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1996 Q1 Information Storage Devices, Inc.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____ to _____
COMMISSION FILE NO. 0-25502
INFORMATION STORAGE DEVICES, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0197173
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2045 HAMILTON AVENUE
SAN JOSE, CA 95125
(Address of principal executive offices, including zip code)
(408) 369-2400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X NO .
--- ---
As of May 3, 1996, there were outstanding 9,777,433 shares of the Registrant's
Common Stock.
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1996 Q1 Information Storage Devices, Inc.
INFORMATION STORAGE DEVICES, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
- - ------------------------------- ----
<S> <C>
Item 1. Financial Statements
Condensed Balance Sheets at December 31, 1995
and March 31, 1996 ............................................................... 3
Condensed Statements of Operations for the
Three Months Ended March 31, 1995 and 1996........................................ 4
Condensed Statements of Cash Flows for the
Three Months Ended March 31, 1995 and 1996........................................ 5
Notes to Condensed Financial Statements........................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................................... 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................................. 12
Signatures....................................................................... 12
</TABLE>
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1996 Q1 Information Storage Devices, Inc.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 29,202 $ 37,608
Short-term investments 45,892 18,637
Accounts receivable, net 7,554 6,940
Inventories 9,809 10,827
Other current assets 1,841 3,390
--------- ---------
Total current assets 94,298 77,402
Net property and equipment 5,244 5,463
Patents and other assets, net 1,355 1,785
Long-term investments 4,533 11,011
--------- ---------
Total Assets $ 105,430 $ 95,661
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,784 $ 10,530
Current portion of capitalized lease obligations 1,089 1,093
Accrued liabilities 2,312 1,503
Deferred revenue 1,834 1,904
--------- ---------
Total current liabilities 15,019 15,030
Long-term Liabilities:
Capitalized lease obligations, net of current portion 2,630 2,465
Deferred rent 183 164
Other non-current liabilities 145 145
--------- ---------
Total long-term liabilities 2,958 2,774
Shareholders' Equity:
Common stock 86,256 78,695
Deferred compensation (116) (208)
Retained earnings (deficit) 1,313 (663)
Unrealized gain on investments -- 33
--------- ---------
Total shareholders' equity 87,453 77,857
Total Liabilities and Shareholders' Equity $ 105,430 $ 95,661
========= =========
</TABLE>
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1996 Q1 Information Storage Devices, Inc.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1995 1996
---- ----
<S> <C> <C>
Net revenues $ 13,005 $ 12,335
Cost of goods sold 8,288 9,427
-------- --------
Gross margin 4,717 2,907
Operating Expenses:
Research and development 1,407 4,120
Selling, general and administrative 1,768 2,609
-------- --------
Total operating expenses 3,175 6,729
Income (loss) from operations 1,542 (3,822)
Interest and other income, net 133 781
-------- --------
Income (loss) before income taxes 1,675 (3,041)
Provision (benefit) for income taxes 586 (1,064)
-------- --------
Net income (loss) $ 1,089 $ (1,977)
======== ========
Earnings (loss) per share $ 0.14 $ (0.19)
======== ========
Shares used in computing earnings per share 7,680 10,235
</TABLE>
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1996 Q1 Information Storage Devices, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 1,089 $ (1,977)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities-----
Depreciation and amortization 427 597
Amortization of investment discount -- 36
Compensation costs related to stock and stock option grant 11 49
Provision for allowance for doubtful accounts and returns 55 --
Changes in assets and liabilities -----
Accounts receivable (1,922) 614
Inventories (530) (1,018)
Prepaid expenses and other assets 219 (1,530)
Accounts payable 962 747
Accrued liabilities and bonuses (155) (716)
Other current liabilities -- (92)
Deferred revenue 737 69
Deferred rent 66 (19)
-------- --------
Net cash provided by (used for) operating activities 959 (3,240)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (141) (620)
Change in other assets 16 (467)
Purchase of investments (13,682) (16,640)
Proceeds from maturities of investments -- 37,395
-------- --------
Net cash provided by (used for) investing activities (13,807) 19,668
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock, net of issuance costs 23,954 236
Repurchase of common stock -- (7,938)
Payments on capitalized lease obligations (283) (320)
-------- --------
Net cash provided by (used for) financing activities 23,671 (8,022)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 10,823 8,406
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,605 29,202
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,428 $ 37,608
======== ========
</TABLE>
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1996 Q1 Information Storage Devices, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation:
The condensed financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These condensed financial statements should be read in conjunction
with the financial statements and notes thereto for the year ended December 31,
1995.
The unaudited condensed financial statements included herein reflect all
adjustments (which include only normal, recurring adjustments) that are, in the
opinion of management, necessary to state fairly the results for the periods
presented. The results for such periods are not necessarily indicative of the
results to be expected for the full fiscal year.
2. Inventories:
Inventories consist of material, labor and manufacturing overhead and are stated
at the lower of cost (first-in, first-out basis) or market. The components of
inventory are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1995 March 31, 1996
<S> <C> <C>
Work-in-process .......... $ 5,706 $ 7,422
Finished goods ........... 4,103 3,405
------- -------
$ 9,809 $10,827
======= =======
</TABLE>
3. Earnings (Loss) Per Share:
Earnings (loss) per share has been computed using the weighted average number of
shares of common stock, and, when dilutive, common equivalent shares from
convertible preferred stock and common equivalent shares from stock options
outstanding (using the treasury stock method). Pursuant to the Securities and
Exchange Commissions Staff Accounting Bulletins, common and common equivalent
shares issued during the twelve-month period prior to the Company's initial
public offering in 1995 have been included in the 1995 calculation as if they
were outstanding for all periods prior to the public offering (using the
treasury stock method and the initial offering price).
4. Repurchase of Common Stock:
In January 1996, the Company's Board of Directors approved a stock repurchase
plan of up to one million shares of common stock. During the quarter ended March
31, 1996, the Company repurchased 835,000 shares on the open market at prices
ranging from $8.125 to $12.000 for a total of $7.9 million.
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1996 Q1 Information Storage Devices, Inc.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This report includes forward looking statements that involve a number
of risks and uncertainties. The following includes a discussion of factors that,
among other factors, could cause actual results to differ materially. For
reference, see "Other Factors That May Affect Operating Results" for discussion
of such factors on page 16 of the ISD 1995 Annual Report.
OVERVIEW
ISD designs, develops, and markets single-chip integrated circuit
products for voice recording and playback, using its proprietary ChipCorder
high-density multilevel storage technology and its mixed signal expertise. The
Company directs its marketing and product development efforts toward the
consumer, communications and industrial markets. The Company distributes its
products through a direct sales organization and a worldwide network of sales
representatives and distributors. The Company was incorporated in California in
December 1987 and introduced its first product in February 1991.
ISD subcontracts with independent foundries to fabricate the wafers for
all of its products. This approach enables the Company to concentrate its
resources on the design and test areas, where the Company believes it has the
greatest competitive advantage, and eliminates the high cost of owning and
operating a semiconductor wafer fabrication facility. The Company depends on
these foundries to allocate to the Company a portion of their foundry capacity
sufficient to meet the Company's needs, to produce products of acceptable
quality and with acceptable manufacturing yields and to deliver those products
to the Company on time. The Company has restructured the supply agreement with
Samsung, its largest supplier, from a wafer purchasing agreement to a die
purchasing agreement; however, there can be no assurance that the company will
be able to obtain the required die quantities and to meet customer schedules.
Because of the demand for the Company's products and because of long
lead times necessary to secure additional foundry capacity, the Company is
planning to complete qualification of another foundry supplier by the middle of
1996. Although the Company believes that current capacity is adequate to meet
the Company's current anticipated needs, there can be no assurance that the
Company will be able to qualify additional foundry capacity or otherwise obtain
needed quantities within expected time frames or at all.
Moreover, in order to reduce future manufacturing costs, the Company is
designing smaller die sizes with smaller geometry processes to increase the
number of die produced on each wafer. The Company's ability to remain
competitive depends on migrating its manufacturing to smaller geometries, in
particular certain of its products to the 0.8 micron geometry. A problem was
encountered with such a transition in the first quarter of 1996, resulting in a
write-off of in-line product and of a write-down of certain finished goods
inventory, as well as a delay in the conversion. Although management believes
the problems that delayed the 0.8 micron conversion have been identified and
solutions are being implemented, there can be no assurance that the Company's
foundries will achieve or maintain acceptable manufacturing yields and process
control in the future or that sudden declines in yields will not occur. Failures
to improve, or fluctuations in, manufacturing yields and process
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1996 Q1 Information Storage Devices, Inc.
controls, particularly at times when the Company is experiencing severe
pricing pressures from its customers or its competitors, would have a material
adverse effect on the Company's results of operations.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net revenues, each
line item in the Company's statements of operations for the periods indicated.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------
Three Months Ended
March 31,
- - ---------------------------------------------------------------
1995 1996
---- ----
<S> <C> <C>
Net revenues 100.0% 100.0%
Cost of net revenues 63.7 76.4
----- -----
Gross margin 36.3 23.6
----- -----
Operating expenses:
Research and development 10.8 33.4
Sales, general and administrative 13.6 21.2
----- -----
Total operating expenses 24.4 54.6
----- -----
Income from operations 11.9 (31.0)
Other income (expense), net 1.0 6.4
----- -----
Income (loss) before income taxes 12.9 (24.6)
Provision (benefit) for income taxes 4.5 (8.6)
----- -----
Net income (loss) 8.4% (16.0%)
----- -----
- - ---------------------------------------------------------------
</TABLE>
NET REVENUES
During the three months ended March 31, 1996, the Company's net revenues were
principally derived from the sale of integrated circuits for voice recording and
playback. Net revenues for the first quarter of 1996 were $12.3 million or 5%
lower than the $13.0 million of net revenues for the first quarter of 1995.
