a. Right to Exercise. This Option is exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
b. Method of Exercise. This Option is exercisable by delivery of an exercise
notice, in the form attached as Exhibit A (the "Exercise Notice"), which shall
state the election to exercise the Option, the number of Shares in respect of
which the Option is being exercised (the "Exercised Shares"), and such other
representations and agreements as may be required by the Company pursuant to
the provisions of the Plan. The Exercise Notice shall be completed by the
Optionee and delivered to the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the
Company of such fully executed Exercise Notice accompanied by such aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option unless such
issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect
to such Exercised Shares.
3. Method of Payment. Payment of the aggregate Exercise Price shall be by
any of the following, or a combination thereof, at the election of the
Optionee:
a. cash;
b. check;
c. consideration received by the Company under a cashless exercise program
implemented by the Company in connection with the Plan;
d. surrender of other Shares which (i) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six (6)
months on the date of surrender, and (ii) have a Fair Market Value on the date
of surrender equal to the aggregate Exercise Price of the Exercised Shares; or
e. with the Administrator's consent, delivery of Optionee's promissory note
(the "Note") in the form attached hereto as Exhibit C, in the amount of the
aggregate Exercise Price of the Exercised Shares together with the execution
and delivery by the Optionee of the Security Agreement attached hereto as
Exhibit B. The Note shall bear interest at the "applicable federal rate"
prescribed under the Code and its regulations at time of purchase, and shall
be secured by a pledge of the Shares purchased by the Note pursuant to the
Security Agreement.
4. Non-Transferability of Option. This Option may not be transferred in any
manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The
terms of the Plan and this Option Agreement shall be binding upon the
executors, administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term set out
in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal tax consequences relating to this
Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO
CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS
OPTION OR DISPOSING OF THE SHARES.
a. Exercising the Option.
i. Nonstatutory Stock Option. The Optionee may incur regular federal income
tax liability upon exercise of a NSO. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to
the excess, if any, of the Fair Market Value of the Exercised Shares on the
date of exercise over their aggregate Exercise Price. If the Optionee is an
Employee or a former Employee, the Company will be required to withhold from
his or her compensation or collect from Optionee and pay to the applicable
taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
ii. Incentive Stock Option. If this Option qualifies as an ISO, the Optionee
will have no regular federal income tax liability upon its exercise, although
the excess, if any, of the Fair Market Value of the Exercised Shares on the
date of exercise over their aggregate Exercise Price will be treated as an
adjustment to alternative minimum taxable income for federal tax purposes and
may subject the Optionee to alternative minimum tax in the year of exercise.
In the event that the Optionee ceases to be an Employee but remains a Service
Provider, any Incentive Stock Option of the Optionee that remains unexercised
shall cease to qualify as an Incentive Stock Option and will be treated for
tax purposes as a Nonstatutory Stock Option on the date three (3) months and
one (1) day following such change of status.
b. Disposition of Shares.
i. NSO. If the Optionee holds NSO Shares for at least one year, any gain
realized on disposition of the Shares will be treated as long-term capital
gain for federal income tax purposes.
ii. ISO. If the Optionee holds ISO Shares for at least one year after
exercise and two years after the grant date, any gain realized on disposition
of the Shares will be treated as long-term capital gain for federal income tax
purposes. If the Optionee disposes of ISO Shares within one year after
exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the
difference between the Fair Market Value of the Shares acquired on the date of
exercise and the aggregate Exercise Price, or (B) the difference between the
sale price of such Shares and the aggregate Exercise Price. Any additional
gain will be taxed as capital gain, short-term or long-term depending on the
period that the ISO Shares were held.
c. Notice of Disqualifying Disposition of ISO Shares. If the Optionee sells
or otherwise disposes of any of the Shares acquired pursuant to an ISO on or
before the later of (i) two years after the grant date, or (ii) one year after
the exercise date, the Optionee shall immediately notify the Company in
writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
7. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in
their entirety all prior undertakings and agreements of the Company and
Optionee with respect to the subject matter hereof, and may not be modified
adversely to the Optionee's interest except by means of a writing signed by
the Company and Optionee. This agreement is governed by the internal
substantive laws, but not the choice of law rules, of Arizona.
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES THAT
THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY
BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN
DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
By your signature and the signature of the Company's representative below, you
and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option
Agreement. Optionee hereby agrees to accept as binding, conclusive and final
all decisions or interpretations of the Administrator upon any questions
relating to the Plan and Option Agreement. Optionee further agrees to notify
the Company upon any change in the residence address indicated below.
OPTIONEE: COMPURAD, INC.
___________________________________ __________________________________
Signature By
____________________________________ __________________________________
Print Name Title
____________________________________
Residence Address
____________________________________
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the terms and
conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
___________________________________
Spouse of Optionee
EXHIBIT A
1996 STOCK PLAN
EXERCISE NOTICE
CompuRAD, Inc.
1200 N. El Dorado Place
C-300
Tucson, AZ 85715
Attention: Corporate Secretary
1. Exercise of Option. Effective as of today, ________________, 199__, the
undersigned ("Purchaser") hereby elects to purchase ______________ shares (the
"Shares") of the Common Stock of CompuRAD, Inc. (the "Company") under and
pursuant to the 1996 Stock Plan (the "Plan") and the Stock Option Agreement
dated _____________, 19___ (the "Option Agreement"). The purchase price for
the Shares shall be $___________, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the full
purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired
shall be issued to the Optionee as soon as practicable after exercise of the
Option. No adjustment will be made for a dividend or other right for which
the record date is prior to the date of issuance, except as provided in Sec-
tion 13 of the Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer adverse
tax consequences as a result of Purchaser's purchase or disposition of the
Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or dis-
position of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings
and agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except
by means of a writing signed by the Company and Purchaser. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
Arizona.
Submitted by: Accepted by:
PURCHASER: COMPURAD, INC.
__________________________________ __________________________________
Signature By
__________________________________ __________________________________
Print Name Its
Address: Address:
_________________________________ 1200 N. El Dorado Place
C-300
_________________________________ Tucson, AZ 85715
_______________________________
Date Received
EXHIBIT B
SECURITY AGREEMENT
This Security Agreement is made as of __________, 19___ between CompuRAD,
Inc., a Delaware corporation ("Pledgee"), and _________________________
("Pledgor").
Recitals
Pursuant to Pledgor's election to purchase Shares under the Option Agreement
dated ________ (the "Option"), between Pledgor and Pledgee under Pledgee's
1996 Stock Plan, and Pledgor's election under the terms of the Option to pay
for such shares with his promissory note (the "Note"), Pledgor has purchased
_________ shares of Pledgee's Common Stock (the "Shares") at a price of
$________ per share, for a total purchase price of $__________. The Note and
the obligations thereunder are as set forth in Exhibit C to the Option.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of the
transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the Arizona Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number ______, duly endorsed in blank or with executed stock powers, and
herewith delivers said certificate to the Secretary of Pledgee
("Pledgeholder"), who shall hold said certificate subject to the terms and
conditions of this Security Agreement.
The pledged stock (together with an executed blank stock assignment for use in
transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the
Pledgeholder as security for the repayment of the Note, and any extensions or
renewals thereof, to be executed by Pledgor pursuant to the terms of the
Option, and the Pledgeholder shall not encumber or dispose of such Shares
except in accordance with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter into
this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
a. Payment of Indebtedness. Pledgor will pay the principal sum of the Note
secured hereby, together with interest thereon, at the time and in the manner
provided in the Note.
b. Encumbrances. The Shares are free of all other encumbrances, defenses and
liens, and Pledgor will not further encumber the Shares without the prior
written consent of Pledgee.
c. Margin Regulations. In the event that Pledgee's Common Stock is now or
later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the meaning of the regulations under Part 207
of Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor
agrees to cooperate with Pledgee in making any amendments to the Note or
providing any additional collateral as may be necessary to comply with such
regulations.
3. Voting Rights. During the term of this pledge and so long as all payments
of principal and interest are made as they become due under the terms of the
Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge any
stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and
additional shares or other securities issued by reason of any such change
shall be delivered to and held by the Pledgee under the terms of this Security
Agreement in the same manner as the Shares originally pledged hereunder. In
the event of substitution of such securities, Pledgor, Pledgee and
Pledgeholder shall cooperate and execute such documents as are reasonable so
as to provide for the substitution of such Collateral and, upon such sub-
stitution, references to "Shares" in this Security Agreement shall include the
substituted shares of capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this pledge,
subscription Options or other rights or options shall be issued in connection
with the pledged Shares, such rights, Options and options shall be the
property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then
held by Pledgeholder shall be immediately delivered to Pledgeholder, to be
held under the terms of this Security Agreement in the same manner as the
Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and of this
Security Agreement in the event:
a. Payment of principal or interest on the Note shall be delinquent for a
period of 10 days or more; or
b. Pledgor fails to perform any of the covenants set forth in the Option or
contained in this Security Agreement for a period of 10 days after written
notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall have the
right to accelerate payment of the Note upon notice to Pledgor, and Pledgee
shall thereafter be entitled to pursue its remedies under the Arizona
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules under
Regulation G, there shall be released from this pledge a portion of the
pledged Shares held by Pledgeholder hereunder upon payments of the principal
of the Note. The number of the pledged Shares which shall be released shall
be that number of full Shares which bears the same proportion to the initial
number of Shares pledged hereunder as the payment of principal bears to the
initial full principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment of all
indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release
of a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency proceeding
is instituted by or against it, or if a receiver is appointed for the property
of Pledgor, or if Pledgor makes an assignment for the benefit of creditors,
the entire amount unpaid on the Note shall become immediately due and payable,
and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross negligence,
Pledgeholder shall not be liable to any party for any of his acts, or
omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that the
enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the terms
of this Security Agreement shall be binding on their respective successors and
assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and governed
under the internal substantive laws, but not the choice of law rules, of
Arizona.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
"PLEDGOR" _________________________________
Signature
_________________________________
Print Name
Address: _________________________________
_________________________________
"PLEDGEE" COMPURAD, INC.,
a Delaware corporation
________________________________
Signature
________________________________
Print Name
________________________________
Title
"PLEDGEHOLDER" ________________________________
Corporate Secretary
CompuRAD, Inc.
EXHIBIT C
NOTE
$_______________ [City, State]
______________, 19___
FOR VALUE RECEIVED, _______________ promises to pay to CompuRAD, Inc., a
Delaware corporation (the "Company"), or order, the principal sum of
_______________________ ($_____________), together with interest on the unpaid
principal hereof from the date hereof at the rate of _______________ percent
(____%) per annum, compounded semiannually.
Principal and interest shall be due and payable on __________, 19___. Should
the undersigned fail to make full payment of principal or interest for a
period of 10 days or more after the due date thereof, the whole unpaid balance
on this Note of principal and interest shall become immediately due at the
option of the holder of this Note. Payments of principal and interest shall
be made in lawful money of the United States of America.
The undersigned may at any time prepay all or any portion of the principal or
interest owing hereunder.
This Note is subject to the terms of the Option, dated as of ________________.
This Note is secured in part by a pledge of the Company's Common Stock under
the terms of a Security Agreement of even date herewith and is subject to all
the provisions thereof.
The holder of this Note shall have full recourse against the undersigned, and
shall not be required to proceed against the collateral securing this Note in
the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of
the Company, be accelerated, and the whole unpaid balance on this Note of
principal and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by
the undersigned.
____________________________________
____________________________________
1996 STOCK PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Notice of Grant.
[Grantee's Name and Address]
You have been granted the right to purchase Common Stock of the Company,
subject to the Company's Repurchase Option and your ongoing status as a
Service Provider (as described in the Plan and the attached Restricted Stock
Purchase Agreement), as follows:
Grant Number _________________________
Date of Grant _________________________
Price Per Share $_________________________
Total Number of Shares Subject _________________________
to This Stock Purchase Right
Expiration Date: _________________________
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE OR IT
WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES. By
your signature and the signature of the Company's representative below, you
and the Company agree that this Stock Purchase Right is granted under and
governed by the terms and conditions of the 1996 Stock Plan and the Restricted
Stock Purchase Agreement, attached hereto as Exhibit A-1, both of which are
made a part of this document. You further agree to execute the attached
Restricted Stock Purchase Agreement as a condition to purchasing any shares
under this Stock Purchase Right.
GRANTEE: COMPURAD, INC.
___________________________ ________________________________
Signature By
___________________________ ________________________________
Print Name Title
EXHIBIT A-1
1996 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is an
Service Provider, and the Purchaser's continued participation is considered by
the Company to be important for the Company's continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an equity
interest in the Company as an incentive for the Purchaser to participate in
the affairs of the Company, the Administrator has granted to the Purchaser a
Stock Purchase Right subject to the terms and conditions of the Plan and the
Notice of Grant, which are incorporated herein by reference, and pursuant to
this Restricted Stock Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser and the
Purchaser hereby agrees to purchase shares of the Company's Common Stock (the
"Shares"), at the per Share purchase price and as otherwise described in the
Notice of Grant.
2. Payment of Purchase Price. The purchase price for the Shares may be paid
by delivery to the Company at the time of execution of this Agreement of cash,
a check, or some combination thereof.
3. Repurchase Option.
a. In the event the Purchaser ceases to be a Service Provider for any or no
reason (including death or disability) before all of the Shares are released
from the Company's Repurchase Option (see Section 4), the Company shall, upon
the date of such termination (as reasonably fixed and determined by the
Company) have an irrevocable, exclusive option (the "Repurchase Option") for a
period of sixty (60) days from such date to repurchase up to that number of
shares which constitute the Unreleased Shares (as defined in Section 4) at the
original purchase price per share (the "Repurchase Price"). The Repurchase
Option shall be exercised by the Company by delivering written notice to the
Purchaser or the Purchaser's executor (with a copy to the Escrow Holder) AND,
at the Company's option, (i) by delivering to the Purchaser or the Purchaser's
executor a check in the amount of the aggregate Repurchase Price, or (ii) by
cancelling an amount of the Purchaser's indebtedness to the Company equal to
the aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so
that the combined payment and cancellation of indebtedness equals the
aggregate Repurchase Price. Upon delivery of such notice and the payment of
the aggregate Repurchase Price, the Company shall become the legal and
beneficial owner of the Shares being repurchased and all rights and interests
therein or relating thereto, and the Company shall have the right to retain
and transfer to its own name the number of Shares being repurchased by the
Company.
b. Whenever the Company shall have the right to repurchase Shares hereunder,
the Company may designate and assign one or more employees, officers,
directors or shareholders of the Company or other persons or organizations to
exercise all or a part of the Company's purchase rights under this Agreement
and purchase all or a part of such Shares. If the Fair Market Value of the
Shares to be repurchased on the date of such designation or assignment (the
"Repurchase FMV") exceeds the aggregate Repurchase Price of such Shares, then
each such designee or assignee shall pay the Company cash equal to the
difference between the Repurchase FMV and the aggregate Repurchase Price of
such Shares.