Sales to the Company's top ten customers accounted for 89% of net revenues
compared to 72% in the first quarter of 1995. During the first quarter of 1996,
the top customers were Motorola at 36%, Marubun (the Company's Japanese
distributor) at 21% and Sanyo at 10% compared to Sanyo at 15%, Motorola at 10%
and Voice It at 10% for the same
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1996 Q1 Information Storage Devices, Inc.
period of 1995. The loss of, or significant reduction in purchases, by a current
major customer would have a material adverse effect on the Company's financial
condition and results of operation if the Company is unable to obtain the orders
from new customers to offset such losses or reductions.
The overall decrease in net revenues for the three months ending March
31, 1996, was primarily due to a softening in the consumer market for products
incorporating the Company's products. The breakdown of net revenues by market
segment for the first quarter was 19% consumer, 75% communications, and 6%
industrial. During the three months ended March 31, 1995, the breakdown was
approximately 55% consumer, 40% communications and 5% industrial. The Company's
consumer customers in the first quarter continued purchasing the Company's
products primarily for use in personal memo recorders, cameras, photo frames,
books, educational toys and novelties. The communications customers represented
products consisting primarily of telephone answering machines, cellular phones,
pagers and personal handy phones. The failure of new applications or markets to
develop or the failure of existing markets to continue to be receptive to the
Company's products could have a material adverse effect on the Company's
business, financial condition, and results of operations.
International sales for the first quarter of 1996 were 56% compared to
64% in the first quarter of 1995. Sales to Asia were 46% in the first quarter of
1996, down from 59% in 1995, and sales to Europe were 10% in the first quarter
of 1996, versus 5% in the first quarter of 1995. Japan accounted for 30% of
total sales in the first quarter of 1996, up from 21% in the previous year.
North American sales were 44% in the first quarter of 1996, up from 36% for the
same period last year. The United States accounted for 44% of total sales in the
first quarter of 1996. The decrease in sales to Asia in 1996 is a result of the
softening in the consumer market, as mentioned above. The increase in sales to
North America is a reflection of the continued growth in the communications
market. Due to its reliance on export sales and its dependence on foundries
outside the United States, the Company is subject to the risks of conducting
business internationally, including foreign government regulation and general
geopolitical risk such as political and economic instability, potential
hostilities, changes in diplomatic and trade relationships, and currency
fluctuation, any of which could have a material effect on the Company's
financial conditions or results of operations.
GROSS MARGIN
The Company's gross margin for the first quarter of 1996 was $2.9
million or 23.6% of net revenues. This was a 38% decrease from the $4.7 million
gross margin for the first quarter of 1995. Gross margin as a percentage of
sales for the first quarter for 1996 decreased by 35%, down from 36.3% for the
first quarter of 1995. The reduction in gross margins is the result of a
write-off of product in the 0.8_micron line as well as for the write-down in the
value of certain finished goods inventory items, resulting from a reduction in
the sales price for those items. The reduction in gross margin can also be
attributed to the lower new revenues in the first quarter of 1996.
The Company is subject to a number of factors which may have an adverse
impact on gross margin, including the availability and cost of product from the
Company's suppliers, changes in the mix of products sold, and the timing of new
product introductions and volume shipments. In addition, the markets for the
Company's products are characterized by intense
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1996 Q1 Information Storage Devices, Inc.
price competition. To the extent that the Company fails to facilitate its
customers' opening of new markets; experiences yield or other production
problems or shortages in supply that increase its manufacturing costs, or fails
to reduce its manufacturing costs, it would have a material adverse effect on
the Company's financial condition and results of operations.
RESEARCH AND DEVELOPMENT
Research and development expenses were $4.1 million or 33.4% of net
revenues in the first quarter of 1996, compared to $1.4 million or 10.8% of net
revenues in the same period of 1995. The increase in research and development
expenses were primarily due to the write-off of pre-production wafers in the 0.8
micron line as discussed earlier. There were also increased expenses caused by
more than a doubling of personnel for new product development and enhancement of
existing products. In addition, there were increased expenditures for materials,
including wafers and masks, related to such development activities. The Company
has also made a significant investment to strengthen its technology capability
by the creation of a technology department which is now staffed with six
Ph.D.'s. There can be no assurance that new product will be successfully
developed or achieve market acceptance, that yield problems will not arise in
the future, or that the need to improve product yields might not recur with
existing or new products or fabrication processes.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $2.6 million or 21.1%
of net revenues in the first quarter of 1996, compared to $1.8 million or 13.6%
of net revenues in the first quarter of 1995. The increase in selling expenses
for the first quarter of 1996 came as a result of the Company's commitment to
expanding its marketing efforts with participation in public relations,
tradeshows, advertising, web site development, to name a few, and the addition
of more sales and marketing personnel. Selling expenses are expected to continue
to increase with net revenue growth due to more commissions and additional
personnel. The increases in general and administrative costs come from
additional professional fees, including legal and accounting, and office rent
and insurance.
OTHER INCOME, NET
Net other income was $0.8 million for the first quarter of 1996
compared to net other income of approximately $0.1 million for the same period
of 1995. Net other income for 1996 primarily represents interest income earned
on the proceeds of the Company's initial and secondary public offerings of
common stock.
PROVISION FOR INCOME TAXES
The Company recorded an income tax benefit for the first quarter of
1996, using an effective income tax rate of 35%. The benefit is included in
other assets in the accompanying balance sheet. The effective tax rate of 35%
for the first quarter of 1995 represents applicable statutory rates, partially
offset by research and development tax credits and net operating loss carry
forwards.
10
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LIQUIDITY AND CAPITAL RESOURCES
The Company has a line of credit with a commercial bank under which the
Company may borrow up to $9 million, based on eligible accounts receivable and
$7.0 million based on eligible investments, with a term through June 30, 1996.
At March 31, 1996, the Company's borrowing base was approximately $12.4 million
and there were no borrowings outstanding under this line of credit, but it is
being used to guarantee letters of credit. The line of credit does not restrict
the Company from paying cash dividends on its capital stock but does require
that the Company maintain a ratio of total indebtedness to tangible net worth of
not more than 1.25 to 1 and a ratio of current assets to current liabilities of
not less than 1.5 to 1. The Company is currently in compliance with all
financial covenants in the line of credit agreement. As of March 31, 1996, the
amount of unrestricted equity available for distribution as a result of these
covenants was $54.9 million.
The Company's operating activities used net cash of $3.2 million in the
first three months of 1996, primarily due to a loss from operations and an
increase in inventory. The Company's repurchase of common stock, discussed in
Note 4 to Condensed Financial Statements, also used $7.9 million of net cash.
Capital purchases were $0.8 million in the first three months of 1996. The
Company's capital equipment needs, including wafer sort and final test
equipment, computer hardware and software and other office related items, are
currently budgeted at approximately $3.8 million through the end of 1996. The
Company has agreements with three capital equipment leasing companies providing
aggregate lease lines of $4.0 million of which $3.2 million was available on
March 31, 1996.
At March 31, 1996, the Company had cash, cash equivalents and
short-term investments of $56.2 million, long-term investments (tax free bonds
maturing in more than one year) of $11.0 million, and working capital of $62.4
million. The Company believes its existing cash, cash equivalents and short-term
investments and its available line of credit and current equipment lease lines,
will satisfy the Company's projected working capital and capital expenditure
requirements through the next twelve months. To the extent that funds generated
from operations are insufficient to meet the Company's capital requirements, and
the Company is required to raise additional funds, no assurance can be given
that additional financing will be available or, if available, that it will be
available on acceptable terms.
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1996 Q1 Information Storage Devices, Inc.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith.
Exhibit
Number Exhibit Title
10.01 - 1987 Stock Option Plan, as amended, and related documents.
10.02 - 1994 Equity Incentive Plan, as amended, and related documents.
10.03 - 1994 Directors Stock Option Plan, as amended, and related documents.
10.23 - Form of Employment Agreement dated January 19, 1996 between
Registrant and all of the Company's Executive Officers and certain
key employees.
11.01 - Statement regarding computation of per share earnings.
27.01 - Financial Data Schedule
(b) The Company filed a report on Form 8-K during the period ended
March 31, 1996 with regard to a Shareholder Rights Plan on January 5, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INFORMATION STORAGE DEVICES, INC.
(Registrant)
Date: May 10, 1996
Felix J. Rosengarten
Vice President, Finance and Administration and Chief
Financial Officer
(Principal Financial and Accounting Officer and Duly
Authorized Officer)
12
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EXHIBIT 10.01
INFORMATION STORAGE DEVICES, INC.
1987 STOCK OPTION PLAN
ADOPTED DECEMBER 31, 1987
AS AMENDED THROUGH JANUARY 25, 1996
1. PURPOSE. This Stock Option Plan ("Plan") is established to provide
incentives for selected persons to promote the financial success and progress of
Information Storage Devices, Inc. (the "Company") by granting such persons
options to purchase shares of stock of the Company.
2. ADOPTION AND SHAREHOLDER APPROVAL. This Plan shall become effective
on the date that it is adopted by the Board of Directors (the "Board") of the
Company. This Plan shall be approved by the unanimous written consent of the
shareholders or the affirmative vote at a meeting of the holders of a majority
of the outstanding shares of the Company within twelve months before or after
the date this Plan is adopted by the Board.
3. TYPES OF OPTIONS AND SHARES. Options granted under this Plan (the
"Options") may be either (a) incentive stock options ("ISOs") within the meaning
of Section 422A of the Internal Revenue Code of 1986 (the "Code"), or (b)
nonqualified stock options ("NQSOs"), as designated at the time of grant. The
shares of stock that may be purchased upon exercise of Options granted under
this Plan (the "Shares") are shares of the common stock of the Company.
4. NUMBER OF SHARES. The maximum number of Shares that may be issued
pursuant to Options granted under this Plan is 3,470,000 Shares, subject to
adjustment as provided in this Plan. If any Option is terminated in whole or in
part for any reason without being exercised in whole or in part, the Shares
thereby released from such Option shall be available for purchase under other
Options subsequently granted under this Plan. At all times during the term of
this Plan, the Company shall reserve and keep available such number of Shares as
shall be required to satisfy the requirements of outstanding Options under this
Plan.
5. ADMINISTRATION. This Plan shall be administered by the Board or by a
committee of the Board appointed to administer this Plan (the "Committee"). As
used in this Plan, references to the Committee shall mean either such Committee
or the Board if no committee has been established. The interpretation by the
Committee of any of the provisions of this Plan or any Option granted under this
Plan shall be final and binding upon the Company and all persons having an
interest in any Option or any Shares purchased pursuant to an Option.
6. ELIGIBILITY. Options may be granted only to such employees,
officers, directors, consultants and independent contractors of the Company or
any Parent, Subsidiary or Affiliate of the Company (as defined below) as the
Committee shall select from time to time in its sole discretion ("Optionees"),
provided that only employees of the Company or a Parent or Subsidiary of the
Company shall be eligible to receive ISOs. An Optionee may be granted more than
one Option under this Plan.
(a) Grants to Directors. With respect to the grant of Options to
persons who are directors, the selection of any director to whom one Option is
granted and the determination of the number of Shares which may be purchased
shall be made only (i) by the board where a majority
<PAGE> 2
of the directors active in the matter are Disinterested Persons (as defined
below), or (ii) by, or only in accordance with the recommendation of, a
committee of three or more persons having full authority to act in the matter,
all of the members of which committee are Disinterested Persons.
(b) Definitions. As used in this Plan, the following terms shall have
the following meanings:
(i) "Parent" means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company if, at the time of the
granting of the Option, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
(ii) "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if, at
the time of granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
(iii) "Affiliate" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with another corporation, where "control" (including the
terms "controlled by" and "under common control with") means the possession,
direct or indirect, of the power to cause the direction of the management and
policies of the corporation, whether through the ownership of voting securities,
by contract or otherwise.
(iv) "Disinterested Person" means an administrator of this
Plan who is not at the time he exercises discretion in administering this Plan,
and has not at any time within one year prior thereto been eligible for
selection as a person to whom an Option may be granted under this Plan or to
whom stock may be allocated or stock options or stock appreciation rights may be
granted pursuant to any other plan of the Company or its Affiliates entitling
the participants therein to acquire stock, stock options or stock appreciation
rights of the Company or any of its Affiliates.
7. TERMS AND CONDITIONS OF OPTIONS. The Committee shall determine
whether each Option is to be an ISO or an NQSO, the number of Shares for which
the Option shall be granted, the exercise price of the Option, the periods
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following terms and conditions:
(a) Form of Option Grant. Each Option granted under this Plan
shall be evidenced by a written Stock Option Grant ("Grant") in such form (which
need not be the same for each Optionee) as the Committee shall from time to time
approve, which Grant shall comply with and be subject to the terms and
conditions of this Plan.
(b) Exercise Price. The exercise price of an Option shall be
not less than the fair
-2-
<PAGE> 3
market value of the Shares, at the time that the Option is granted, as
determined by the Committee in good faith. The exercise price of any Option
granted to a person owning more than 10% of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary of the Company
("Ten Percent Shareholder") shall not be less than 110% of the fair market value
of the Shares at the time of the grant, as determined by the Committee in good
faith.
(c) Exercise Period. Options shall be exercisable within the
times or upon the events determined by the Committee as set forth in the Grant,
provided, however, that no Option shall be exercisable after the expiration of
ten years from the date the Option is granted, and provided further that no
Option granted to a Ten Percent Shareholder shall be exercisable after the
expiration of five years from the date the Option is granted.
(d) Limitations on ISOs. The aggregate fair market value
(determined as of the time an Option is granted) of stock with respect to which
ISOs are exercisable for the first time by an optionee during any calendar year
(under this Plan or under any other incentive stock option plan of the Company
or any Parent or Subsidiary of the Company) shall not exceed $100,000.
(e) Date of Grant. The date of grant of an Option shall be the
date on which the Committee makes the determination to grant such Option unless
otherwise specified by the Committee. The Grant representing the Option shall be
delivered to the Optionee within a reasonable time after the granting of the
Option.
8. EXERCISE OF OPTIONS.
(a) Notice. Options may be exercised only by delivery to the
Company of a written notice and exercise agreement in a form approved by the
Committee, stating the number of Shares being purchased, the restrictions
imposed on the Shares and such representations and agreements regarding the
Optionee's investment intent and access to information as may be required by the
Company to comply with applicable securities laws, together with payment in full
of the exercise price for the number of Shares being purchased.
(b) Payment. Payment for the Shares may be made (i) in cash
(by check), (ii) by surrender of shares of common stock of the Company having a
fair market value equal to the exercise price of the Option; (iii) where
permitted by applicable law and approved by the Committee in its sole
discretion, by tender of a full recourse promissory note having such terms as
may be approved by the Committee; or (iv) by any combination of the foregoing
where approved by the Committee in its sole discretion. Optionees who are not
employees or directors of the Company shall not be entitled to purchase Shares
with a promissory note unless the note is adequately secured by collateral other
than the Shares.
(c) Withholding Taxes. Prior to issuance of the Shares upon
exercise of an
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<PAGE> 4
Option, the Optionee shall pay or make adequate provision for any
federal or state withholding obligations of the Company, if applicable.
(d) Limitations on Exercise. Notwithstanding the exercise
periods set forth in the Grant, exercise of an Option shall always be subject to
the following limitations:
(i) An Option shall not be exercisable unless such
exercise is in compliance with the Securities Act of 1933, as amended, and all
applicable state securities laws, as they are in effect on the date of exercise.
(ii) The Committee may specify a reasonable minimum
number of Shares that may be purchased on any exercise of an Option, provided
that such minimum number will not prevent the Optionee from exercising the full
number of Shares as to which the Option is then exercisable.
9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
an Option shall be exercisable only by the Optionee. No Option may be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner other
than by will or by the laws of descent and distribution.
10. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the
rights of a shareholder with respect to any Shares subject to an Option until
the Option has been validly exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
of exercise, except as provided in this Plan. The Company shall provide to each
Optionee a copy of the annual financial statements of the Company, at such time
after the close of each fiscal year of the Company as they are released by the
Company to its shareholders.
11. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding shares of common stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration,
the number of Shares available under this Plan and the number of Shares subject
to outstanding Options and the exercise price per share of such Options shall be
proportionately adjusted, subject to any required action by the Board or
shareholders of the Company and compliance with applicable securities laws;
provided, however, that no certificate or scrip representing fractional shares
shall be issued upon exercise of any Option and any resulting fractions of a
Share shall be ignored.
12. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option granted
under this Plan shall confer on any Optionee any right to continue in the employ
of the Company or any Parent, Subsidiary or Affiliate of the Company or limit in
any way the right of the Company or any Parent, Subsidiary or Affiliate of the
Company to terminate the Optionee's employment at any time, with or without
cause.
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<PAGE> 5
13. COMPLIANCE WITH LAWS. The grant of Options and the issuance of
Shares upon exercise of any Options shall be subject to and conditioned upon
compliance with all applicable requirements of law, including without limitation
compliance with the Securities Act of 1933, as amended, any required approval by
the Commissioner of Corporations of the State of California, compliance with all
other applicable state securities laws and compliance with the requirements of
any stock exchange on which the Shares may be listed. The Company shall be under
no obligation to register the Shares with the Securities and Exchange Commission
or to effect compliance with the registration or qualification requirement of
any state securities laws or stock exchange.
14. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself or its assignee(s) in the Grant (a) a right of
first refusal to purchase all Shares that an Optionee (or a subsequent
transferee) may propose to transfer to a third party and (b) a right to
repurchase all Shares held by an Optionee upon the Optionee's termination of
employment or service with the Company or its Parent, Subsidiary or Affiliate of
the Company for any reason within a specified time as determined by the
Committee at the time of grant at (i) the Optionee's original purchase price
(provided that the right to repurchase at such price shall lapse at the rate of
at least 20% per year from the date of grant), (ii) the fair market value of
such Shares as determined by the Committee in good faith or (iii) a price
determined by a formula or other provision set forth in the Grant.
15. CORPORATE TRANSACTIONS.
(a) Corporate Transactions. In the event of a Corporate Transaction (as
defined in this Section 15(a)), the exercisability of each Option shall be
automatically accelerated so that each Option shall, immediately before the
specified effective date for the Corporate Transaction, become fully exercisable
with respect to the total number of Shares and may be exercised for all or any
portion of such Shares; provided, that an Option shall not be accelerated if and
to the extent that such Option is, in connection with the Corporate Transaction,
either to be assumed by the successor corporation or parent thereof or to be
replaced with a comparable option to purchase shares of the capital stock of the
successor corporation or parent thereof. The determination of comparability
shall be made by the Board or the Committee, and the Board or the Committee's
determination shall be final, binding and conclusive. Upon the consummation of a
Corporate Transaction, all outstanding Options shall, to the extent not
previously exercised or assumed by the successor corporation or its parent,
terminate and cease to be exercisable.