4. Release of Shares From Repurchase Option.
a. _______________________ percent (______%) of the Shares shall be released
from the Company's Repurchase Option one year after the Date of Grant and
__________________ percent (______%) of the Shares [at the end of each month
thereafter], provided that the Purchaser does not cease to be a Service
Provider prior to the date of any such release.
b. Any of the Shares that have not yet been released from the Repurchase
Option are referred to herein as "Unreleased Shares."
c. The Shares that have been released from the Repurchase Option shall be
delivered to the Purchaser at the Purchaser's request (see Section 6).
5. Restriction on Transfer. Except for the escrow described in Section 6 or
the transfer of the Shares to the Company or its assignees contemplated by
this Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until such Shares
are released from the Company's Repurchase Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
6. Escrow of Shares.
a. To ensure the availability for delivery of the Purchaser's Unreleased
Shares upon repurchase by the Company pursuant to the Repurchase Option, the
Purchaser shall, upon execution of this Agreement, deliver and deposit with an
escrow holder designated by the Company (the "Escrow Holder") the share
certificates representing the Unreleased Shares, together with the stock
assignment duly endorsed in blank, attached hereto as Exhibit A-2. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to the Joint Escrow Instructions of the Company and Purchaser
attached hereto as Exhibit A-3, until such time as the Company's Repurchase
Option expires. As a further condition to the Company's obligations under
this Agreement, the Company may require the spouse of Purchaser, if any, to
execute and deliver to the Company the Consent of Spouse attached hereto as
Exhibit A-4.
b. The Escrow Holder shall not be liable for any act it may do or omit to do
with respect to holding the Unreleased Shares in escrow while acting in good
faith and in the exercise of its judgment.
c. If the Company or any assignee exercises the Repurchase Option hereunder,
the Escrow Holder, upon receipt of written notice of such exercise from the
proposed transferee, shall take all steps necessary to accomplish such
transfer.
d. When the Repurchase Option has been exercised or expires unexercised or a
portion of the Shares has been released from the Repurchase Option, upon
request the Escrow Holder shall promptly cause a new certificate to be issued
for the released Shares and shall deliver the certificate to the Company or
the Purchaser, as the case may be.
e. Subject to the terms hereof, the Purchaser shall have all the rights of a
shareholder with respect to the Shares while they are held in escrow,
including without limitation, the right to vote the Shares and to receive any
cash dividends declared thereon. If, from time to time during the term of the
Repurchase Option, there is (i) any stock dividend, stock split or other
change in the Shares, or (ii) any merger or sale of all or substantially all
of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.
7. Legends. The share certificate evidencing the Shares, if any, issued
hereunder shall be endorsed with the following legend (in addition to any
legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS
UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT BETWEEN
THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY
OF THE COMPANY.
8. Adjustment for Stock Split. All references to the number of Shares and
the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
9. Tax Consequences. The Purchaser has reviewed with the Purchaser's own tax
advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Purchaser
is relying solely on such advisors and not on any statements or
representations of the Company or any of its agents. The Purchaser
understands that the Purchaser (and not the Company) shall be responsible for
the Purchaser's own tax liability that may arise as a result of the
transactions contemplated by this Agreement. The Purchaser understands that
Section 83 of the Internal Revenue Code of 1986, as amended (the "Code"),
taxes as ordinary income the difference between the purchase price for the
Shares and the Fair Market Value of the Shares as of the date any restrictions
on the Shares lapse. In this context, "restriction" includes the right of the
Company to buy back the Shares pursuant to the Repurchase Option. The
Purchaser understands that the Purchaser may elect to be taxed at the time the
Shares are purchased rather than when and as the Repurchase Option expires by
filing an election under Section 83(b) of the Code with the IRS within 30 days
from the date of purchase. The form for making this election is attached as
Exhibit A-5 hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE RESPONSIBILITY AND
NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF THE
PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON
THE PURCHASER'S BEHALF.
10. General Provisions.
a. This Agreement shall be governed by the internal substantive laws, but not
the choice of law rules of Arizona. This Agreement, subject to the terms and
conditions of the Plan and the Notice of Grant, represents the entire agree-
ment between the parties with respect to the purchase of the Shares by the
Purchaser. Subject to Section 15(c) of the Plan, in the event of a conflict
between the terms and conditions of the Plan and the terms and conditions of
this Agreement, the terms and conditions of the Plan shall prevail. Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Agreement.
b. Any notice, demand or request required or permitted to be given by either
the Company or the Purchaser pursuant to the terms of this Agreement shall be
in writing and shall be deemed given when delivered personally or deposited in
the U.S. mail, First Class with postage prepaid, and addressed to the parties
at the addresses of the parties set forth at the end of this Agreement or such
other address as a party may request by notifying the other in writing.
Any notice to the Escrow Holder shall be sent to the Company's address with a
copy to the other party hereto.
c. The rights of the Company under this Agreement shall be transferable to
any one or more persons or entities, and all covenants and agreements
hereunder shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of the Purchaser under
this Agreement may only be assigned with the prior written consent of the
Company.
d. Either party's failure to enforce any provision of this Agreement shall
not in any way be construed as a waiver of any such provision, nor prevent
that party from thereafter enforcing any other provision of this Agreement.
The rights granted both parties hereunder are cumulative and shall not
constitute a waiver of either party's right to assert any other legal remedy
available to it.
e. The Purchaser agrees upon request to execute any further documents or
instruments necessary or desirable to carry out the purposes or intent of this
Agreement.
f. PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A SERVICE PROVIDER AT
THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED OR PURCHASING
SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT THIS
AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE
SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the
residence indicated in the Notice of Grant.
DATED: _____________________
PURCHASER: COMPURAD, INC.
______________________________ __________________________________
Signature By
______________________________ __________________________________
Print Name Title
EXHIBIT A-2
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign and
transfer unto
_____________________________________________________________________________
___
___________________________________(__________) shares of the Common Stock of
CompuRAD, Inc. standing in my name of the books of said corporation
represented by Certificate No. _____ herewith and do hereby irrevocably
constitute and appoint _____________________________________________ to
transfer the said stock on the books of the within named corporation with full
power of substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted Stock
Purchase Agreement (the "Agreement") between________________________ and the
undersigned dated ______________, 19__.
Dated: _______________, 19
Signature:____________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
EXHIBIT A-3
JOINT ESCROW INSTRUCTIONS
________________________, 19 ___
Corporate Secretary
CompuRAD, Inc.
1200 N. El Dorado Place
C-300
Tucson, AZ 85715
Dear ___________________:
As Escrow Agent for both CompuRAD, Inc., a Delaware corporation (the
"Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock
Purchase Agreement ("Agreement") between the Company and the undersigned, in
accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred to
collectively as the "Company") exercises the Company's Repurchase Option set
forth in the Agreement, the Company shall give to Purchaser and you a written
notice specifying the number of shares of stock to be purchased, the purchase
price, and the time for a closing hereunder at the principal office of the
Company. Purchaser and the Company hereby irrevocably authorize and direct
you to close the transaction contemplated by such notice in accordance with
the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer
of, the securities. Subject to the provisions of this paragraph 3, Purchaser
shall exercise all rights and privileges of a shareholder of the Company while
the stock is held by you.
4. Upon written request of the Purchaser, but no more than once per calendar
year, unless the Company's Repurchase Option has been exercised, you shall
deliver to Purchaser a certificate or certificates representing so many shares
of stock as are not then subject to the Company's Repurchase Option. Within
90 days after Purchaser ceases to be a Service Provider, you shall deliver to
Purchaser a certificate or certificates representing the aggregate number of
shares held or issued pursuant to the Agreement and not purchased by the
Company or its assignees pursuant to exercise of the Company's Repurchase
Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to
Purchaser, you shall deliver all of the same to Purchaser and shall be
discharged of all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked only by
a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in
good faith, and any act done or omitted by you pursuant to the advice of your
own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court.
In case you obey or comply with any such order, judgment or decree, you shall
not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or
called for hereunder.
10. You shall not be liable for the outlawing of any rights under the statute
of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts as
you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the
Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection with
these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect to
the delivery and/or ownership or right of possession of the securities held by
you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or
defend any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing and
shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage
and fees prepaid, addressed to each of the other parties thereunto entitled at
the following addresses or at such other addresses as a party may designate by
ten days' advance written notice to each of the other parties hereto.
COMPANY: COMPURAD, INC.
1200 N. El Dorado Place
C-300
Tucson, AZ 85715
PURCHASER: ________________________________________
________________________________________
_________________________________________
ESCROW AGENT: Corporate Secretary
CompuRAD, Inc.
1200 N. El Dorado Place
C-300
Tucson, AZ 85715
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
18. These Joint Escrow Instructions shall be governed by, and construed and
enforced in accordance with, the internal substantive laws, but not the choice
of law rules, of Arizona.
Very truly yours,
COMPURAD, INC.
__________________________________
By
__________________________________
Title
PURCHASER:
__________________________________
Signature
__________________________________
Print Name
ESCROW AGENT:
_____________________________________
Corporate Secretary
EXHIBIT A-4
CONSENT OF SPOUSE
I, ____________________, spouse of ___________________, have read and approve
the foregoing Restricted Stock Purchase Agreement (the "Agreement"). In
consideration of the Company's grant to my spouse of the right to purchase
shares of CompuRAD, Inc., as set forth in the Agreement, I hereby appoint my
spouse as my attorney-in-fact in respect to the exercise of any rights under
the Agreement and agree to be bound by the provisions of the Agreement insofar
as I may have any rights in said Agreement or any shares issued pursuant
thereto under the community property laws or similar laws relating to marital
property in effect in the state of our residence as of the date of the signing
of the foregoing Agreement.
Dated: _______________, 19 ___
___________________________________
Signature of Spouse
EXHIBIT A-5
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross
income for the current taxable year the amount of any compensation taxable to
taxpayer in connection with his or her receipt of the property described
below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: shares (the "Shares") of the Common Stock of CompuRAD,
Inc. (the "Company").
3. The date on which the property was transferred is: _________, 19__.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon certain
events. This right lapses with regard to a portion of the Shares based on the
continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without regard
to any restriction other than a restriction which by its terms will never
lapse, of such property is:
$_______________.
6. The amount (if any) paid for such property is:
$_______________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of
the above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
THE UNDERSIGNED UNDERSTANDS THAT THE FOREGOING ELECTION MAY NOT BE REVOKED
EXCEPT WITH THE CONSENT OF THE COMMISSIONER.
Dated: ___________________, 19____
_________________________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, 19____
_________________________________________________
Spouse of Taxpayer
EXHIBIT 99.2
COMPURAD, INC.
STOCK OPTION PLAN,
FORM OF NOTICE OF STOCK OPTION GRANT
COMPUMED, INC.
STOCK OPTION PLAN
COMPUMED, INC., an Arizona corporation (the "Company") for the benefit of
certain of its key employees, and as an additional incentive to further the
goals and objectives of the Company hereby established the CompuMed, Inc.
Stock Option Plan, a nonstatutory stock option plan, under the following terms
and conditions:
1. Effective Date.
The effective date of the CompuMed, Inc. Stock Option Plan (the "Plan") is
October __, 1994.
2. Purpose.
The purpose of this Plan is to promote the interests of the Company by
affording an incentive to certain officers and key employees to remain in the
Company's employ and to use their best efforts on its behalf; and to further
assist the Company in attracting, maintaining and developing capable personnel
in order to insure the Company's continued profitability, by means of
providing such officers and key employees an opportunity to acquire a
proprietary interest in the Company through stock options granted pursuant to
the terms of this Plan.
3. Eligible Employees.
Stock options may be granted under this Plan from time to time to the
Company's officers, key employees or other persons affiliated with the
Company, in connection with services rendered by such persons to the Company,
as determined by the Board of Directors. An officer, key employee or other
individual who is granted an option under this Plan is not precluded from
later being granted additional options hereunder if the Board of Directors
shall so determine. Notwithstanding the foregoing, unless amended by the
Board of Directors, grants of options hereunder which occur after October 31,
1994 shall be subject to the following general allocation provisions.
a. Management Department.
One third (1/3) of all options granted hereunder shall be granted to
individuals within the Management Department.
b. Sales Department.
One third (1/3) of all options granted hereunder shall be granted to
individuals within the Sales Department.
c. Engineering Department.
One third (1/3) of all options granted hereunder shall be granted to
individuals within the Engineering Department.
The foregoing shall not be deemed to impose restrictions upon the allocation
of options granted hereunder within the above described departments, which
shall be established in accordance with resolutions adopted by the Board of
Directors, and set forth in the applicable Stock Option Agreements.
4. Administration.
The Plan shall be administered by the Board of Directors of the Company. The
Board of Directors may grant options only with the consent of a majority Of
its members. The Board of Directors shall have full and final authority in
exercising its discretion, subject to the applicable provisions of the Plan,
to determine the individuals to whom, and the time or times at which the
options shall be granted. The Board of Directors shall also determine the
number of shares and the purchase price for shares covered by each option.
The Board of Directors is further empowered to construe and interpret the
Plan, to determine the terms and provisions Of the option agreements (which
agreements may vary in their terms), including, without limitation, terms
covering the payment of the option price. The Board of Directors is further
authorized to make all other determinations and to take all other actions that
it deems necessary, advisable, or proper for the administration of the Plan.
All such determinations and actions taken by the Board of Directors shall be
conclusively binding for all purposes of the Plan.
5. Indemnification.
The Company shall indemnify and hold harmless each person who is or has been a
member of the Board of Directors, against and from any and all loss, expense,
liability, or costs (including reasonable attorney's fees) that may be imposed
upon or reasonably incurred by him in connect/on with or resulting from any
claim, action, suit, or proceeding to which he may be a party or in which he
may be involved by reason of any action taken or failure to act under the
Plan; and against and from any and all amounts paid by him in settlement
thereof with the Company's approval, or paid by him in satisfaction of a final
judgment against him in any such action, suit, or proceeding, provided he
shall give the Company an opportunity, at its own expense, to handle and
defend the same before he undertakes to handle and defend it on his own
behalf. The right of indemnification herein set forth shall not be exclusive
of any other rights of indemnification to which such person may be entitled
under the Company's articles of incorporation or code of regulations, as a
matter of law, or otherwise, or any power that the Company may have to
indemnify him or hold him harmless. It is the Company's intention that all
expenses incurred in connection with the administration of the Plan shall be
born by the Company rather than by the Board of Directors.
6. Stock Subject to Options.
The Board of Directors shall reserve for the purposes of the Plan a total of
Five Hundred Thousand (500,000) shares of no par value common stock of the
Company(the "Common Stock"). Such shares of Common Stock may be derived in
whole or in part, as the Board of Directors may determine, from authorized and
unissued shares or previously issued shares of Common Stock which the Company
may have reacquired. If any option granted hereunder shall expire or
terminate for any reason without having been exercised in full, the
unpurchased shares subject hereto shall again be available for the purposes of
this Plan. The number of shares of Common Stock reserved for the Plan may be
adjusted in accordance with the provisions of Section 8 below.
7. Option Terms.
All options granted hereunder shall be evidenced by a Stock Option Agreement
entered into by the recipient of the stock option and a duly authorized
officer of the Company designated by the Board of Directors. The Stock Option
Agreement shall contain such terms and be in such form as the Board of
Directors may determine from time to time, subject to the following
limitations and conditions:
a. Option Price.
The option price per share with respect to each option granted hereunder shall
be the net book value of a share of the Company's Common Stock on the date the
option is granted. Such net book value shall be the net book value thereof as
of the last day of the month prior to the date of grant as determined in
accordance with generally accepted accounting principles consistently applied;
provided that deferred compensation shall not be considered as a corporate
liability when calculating net book value for purposes of this Section 7.1.
b. Time of Exercise.
Each option granted hereunder shall be exercisable from time to time over a
period commencing upon the date on which the option is granted and ending on
the expiration or termination of the option period as such terms are set forth
in the Stock Option Agreement which, in any event, shall not extend beyond
fifteen (15) years following the date of grant. The Board of Directors may,
by provisions of any Stock Option Agreement, limit the number of shares which
may be purchased thereunder in any period or periods of time during which the
option is exercisable, and/or utilize vesting schedules consistent with the
general provisions hereof.
c. Manner of Exercise.
Options granted hereunder may be exercised by written notice directed to the
Board of Directors at the Company's principal place of business, accompanied
by a check in payment of the option price for the number of shares specified
in the notice. The Company shall deliver the certificates representing the
shares of Common Stock acquired pursuant to the exercise of the option, within
fifteen (15) business days after its receipt of the aforesaid notice and
check. Notwithstanding the foregoing, if any federal or state securities law
or regulation requires the Company to take any action with respect to the
shares of Common Stool< specified in such notice before the issuance thereof,
then the date of delivery of such shares shall be extended for the period
necessary to take such action.
8. Antidilution.
In the event that the outstanding shares of Common Stock are subject to a
stock split or changed into or exchanged for a different number or kind of
shares or other securities of the Company, or of any other corporation, by
reason of merger, consolidation, or other reorganization, recapitalization,
reclassification, combination of shares, stock split, or stock dividend, then
(i) the total number of shares of Common Stock subject to this Plan shall be
appropriately adjusted; (ii) the rights of officers and key employees who have
been granted options hereunder shall be appropriately adjusted as to the
number of shares of Common Stock subject to the option and/or as to the option
price; and (iii) if the Company is involved in a dissolution, liquidation,
merger, or combination in which it is not a surviving corporation, then each
outstanding option granted hereunder shall terminate thirty (30) days after
the effective date of such dissolution, liquidation, merger, or combination.
Within said thirty (30) day period, the optionee may exercise his option in
whole or in part, to the extent that it shall not have been previously
exercised.
The Board of Directors shall make the foregoing adjustments in such manner so
as to preserve the benefits afforded to officers and key employees under this
Plan. In making such adjustments, the Board of Directors may provide for the
elimination of fractional shares of Common Stock.
9. Nontransferable.
Each option granted hereunder shall, by its terms, be nontransferable by the
optionee, except pursuant to an optionee's last will or by the laws of
intestate succession, and except for transfers approved in advance by formal
resolution of the Board of Directors of the Company. Each option granted
hereunder shall be exercisable during the optionee's lifetime only by such
optionee, his approved assignee or legal representative.
10. No Guarantee of Employment.
Nothing herein or in any option granted pursuant hereto confers or shall
confer on any individual any right to continue in the employment of the
Company, nor shall this Plan be deemed to limit or interfere with the
Company's right to terminate the employment or contractual relationship of any
person any time.
11. Miscellaneous.
a. Governing Law.
This Plan shall be governed by and construed in accordance with the laws of
the State of Arizona, and any action involving this Plan shall be brought and
maintained in a court of competent jurisdiction in Pima County, Arizona.
b. Amendment and Termination.
The Board of Directors may amend, alter, or terminate this Plan, except that
no amendment or alteration shall be made which would impair the rights of any
optionee under any option granted pursuant hereto without the consent of such
optionee. Notwithstanding the foregoing, the following amendments or
alterations of the Plan shall require the approval of a majority of the
Company's shareholders:
i. Any increase in the number of shares reserved for the purposes of
the Plan, except for an increase in accordance with the provisions of Section
8 hereof;
ii. Any increase or decrease in the option price beyond the parameters
set forth in Subsection 7.1 hereof;
iii. Any change in the class of employees and officers eligible to in
the Plan as provided in 3.2.3 hereof;
iv. Any extension of the option period beyond fifteen (15) years; or
v. Any material increase in the benefit provided hereunder.
c. Government Regulations.
This Plan, the granting and exercise of option hereunder, and the Company's
obligations to sell and deliver shares under such options, shall be subject to
all applicable laws, rules, and regulations, and to such approvals as may be
required by any governmental agencies, including state and federal securities
agencies and national securities exchanges.
d. Number; Gender.
Whenever used herein, nouns in the similar shall included the plural, and the
masculine pronoun shall include the feline gender.
e. Captions.
The captions herein have been inserted only for the purposes of convenience.
Such captions are not a part of this Plan and shall not be deemed in any
manner to modify, explain, enlarge, or restrict any of the provisions hereof.
f. Successors and Assigns.
This Plan shall be binding upon the successors and assigns of the Company.
SIGNATURE EVIDENCING
ADOPTION BY THE BOARD OF
DIRECTORS AND
SHAREHOLDERS OF COMPUMED,
INC.
By:________________________
Its: Secretary
EXHIBIT "B"
To CompuMed, Inc.
Stock Option
The vesting schedule for the options granted herein will be determined at a
meeting of the Board of Directors to be held next month (December, 1995).
___________________________
Kevin J. Donovan, Treasurer
CompuMed, Inc.
Stock Option Agreement
This Stock Option Agreement is granted to ____________________ ("Optionee")
pursuant to the CompuMed, Inc. Stock Option Plan (the "Plan"), adopted by the
Board of Directors and Shareholders of CompuMed, Inc. (the "Company")
effective October 27, 1994.
Whereas, the Company has adopted the CompuMed, Inc. Stock Option Plan,
Optionee is a member of the Company's Management and Engineering Departments.
The Company considers it beneficial for both parties to grant Optionee an
option on the common stock of the Company pursuant to the Plan, as an
inducement to encourage Optionee's continuing productive and efficient
affiliation with the Company.
Section 1. Frank of Option.
The Company hereby grants to Optionee the right, privilege and option to
purchase _______ shares of its no par common stock at a price of one dollar
($1) per share.
Section 2. Terms of Option.
The option shall be governed by and exercisable only in accordance with the
terms of the Plan (a copy of which is attached hereto as Exhibit "A") and
shall additionally be subject to vesting in accordance with the vesting
schedule set forth on Exhibit "B" hereto. The provisions of Exhibits "A" and
"B" are fully incorporated herein by this reference.
CompuMed, Inc.
By:__________________
Its:_________________
Date:________________
Optionee:
____________________
EXHIBIT 99.3
PROSPECTUS FOR OPTIONS GRANTED
UNDER THE COMPURAD, INC. 1996
STOCK PLAN ASSUMED BY LUMISYS INCORPORATED
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING
SECURITIES THAT HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933.
The date of this document is November 25, 1997
________________________________
PROSPECTUS FOR OPTIONS GRANTED UNDER THE
COMPURAD, INC. 1996 STOCK PLAN
ASSUMED BY LUMISYS INCORPORATED
________________________________
To Our Optionees:
As a result of the merger on November 25, 1997 of an affiliate of Lumisys
Incorporated ("Lumisys") with and into CompuRAD, Inc. ("CompuRAD"), CompuRAD
became a wholly owned subsidiary of Lumisys (the "Merger"). As part of the
Merger, options originally granted to you by CompuRAD under the 1996 Stock
Plan (the "Plan") have been assumed by Lumisys. We are pleased with this
opportunity to provide you with information regarding the option granted to
you by CompuRAD (the "CompuRAD Options") under the Plan. We believe that your
CompuRAD Option is an important part of the benefits provided to you and hope
you will take the time to review this information carefully.
Each CompuRAD Option assumed by Lumisys has been converted into an option to
purchase that number of shares of Lumisys common stock determined by
multiplying the number of shares of CompuRAD common stock for which you hold
CompuRAD Options by 0.928 and rounding down to the nearest whole number (with
cash, less the applicable exercise price, being payable for any fraction of a
share). The exercise price per share will be equal to the exercise price of
the CompuRAD Options divided by 0.928 rounded up to the nearest cent. The
other terms of each CompuRAD Option, including tax status and vesting, will
remain unchanged.
We have divided our discussion of the Plan into three parts. The first part
of this document describes the terms of the Plan, which provides for the grant
of incentive stock options (tax advantaged options) and nonstatutory stock
options (options which do not have tax advantages). The second and third
parts of this document describe the tax consequences relating to your CompuRAD
Option.
The following information and attached materials may not answer all the
questions you have about the Plan or about Lumisys' assumption of the CompuRAD
Options and are not intended to go into every detail. The Vice President,
Finance of Lumisys at (408) 733-6565 will be happy to answer further
questions. A copy of the Plan and an exercise form are attached at the end of
this package. If you wish to exercise your CompuRAD Option, you will need to
complete the exercise form. You may always obtain copies of the exercise form
from Lumisys.
INFORMATION ABOUT LUMISYS
An important part of your CompuRAD Option is understanding Lumisys, its
operations and its financial condition. You can keep yourself informed about
Lumisys by reviewing reports and other documents which Lumisys prepares for
stockholders and the general public and which will be provided to you (as
discussed below). If you become a stockholder of Lumisys, you will be
entitled to attend stockholder meetings and to vote in the election of
directors and on other matters brought before the stockholders.
If you have not already received a copy of Lumisys's current annual report as
a stockholder of Lumisys, this information should be delivered to you with
these materials. Whether or not you have already received this information,
you may always request a copy from Lumisys.
In addition,the United States federal securities laws require Lumisys to
provide information about its business and financial status in annual reports
commonly known as "10-Ks" and quarterly reports commonly known as "10-Qs."
These reports are filed with the Securities and Exchange Commission (the
"Commission"). In addition, if certain important corporate events occur
during the year, Lumisys may file reports commonly known as "8-Ks." Lumisys
also prepares and files with the Commission a proxy statement in connection
with its annual meeting of stockholders. The proxy statement provides further
information about Lumisys and its officers, directors and major stockholders.
From time to time Lumisys may also file other documents with the Commission
as required by Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
All of these documents constitute part of the information required by the
securities laws to be provided or made available to you in connection with
your CompuRAD Option; that is, these documents are incorporated by reference
into these materials, which constitute the prospectus for the Plan. For a
copy of these documents, all of which are available without charge and upon
written or oral request, please contact Dean MacIntosh, Vice President,
Finance, of Lumisys.
* * * *
QUESTION INDEX
Question Page
1. Who determined whether I received an option and the terms
of my option and how many shares of common stock it covered? 9
2. What is the difference between an incentive stock option and a
nonstatutory stock option? 10
3. How was the exercise price of my CompuRAD Option determined? 11
4. When can I exercise my CompuRAD Option? 11
5. How do I exercise my CompuRAD Option? 11
6. Do I have to pay the exercise price with cash? 11
7. I have heard about cashless exercise programs through brokers.
How do these work? 12
8. Will I continue to receive options under the Plan as long as
I continue providing services to Lumisys? 12
9. Can the terms of my CompuRAD Option be changed? 13
10. What happens if I leave Lumisys? 13
11. What if I leave Lumisys because of disability? 13
12. What are the rights of my heirs upon my death? 13
13. Can a relative or friend exercise my CompuRAD Option? 14
14. Can I sell the stock I receive from exercising my CompuRAD
Option right away? 14
15. If I am aware of important non-public information, can I sell
my stock before this news is disclosed to the public? For
example, if I know Lumisys is having significant problems or
that Lumisys is about to acquire a competitor, can I sell my
stock before Lumisys puts out a press release? 14
16. Do I pay a commission when I exercise my CompuRAD Option or
sell the stock? 15
17. How can I make a gift of the stock I receive upon exercising
my CompuRAD Option? 15
18. Does Lumisys pay dividends on its common stock? 15
19. Does the Plan have any of the same benefits as a qualified
retirement plan (including a 401(k) plan) and will my
participation in the Plan affect my participation in a 401(k)
plan? 15
20. Do special rules apply to me if I am or become an insider
of Lumisys? 15
21. Do I have to pay tax when I receive or exercise a
nonstatutory stock option? 18
22. Will Lumisys withhold the amount of taxes due on exercise
of my nonstatutory stock option? 18
23. How much tax do I pay when I sell stock received pursuant to
the exercise of a nonstatutory stock option? 18
24. What is the difference between ordinary income and capital
gains and losses for United States federal income tax purposes? 19
25. Do I have to pay tax when I receive or exercise an incentive
stock option? 19
26. How is my profit taxed when I do dispose of the stock
received on exercise of an incentive stock option? What if
I lose money? 19
27. Is there any withholding on the exercise of my incentive
stock option or the sale of the stock acquired on exercise? 20
28. Do I have to complete any Lumisys forms after I sell my stock? 21
29. What are the tax consequences if I use shares I already own to
pay the exercise price of my nonstatutory stock option? 21
30. What are the tax consequences if I use shares I already own to
pay the exercise price of an incentive stock option? 21
31. What are the tax consequences of my exercise of an incentive
stock option if I am subject to the alternative minimum tax? 22
32. Are there any special tax rules which apply to me if Lumisys
has the right to repurchase my stock after I exercise my
CompuRAD Option or if I am subject to Section 16? 23
33. What happens if the vesting of my CompuRAD Option accelerates
upon a change of control? 24
Part I
Terms of the Plan
Part I provides general information about the Plan. Parts II and III describe
the various tax consequences to you of your participation in the Plan. The
following table should help you locate particular questions you may have with
regard to participation in the Plan. A similar table regarding tax questions
you may have is found in Part II.