"Corporate Transaction" means (i) a merger or acquisition in
which the Company is not the surviving entity (except for a transaction the
principal purpose of which is to change the State in which the Company is
incorporated), (ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company or (iii) any other corporate
reorganization or business combination that is not approved by the Board and in
which the beneficial ownership of 50% or more of the Company's outstanding
voting stock is transferred.
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<PAGE> 6
(b) Dissolution. In the event of the proposed dissolution or
liquidation of the Company, the Board shall notify the Optionee at least fifteen
(15) days prior to such proposed action. To the extent that Options have not
been previously exercised, such Options will terminate immediately prior to the
consummation of such proposed action.
(c) Assumption of Awards by the Company. The Company, from time to
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either (a) granting an Option under this Plan in substitution of
such other company's Option, or (b) assuming such Option as if it had been
granted under this Plan if the terms of such assumed Option could be applied to
an Option granted under this Plan. Such substitution or assumption shall be
permissible if the holder of the substituted or assumed Option would have been
eligible to be granted an Option under the Plan if the other company had applied
the rules of the Plan to such grant. In the event the Company assumes an Option
granted by another company, the terms and conditions of such Option shall remain
unchanged (except that the exercise price and the number and nature of Shares
issuable upon exercise of any such option will be adjusted appropriately
pursuant to Section 424(a) of the Code). In the event the Company elects to
grant a new Option rather than assuming an existing option, such new Option may
be granted with a similarly adjusted exercise price.
16. AMENDMENT OR TERMINATION OF PLAN. The Committee may at any time
terminate or amend this Plan in any respect (including, but not limited to, any
form of Grant, agreement or instrument to be executed pursuant to this Plan);
provided, however, that the Committee shall not, without the approval of the
shareholders of the Company, increase the total number of Shares available under
this Plan (except by operation of the provisions of this Plan) or change the
class of persons eligible to receive Options. In any case, no amendment of this
Plan may adversely affect any then outstanding Options or any unexercised
portions thereof without the written consent of the Optionee.
17. TERM OF PLAN. Options may be granted pursuant to this Plan from
time to time within a period of ten years from the date this Plan is adopted by
the Board of Directors.
18. DELIVERY OF CERTAIN INFORMATION. In accordance with
Section 260.140.46 of the California Commissioner's Rules, the Company shall
deliver to Optionees, on at least an annual basis, financial statements of the
Company consisting of an income statement and balance sheet. Financial
statements need not be audited. This Section 18 does not apply to Optionees who
are key employees whose duties in connection with the issuer assure them access
to equivalent information.
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<PAGE> 7
INFORMATION STORAGE DEVICES, INC.
STOCK OPTION GRANT
Optionee:
Address:
Total Options Granted:
Exercise Price Per Share:
Date of Grant:
Start Date:
Expiration Date:
OTC Grant Number:
Type of Stock Option (check one): ___ Incentive ___ Nonqualified
1. Grant of Option. Information Storage Devices, Inc., (the "Company"),
a California corporation, hereby grants to the optionee named above ("Optionee")
an option (this "Option") to purchase the total number of shares of common stock
of the Company set forth above (the "Shares") at the exercise price per share
set forth above (the "Exercise Price"), subject to all of the terms and
conditions of this Grant and the Company's 1987 Stock Option Plan as adopted as
of December 31, 1987 (the "Plan"). If designated as an Incentive Stock Option
above, this Option is intended to qualify as an "incentive stock option" ("ISO")
within the meaning of Section 422A of the Internal Revenue Code of 1986 (the
"Code").
2. Exercise Period of Option. Subject to the terms and conditions of
the Plan and this Grant, this Option shall become exercisable as to 25% of the
Shares one year after the Start Date, provided that Optionee has remained
continually employed by the Company during such one year period, and as to
2.083% of the total number of Shares for each full month, over the 3 year period
commencing on the date that is one year after the Start Date, that the Optionee
remains continually employed by the Company; provided, however, that this Option
shall expire on the Expiration Date set forth above and must be exercised, if at
all, on or before the Expiration Date.
3. Restrictions on Exercise. Exercise of this Option is subject to the
following limitations:
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<PAGE> 8
(a) This Option may not be exercised unless such exercise is in
compliance with the Securities Act of 1933, as amended, and all applicable state
securities laws, as they are in effect on the date of exercise.
(b) This Option may not be exercised more often than quarterly, as to
then exercisable portions of this Option.
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<PAGE> 9
4. Termination of Option. Except as provided below in this Section,
this Option shall terminate and may not be exercised if Optionee ceases to be
employed by the Company or any Parent or Subsidiary of the Company (or in the
case of a nonqualified stock option, an Affiliate of the Company). Optionee
shall be considered to be employed by the Company if Optionee is an officer,
director or full-time employee of the Company, or any Parent, Subsidiary or
Affiliate of the Company or if the Board of Director determines that Optionee is
rendering substantial services as a part-time employee, consultant or
independent contractor to the Company or any Parent, Subsidiary or Affiliate of
the Company. The Board of Directors of the Company shall have discretion to
determine whether Optionee has ceased to be employed by the Company or any
Parent, Subsidiary or Affiliate of the Company and the effective date on which
such employment terminated (the "Termination Date").
(a) If Optionee ceases to be employed by the Company or any
Parent, Subsidiary or Affiliate of the Company for any reason except death or
disability, this Option, to the extent (and only to the extent) that it would
have been exercisable by Optionee on the Termination Date, may be exercised by
Optionee within three months after the Termination Date, but in any event no
later than the Expiration Date.
(b) If Optionee's employment with the Company or any Parent,
Subsidiary or Affiliate of the Company is terminated because of the death of
Optionee or disability of Optionee within the meaning of Section 22(e)(3) of the
Code, this Option, to the extent that it is exercisable by Optionee on the
Termination Date, may be exercised by Optionee (or Optionee's legal
representative) within twelve months after the Termination Date, but in any
event no later than the Expiration Date.
(c) Nothing in the Plan or this Grant shall confer on Optionee
any right to continue in the employ of the Company or any Parent, Subsidiary or
Affiliate of the Company or limit in any way the right of the Company or any
Parent, Subsidiary or Affiliate of the Company to terminate Optionee's
employment at any time, with or without cause.
5. Manner of Exercise.
(a) This Option shall be exercisable by delivery to the
Company of an executed written Notice and Agreement in the form attached hereto
as Exhibit A, or in such other form as may be approved by the Company, which
shall set forth Optionee's election to exercise this Option, the number of
Shares being purchased, any restrictions imposed on the Shares and such other
representations and agreements regarding Optionee's investment intent and access
to information as may be required by the Company to comply with applicable
securities laws.
(b) Such Notice and Agreement shall be accompanied by full
payment of the Exercise Price for the Shares being purchased (i) in cash (by
check); (ii) by surrender of Shares of Common Stock of the Company having a fair
market value equal to the Exercise Price; (iii) where permitted by applicable
law, by tender of a full recourse promissory note having such
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<PAGE> 10
terms as the Board of Directors or the committee thereof that administers the
Plan may approve; or (iv) by any combination thereof.
(c) Prior to the issuance of the Shares upon exercise of this
Option, Optionee must pay or make adequate provision for any applicable federal
or state withholding obligations of the Company.
(d) Provided that such notice and payment are in form and
substance satisfactory to counsel for the Company, the Company shall issue the
Shares registered in the name of Optionee or Optionee's legal representative.
6. Notice of Disqualifying Disposition of ISO Shares. If the Option
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the date of this grant, and (2) the date
one year after transfer of such Shares to the Optionee upon exercise of the ISO,
the Optionee shall immediately notify the Company in writing of such
disposition. Optionee agrees that Optionee may be subject to income tax
withholding by the Company on the compensation income recognized by the Optionee
from the early disposition by payment in cash or out of the current earnings
paid to the Optionee.
7. Compliance with Laws and Regulations. The issuance and transfer of
Shares shall be subject to compliance by the Company and the Optionee with all
applicable requirements of federal and state securities laws and with all
applicable requirements of any stock exchange on which the Company's common
stock may be listed at the time of such issuance or transfer. Optionee
understands that the Company is under no obligation to register or qualify the
Shares with the Securities and Exchange Commission, any state securities
commission or any stock exchange to effect such compliance.
8. Nontransferability of Option. This Option may not be transferred in
any manner other than by will or by the laws of descent and distribution and may
be exercised during the lifetime of the Optionee only by the Optionee. The terms
of this Option shall be binding upon the executors, administrators, successors
and assigns of the Optionee.
9. Tax Consequences. Set forth below is a brief summary as of the date
of this Option of some of the federal and California tax consequences of
exercise of this Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING
OF THE SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO, there
will be no regular federal income tax liability or California income tax
liability upon the exercise of the Option, although the excess, if any, of the
fair market value of the Shares on the date of exercise over the Exercise Price
will be treated as a tax preference item for federal income tax purposes and may
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<PAGE> 11
subject the Optionee to the alternative minimum tax in the year of exercise.