Relevant
Type of Information Questions and Answers
For information regarding participation
in the Plan 1, 8, 9
For information regarding the terms
of options 1, 2, 3
For information regarding the exercise
of options 4, 5, 6, 7, 12, 13
For information regarding the status
of options if your service
is terminated 10, 11, 12
For information regarding the disposition
(e.g. sale) of stock received upon
exercise of options 14, 15, 16, 17
For general information regarding the Plan
and "insider" rules 18, 19, 20
1. WHO DETERMINED WHETHER I RECEIVED AN OPTION AND THE TERMS OF MY OPTION
AND HOW MANY SHARES OF COMMON STOCK IT COVERED?
The decision to grant an option to any particular individual was made by the
CompuRAD Board of Directors (the "CompuRAD Board") or by a committee of the
CompuRAD Board generally after review of input from management. The Plan
provided for the grant of options to employees, directors and consultants
covering an aggregate of 400,000 shares of CompuRAD's common stock. When the
CompuRAD Board (or committee) granted your CompuRAD Option, it had the
discretion to determine the terms of the option, including the number of
shares the option covered. However, you could not receive options covering
more than 200,000 shares in any fiscal year of CompuRAD. In addition, as
discussed in Question 2, tax restrictions applied on the number of incentive
stock options that could be granted to you under certain circumstances.
The Lumisys Board of Directors (the "Lumisys Board") now administers the
CompuRAD Options and has the power to interpret them. Information about the
current members of the Lumisys Board is provided in Lumisys' proxy statement
for its last annual meeting. You may obtain additional information about the
administration of the CompuRAD Options by contacting the Vice President,
Finance of Lumisys.
When administration of the CompuRAD Options is delegated to a committee, the
Lumisys Board retains the right to revert authority to construe and interpret
the options back to itself. References to the Lumisys Board in this document
should be construed as references to the committee, as applicable.
2. WHAT IS THE DIFFERENCE BETWEEN AN INCENTIVE STOCK OPTION AND A
NONSTATUTORY STOCK OPTION?
If you were not an employee, your CompuRAD Option had to be a nonstatutory
stock option. If you were an employee, then at the time the CompuRAD Board
granted you your option, the CompuRAD Board determined whether the option was
an incentive stock option or nonstatutory stock option. This determination
generally was based on the CompuRAD Board's understanding of the relative tax
benefits to you and CompuRAD in granting incentive stock options versus
nonstatutory stock options. In general, potentially favorable tax treatment
is provided to the holders of stock options that qualify as incentive stock
options under the Internal Revenue Code of 1986, as amended (the "Code").
Upon the exercise of an incentive stock option, an optionee is typically not
subject to tax except for the possible imposition of alternative minimum tax.
(See Question 31.) Upon the exercise of a nonstatutory stock option,
however, an optionee generally is taxed based on the difference between the
exercise price of the option and the fair market value of the stock on the
date of exercise. (See Question 21.) The deferral of the recognition of tax
until the time of sale of the stock, as well as the possible treatment of the
"spread" as capital gain, are the principal advantages of incentive stock
options. However, incentive stock options have certain limitations on their
exercise price, terms, transferability and duration.
In addition, the tax laws restricted the CompuRAD Board's ability to grant
incentive stock options under certain circumstances. For example, if the
aggregate value of the shares under all incentive stock options you hold that
were granted after 1986 and that became exercisable for the first time during
any calendar year was greater than $100,000, then that number of those shares
with a value over $100,000 had to be treated as nonstatutory stock options not
having the tax advantages of incentive stock options. (However, to avoid this
result, your incentive stock option may provide that, in the event the
$100,000 limit would be exceeded, exercisability of the amount over $100,000
will delayed until the next calendar year.)
The rules governing the tax effects of incentive stock options and
nonstatutory stock options are complex, and you should carefully read the tax
information provided in Part II.
3. HOW WAS THE EXERCISE PRICE OF MY COMPURAD OPTION DETERMINED?
The Code required that the exercise price of an incentive stock option be at
least 100% of the fair market value of CompuRAD's common stock on the date an
option was granted (the "grant date"). The Plan provided that the CompuRAD
Board could set the exercise price for a nonstatutory stock option at any
price unless the option was intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, in which case
the exercise price could not less than the fair market value of CompuRAD's
common stock on the date of grant. The exercise price for each share of
Lumisys common stock now covered by your CompuRAD Option, as assumed by
Lumisys, is the exercise price per share of CompuRAD stock under the option
immediately before the Merger divided by 0.928, rounded up to the nearest
cent. Special rules applied to the exercise price of stock options granted to
anyone who owned 10% or more of the voting power of CompuRAD or its
affiliates. You should speak with the Vice President, Finance of Lumisys if
you believe these rules might apply to you.
4. WHEN CAN I EXERCISE MY COMPURAD OPTION?
When the CompuRAD Board granted your CompuRAD Option, it also determined
certain terms of the option, including the date or dates after which the
option may be exercised. You should check your option agreement to determine
the date(s) on which your shares become exercisable, or "vest." (However,
your option may provide that you can exercise your option as to unvested
shares subject to Lumisys's right to repurchase "unvested" shares.) CompuRAD
Options may have a term of 10 years, so you must exercise your option before
it expires at the end of the 10-year period. For example, if your option was
granted on February 1, 1997 and has a full 10-year term, it must be exercised
before February 1, 2007. The terms of exercise of options are not required to
be the same for every optionee. (For example, each option may have a
different vesting period or may tie acceleration of vesting to the achievement
of certain performance goals.) Please review your option grant carefully to
be sure that you understand its specific terms and conditions.
5. HOW DO I EXERCISE MY COMPURAD OPTION?
You exercise your CompuRAD Option by completing an option exercise form and
delivering the form, together with payment of the exercise price (see
Question 6 below), to the Vice President, Finance of Lumisys. You can obtain
option exercise forms from the Vice President, Finance.
6. DO I HAVE TO PAY THE EXERCISE PRICE WITH CASH?
You may always pay the exercise price with cash. However, your CompuRAD
Option may provide that the exercise price also may be paid with other
consideration (for example, by delivery to Lumisys of other unencumbered
common stock of Lumisys you already own with a value equal to the aggregate
option exercise price or according to a deferred payment or other
arrangement). You should review the terms of your option which describes
specifically the manner in which the exercise price may by paid. You may be
able to do a cashless exercise through a broker. See Question 7.
7. I HAVE HEARD ABOUT CASHLESS EXERCISE PROGRAMS THROUGH BROKERS. HOW DO
THESE WORK?
Cashless exercise programs involve the delivery to a broker of a copy of your
signed and completed option exercise form and your irrevocable instructions to
Lumisys to deliver stock to be received upon exercise of the option to the
broker rather than to you. Under U.S. Treasury Regulation T, the broker can
then deliver cash to Lumisys in payment of the exercise price and, in some
cases, withholding taxes. Lumisys then delivers the stock certificate to the
broker. After the stock is delivered to the broker, the stock can be
maintained as margin stock in an account designated by you, or it can be sold
pursuant to your instructions. However, Lumisys will not participate in any
Regulation T program which would cause stock certificates to be delivered to
the broker before Lumisys has received payment for the exercise price or an
irrevocable guarantee of payment from the sales proceeds. You should contact
the Vice President, Finance of Lumisys for information regarding the cashless
exercise program. If you are an "insider" when you exercise your CompuRAD
Option, you should ensure that your cashless exercises are properly structured
in order to avoid any violation of the prohibition against short sales by
insiders found in Section 16(c) of the Exchange Act. In general, "insiders"
are officers, directors, and 10% stockholders of a publicly-traded company or
an executive officer of a significant subsidiary of such a company.
8. WILL I CONTINUE TO RECEIVE OPTIONS UNDER THE PLAN AS LONG AS I CONTINUE
PROVIDING SERVICES TO LUMISYS?
No, the Lumisys Board cannot grant any additional options under the Plan.
(Nevertheless, your CompuRAD Option will continue in effect and will be
governed by the provisions of the Plan and the stock option agreement
documenting your option.) However, you may be eligible to receive an option
under a Lumisys stock option plan. Whether or not you receive options will
depend on many factors, such as your performance, Lumisys's overall
performance, the Lumisys Board's then current policy and the number of shares
remaining in the Lumisys stock option plan. You should note that Lumisys'
assumption of your option does not alter any right to terminate your
employment at any time and for any reason, with or without cause, or your
service as a consultant according to the terms of your consultant agreement.
9. CAN THE TERMS OF MY COMPURAD OPTION BE CHANGED?
The Lumisys Board decides whether to change the terms of the CompuRAD Options
but your option will not be adversely affected without your consent. Usually
options are amended to take into account changes in the tax or securities
laws. These changes may be presented to the stockholders of Lumisys for
approval at Lumisys's annual meeting if tax, securities or other laws require
approval of the changes.
If certain changes occur to Lumisys's capitalization, e.g., a stock split or
stock dividend of its common stock, the Lumisys Board will appropriately
adjust the exercise price and number of shares subject to your option. If
Lumisys merges with another company or undergoes certain other types of
capital reorganizations (a "change in control"), then either the surviving
corporation will assume your option (or substitute a similar option for your
option) or the time during which your option may be exercised will be
accelerated. However, if exercisability and vesting are accelerated, your
option will terminate if not exercised prior to such event.
10. WHAT HAPPENS IF I LEAVE LUMISYS?
Whether you leave Lumisys (or an affiliate) voluntarily or your service is
terminated, your right to exercise any vested portion of your CompuRAD Option
generally will terminate three months after your last day of service with
Lumisys. However, the terms of your option may provide that it will terminate
sooner than three months after termination of your service or that it may be
exercised more than three months after such termination. (If the option is an
incentive stock option, it generally must be exercised within three months of
the termination date or it will become a nonstatutory stock option.) You
should check your option agreement. Usually, you will not be able to exercise
any unvested portion of your option once you have left your employment or
terminated your engagement as a consultant.
11. WHAT IF I LEAVE LUMISYS BECAUSE OF DISABILITY?
If your service is terminated because of your disability, you should review
the terms of your CompuRAD Option. Generally, the option will terminate 12
months after your last day of service with Lumisys as determined between you
and Lumisys. Disability, for these purposes, has a specific meaning found in
the Code. You should contact the Vice President, Finance of Lumisys if you
have any questions regarding what constitutes a disability.
12. WHAT ARE THE RIGHTS OF MY HEIRS UPON MY DEATH?
Your estate or persons having rights to your CompuRAD Option by will or by the
laws of descent and distribution will have the right to exercise your option
as to any vested portion of your option if you were still in service at the
time of death or, if so provided in your option, you died within three months
after your service was terminated for any reason. Your option will specify
the date by which the option must be exercised, which usually will be 12
months after your death.
13. CAN A RELATIVE OR FRIEND EXERCISE MY COMPURAD OPTION?
No, unless you have a nonstatutory stock option which provides otherwise,
generally only you may exercise your CompuRAD Option during your lifetime.
You may not transfer your option during your lifetime, but you may be able to
provide for the transfer of the option upon your death in your will. Under
certain circumstances, a nonstatutory stock option may be transferred to your
former spouse pursuant to a domestic relations order.
14. CAN I SELL THE STOCK I RECEIVE FROM EXERCISING MY COMPURAD OPTION RIGHT
AWAY?
Generally, yes. The stock you receive upon exercise of your CompuRAD Option
is freely tradeable in most cases and will not bear any restrictive legends
unless you are an insider of Lumisys. See Question 20 if you are an insider
of Lumisys. If you exercise an incentive stock option, an immediate sale will
have certain tax consequences of which you should be aware. See Question 26.
If the terms of the option permit you to exercise your option before it is
vested, you may not sell shares of stock which Lumisys still has the right to
repurchase.
15. IF I AM AWARE OF IMPORTANT NON-PUBLIC INFORMATION, CAN I SELL MY STOCK
BEFORE THIS NEWS IS DISCLOSED TO THE PUBLIC? FOR EXAMPLE, IF I KNOW LUMISYS
IS HAVING SIGNIFICANT PROBLEMS OR THAT LUMISYS IS ABOUT TO ACQUIRE A
COMPETITOR, CAN I SELL MY STOCK BEFORE LUMISYS PUTS OUT A PRESS RELEASE?
No. If you are aware of important inside information, you must not sell
shares of Lumisys's stock, whether received upon exercise of an option or
otherwise, before dissemination of the information to the public. Basically,
"inside information" is information that is both very important (material) and
non-public (not disclosed through press releases, newspaper articles or
otherwise to the public which buys and sells securities). Whether information
is material will depend on the specific circumstances. A general test is
whether dissemination of the information to the public would be likely to
affect the market price of Lumisys's stock or would be likely to be considered
important by people who are considering whether to buy or sell Lumisys's
stock. Certainly if the information makes you want to buy or sell, it would
probably have the same effect on others. Material information may include
projections, estimates or proposals.
If you are contemplating selling your stock and think you might have "inside
information," you must discuss your possible sale with the Chief Financial
Officer of Lumisys. If, after this discussion, it is determined that the
information is in fact inside information, you must wait to sell your stock
until after the information has been made public.
16. DO I PAY A COMMISSION WHEN I EXERCISE MY COMPURAD OPTION OR SELL THE
STOCK?
You pay no commission on the exercise of your CompuRAD Option. Generally, to
sell your stock you must take the stock certificate to a stock broker, who can
arrange for its sale. You can expect to be charged a commission if you use a
stock broker. Lumisys will not buy from you, sell on your behalf or assist
you in selling stock which you have purchased under the Plan. Insiders are
subject to restrictions on the sale of their stock. See Question 20.
17. HOW CAN I MAKE A GIFT OF THE STOCK I RECEIVE UPON EXERCISING MY COMPURAD
OPTION?
You may make a gift of stock by delivering the stock certificate, with the
transfer block on the back filled in and signed with the signature guaranteed
by a bank or stock broker (or by delivering the stock certificate together
with an "assignment separate from certificate" filled in, signed and the
signature similarly guaranteed) to the recipient of the gift. The recipient
may then send the certificate and associated paperwork to Lumisys' transfer
agent to have the stock certificate transferred to the recipient's name. The
Vice President, Finance of Lumisys can provide you with the address of the
transfer agent. If you have a brokerage account, your broker will generally
be willing to take care of the mechanics of transfer. Please note that a gift
of stock acquired upon exercise of an incentive stock option may result in a
"disqualifying disposition" for tax purposes. See Question 26.
18. DOES LUMISYS PAY DIVIDENDS ON ITS COMMON STOCK?
Lumisys currently is not paying dividends on its common stock and presently
intends to continue this policy in order to retain earnings for use in its
business.
19. DOES THE PLAN HAVE ANY OF THE SAME BENEFITS AS A QUALIFIED RETIREMENT PLAN
(INCLUDING A 401(K) PLAN) AND WILL MY PARTICIPATION IN THE PLAN AFFECT MY
PARTICIPATION IN A 401(K) PLAN?
The Plan is not a qualified retirement plan and, therefore, does not have the
same tax deferral benefits, nor is the Plan subject to any provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA"). Your participation
in the Plan does not affect your ability to participate in any 401(k) plan of
Lumisys.
20. DO SPECIAL RULES APPLY TO ME IF I AM OR BECOME AN INSIDER OF LUMISYS?
Yes. If you are or become an insider, you should be aware of tax and
securities laws which apply to grants of options to you and to your
transactions in stock received upon the exercise of options. You must comply
with Lumisys's policy permitting insiders to sell shares only during certain
"window" periods, and you are subject to special rules regarding the sale of
Lumisys's stock, such as the limitations on the amount you can sell found in
Rule 144 and the restrictions on timing of purchases and sales found in
Section 16 of the Exchange Act. If you need information about how Section 16
or Rule 144 operates, you should contact Lumisys. You must check with the
Vice President, Finance of Lumisys before selling any shares.
Part II
Tax Issues Relating to your CompuRAD Option
The information in this Part II and the examples in Part III respond to
questions you may have about the United States federal tax consequences of
your CompuRAD Option. You should understand, however, that this tax
information is not complete. For example, it does not address state or local
tax laws or the application of laws if you are subject to tax laws in other
countries. Furthermore, because tax laws and regulations may change, and
interpretations of these laws and regulations can change the way the laws and
regulations apply to you, this information may need to be updated after the
issuance of this prospectus. Therefore, you should consult with a tax advisor
if you have questions relating to the tax consequences of your CompuRAD
Option, and the sale of shares received under your option.
The following table should help you locate particular questions you may have
with regard to the United States federal tax consequences of your
participation in the Plan.
Relevant
Type of Information Questions and Answers
For information regarding the
tax consequences associated with
the exercise of a nonstatutory
stock option and transfer of the
acquired stock 21, 22, 23, 24
For information regarding the tax
consequences associated with
the exercise of an incentive stock
stock option and transfer of the
acquired stock 24, 25, 26, 27, 28
For information regarding the tax
consequences of using shares
of stock already owned to pay
the exercise price of an option 29, 30
For information relating to the
alternative minimum tax 31
For information regarding special
rules relating to Lumisys'
right to repurchase stock after
exercise of an option 32
For information regarding special
rules relating to insiders 32
For information regarding certain
golden parachute payments 33
21. DO I HAVE TO PAY TAX WHEN I RECEIVE OR EXERCISE A NONSTATUTORY STOCK
OPTION?
If you were granted a nonstatutory stock option, neither you nor CompuRAD paid
a tax (or received a deduction) upon grant of your CompuRAD Option. If you
exercise your option when the market price of the stock is higher than the
exercise price of your option, you generally will be required to pay tax on
the "profit," that is, the difference between the exercise price and the
market price of the stock on the date of exercise. Your profit on the
exercise will be characterized as ordinary income, and Lumisys will be
entitled to a deduction for this amount.
22. WILL LUMISYS WITHHOLD THE AMOUNT OF TAXES DUE ON EXERCISE OF MY
NONSTATUTORY STOCK OPTION?
If you are an employee, Lumisys can take a business expense deduction on the
amount of the profit you receive upon exercise of your CompuRAD Option.
However, only when an employee exercises a nonstatutory stock option is
Lumisys required by the IRS to withhold United States federal income and
employment taxes from the profit or to otherwise ensure that the tax due will
be paid to the IRS. Additional amounts usually will be withheld for state
taxes. With respect to nonemployees (such as consultants and non-employee
directors), Lumisys is not obligated to withhold United States federal income
tax and employment tax on any profit. Payroll will be able to answer any
questions you may have concerning withholding.
23. HOW MUCH TAX DO I PAY WHEN I SELL STOCK RECEIVED PURSUANT TO THE EXERCISE
OF A NONSTATUTORY STOCK OPTION?
If you exercise your nonstatutory stock option when the exercise price is
lower than the market price, you generally will pay tax on the difference
between the two. Upon the sale of your stock (or other taxable transfer), you
generally will recognize a gain or loss equal to the difference between the
sales price and the market price at the time of exercise. Your gain or loss
will be characterized as:
- long-term if the stock was held for more than 18 months,
- mid-term if the stock was held for more than 12 months but not more
than 18 months, or
- short-term if the stock was held for 12 months or less.
24. WHAT IS THE DIFFERENCE BETWEEN ORDINARY INCOME AND CAPITAL GAINS AND
LOSSES FOR UNITED STATES FEDERAL INCOME TAX PURPOSES?
The maximum marginal tax rate applicable to ordinary income and short-term
capital gains is 39.6%. Currently, the maximum marginal tax rate is 20% for
long-term capital gains (shares held more than 18 months) and 28% for mid-term
capital gains (shares held more than 12 months but not more than 18 months).
Even lower rates may apply to taxpayers in the 15% marginal income tax
bracket. Additionally, capital gains and losses are subject to certain other
provisions of the Code not applicable to ordinary income. Consult your tax
advisor for more information regarding the rates that apply to you.
25. DO I HAVE TO PAY TAX WHEN I RECEIVE OR EXERCISE AN INCENTIVE STOCK OPTION?
If you were granted an incentive stock option, neither you nor CompuRAD paid a
tax (or received a deduction) upon grant of your CompuRAD Option. Except for
the possible application of the alternative minimum tax (see Question 31), you
will pay no tax upon exercise of your option until you dispose of the stock
you acquire. For exceptions to these general rules with respect to early
exercise programs and, in some cases, insiders, see Question 32.
26. HOW IS MY PROFIT TAXED WHEN I DO DISPOSE OF THE STOCK RECEIVED ON EXERCISE
OF AN INCENTIVE STOCK OPTION? WHAT IF I LOSE MONEY?
How your profit or loss is characterized will depend on how much time passed
after both the date the incentive stock option was granted and the date you
exercised the option.
- If the date on which you dispose of the stock is at least two years
from the date on which the option was granted and at least one year from the
date on which you exercised the option, your entire gain or loss is
characterized as mid-term or long-term capital gain or loss.
- If you dispose of your stock within two years from the date on which
the option was granted or within one year from the date on which you exercised
your option, a portion of your profit will be characterized as ordinary income
and the transfer will be a "disqualifying disposition."
You should be aware that transfer of legal title to the stock received upon
exercise of an incentive stock option in a transaction that is not a sale may
still be taxable as a disposition of the stock. Such transfers include most
gifts, but do not include a transfer into joint ownership with right of
survivorship if you remain one of the joint owners, a pledge or a transfer by
bequest or inheritance, certain tax-free exchanges or certain transfers to a
spouse or former spouse incident to a divorce.
The portion of your profit which is characterized as ordinary income upon a
disqualifying disposition is equal to the lesser of:
- the difference between the market price of the stock on the date you
exercised the option and the exercise price of the option or
- the difference between the sales price and the exercise price of the
option.
Any profit you make over the amount characterized as ordinary income is
characterized as capital gain, which will be long-term, mid-term or short-term
depending on how long you held your stock. For an example of how these rules
are applied, see Example A in Part III. If you lose money on the sale of the
stock, you may be able to report the loss as a capital loss, which will be
long-term or short-term depending on whether or not the stock was held for
more than one year from the exercise date.
Different rules will apply if, under the Code, you would not be entitled to
report a loss on the sale of your stock if you were to lose money on the sale.
For example, if you sell your stock to your spouse at a loss, you are not
entitled to report the sale as a loss, and any subsequent tax consequences on
the further disposition of the stock are determined under special rules that
govern such situations. If you sell your stock to your spouse, whether or not
at a loss, you will be taxed on the difference between the market price of the
stock on the exercise date and the exercise price. Other dispositions of
stock, described in the Code, may have similar consequences.
27. IS THERE ANY WITHHOLDING ON THE EXERCISE OF MY INCENTIVE STOCK OPTION OR
THE SALE OF THE STOCK ACQUIRED ON EXERCISE?
Currently, there is no withholding required upon the exercise of an incentive
stock option or on the sale of stock acquired on exercise. Lumisys is
generally required to report to the IRS any ordinary income recognized by you
as a result of a sale which is a disqualifying disposition described in
Question 26. Lumisys may be required in the future to withhold taxes at the
time you exercise an incentive stock option or dispose of stock acquired on
exercise of the option.
28. DO I HAVE TO COMPLETE ANY LUMISYS FORMS AFTER I SELL MY STOCK?
Yes. If you dispose of stock received pursuant to an incentive stock option
within two years after the date the option was granted to you or within one
year after you exercise your option, you should immediately notify Lumisys and
provide certain details of such transaction on a form provided to you (or
which is available from the Vice President, Finance of Lumisys).
29. WHAT ARE THE TAX CONSEQUENCES IF I USE SHARES I ALREADY OWN TO PAY THE
EXERCISE PRICE OF MY NONSTATUTORY STOCK OPTION?
If you pay the exercise price of your nonstatutory stock option with shares of
Lumisys which you already own, you will have a tax-free exchange of the
previously held shares of stock for an equivalent number of the shares of
stock received under the CompuRAD Option. If you receive additional shares in
the exchange, you will pay taxes on ordinary income equal to the difference
between the market value (on the date of exercise) of such additional shares
plus the amount of cash, if any, you paid upon exercise.
The tax basis and capital-gain holding period of the equivalent shares
received under the option in the tax-free exchange will be the same as the tax
basis and holding period of the shares used to pay the exercise price. The
tax basis of the additional shares you receive will equal the amount of
ordinary income you had to report plus the amount of any cash paid on
exercise, and your holding period for the additional shares will begin on the
date of exercise. For an example of how these rules are applied, see
Example B in Part III.
30. WHAT ARE THE TAX CONSEQUENCES IF I USE SHARES I ALREADY OWN TO PAY THE
EXERCISE PRICE OF AN INCENTIVE STOCK OPTION?
Under proposed IRS regulations, if you pay the exercise price of an incentive
stock option, in whole or in part, with shares you already own, you are deemed
to have made a tax-free exchange of the previously-held shares for an
equivalent number of shares received under the CompuRAD Option.
However, ordinary income could be recognized (see Question 26) if the already
owned shares were acquired upon exercise of an incentive stock option or under
an employee stock purchase plan as defined in Section 423 of the Code and the
exchange were treated as a disposition. The exchange will be treated as a
disposition if the already owned shares are exchanged within two years of the
grant date of the option relating to the already owned shares or within one
year after the exercise date. The tax basis, holding periods and consequences
of a subsequent disposition of the shares will depend on whether the shares
disposed of are equivalent shares or additional shares received at the time of
exercise ("additional shares").
For purposes of calculating any capital gain or loss upon a subsequent taxable
disposition, your basis in the equivalent shares will be equal to your basis
in the shares surrendered plus any ordinary income recognized by reason of the
exchange, and the holding period of the surrendered shares will carry over to
the equivalent shares. However, for purposes of calculating any ordinary
income on a subsequent disqualifying disposition, the amount treated as having
been paid for the equivalent shares will be equal to their fair market value
on the exercise date, and the holding period for such shares will begin on the
exercise date.
It appears that your basis in any additional shares, for purposes of
calculating any capital gain upon a later disposition, will be the amount of
cash, if any, used to pay any part of the exercise price. For purposes of
calculating any ordinary income upon a disqualifying disposition of the
additional shares, the amount treated as having been paid for the additional
shares will be the amount of cash, if any, used to pay any part of the
exercise price. The holding period for the additional shares will begin on
the exercise date for all purposes.
If there is a disqualifying disposition of shares acquired upon exercise of an
incentive stock option with stock, the shares with the lowest basis will be
treated as having been disposed of first. For an example of how these rules
are applied, see Example C in Part III.
31. WHAT ARE THE TAX CONSEQUENCES OF MY EXERCISE OF AN INCENTIVE STOCK OPTION
IF I AM SUBJECT TO THE ALTERNATIVE MINIMUM TAX?
The alternative minimum tax is a separately computed tax equal to 26% of so
much of your "alternative minimum taxable income" up to $175,000 ($87,500 in
the case of a married taxpayer filing a separate return) as exceeds a
specified exemption amount plus 28% on any additional alternative minimum
taxable income. The alternative minimum tax is imposed only if and to the
extent you would pay more tax if your taxes are computed pursuant to the
alternative minimum tax rules than the tax you would pay if computed in the
regular manner. The alternative minimum tax takes into account what are
called tax preference items and other adjustments that are not taken into
account when calculating taxes in the regular manner. One of the adjustments
is the inclusion in alternative minimum taxable income of the difference
between the exercise price of an incentive stock option and the market price
of the stock on the exercise date, if that amount constitutes a profit. If
you pay alternative minimum tax upon exercise of an incentive stock option,
you are entitled to a credit against regular tax (but not alternative minimum
tax) in later years. When you sell the stock, you are allowed, for purposes
of calculating your alternative minimum tax in the year of sale, to decrease
the profit by the adjustment amount previously included in your alternative
minimum taxable income in the year of exercise.
If you are subject to a risk for forfeiture (see Question 32) the amount of
the adjustment will be calculated using market prices on the dates the
forfeiture lapses rather than the date you exercise the option, and the
adjustment must be made in the year in which the risk of forfeiture
disappears. It may be possible, however, to make a valid election under
Section 83(b) of the Code within 30 days of the exercise date to have the
market price on the exercise date be the price used in calculating your
alternative minimum tax and to make the adjustment in the year of exercise.
However, if a Section 83(b) election is made, there may be implications for
purposes of calculating ordinary income, if any, if there is a disqualifying
disposition (see Questions 26 and 32).
32. ARE THERE ANY SPECIAL TAX RULES WHICH APPLY TO ME IF LUMISYS HAS THE RIGHT
TO REPURCHASE MY STOCK AFTER I EXERCISE MY COMPURAD OPTION OR IF I AM SUBJECT
TO SECTION 16?
Yes. If Lumisys has the right to repurchase your stock after you exercise
your CompuRAD Option, generally it is because, under the terms of your option,
you were allowed to exercise all of your option, even the unvested portion.