(b) Exercise of Nonqualified Stock Option. If this Option does
not qualify as an ISO, there may be a regular federal income tax liability and a
California income tax liability upon the exercise of the Option. 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
Shares on the date of exercise over the Exercise Price. The Company will be
required to withhold from Optionee's compensation or collect from Optionee and
pay to the applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
(c) Disposition of Shares. If the Shares are held for at least
six months in the case of a nonqualified option and twelve months in the case of
an ISO after the date of the transfer of the Shares pursuant to the exercise of
this Option (and, in the case of an ISO, are disposed of at least two years
after the Date of Grant), any gain realized on disposition of the Shares will be
treated as long term capital gain for federal and California income tax
purposes. If Shares pur chased under an ISO are disposed of within such one year
period or within two years after the Date of Grant, 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 fair market value of the
Shares on the date of exercise over the Exercise Price.
10. Interpretation. Any dispute regarding the interpretation of this
agreement shall be submitted by Optionee or the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.
11. Entire Agreement. The Plan and the Notice and Agreement attached as
Exhibit A are incorporated herein by reference. This Grant, the Plan and the
Notice and Agreement constitute the entire agreement of the parties and
supersede all prior undertakings and agreements with respect to the subject
matter hereof.
INFORMATION STORAGE DEVICES, INC.
By:
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
Date signed:
-----------------------
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<PAGE> 12
12
<PAGE> 13
ACCEPTANCE
Optionee hereby acknowledges receipt of a copy of the Plan, represents
that Optionee has read and understands the terms and provisions thereof, and
accepts this Option subject to all the terms and conditions of the Plan and this
Grant. Optionee acknowledges that there may be adverse tax consequences upon
exercise of this Option or disposition of the Shares and that Optionee should
consult a tax adviser prior to such exercise or disposition.
--------------------------------
Optionee
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<PAGE> 14
Exhibit A
INFORMATION STORAGE DEVICES, INC.
STOCK OPTION EXERCISE NOTICE AND AGREEMENT
I, an Optionee under the Company's 1987 Stock Option Plan, hereby elect
to purchase the number of shares of Common Stock as set forth below:
Optionee Number of Shares Purchased:
Social Security Number: Purchase Price per Share:
Address: Aggregate Purchase Price:
_____________________________ Date of Stock Option Grant:
Type of Option: [ ] Incentive Stock Option Exact Name of Title to Shares:
[ ] Nonqualified Stock Option
Optionee hereby delivers to the Company the Aggregate Purchase Price,
to the extent permitted in the Option as follows (check as applicable and
complete):
[ ] in cash (by check) in the amount of $__________________, receipt of
which is acknowledged by the Company;
[ ] by delivery of ___________ fully-paid, nonassessable and vested
shares of the Common Stock of the Company owned by Optionee for at
least six (6) months prior to the date hereof (and which have been paid
for within the meaning of SEC Rule 144), or obtained by Optionee in the
open public market, and owned free and clear of all liens, claims,
encumbrances or security interests, valued at the current fair market
value of $_________ per share; or
[ ] by tender of a full recourse promissory note in the principal amount
of $__________________.
Market Standoff Agreement. Optionee, if requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, agrees not to
sell or otherwise transfer or dispose of any Common Stock (or other securities)
of the Company held by Optionee during the period requested by the managing
underwriter following the effective date of a registration statement of the
Company filed under the 1933 Act or the Securities Exchange Act of 1934,
provided that all officers and directors of the Company are required to enter
into similar agreements. Such agreement shall be in writing in a form
satisfactory to the Company and such underwriter. The Company may impose
stop-transfer instructions with respect to the shares (or other securities)
subject to the foregoing restriction until the end of such period.
Tax Consequences. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE
TAX CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF THE
SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX
CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR
DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR
ANY TAX ADVICE.
Entire Agreement. The Plan and Option are incorporated herein by
reference. This Exercise Notice and Agreement, the Plan and the Option
constitute the entire agreement of the parties and supersede in their entirety
all prior undertakings and agreements of the Company and Optionee with respect
to the subject matter hereof, and is governed by California law except for that
body of law pertaining to conflict of laws.
Date:
Signature of Optionee
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<PAGE> 15
16
<PAGE> 16
SPOUSE'S CONSENT
I acknowledge that I have read the Stock Option Exercise Notice and
Agreement (the "Agreement") and that I know its contents. I am aware that by the
Agreement's provisions my spouse (the "Optionee") agrees to sell the Number of
Shares Purchased (as provided for in the Agreement and hereinafter referred to
as "Shares"), including any community property interest I may have, on the
occurrence of certain events. I hereby consent to the sale, approve the
provisions of the Agreement and agree that these Shares and any interest I may
have in them are subject to the provisions of the Agreement. I will take no
action at any time to hinder operation of the Agreement on these Shares or any
interest I may have on them.
Spouse of Optionee
__________________________________ Date:__________________
__________________________________ Date:__________________
Optionee's Name
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<PAGE> 1
EXHIBIT 10.02
INFORMATION STORAGE DEVICES, INC.
1994 EQUITY INCENTIVE PLAN
As Adopted September 12, 1994
As Amended through January 25, 1996
1. PURPOSE. The purpose of the Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent,
Subsidiaries and Affiliates, by offering them an opportunity to participate in
the Company's future performance through awards of Options, Restricted Stock and
Stock Bonuses. Capitalized terms not defined in the text are defined in Section
23.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections 2.2
and 18, the total number of Shares reserved and available for grant and issuance
pursuant to the Plan shall be 2,000,000 Shares. Any shares issuable upon
exercise of options granted pursuant to the 1987 Stock Option Plan (the "Prior
Plan") that expire or become unexercisable for any reason without having been
exercised in full, shall no longer be available for distribution under the Prior
Plan, but shall be available for distribution under this Plan. Subject to
Sections 2.2 and 18, Shares shall again be available for grant and issuance in
connection with future Awards under the Plan that: (a) are subject to issuance
upon exercise of an Option but cease to be subject to such Option for any reason
other than exercise of such Option, (b) are subject to an Award granted
hereunder but are forfeited or are repurchased by the Company at the original
issue price, or (c) are subject to an Award that otherwise terminates without
Shares being issued.
2.2 Adjustment of Shares. In the event that the number
of outstanding Shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under the Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards shall be
proportionately adjusted, subject to any required action by the Board or the
shareholders of the Company and compliance with applicable securities laws;
provided, however, that fractions of a Share shall not be issued but shall
either be paid in cash at Fair Market Value or shall be rounded up to the
nearest Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below)
may be granted only to employees (including officers and directors who are also
employees) of the Company or of a Parent or Subsidiary of the Company. All other
Awards may be granted to employees, officers, directors, consultants,
independent contractors and advisors of the Company or any Parent, Subsidiary or
Affiliate of the Company; provided such consultants, contractors and advisors
render bona fide services not in connection with the offer and sale of
securities in a capital-raising transaction. No person shall be eligible to
receive more than 500,000 Shares at any time during the term of this Plan
pursuant to the grant of Awards hereunder. A person may be granted more than one
Award under the Plan.
4. ADMINISTRATION.
4.1 Committee Authority. The Plan shall be administered
by the Committee or the Board acting as the Committee. Subject to the general
purposes, terms and conditions of the Plan, and to the direction of the Board,
the Committee shall have full power to implement and carry out the Plan. The
Committee shall have the authority to:
<PAGE> 2
(a) construe and interpret the Plan, any Award Agreement and any
other agreement or document executed pursuant to the Plan;
(b) prescribe, amend and rescind rules and regulations relating
to the Plan;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration
subject to Awards;
(f) determine whether Awards will be granted singly, in
combination, in tandem with, in replacement of, or as
alternatives to, other Awards under the Plan or any other
incentive or compensation plan of the Company or any Parent,
Subsidiary or Affiliate of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission, or reconcile any
inconsistency in the Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of the Plan.
4.2 Committee Discretion. Any determination made by the
Committee with respect to any Award shall be made in its sole discretion at the
time of grant of the Award or, unless in contravention of any express term of
the Plan or Award, at any later time, and such determination shall be final and
binding on the Company and all persons having an interest in any Award under the
Plan. The Committee may delegate to one or more officers of the Company the
authority to grant an Award under the Plan to Participants who are not Insiders
of the Company.
4.3 Exchange Act Requirements. If two or more members
of the Board are Outside Directors, the Committee shall be comprised of at least
two members of the Board, all of whom are Outside Directors and Disinterested
Persons. The Company will take appropriate steps to comply with the
disinterested administration requirements of Section 16(b) of the Exchange Act,
which shall consist of the appointment by the Board of a Committee consisting of
not less than two members of the Board, each of whom is a Disinterested Person.
5. OPTIONS. The Committee may grant Options to eligible
persons and shall determine whether such Options shall be Incentive Stock
Options within the meaning of the Code ("ISOs") or Nonqualified Stock Options
("NQSOs"), the number of Shares subject to the Option, the Exercise Price of the
Option, the period during which the Option may be exercised, and all other terms
and conditions of the Option, subject to the following:
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<PAGE> 3
5.1 Form of Option Grant. Each Option granted under the
Plan shall be evidenced by an Award Agreement which shall expressly identify the
Option as an ISO or NQSO ("Stock Option Agreement"), and be in such form and
contain such provisions (which need not be the same for each Participant) as the
Committee shall from time to time approve, and which shall comply with and be
subject to the terms and conditions of the Plan.
5.2 Date of Grant. The date of grant of an Option shall
be the date on which the Committee makes the determination to grant such Option,
unless otherwise specified by the Committee. The Stock Option Agreement and a
copy of the Plan will be delivered to the Participant within a reasonable time
after the granting of the Option.