In this situation Lumisys will retain a right to repurchase any unvested
shares until they vest. If Lumisys has the right to repurchase your stock
after you exercise your option, your stock is subject to what is called a
"risk of forfeiture."
There is a small chance that stock received upon exercise of an option within
six months of the grant date may also be subject to a risk of forfeiture if
you are an insider at that time. You should consult with your personal tax
advisor if this applies to you. You are subject to Section 16 only if you are
an insider. See Question 20. If there is a risk of forfeiture, the amount of
ordinary income you must report and the time at which you must report your
income may be different than described above. The special tax rules
applicable to nonstatutory stock options and incentive stock options where a
"risk of forfeiture" is present are as follows:
Nonstatutory Stock Option.
In the case of stock issued pursuant to a nonstatutory stock option and
subject to a risk of forfeiture, you do not recognize ordinary income on the
date of exercise but, instead, you will recognize ordinary income on the
date(s) the risk of forfeiture with respect to the shares disappears (e.g.,
the date Lumisys no longer has the right to repurchase the stock or the date
you are not liable to forfeiture under the Exchange Act). The amount of such
ordinary income is the excess, if any, of the market price of the stock on the
date(s) the risk of forfeiture disappears, over the exercise price paid for
such shares.
When you later sell your shares, any additional gain or any loss will be
characterized as capital gain or loss, which will be long-term, mid-term or
short-term depending on how long you held your stock. For an example of how
these rules are applied, see Example D in Part III.
The recently widened gap between the 20% capital gain rate and the 39.6%
ordinary income tax rate (plus the unlimited medicare 1.45% tax payable by
both the optionee and Lumisys, that is, 2.9%) make the filing of a Section
83(b) election to avoid this result more attractive. You can file what is
called a Section 83(b) election within 30 days after the exercise of the
option and report ordinary income equal to the difference, if any, between the
market price and the exercise price on the date of exercise. When you later
sell your shares, any additional gain or any loss will be characterized as
capital gain or loss, which will be long-term, mid-term or short-term
depending on how long you held your stock. You should be aware, however, that
if you file a Section 83(b) election, the market price of the shares may not
increase enough to justify the early tax payment. In addition, if you
subsequently forfeit your profit from the shares because, for example, you
leave Lumisys and Lumisys repurchases the shares at cost, there will be no
offsetting tax deduction (that is, you will not be able to report the amount
you paid in taxes as a loss on the stock) and you will not get a refund of any
of the tax paid).
Incentive Stock Option.
If stock you receive pursuant to the exercise of an incentive stock option is
subject to a risk of forfeiture and you dispose of the stock after the risk of
forfeiture lapses in a disqualifying disposition (see Question 26), the amount
of ordinary income you must report is calculated differently. In this case,
the amount of ordinary income generally is equal to the lesser of:
- the excess, if any, of the market price of the stock on the date(s)
the risk of forfeiture disappears over the exercise price paid for such stock,
or
- the profit, if any, on the sale of the stock.
If your profit is more than the amount that must be reported as ordinary
income, then the remainder of the profit is characterized as capital gain,
which will be long-term, mid-term or short-term depending on how long you held
your stock. For an example of how these rules are applied, see Example E in
Part III. If you wish to avoid this result, you may be able to make the
Section 83(b) election discussed earlier in this question. If the election is
filed, your ordinary income should be calculated in the manner described in
Question 26.
Please contact the Vice President, Finance of Lumisys for further information
and the form of election if you think you should be filing a Section 83(b)
election. Remember that this must be done within 30 days after you exercise
your option. Filing a Section 83(b) election also may affect your alternative
minimum tax liability, if any (see Question 31).
33. WHAT HAPPENS IF THE VESTING OF MY COMPURAD OPTION ACCELERATES UPON A
CHANGE OF CONTROL?
If there is a change in control of Lumisys (see Question 9), payments received
by certain persons that are contingent upon the change in control may
constitute "parachute payments." If, by reason of such change in control, the
exercisability of outstanding CompuRAD Options is accelerated, the value of
the acceleration is added to other contingent payments, if any, in determining
whether the person has received "excess parachute payments." In general, if a
person receives excess parachute payments, an excise tax equal to 20% of the
amount of such excess parachute payments is imposed on the person and Lumisys
does not receive a deduction for such amount.
PART III
EXAMPLES
EXAMPLE A (QUESTION 26): DISQUALIFYING DISPOSITION OF AN INCENTIVE STOCK
OPTION
Assume for the purposes of this example only that you were granted an
incentive stock option on April 1, 1997 for 10 shares at an exercise price of
$8 per share. You exercise the option on April 1, 1998 when the market price
is $10 per share, and you sell the stock on October 1, 1998 when the market
price is $9 per share for a $10 aggregate gain. Because you did not hold the
stock until a date which is at least two years after the grant date and one
year from the exercise date, all or a portion of your gain is ordinary income.
The amount of ordinary income per share in this case is equal to the lesser
of (a) $10 (market price on exercise date) - $8 (exercise price) = $2 per
share or (b) $9 (sale price) - $8 (exercise price) = $1 per share. Therefore,
the amount of ordinary income is equal to $1 per share, or $10 in the
aggregate.
EXAMPLE B (QUESTION 29): STOCK FOR STOCK EXERCISE OF A NONSTATUTORY STOCK
OPTION
Assume for the purposes of this example only that on April 1, 1997 you bought
10 shares of stock on the open market when the market price was $6 per share.
On April 1, 1998, when the market price is $10 per share, you exercise a
nonstatutory stock option to purchase 20 shares at an exercise price of $9 per
share for an aggregate exercise price of $180. Using all of your previously
owned shares to pay $100 of the exercise price (10 shares x $10 market price),
you pay $80 cash for the remainder of the exercise price. On the date of
exercise you are deemed to have a tax-free exchange of the 10 previously owned
shares for 10 equivalent new shares. You will also recognize ordinary income
of $20, equal to the market price of the 10 additional new shares you receive,
$100, minus the amount of cash you paid on exercise, $80.
If you sell all 20 shares which you received upon exercise of the option for
$11 per share on June 1, 1998, you will recognize a $5 per share gain on the
10 equivalent new shares ($11 per share - $6 per share, $6 per share being the
purchase price of original shares), which will be mid-term capital gain
because you are allowed to add the 12-month period which you held the original
10 shares to the two-month period you held the 10 equivalent new shares. You
will also recognize a $10 aggregate gain on the 10 additional new shares,
calculated as follows: $110 (10 shares x $11 market price) minus the sum of
(a) $80 (the amount of cash paid for the shares) and (b) $20 (the amount of
income recognized upon exercise of the option). This gain will be
characterized as short-term capital gain because you held the stock for only
two months.
EXAMPLE C (QUESTION 30): STOCK FOR STOCK EXERCISE OF AN INCENTIVE STOCK
OPTION
Assume for the purposes of this example only that you purchased 18 shares on
the open market for $6 per share on April 1, 1997. On May 1, 1997, when the
market price is $10 per share, you exercise an incentive stock option to
purchase 20 shares at an exercise price of $9 per share for an aggregate
exercise price of $180, using your 18 previously owned shares to pay the
exercise price. On the exercise date, you are deemed to have made a tax-free
exchange of the 18 previously owned shares for 18 equivalent new shares and to
have acquired two additional new shares.
Because the shares delivered in payment of the exercise price were previously-
owned shares not acquired upon exercise of an incentive stock option or an
employee stock purchase plan complying with Code Section 423, no disqualifying
disposition occurred in the exchange and no ordinary income was recognized at
the time of the exchange. (However, you may recognize some alternative
minimum taxable income.) Therefore, the basis in the 18 equivalent new shares
is the same as the basis of the original shares: $6 per share. However, for
purposes of calculating ordinary income if there is a subsequent disqualifying
disposition, the amount treated as having been paid for such equivalent new
shares is equal to their fair market value on the exercise date ($10 per
share). The basis in the two additional new shares is $0.
If you sell 15 of the shares on April 1, 1999 at $11 per share, such shares
are deemed to be sold in a disqualifying disposition because the disposition
is less than one year after the May 1, 1999 exercise date. Since the
additional new shares have a lower basis ($0) than the equivalent new shares
($6 per share), they will be treated as having been disposed of first
(assuming you have not designated which of the shares are being sold).
Therefore, you will be considered to have sold the two additional new shares
and 13 of the equivalent new shares.
You will recognize no ordinary income with respect to the equivalent new
shares since there is no difference between their fair market value on the
exercise date and the amount treated as having been paid for such shares.
However, you will recognize capital gain with respect to the equivalent new
shares in the amount of $65 (13 shares x $5 per share, $5 per share being the
$11 sale price minus the $6 basis). Such capital gain will be long-term since
the holding period for such equivalent new shares includes the holding period
for the original shares exchanged therefor and is 20 months.
You will recognize ordinary income with respect to the additional new shares
in the amount of $20 (2 shares x $10 per share, $10 per share being the $10
fair market value on the exercise date minus the $0 basis). You will
recognize capital gain on such additional new shares in the amount of $2 (2
shares x $1 per share, $1 per share being the $11 sale price minus the $10
recognized as ordinary income). Such capital gain will be short-term since
the holding period for such additional new shares begins on the exercise date
and is, therefore, only seven months.
EXAMPLE D (QUESTION 32): RISKS OF FORFEITURE AND NONSTATUTORY STOCK OPTIONS
Assume for the purposes of this example only that on April 1, 1997 you are
granted a nonstatutory option to purchase 20 shares of stock for $8 per share.
You may exercise the option immediately, but Lumisys has the right to
repurchase all of the stock at the price you paid for it if you leave Lumisys
before July 1, 1998, 15 shares if you leave before October 1, 1997, 10 shares
if you leave before January 1, 1998 and five shares if you leave before
April 1, 1998. On May 20, 1997 you exercise your option with respect to all
of the shares when the market price is $10. Normally you would owe tax on
$40, the difference between the $160 aggregate exercise price and the $200
aggregate market price on the date of exercise. However, because all the
shares are subject to a risk of forfeiture, you do not calculate the tax on
May 20 but on each day that a risk of forfeiture disappears. For example,
assume that on July 1, 1997 the market price is $11 per share. On that date
the risk of forfeiture disappears with respect to five shares because Lumisys
no longer has the right to repurchase five of your 20 shares. Accordingly,
tax is calculated as follows:
Number of shares no longer subject to vesting 5
Exercise price of option $ 8
market price on July 1 $11
Amount on which tax is due $15
($3 per share x 5 shares)
On October 1, 1997, January 1, 1998 and April 1, 1998 you may owe additional
tax depending on the market price of the stock on those days.
If the market price of the stock is higher on the date the risk of forfeiture
lapses with respect to any block of shares than it is on the exercise date,
you will end up paying more ordinary income tax with respect to such block of
shares as a result of your exercise of the option than you would have if the
stock you received upon exercise had not been subject to a risk of forfeiture
and you owed tax only on the difference between the exercise price and the
market price on the date of exercise.
EXAMPLE E (QUESTION 32): RISKS OF FORFEITURE AND INCENTIVE STOCK OPTIONS
Assume for the purposes of this example only that on April 1, 1997 you
received an incentive stock option for 15 shares at an exercise price per
share of $10. The terms of the option indicated that you vested in only five
shares initially with the remainder of the shares vesting at a rate of five
shares per quarter. On May 1, 1997 you exercise the option when the stock is
worth $10 per share. You do not have to pay any tax at the time of exercise.
On July 1, 1997, when the first five shares of the remaining shares vest, the
market price is $11 per share and on October 1, 1997, when the second five
shares of the remaining shares vest, the market price is $9 per share. On
November 1, 1997 you sell the 15 shares when the market price is $12 per share
for a total gain of $30 (15 x $2). Because you did not hold the stock for at
least one year from the exercise date and two years from the grant date, the
sale is a disqualifying disposition.
To calculate the ordinary income from the disqualifying disposition, you first
calculate the excess, if any, of the market price of the stock on the exercise
date, or, if later, the date(s) the risk of forfeiture disappeared, over the
exercise price of $10 (the spread). The lesser of this amount or your actual
gain on the purchase and sale represents the ordinary income you must
recognize.
Exercise date May 1, 1997
Number of shares not subject to vesting on exercise date 5
Exercise price per share $10
market price per share on May 1, 1998 $10
Spread per share on exercise date -0-
Actual gain per share on purchase and sale $ 2
Lesser of spread on exercise date and gain -0-
Ordinary income per share on which tax is due -0-
Vesting date July 1, 1997
Additional number of shares no longer subject to vesting 5
Exercise price per share $10
market price per share on July 1, 1998 $11
Spread per share on July 1, 1998 $ 1
Actual gain per share on purchase and sale $ 2
Lesser of spread when risk
of forfeiture disappears and actual gain $ 1
Ordinary income per share on which tax is due $ 1
Vesting date October 1, 1997
Additional number of shares no longer subject to vesting 5
Exercise price per share $10
market price per share on October 1, 1998 $ 9
Spread per share on October 1, 1998 -0-
Actual gain per share on purchase and sale $ 2
Lesser of spread when risk
of forfeiture disappears and actual gain -0-
Ordinary income per share on which tax is due -0-
There is an excess of the market price of the stock on the later of the
exercise date or the date the risk of forfeiture lapsed, over the exercise
price only with respect to the five shares which vest on July 1, 1998.
Therefore, $5 of gain (5 shares x $1 per share) will be treated as ordinary
income. The remainder of the gain ($30 - $5 = $25) will be short-term capital
gain.
EXHIBIT 99.4
PROSPECTUS FOR OPTIONS GRANTED
UNDER THE COMPURAD, INC.
STOCK OPTION PLAN ASSUMED BY LUMISYS INCORPORATED
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING
SECURITIES THAT HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933.
The date of this document is November 25, 1997
________________________________
PROSPECTUS FOR OPTIONS GRANTED UNDER THE
COMPURAD, INC. STOCK OPTION PLAN
ASSUMED BY LUMISYS INCORPORATED
________________________________
To Our Optionees:
As a result of the merger on November 25, 1997 of an affiliate of Lumisys
Incorporated ("Lumisys") with and into CompuRAD, Inc. ("CompuRAD"), CompuRAD
became a wholly owned subsidiary of Lumisys (the "Merger"). As part of the
Merger, options originally granted to you by CompuRAD under the Stock Option
Plan (the "Plan") have been assumed by Lumisys. We are pleased with this
opportunity to provide you with information regarding the option granted to
you by CompuRAD (the "CompuRAD Options") under the Plan. We believe that your
CompuRAD Option is an important part of the benefits provided to you and hope
you will take the time to review this information carefully.
Each CompuRAD Option assumed by Lumisys has been converted into an option to
purchase that number of shares of Lumisys common stock determined by
multiplying the number of shares of CompuRAD common stock for which you hold
CompuRAD Options by 0.928 and rounding down to the nearest whole number (with
cash, less the applicable exercise price, being payable for any fraction of a
share). The exercise price per share will be equal to the exercise price of
the CompuRAD Options divided by 0.928 rounded up to the nearest cent. The
other terms of each CompuRAD Option, including tax status and vesting, will
remain unchanged.
We have divided our discussion of the Plan into three parts. The first part
of this document describes the terms of the Plan, which provides for the grant
of nonstatutory stock options (options which do not have tax advantages). The
second and third parts of this document describe the tax consequences relating
to your CompuRAD Option.
The following information and attached materials may not answer all the
questions you have about the Plan or about Lumisys' assumption of the CompuRAD
Options and are not intended to go into every detail. The Vice President,
Finance of Lumisys at (408) 733-6565 will be happy to answer further
questions. A copy of the Plan and an exercise form are attached at the end of
this package. If you wish to exercise your CompuRAD Option, you will need to
complete the exercise form. You may always obtain copies of the exercise form
from Lumisys.
INFORMATION ABOUT LUMISYS
An important part of your CompuRAD Option is understanding Lumisys, its
operations and its financial condition. You can keep yourself informed about
Lumisys by reviewing reports and other documents which Lumisys prepares for
stockholders and the general public and which will be provided to you (as
discussed below). If you become a stockholder of Lumisys, you will be
entitled to attend stockholder meetings and to vote in the election of
directors and on other matters brought before the stockholders.
If you have not already received a copy of Lumisys's current annual report as
a stockholder of Lumisys, this information should be delivered to you with
these materials. Whether or not you have already received this information,
you may always request a copy from Lumisys.
In addition,the United States federal securities laws require Lumisys to
provide information about its business and financial status in annual reports
commonly known as "10-Ks" and quarterly reports commonly known as "10-Qs."
These reports are filed with the Securities and Exchange Commission (the
"Commission"). In addition, if certain important corporate events occur
during the year, Lumisys may file reports commonly known as "8-Ks." Lumisys
also prepares and files with the Commission a proxy statement in connection
with its annual meeting of stockholders. The proxy statement provides further
information about Lumisys and its officers, directors and major stockholders.
From time to time Lumisys may also file other documents with the Commission
as required by Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
All of these documents constitute part of the information required by the
securities laws to be provided or made available to you in connection with
your CompuRAD Option; that is, these documents are incorporated by reference
into these materials, which constitute the prospectus for the Plan. For a
copy of these documents, all of which are available without charge and upon
written or oral request, please contact Dean MacIntosh, Vice President,
Finance, of Lumisys.
* * * *
QUESTION INDEX
Question Page
1. Who determined whether I received an option and the terms of
my option and how many shares of common stock it covered? 9
2. My CompuRAD Option is a nonstatutory stock option. What is the
difference between an incentive stock option and a nonstatutory
stock option? 10
3. How was the exercise price of my CompuRAD Option determined? 11
4. When can I exercise my CompuRAD Option? 11
5. How do I exercise my CompuRAD Option? 11
6. Do I have to pay the exercise price with cash? 11
7. I have heard about cashless exercise programs through brokers.
How do these work? 12
8. Will I continue to receive options under the Plan as long as
I continue providing services to Lumisys? 12
9. Can the terms of my CompuRAD Option be changed? 13
10. What happens if I leave Lumisys? 13
11. What if I leave Lumisys because of disability? 13
12. What are the rights of my heirs upon my death? 13
13. Can a relative or friend exercise my CompuRAD Option? 14
14. Can I sell the stock I receive from exercising my CompuRAD
Option right away? 14
15. If I am aware of important non-public information, can I
sell my stock before this news is disclosed to the public?
For example, if I know Lumisys is having significant problems
or that Lumisys is about to acquire a competitor, can I sell
my stock before Lumisys puts out a press release? 14
16. Do I pay a commission when I exercise my CompuRAD Option or
sell the stock? 15
17. How can I make a gift of the stock I receive upon exercising
my CompuRAD Option? 15
18. Does Lumisys pay dividends on its common stock? 15
19. Does the Plan have any of the same benefits as a qualified
retirement plan (including a 401(k) plan) and will my
participation in the Plan affect my participation in a
401(k) plan? 15
20. Do special rules apply to me if I am or become an insider
of Lumisys? 15
21. Do I have to pay tax when I receive or exercise my CompuRAD
option? 18
22. Will Lumisys withhold the amount of taxes due on exercise of my
CompuRAD option? 18
23. How much tax do I pay when I sell stock received pursuant to
the exercise of my CompuRAD option? 18
24. What is the difference between ordinary income and capital
gains and losses for United States federal income tax purposes? 19
25. What are the tax consequences if I use shares I already own
to pay the exercise price of my CompuRAD option? 21
26. Are there any special tax rules which apply to me if I am
subject to Section 16? 18
27. What happens if the vesting of my CompuRAD Option accelerates
upon a change of control? 19
Part I
Terms of the Plan
Part I provides general information about the Plan. Parts II and III describe
the various tax consequences to you of your participation in the Plan. The
following table should help you locate particular questions you may have with
regard to participation in the Plan. A similar table regarding tax questions
you may have is found in Part II.
Relevant
Type of Information Questions and Answers
For information regarding participation
in the Plan 1, 8, 9
For information regarding the terms
of options 1, 2, 3
For information regarding the exercise
of options 4, 5, 6, 7, 12, 13
For information regarding the status
of options if your service
is terminated 10, 11, 12
For information regarding the disposition
(e.g. sale) of stock received upon
exercise of options 14, 15, 16, 17
For general information regarding the Plan
and "insider" rules 18, 19, 20
1. WHO DETERMINED WHETHER I RECEIVED AN OPTION AND THE TERMS OF MY OPTION AND
HOW MANY SHARES OF COMMON STOCK IT COVERED?
The decision to grant an option to any particular individual was made by the
CompuRAD Board of Directors (the "CompuRAD Board") or by a committee of the
CompuRAD Board generally after review of input from management. The Plan
provided for the grant of options to employees, directors and consultants
covering an aggregate of 500,000 shares of CompuRAD's common stock. When the
CompuRAD Board (or committee) granted your CompuRAD Option, it had the
discretion to determine the terms of the option, including the number of
shares the option covered.
The Lumisys Board of Directors (the "Lumisys Board") now administers the
CompuRAD Options and has the power to interpret them. Information about the
current members of the Lumisys Board is provided in Lumisys' proxy statement
for its last annual meeting. You may obtain additional information about the
administration of the CompuRAD Options by contacting the Vice President,
Finance of Lumisys.
When administration of the CompuRAD Options is delegated to a committee, the
Lumisys Board retains the right to revert authority to construe and interpret
the options back to itself. References to the Lumisys Board in this document
should be construed as references to the committee, as applicable.
2. MY COMPURAD OPTION IS A NONSTATUTORY STOCK OPTION. WHAT IS THE DIFFERENCE
BETWEEN AN INCENTIVE STOCK OPTION AND A NONSTATUTORY STOCK OPTION?
The Plan provided only for the grant of nonstatutory stock options which do
not qualify for the potentially favorable tax treatment provided to the
holders of incentive stock options under the Internal Revenue Code of 1986, as
amended (the "Code").
Upon the exercise of your CompuRAD Option, you generally will be taxed based
on the difference between the exercise price of your option and the fair
market value of the stock on the date of exercise. (See Question 21.) Upon
the exercise of an incentive stock option, on the other hand, an optionee is
typically not subject to tax. The deferral of the recognition of tax until
the time of sale of the stock, as well as the possible treatment of the
"spread" as capital gain, are the principal advantages of incentive stock
options. However, incentive stock options have certain limitations on their
exercise price, terms, transferability and duration which are not applicable
to your CompuRAD Option.
3. HOW WAS THE EXERCISE PRICE OF MY COMPURAD OPTION DETERMINED?
The Plan provided that the CompuRAD Board set the exercise price for your
option at the net book value of a share of CompuRAD common stock on the last
day of the month prior to the grant date. The exercise price for each share
of Lumisys common stock now covered by your CompuRAD Option, as assumed by
Lumisys, is the exercise price per share of CompuRAD stock under the option
immediately before the Merger divided by 0.928, rounded up to the nearest
cent.
4. WHEN CAN I EXERCISE MY COMPURAD OPTION?
When the CompuRAD Board granted your CompuRAD Option, it also determined
certain terms of the option, including the date or dates after which the
option may be exercised. You should check your option agreement to determine
the date(s) on which your shares become exercisable, or "vest." (However,
your option may provide that you can exercise your option as to unvested
shares subject to Lumisys's right to repurchase "unvested" shares.) CompuRAD
Options may have a term of 15 years, so you must exercise your option before
it expires at the end of the 15-year period. For example, if your option was
granted on February 1, 1995 and has a full 15-year term, it must be exercised
before February 1, 2010. The terms of exercise of options are not required to
be the same for every optionee. (For example, each option may have a
different vesting period or may tie acceleration of vesting to the achievement
of certain performance goals.) Please review your option grant carefully to
be sure that you understand its specific terms and conditions.
5. HOW DO I EXERCISE MY COMPURAD OPTION?
You exercise your CompuRAD Option by completing an option exercise form and
delivering the form, together with payment of the exercise price (see
Question 6 below), to the Vice President, Finance of Lumisys. You can obtain
option exercise forms from the Vice President, Finance.
6. DO I HAVE TO PAY THE EXERCISE PRICE WITH CASH?
You may always pay the exercise price with cash. However, your CompuRAD
Option may provide that the exercise price also may be paid with other
consideration (for example, by delivery to Lumisys of other unencumbered
common stock of Lumisys you already own with a value equal to the aggregate
option exercise price or according to a deferred payment or other
arrangement). You should review the terms of your option which describes
specifically the manner in which the exercise price may by paid. You may be
able to do a cashless exercise through a broker. See Question 7.
7. I HAVE HEARD ABOUT CASHLESS EXERCISE PROGRAMS THROUGH BROKERS. HOW DO
THESE WORK?
Cashless exercise programs involve the delivery to a broker of a copy of your
signed and completed option exercise form and your irrevocable instructions to
Lumisys to deliver stock to be received upon exercise of the option to the
broker rather than to you. Under U.S. Treasury Regulation T, the broker can
then deliver cash to Lumisys in payment of the exercise price and, in some
cases, withholding taxes. Lumisys then delivers the stock certificate to the
broker. After the stock is delivered to the broker, the stock can be
maintained as margin stock in an account designated by you, or it can be sold
pursuant to your instructions. However, Lumisys will not participate in any
Regulation T program which would cause stock certificates to be delivered to
the broker before Lumisys has received payment for the exercise price or an
irrevocable guarantee of payment from the sales proceeds. You should contact
the Vice President, Finance of Lumisys for information regarding the cashless
exercise program. If you are an "insider" when you exercise your CompuRAD
Option, you should ensure that your cashless exercises are properly structured
in order to avoid any violation of the prohibition against short sales by
insiders found in Section 16(c) of the Exchange Act. In general, "insiders"
are officers, directors, and 10% stockholders of a publicly-traded company or
an executive officer of a significant subsidiary of such a company.
8. WILL I CONTINUE TO RECEIVE OPTIONS UNDER THE PLAN AS LONG AS I CONTINUE
PROVIDING SERVICES TO LUMISYS?
No, the Lumisys Board cannot grant any additional options under the Plan.
(Nevertheless, your CompuRAD Option will continue in effect and will be
governed by the provisions of the Plan and the stock option agreement
documenting your option.) However, you may be eligible to receive an option
under a Lumisys stock option plan. Whether or not you receive options will
depend on many factors, such as your performance, Lumisys's overall
performance, the Lumisys Board's then current policy and the number of shares
remaining in the Lumisys stock option plan. You should note that Lumisys'
assumption of your CompuRAD Option does not alter any right to terminate your
employment at any time and for any reason, with or without cause, or your
service as a consultant according to the terms of your consultant agreement.
9. CAN THE TERMS OF MY COMPURAD OPTION BE CHANGED?
The Lumisys Board decides whether to change the terms of the CompuRAD Options
but your option will not be adversely affected without your consent. Usually
options are amended to take into account changes in the tax or securities
laws. These changes may be presented to the stockholders of Lumisys for
approval at Lumisys's annual meeting if tax, securities or other laws require
approval of the changes.
If certain changes occur to Lumisys's capitalization, e.g., a stock split or
stock dividend of its common stock, the Lumisys Board will appropriately
adjust the exercise price and number of shares subject to your option. If
Lumisys merges with another company or undergoes certain other types of
capital reorganizations (a "change in control"), then either the surviving
corporation will assume your option (or substitute a similar option for your
option) or the time during which your option may be exercised will be
accelerated. However, if exercisability and vesting are accelerated, your
option will terminate if not exercised prior to such event.
10. WHAT HAPPENS IF I LEAVE LUMISYS?
Whether you leave Lumisys (or an affiliate) voluntarily or your service is
terminated, your right to exercise any vested portion of your CompuRAD Option
generally will terminate three months after your last day of service with
Lumisys. However, the terms of your option may provide that it will terminate
sooner than three months after termination of your service or that it may be
exercised more than three months after such termination. (If the option is an
incentive stock option, it generally must be exercised within three months of
the termination date or it will become a nonstatutory stock option.) You
should check your option agreement. Usually, you will not be able to exercise
any unvested portion of your option once you have left your employment or
terminated your engagement as a consultant.
11. WHAT IF I LEAVE LUMISYS BECAUSE OF DISABILITY?
If your service is terminated because of your disability, you should review
the terms of your CompuRAD Option. Generally, the option will terminate 12
months after your last day of service with Lumisys as determined between you
and Lumisys. You should contact the Vice President, Finance of Lumisys if you
have any questions regarding what constitutes a disability.
12. WHAT ARE THE RIGHTS OF MY HEIRS UPON MY DEATH?
Your estate or persons having rights to your CompuRAD Option by will or by the
laws of descent and distribution will have the right to exercise your option
as to any vested portion of your option if you were still in service at the
time of death or, if so provided in your option, you died within three months
after your service was terminated for any reason. Your option will specify
the date by which the option must be exercised, which usually will be 12
months after your death.
13. CAN A RELATIVE OR FRIEND EXERCISE MY COMPURAD OPTION?
No, unless your CompuRAD Option provides otherwise or the transfer is approved
in advance by formal resolution of the Lumisys Board, generally only you may
exercise your option during your lifetime. While you may not be able to
transfer your option during your lifetime, you may provide for the transfer of
the option upon your death in your will. Under certain circumstances, your
option may be transferred to your former spouse pursuant to a domestic
relations order.