5.3 Exercise Period. Options shall be exercisable
within the times or upon the events determined by the Committee as set forth in
the Stock Option Agreement; provided, however, that no Option shall be
exercisable after the expiration of ten (10) years from the date the Option is
granted, and provided further that no ISO granted to a person who directly or by
attribution owns more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Parent or Subsidiary of the
Company ("Ten Percent Shareholder") shall be exercisable after the expiration of
five (5) years from the date the ISO is granted. The Committee also may provide
for the exercise of Options to become exercisable at one time or from time to
time, periodically or otherwise, in such number or percentage as the Committee
determines.
5.4 Exercise Price. The Exercise Price shall be
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant; provided that
(i) the Exercise Price of an ISO shall be not less than 100% of the Fair Market
Value of the Shares on the date of grant and (ii) the Exercise Price of any ISO
granted to a Ten Percent Shareholder shall not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of the Plan.
5.5 Method of Exercise. Options may be exercised only
by delivery to the Company of a written stock option exercise agreement (the
"Exercise Agreement") in a form approved by the Committee (which need not be the
same for each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares, if any, and such representations and
agreements regarding Participant's investment intent and access to information
and other matters, if any, as may be required or desirable by the Company to
comply with applicable securities laws, together with payment in full of the
Exercise Price for the number of Shares being purchased.
5.6 Termination. Notwithstanding the exercise periods
set forth in the Stock Option Agreement, exercise of an Option shall always be
subject to the following:
(a) If the Participant is Terminated for any reason except
death or Disability, then Participant may exercise such
Participant's Options only to the extent that such
Options would have been exercisable upon the
Termination Date no later than three (3) months after
the Termination Date (or such shorter time period as
may be specified in the Stock Option Agreement), but in
any event, no later than the expiration date of the
Options.
(b) If the Participant is terminated because of death or
Disability (or the Participant dies within three (3)
months of such termination), then Participant's Options
may be exercised only to the extent that such Options
would have been exercisable by Participant on the
Termination Date and must be exercised by Participant
(or Participant's
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legal representative or authorized assignee) no later
than twelve (12) months after the Termination Date (or
such shorter time period as may be specified in the
Stock Option Agreement), but in any event no later than
the expiration date of the Options.
5.7 Limitations on Exercise. The Committee may specify
a reasonable minimum number of Shares that may be purchased on any exercise of
an Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 Limitations on ISOs. The aggregate Fair Market
Value (determined as of the date of grant) of Shares with respect to which ISOs
are exercisable for the first time by a Participant during any calendar year
(under the Plan or under any other incentive stock option plan of the Company or
any Affiliate, Parent or Subsidiary of the Company) shall not exceed $100,000.
If the Fair Market Value of Shares on the date of grant with respect to which
ISOs are exercisable for the first time by a Participant during any calendar
year exceeds $100,000, the Options for the first $100,000 worth of Shares to
become exercisable in such calendar year shall be ISOs and the Options for the
amount in excess of $100,000 that become exercisable in that calendar year shall
be NQSOs. In the event that the Code or the regulations promulgated thereunder
are amended after the Effective Date of the Plan to provide for a different
limit on the Fair Market Value of Shares permitted to be subject to ISOs, such
different limit shall be automatically incorporated herein and shall apply to
any Options granted after the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee
may modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not, without
the written consent of Participant, impair any of Participant's rights under any
Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered shall be treated in accordance with Section 424(h)
of the Code. The Committee may reduce the Exercise Price of outstanding Options
without the consent of Participants affected by a written notice to them;
provided, however, that the Exercise Price may not be reduced below the minimum
Exercise Price that would be permitted under Section 5.4 of the Plan for Options
granted on the date the action is taken to reduce the Exercise Price.
5.10 No Disqualification. Notwithstanding any other
provision in the Plan, no term of the Plan relating to ISOs shall be
interpreted, amended or altered, nor shall any discretion or authority granted
under the Plan be exercised, so as to disqualify the Plan under Section 422 of
the Code or, without the consent of the Participant affected, to disqualify any
ISO under Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
Company to sell to an eligible person Shares that are subject to restrictions.
The Committee shall determine to whom an offer will be made, the number of
Shares the person may purchase, the price to be paid (the "Purchase Price"), the
restrictions to which the Shares shall be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under
a Restricted Stock Award made pursuant to the Plan shall be evidenced by an
Award Agreement ("Restricted Stock Purchase Agreement") that shall be in such
form (which need not be the same for each Participant) as the Committee shall
from time to time approve, and shall comply with and be subject to the terms and
conditions of the Plan. The offer of Restricted Stock shall be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agreement
and full payment for the Shares to the Company within thirty (30) days from the
date the Restricted Stock Purchase Agreement is delivered to the person. If such
person does not execute and deliver the Restricted Stock Purchase
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<PAGE> 5
Agreement along with full payment for the Shares to the Company within thirty
(30) days, then the offer shall terminate, unless otherwise determined by the
Committee.
6.2 Purchase Price. The Purchase Price of Shares sold
pursuant to a Restricted Stock Award shall be determined by the Committee and
shall be at least 85% of the Fair Market Value of the Shares on the date the
Restricted Stock Award is granted, except in the case of a sale to a Ten Percent
Shareholder, in which case the Purchase Price shall be 100% of the Fair Market
Value. Payment of the Purchase Price may be made in accordance with Section 8 of
the Plan.
6.3 Restrictions. Restricted Stock Awards shall be
subject to such restrictions as the Committee may impose. The Committee may
provide for the lapse of such restrictions in installments and may accelerate or
waive such restrictions, in whole or part, based on length of service,
performance or such other factors or criteria as the Committee may determine.
7. STOCK BONUSES.
7.1 Awards of Stock Bonuses. A Stock Bonus is an award
of Shares (which may consist of Restricted Stock) for services rendered to the
Company or any Parent, Subsidiary or Affiliate of the Company. A Stock Bonus may
be awarded for past services already rendered to the Company, or any Parent,
Subsidiary or Affiliate of the Company pursuant to an Award Agreement (the
"Stock Bonus Agreement") that shall be in such form (which need not be the same
for each Participant) as the Committee shall from time to time approve, and
shall comply with and be subject to the terms and conditions of the Plan. A
Stock Bonus may be awarded upon satisfaction of such performance goals as are
set out in advance in the Participant's individual Award Agreement (the
"Performance Stock Bonus Agreement") that shall be in such form (which need not
be the same for each Participant) as the Committee shall from time to time
approve, and shall comply with and be subject to the terms and conditions of the
Plan. Stock Bonuses may vary from Participant to Participant and between groups
of Participants, and may be based upon the achievement of the Company, Parent,
Subsidiary or Affiliate and/or individual performance factors or upon such other
criteria as the Committee may determine.
7.2 Terms of Stock Bonuses. The Committee shall
determine the number of Shares to be awarded to the Participant and whether such
Shares shall be Restricted Stock. If the Stock Bonus is being earned upon the
satisfaction of performance goals pursuant to a Performance Stock Bonus
Agreement, then the Committee shall determine: (a) the nature, length and
starting date of any period during which performance is to be measured (the
"Performance Period") for each Stock Bonus; (b) the performance goals and
criteria to be used to measure the performance, if any; (c) the number of Shares
that may be awarded to the Participant; and (d) the extent to which such Stock
Bonuses have been earned. Performance Periods may overlap and Participants may
participate simultaneously with respect to Stock Bonuses that are subject to
different Performance Periods and different performance goals and other
criteria. The number of Shares may be fixed or may vary in accordance with such
performance goals and criteria as may be determined by the Committee. The
Committee may adjust the performance goals applicable to the Stock Bonuses to
take into account changes in law and accounting or tax rules and to make such
adjustments as the Committee deems necessary or appropriate to reflect the
impact of extraordinary or unusual items, events or circumstances to avoid
windfalls or hardships.
7.3 Form of Payment. The earned portion of a Stock
Bonus may be paid currently or on a deferred basis with such interest or
dividend equivalent, if any, as the Committee may determine. Payment may be made
in the form of cash, whole Shares, including Restricted Stock, or a combination
thereof, either in a lump sum payment or in installments, all as the Committee
shall determine.
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<PAGE> 6
7.4 Termination During Performance Period. If a
Participant is Terminated during a Performance Period for any reason, then such
Participant shall be entitled to payment (whether in Shares, cash or otherwise)
with respect to the Stock Bonus only to the extent earned as of the date of
Termination in accordance with the Performance Stock Bonus Agreement, unless the
Committee shall determine otherwise.
8. PAYMENT FOR SHARE PURCHASES.
8.1 Payment. Payment for Shares purchased pursuant to
the Plan may be made in cash (by check) or, where expressly approved for the
Participant by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been owned
by Participant for more than six (6) months and have
been paid for within the meaning of SEC Rule 144 (and,
if such shares were purchased from the Company by use
of a promissory note, such note has been fully paid
with respect to such shares); or (2) were obtained by
Participant in the public market;
(c) by tender of a full recourse promissory note having
such terms as may be approved by the Committee and
bearing interest at a rate sufficient to avoid
imputation of income under Sections 483 and 1274 of the
Code; provided, however, that Participants who are not
employees of the Company shall not be entitled to
purchase Shares with a promissory note unless the note
is adequately secured by collateral other than the
Shares; provided, further, that the portion of the
Purchase Price equal to the par value of the Shares, if
any, must be paid in cash.