14. CAN I SELL THE STOCK I RECEIVE FROM EXERCISING MY COMPURAD OPTION RIGHT
AWAY?
Generally, yes. The stock you receive upon exercise of your CompuRAD Option
is freely tradeable in most cases and will not bear any restrictive legends
unless you are an insider of Lumisys. See Question 20 if you are an insider
of Lumisys. If the terms of the option permit you to exercise your option
before it is vested, you may not sell shares of stock which Lumisys still has
the right to repurchase.
15. IF I AM AWARE OF IMPORTANT NON-PUBLIC INFORMATION, CAN I SELL MY STOCK
BEFORE THIS NEWS IS DISCLOSED TO THE PUBLIC? FOR EXAMPLE, IF I KNOW LUMISYS
IS HAVING SIGNIFICANT PROBLEMS OR THAT LUMISYS IS ABOUT TO ACQUIRE A
COMPETITOR, CAN I SELL MY STOCK BEFORE LUMISYS PUTS OUT A PRESS RELEASE?
No. If you are aware of important inside information, you must not sell
shares of Lumisys's stock, whether received upon exercise of an option or
otherwise, before dissemination of the information to the public. Basically,
"inside information" is information that is both very important (material) and
non-public (not disclosed through press releases, newspaper articles or
otherwise to the public which buys and sells securities). Whether information
is material will depend on the specific circumstances. A general test is
whether dissemination of the information to the public would be likely to
affect the market price of Lumisys's stock or would be likely to be considered
important by people who are considering whether to buy or sell Lumisys's
stock. Certainly if the information makes you want to buy or sell, it would
probably have the same effect on others. Material information may include
projections, estimates or proposals.
If you are contemplating selling your stock and think you might have "inside
information," you must discuss your possible sale with the Chief Financial
Officer of Lumisys. If, after this discussion, it is determined that the
information is in fact inside information, you must wait to sell your stock
until after the information has been made public.
16. DO I PAY A COMMISSION WHEN I EXERCISE MY COMPURAD OPTION OR I SELL THE
STOCK?
You pay no commission on the exercise of your CompuRAD Option. Generally, to
sell your stock you must take the stock certificate to a stock broker, who can
arrange for its sale. You can expect to be charged a commission if you use a
stock broker. Lumisys will not buy from you, sell on your behalf or assist
you in selling stock which you have purchased under the Plan. Insiders are
subject to restrictions on the sale of their stock. See Question 20.
17. HOW CAN I MAKE A GIFT OF THE STOCK I RECEIVE UPON EXERCISING MY COMPURAD
OPTION?
You may make a gift of stock by delivering the stock certificate, with the
transfer block on the back filled in and signed with the signature guaranteed
by a bank or stock broker (or by delivering the stock certificate together
with an "assignment separate from certificate" filled in, signed and the
signature similarly guaranteed) to the recipient of the gift. The recipient
may then send the certificate and associated paperwork to Lumisys's transfer
agent to have the stock certificate transferred to the recipient's name. The
Vice President, Finance of Lumisys can provide you with the address of the
transfer agent. If you have a brokerage account, your broker will generally
be willing to take care of the mechanics of transfer.
18. DOES LUMISYS PAY DIVIDENDS ON ITS COMMON STOCK?
Lumisys currently is not paying dividends on its common stock and presently
intends to continue this policy in order to retain earnings for use in its
business.
19. DOES THE PLAN HAVE ANY OF THE SAME BENEFITS AS A QUALIFIED RETIREMENT
PLAN (INCLUDING A 401(K) PLAN) AND WILL MY PARTICIPATION IN THE PLAN AFFECT MY
PARTICIPATION IN A 401(K) PLAN?
The Plan is not a qualified retirement plan and, therefore, does not have the
same tax deferral benefits, nor is the Plan subject to any provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA"). Your participation
in the Plan does not affect your ability to participate in any 401(k) plan of
Lumisys.
20. DO SPECIAL RULES APPLY TO ME IF I AM OR BECOME AN INSIDER OF LUMISYS?
Yes. If you are or become an insider, you should be aware of tax and
securities laws which apply to grants of options to you and to your
transactions in stock received upon the exercise of options. You must comply
with Lumisys's policy permitting insiders to sell shares only during certain
"window" periods, and you are subject to special rules regarding the sale of
Lumisys's stock, such as the limitations on the amount you can sell found in
Rule 144 and the restrictions on timing of purchases and sales found in
Section 16 of the Exchange Act. If you need information about how Section 16
or Rule 144 operates, you should contact Lumisys. You must check with the
Vice President, Finance of Lumisys before selling any shares.
PART II
TAX ISSUES RELATING TO YOUR COMPURAD OPTION
The information in this Part II and the examples in Part III respond to
questions you may have about the United States federal tax consequences of
your CompuRAD Option. You should understand, however, that this tax
information is not complete. For example, it does not address state or local
tax laws or the application of laws if you are subject to tax laws in other
countries. Furthermore, because tax laws and regulations may change, and
interpretations of these laws and regulations can change the way the laws and
regulations apply to you, this information may need to be updated after the
issuance of this prospectus. Therefore, you should consult with a tax advisor
if you have questions relating to the tax consequences of your CompuRAD Option
and the sale of shares received under your option.
The following table should help you locate particular questions you may have
with regard to the United States federal tax consequences of your option.
Relevant
Type of Information Questions and Answers
For information regarding the
tax consequences associated with
the exercise of a nonstatutory
stock option and transfer of the
acquired stock 21, 22, 23, 24
For information regarding the tax
consequences of using shares
of stock already owned to pay
the exercise price of an option 25
For information regarding special
rules relating to insiders 26
For information regarding certain
golden parachute payments 27
21. DO I HAVE TO PAY TAX WHEN I RECEIVE OR EXERCISE MY COMPURAD OPTION?
Neither you nor CompuRAD paid a tax (or received a deduction) upon grant of
your CompuRAD Option. If you exercise your option when the market price of
the stock is higher than the exercise price of your option, you generally will
be required to pay tax on the "profit," that is, the difference between the
exercise price and the market price of the stock on the date of exercise.
Your profit on the exercise will be characterized as ordinary income, and
Lumisys will be entitled to a deduction for this amount.
22. WILL LUMISYS WITHHOLD THE AMOUNT OF TAXES DUE ON EXERCISE OF MY COMPURAD
OPTION?
Lumisys can take a business expense deduction on the amount of the profit you
receive upon exercise of your CompuRAD Option. However, only when an employee
exercises an option is Lumisys required by the IRS to withhold United States
federal income and employment taxes from the profit or to otherwise ensure
that the tax due will be paid to the IRS. Additional amounts usually will be
withheld for state taxes. With respect to nonemployees (such as consultants
and non-employee directors), Lumisys is not obligated to withhold United
States federal income tax and employment tax on any profit. Payroll will be
able to answer any questions you may have concerning withholding.
23. HOW MUCH TAX DO I PAY WHEN I SELL STOCK RECEIVED PURSUANT TO THE EXERCISE
OF MY COMPURAD OPTION?
If you exercise your CompuRAD Option when the exercise price is lower than the
market price, you generally will pay tax on the difference between the two.
Upon the sale of your stock (or other taxable transfer), you generally will
recognize a gain or loss equal to the difference between the sales price and
the market price at the time of exercise. Your gain or loss will be
characterized as:
- long-term if the stock was held for more than 18 months,
- mid-term if the stock was held for more than 12 months but not more
than 18 months, or
- short-term if the stock was held for 12 months or less.
24. WHAT IS THE DIFFERENCE BETWEEN ORDINARY INCOME AND CAPITAL GAINS AND
LOSSES FOR UNITED STATES FEDERAL INCOME TAX PURPOSES?
The maximum marginal tax rate applicable to ordinary income and short-term
capital gains is 39.6%. Currently, the maximum marginal tax rate is 20% for
long-term capital gains and 28% for mid-term capital gains. Even lower rates
may apply to taxpayers in the 15% marginal income tax bracket. Additionally,
capital gains and losses are subject to certain other provisions of the Code
not applicable to ordinary income. Consult your tax advisor for more
information regarding the rates that apply to you.
25. WHAT ARE THE TAX CONSEQUENCES IF I USE SHARES I ALREADY OWN TO PAY THE
EXERCISE PRICE OF MY COMPURAD OPTION?
If you pay the exercise price of your CompuRAD Option with shares of Lumisys
which you already own, you will have a tax-free exchange of the previously
held shares of stock for an equivalent number of the shares of stock received
under the option. If you receive additional shares in the exchange, you will
pay taxes on ordinary income equal to the difference between the market value
(on the date of exercise) of such additional shares plus the amount of cash,
if any, you paid upon exercise.
The tax basis and capital-gain holding period of the equivalent shares
received under the option in the tax-free exchange will be the same as the tax
basis and holding period of the shares used to pay the exercise price. The
tax basis of the additional shares you receive will equal the amount of
ordinary income you had to report plus the amount of any cash paid on
exercise, and your holding period for the additional shares will begin on the
date of exercise. For an example of how these rules are applied, see
Part III.
26. ARE THERE ANY SPECIAL TAX RULES WHICH APPLY TO ME IF I AM SUBJECT TO
SECTION 16?
Yes. There is a small chance that stock received upon exercise of a CompuRAD
Option by an insider within six months of the grant date may be subject to a
risk of forfeiture. You should consult with your personal tax advisor if this
applies to you. If there is a risk of forfeiture, the amount of ordinary
income you must report and the time at which you must report your income may
be different than described above. You would not recognize ordinary income on
the date of exercise but, instead, you would recognize ordinary income on the
date(s) the risk of forfeiture with respect to the shares disappears (e.g.,
the date you are not liable to forfeiture under the Exchange Act). The amount
of such ordinary income is the excess, if any, of the market price of the
stock on the date(s) the risk of forfeiture disappears, over the exercise
price paid for such shares. When you later sell your shares, any additional
gain or any loss will be characterized as capital gain or loss, which will be
long-term, mid-term or short-term depending on how long you held your stock.
For an example of how these rules are applied, see Example B in Part III.
If you wish to avoid this result, you can file what is called a Section 83(b)
election within 30 days after the exercise of the option and report ordinary
income equal to the difference, if any, between the market price and the
exercise price on the date of exercise. When you later sell your shares, any
additional gain or any loss will be characterized as capital gain or loss,
which will be long-term, mid-term or short-term depending on how long you held
your stock.
Please contact the Vice President, Finance of Lumisys for further information
and the form of election if you think you should be filing a Section 83(b)
election. Remember that this must be done within 30 days after you exercise
your option.
27. WHAT HAPPENS IF THE VESTING OF MY COMPURAD OPTION ACCELERATES UPON A
CHANGE OF CONTROL?
If there is a change in control of Lumisys (see Question 9), payments received
by certain persons that are contingent upon the change in control may
constitute "parachute payments." If, by reason of such change in control, the
exercisability of outstanding CompuRAD Options is accelerated, the value of
the acceleration is added to other contingent payments, if any, in determining
whether the person has received "excess parachute payments." In general, if a
person receives excess parachute payments, an excise tax equal to 20% of the
amount of such excess parachute payments is imposed on the person and Lumisys
does not receive a deduction for such amount.
PART III
EXAMPLE
QUESTION 25: STOCK FOR STOCK EXERCISES OF A NONSTATUTORY STOCK OPTION
Assume for the purposes of this example only that on April 1, 1998 you bought
10 shares of stock on the open market when the market price was $6 per share.
On April 1, 1999, when the market price is $10 per share, you exercise your
CompuRAD Option to purchase 20 shares at an exercise price of $9 per share for
an aggregate exercise price of $180. Using all of your previously owned
shares to pay $100 of the exercise price (10 shares x $10 market price), you
pay $80 cash for the remainder of the exercise price. On the date of exercise
you are deemed to have a tax-free exchange of the 10 previously owned shares
for 10 equivalent new shares. You will also recognize ordinary income of $20,
equal to the market price of the 10 additional new shares you receive, $100,
minus the amount of cash you paid on exercise, $80.
If you sell all 20 shares which you received upon exercise of the option for
$11 per share on June 1, 1999, you will recognize a $5 per share gain on the
10 equivalent new shares ($11 per share - $6 per share, $6 per share being the
purchase price of original shares), which will be mid-term capital gain
because you are allowed to add the 12-month period which you held the original
10 shares to the two-month period you held the 10 equivalent new shares. You
will also recognize a $10 aggregate gain on the 10 additional new shares,
calculated as follows: $110 (10 shares x $11 market price) minus the sum of
(a) $80 (the amount of cash paid for the shares) and (b) $20 (the amount of
income recognized upon exercise of the option). This gain will be
characterized as short-term capital gain because you held the stock for only
two months.
Example B (Question 26): Risks of Forfeiture and Nonstatutory Stock Options
Assume for the purposes of this example only that on April 1, 1997 you are
granted a nonstatutory option to purchase 20 shares of stock for $8 per share.
You may exercise the option immediately, but Lumisys has the right to
repurchase all of the stock at the price you paid for it if you leave Lumisys
before July 1, 1998, 15 shares if you leave before October 1, 1997, 10 shares
if you leave before January 1, 1998 and five shares if you leave before
April 1, 1998. On May 20, 1997 you exercise your option with respect to all
of the shares when the market price is $10. Normally you would owe tax on
$40, the difference between the $160 aggregate exercise price and the $200
aggregate market price on the date of exercise. However, because all the
shares are subject to a risk of forfeiture, you do not calculate the tax on
May 20 but on each day that a risk of forfeiture disappears. For example,
assume that on July 1, 1997 the market price is $11 per share. On that date
the risk of forfeiture disappears with respect to five shares because Lumisys
no longer has the right to repurchase five of your 20 shares. Accordingly,
tax is calculated as follows:
Number of shares no longer subject to vesting 5
Exercise price of option $ 8
market price on July 1 $11
Amount on which tax is due $15
($3 per share x 5 shares)
On October 1, 1997, January 1, 1998 and April 1, 1998 you may owe additional
tax depending on the market price of the stock on those days.
If the market price of the stock is higher on the date the risk of forfeiture
lapses with respect to any block of shares than it is on the exercise date,
you will end up paying more ordinary income tax with respect to such block of
shares as a result of your exercise of the option than you would have if the
stock you received upon exercise had not been subject to a risk of forfeiture
and you owed tax only on the difference between the exercise price and the
market price on the date of exercise.
(..continued)