(d) by waiver of compensation due or accrued to Participant
for services rendered;
(e) by tender of property;
(f) with respect only to purchases upon exercise of an
Option, and provided that a public market for the
Company's stock exists:
(1) through a "same day sale"
commitment from Participant and a
broker-dealer that is a member of the National
Association of Securities Dealers (a "NASD
Dealer") whereby the Participant irrevocably
elects to exercise the Option and to sell a
portion of the Shares so purchased to pay for
the Exercise Price, and whereby the NASD
Dealer irrevocably commits upon receipt of
such Shares to forward the Exercise Price
directly to the Company; or
(2) through a "margin" commitment
from Participant and a NASD Dealer whereby
Participant irrevocably elects to exercise the
Option and to pledge the Shares so purchased
to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in
the amount of the Exercise Price, and whereby
the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the Exercise
Price directly to the Company;
or
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<PAGE> 7
(g) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the
Participant pay for Shares purchased under the Plan by authorizing a guarantee
by the Company of a third-party loan to the Participant.
9. WITHHOLDING TAXES.
9.1 Withholding Generally. Whenever Shares are to be
issued in satisfaction of Awards granted under the Plan, the Company may require
the Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under the Plan, payments
in satisfaction of Awards are to be made in cash, such payment shall be net of
an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9.2 Stock Withholding. When, under applicable tax laws,
a Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may allow the
Participant to satisfy the minimum withholding tax obligation by electing to
have the Company withhold from the Shares to be issued that number of Shares
having a Fair Market Value equal to the minimum amount required to be withheld,
determined on the date that the amount of tax to be withheld is to be determined
(the "Tax Date"). All elections by a Participant to have Shares withheld for
this purpose shall be made in writing in a form acceptable to the Committee and
shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable
Tax Date;
(b) once made, then except as provided below, the election
shall be irrevocable as to the particular Shares as to
which the election is made;
(c) all elections shall be subject to the consent or
disapproval of the Committee;
(d) if the Participant is an Insider and if the Company is
subject to Section 16(b) of the Exchange Act: (1) the
election may not be made within six (6) months of the
date of grant of the Award, except as otherwise
permitted by SEC Rule 16b-3(e) under the Exchange Act,
and (2) either (A) the election to use stock
withholding must be irrevocably made at least six (6)
months prior to the Tax Date (although such election
may be revoked at any time at least six (6) months
prior to the Tax Date) or (B) the exercise of the
Option or election to use stock withholding must be
made in the ten (10) day period beginning on the third
day following the release of the Company's quarterly or
annual summary statement of sales or earnings; and
(e) in the event that the Tax Date is deferred until six
(6) months after the delivery of Shares under Section
83(b) of the Code, the Participant shall receive the
full number of Shares with respect to which the
exercise occurs, but such Participant shall be
unconditionally obligated to tender back to the Company
the proper number of Shares on the Tax Date.
10. PRIVILEGES OF STOCK OWNERSHIP.
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<PAGE> 8
10.1 Voting and Dividends. No Participant shall have
any of the rights of a shareholder with respect to any Shares until the Shares
are issued to the Participant. After Shares are issued to the Participant, the
Participant shall be a shareholder and have all the rights of a shareholder with
respect to such Shares, including the right to vote and receive all dividends or
other distributions made or paid with respect to such Shares; provided, that if
such Shares are Restricted Stock, then any new, additional or different
securities the Participant may become entitled to receive with respect to such
Shares by virtue of a stock dividend, stock split or any other change in the
corporate or capital structure of the Company shall be subject to the same
restrictions as the Restricted Stock; provided, further, that the Participant
shall have no right to retain such stock dividends or stock distributions with
respect to Shares that are repurchased at the Participant's original Purchase
Price pursuant to Section 12.
10.2 Financial Statements. The Company shall provide
financial statements to each Participant prior to such Participant's purchase of
Shares under the Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company shall not be
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
11. TRANSFERABILITY. Awards granted under the Plan, and any
interest therein, shall not be transferable or assignable by Participant, and
may not be made subject to execution, attachment or similar process, otherwise
than by will or by the laws of descent and distribution or as consistent with
the specific Plan and Award Agreement provisions relating thereto. During the
lifetime of the Participant an Award shall be exercisable only by the
Participant, and any elections with respect to an Award, may be made only by the
Participant.
12. RESTRICTIONS ON SHARES. At the discretion of the Committee,
the Company may reserve to itself and/or its assignee(s) in the Award Agreement
(a) a right of first refusal to purchase all Shares that a Participant (or a
subsequent transferee) may propose to transfer to a third party, and/or (b) a
right to repurchase a portion of or all Shares held by a Participant following
such Participant's Termination at any time within ninety (90) days after the
later of Participant's Termination Date and the date Participant purchases
Shares under the Plan, for cash or cancellation of purchase money indebtedness,
at: (A) with respect to Shares that are "Vested" (as defined in the Award
Agreement), the higher of: (l) Participant's original Purchase Price, or (2) the
Fair Market Value of such Shares on Participant's Termination Date, provided,
that such right of repurchase (i) must be exercised as to all such "Vested"
Shares unless a Participant consents to the Company's repurchase of only a
portion of such "Vested" Shares and (ii) terminates when the Company's
securities become publicly traded; or (B) with respect to Shares that are not
"Vested" (as defined in the Award Agreement), at the Participant's original
Purchase Price, provided, that the right to repurchase at the original Purchase
Price lapses at the rate of at least 20% per year over 5 years from the date the
Shares were purchased (or from the date of grant of options in the case of
Shares obtained pursuant to a Stock Option Agreement and Stock Option Exercise
Agreement), and if the right to repurchase is assignable, the assignee must pay
the Company, upon assignment of the right to repurchase, cash equal to the
excess of the Fair Market Value of the Shares over the original Purchase Price.
13. CERTIFICATES. All certificates for Shares or other
securities delivered under the Plan shall be subject to such stock transfer
orders, legends and other restrictions as the Committee may deem necessary or
advisable, including restrictions under any applicable federal, state or foreign
securities law, or any rules, regulations and other requirements of the SEC or
any stock exchange or automated quotation system upon which the Shares may be
listed.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock
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<PAGE> 9
powers or other instruments of transfer approved by the Committee, appropriately
endorsed in blank, with the Company or an agent designated by the Company to
hold in escrow until such restrictions have lapsed or terminated, and the
Committee may cause a legend or legends referencing such restrictions to be
placed on the certificates. Any Participant who is permitted to execute a
promissory note as partial or full consideration for the purchase of Shares
under the Plan shall be required to pledge and deposit with the Company all or
part of the Shares so purchased as collateral to secure the payment of
Participant's obligation to the Company under the promissory note; provided,
however, that the Committee may require or accept other or additional forms of
collateral to secure the payment of such obligation and, in any event, the
Company shall have full recourse against the Participant under the promissory
note notwithstanding any pledge of the Participant's Shares or other collateral.
In connection with any pledge of the Shares, Participant shall be required to
execute and deliver a written pledge agreement in such form as the Committee
shall from time to time approve. The Shares purchased with the promissory note
may be released from the pledge on a prorata basis as the promissory note is
paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any
time or from time to time, authorize the Company, with the consent of the
respective Participants, to issue new Awards in exchange for the surrender and
cancellation of any or all outstanding Awards. The Committee may at any time buy
from a Participant an Award previously granted with payment in cash, Shares
(including Restricted Stock) or other consideration, based on such terms and
conditions as the Committee and the Participant shall agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award
shall not be effective unless such Award is in compliance with all applicable
federal and state securities laws, rules and regulations of any governmental
body, and the requirements of any stock exchange or automated quotation system
upon which the Shares may then be listed, as they are in effect on the date of
grant of the Award and also on the date of exercise or other issuance.
Notwithstanding any other provision in the Plan, the Company shall have no
obligation to issue or deliver certificates for Shares under the Plan prior to
(a) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable, and/or (b) completion of any registration
or other qualification of such shares under any state or federal law or ruling
of any governmental body that the Company determines to be necessary or
advisable. The Company shall be under no obligation to register the Shares with
the SEC or to effect compliance with the registration, qualification or listing
requirements of any state securities laws, stock exchange or automated quotation
system, and the Company shall have no liability for any inability or failure to
do so.
17. NO OBLIGATION TO EMPLOY. Nothing in the Plan or any Award
granted under the Plan shall confer or be deemed to confer on any Participant
any right to continue in the employ of, or to continue any other relationship
with, the Company or any Parent, Subsidiary or Affiliate of the Company or limit
in any way the right of the Company or any Parent, Subsidiary or Affiliate of
the Company to terminate Participant's employment or other relationship at any
time, with or without cause.
18. CORPORATE TRANSACTIONS.
18.1 Corporate Transactions. In the event of a
Corporate Transaction (as defined in this Section 18.1), the exercisability of
each Option shall be automatically accelerated so that each Option shall,
immediately before the specified effective date for the Corporate Transaction,
become fully exercisable with respect to the total number of Shares and may be
exercised for all or any portion of such Shares; provided, that an Option shall
not be accelerated if and to the extent that such Option is, in connection with
the Corporate Transaction, either to be assumed by the successor corporation or
parent thereof or to be replaced with a comparable option to purchase shares of
the capital stock of the successor corporation or parent thereof. The
determination of comparability shall be made by the Board or the Committee, and
the Board or the Committee's determination shall be final, binding and
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<PAGE> 10
conclusive. Upon the consummation of a Corporate Transaction, all outstanding
Options shall, to the extent not previously exercised or assumed by the
successor corporation or its parent, terminate and cease to be exercisable.
"Corporate Transaction" means (i) a merger or
acquisition in which the Company is not the surviving entity (except for a
transaction the principal purpose of which is to change the State in which the
Company is incorporated), (ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company or (iii) any other corporate
reorganization or business combination that is not approved by the Board and in
which the beneficial ownership of 50% or more of the Company's outstanding
voting stock is transferred.
18.2 Dissolution. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent that
Options have not been previously exercised, such Options will terminate
immediately prior to the consummation of such proposed action.
18.3 Assumption of Awards by the Company. The Company,
from time to time, also may substitute or assume outstanding awards granted by
another company, whether in connection with an acquisition of such other company
or otherwise, by either (a) granting an Option under this Plan in substitution
of such other company's Option, or (b) assuming such Option as if it had been
granted under this Plan if the terms of such assumed Option could be applied to
an Option granted under this Plan. Such substitution or assumption shall be
permissible if the holder of the substituted or assumed Option would have been
eligible to be granted an Option under the Plan if the other company had applied
the rules of the Plan to such grant. In the event the Company assumes an Option
granted by another company, the terms and conditions of such Option shall remain
unchanged (except that the Exercise Price and the number and nature of Shares
issuable upon exercise of any such option will be adjusted appropriately
pursuant to Section 424(a) of the Code). In the event the Company elects to
grant a new Option rather than assuming an existing option, such new Option may
be granted with a similarly adjusted Exercise Price.
19. ADOPTION AND SHAREHOLDER APPROVAL. The Plan shall
become effective on the closing of the first registration of the Company's
Common Stock for sale to the public under the Securities Act (the "Effective
Date"). The Plan shall be approved by the shareholders of the Company (excluding
Shares issued pursuant to this Plan), consistent with applicable laws, within
twelve (12) months before or after the date the Plan is adopted by the Board.
Upon the Effective Date, the Board may grant Awards pursuant to the Plan;
provided, however, that: (a) no Option may be exercised prior to initial
shareholder approval of the Plan; (b) no Option granted pursuant to an increase
in the number of Shares approved by the Board shall be exercised prior to the
time such increase has been approved by the shareholders of the Company; and (c)
in the event that shareholder approval is not obtained within the time period
provided herein, all Awards granted hereunder shall be canceled, any Shares
issued pursuant to any Award shall be canceled and any purchase of Shares
hereunder shall be rescinded. After the Company becomes subject to Section 16(b)
of the Exchange Act, the Company will comply with the requirements of Rule 16b-3
(or its successor), as amended, with respect to shareholder approval.
20. TERM OF PLAN. The Plan will terminate ten (10) years from
the date the Plan is adopted by the Board or, if earlier, the date of
shareholder approval.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend the Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to the Plan; provided, however, that the Board shall not, without the approval
of the shareholders of the Company, amend the Plan in any manner that requires
such shareholder approval pursuant to
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<PAGE> 11
the Code or the regulations promulgated thereunder as such provisions apply to
ISO plans or pursuant to the Exchange Act or Rule 16b-3 (or its successor), as
amended, thereunder.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan
by the Board, the submission of the Plan to the shareholders of the Company for
approval, nor any provision of the Plan shall be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under the Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. DEFINITIONS. As used in the Plan, the following terms shall
have the following meanings: "Affiliate" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, another corporation, where "control" (including
the terms "controlled by" and "under common control with") means the possession,
direct or indirect, of the power to cause the direction of the management and
policies of the corporation, whether through the ownership of voting securities,
by contract or otherwise.
"Award" means any award under the Plan, including any Option,
Restricted Stock or Stock
Bonus.
"Award Agreement" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee appointed by the Board to
administer the Plan, or if no committee is appointed, the Board.
"Company" means Information Storage Devices, Inc., a corporation
organized under the laws of the State of California, or any successor
corporation.
"Disability" means a disability, whether temporary or permanent,
partial or total, within the meaning of Section 22(e)(3) of the Code, as
determined by the Committee.
"Disinterested Person" means a director who has not, during the
period that person is a member of the Committee and for one year prior to
service as a member of the Committee, been granted or awarded equity securities
pursuant to the Plan or any other plan of the Company or any Parent, Subsidiary
or Affiliate of the Company, except in accordance with the requirements set
forth in Rule 16b-3(c)(2)(i) (and any successor regulation thereto) as
promulgated by the SEC under Section 16(b) of the Exchange Act, as such rule is
amended from time to time and as interpreted by the SEC.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exercise Price" means the price at which a holder of an Option
may purchase the Shares issuable upon exercise of the Option.
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"Fair Market Value" means, as of any date, the value of a share
of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq
National Market, its closing price on the Nasdaq
National Market on the last trading day prior to the
date of determination as reported in The Wall Street
Journal;
(b) if such Common Stock is publicly traded and is then
listed on a national securities exchange, its closing
price on the last trading day prior to the date of
determination on the principal national securities
exchange on which the Common Stock is listed or
admitted to trading as reported in The Wall Street
Journal;
(c) if such Common Stock is publicly traded but is not
quoted on the Nasdaq National Market nor listed or
admitted to trading on a national securities exchange,
the average of the closing bid and asked prices on the
last trading day prior to the date of determination as
reported by The Wall Street Journal; or
(d) if none of the foregoing is applicable, by the Board in
good faith.
"Insider" means an officer or director of the Company
or any other person whose transactions in the Company's Common Stock are subject
to Section 16 of the Exchange Act.
"Outside Director" means any director who is not (a) a
current employee of the Company or any Parent, Subsidiary or Affiliate of the
Company, (b) a former employee of the Company or any Parent, Subsidiary or
Affiliate of the Company who is receiving compensation for prior services (other
than benefits under a tax-qualified pension plan), (c) a current or former
officer of the Company or any Parent, Subsidiary or Affiliate of the Company or
(d) currently receiving compensation for personal services in any capacity,
other than as a director, from the Company or any Parent, Subsidiary or
Affiliate of the Company; provided, however, that at such time as the term
"Outside Director", as used in Section 162(m) is defined in regulations
promulgated under Section 162(m) of the Code, "Outside Director" shall have the
meaning set forth in such regulations, as amended from time to time and as
interpreted by the Internal Revenue Service.
"Option" means an award of an option to purchase Shares
pursuant to Section 5.
"Parent" means any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company, if at the time of
the granting of an Award under the Plan, each of such corporations other than
the Company owns stock possessing 50% or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
"Participant" means a person who receives an Award
under the Plan.
"Plan" means this Information Storage Devices, Inc.
1994 Equity Incentive Plan, as amended from time to time.
"Restricted Stock Award" means an award of Shares
pursuant to Section 6.
"SEC" means the Securities and Exchange Commission.
-12-
<PAGE> 13
"Securities Act" means the Securities Act of 1933, as
amended.
"Shares" means shares of the Company's Common Stock
reserved for issuance under the Plan, as adjusted pursuant to Sections 2 and 15,
and any successor security.
"Stock Bonus" means an award of Shares, or cash in lieu
of Shares, pursuant to Section 7.
"Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if, at
the time of granting of the Award, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
"Termination" or "Terminated" means, for purposes of
the Plan with respect to a Participant, that the Participant has ceased to
provide services as an employee, director, consultant, independent contractor or
adviser, to the Company or a Parent, Subsidiary or Affiliate of the Company,
except in the case of sick leave, military leave, or any other leave of absence
approved by the Committee, provided, that such leave is for a period of not more
than ninety (90) days, or reinstatement upon the expiration of such leave is
guaranteed by contract or statute. The Committee shall have sole discretion to
determine whether a Participant has ceased to provide services and the effective
date on which the Participant ceased to provide services (the "Termination
Date").
-13-
<PAGE> 14
Information Storage Devices, Inc.
Stock Option Agreement
NO.___
INFORMATION STORAGE DEVICES, INC.
1994 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is made and entered into as
of the date of grant set forth below (the "Date of Grant") by and between
Information Storage Devices, Inc., a California corporation (the "Company"), and
the participant named below ("Participant"). Capitalized terms not defined
herein shall have the meaning ascribed to them in the Company's 1994 Equity
Incentive Plan (the "Plan").
PARTICIPANT:
----------------------------
SOCIAL SECURITY NUMBER:
----------------------------
ADDRESS:
----------------------------
----------------------------
TOTAL OPTION SHARES:
----------------------------
EXERCISE PRICE PER SHARE:
----------------------------
DATE OF GRANT:
----------------------------
VESTING START DATE:
----------------------------
EXPIRATION DATE:
----------------------------
TYPE OF STOCK OPTION
(CHECK ONE): [ ] INCENTIVE STOCK OPTION
[ ] NONQUALIFIED STOCK OPTION
1. GRANT OF OPTION. The Company hereby grants to Participant an option
(the "Option") to purchase the total number of shares of Common Stock of the
Company set forth above (the "Shares") at the Exercise Price Per Share set forth
above (the "Exercise Price"), subject to all of the terms and conditions of this
Agreement and the Plan. If designated as an Incentive Stock Option above, the
Option is intended to qualify as an "incentive stock option" ("ISO") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended
1
<PAGE> 15
Information Storage Devices, Inc.
Stock Option Agreement
(the "Code").
2. EXERCISE PERIOD.
2.1 Exercise Period of Option. This Option becomes exercisable
as it vests. Provided Participant continues to provide services to the Company
or any Subsidiary, Parent or Affiliate of the Company throughout the specified
period, the Option shall become exercisable as to
_______________________________________________ until this Option is exercisable
with respect to 100% of the Shares.
2
<PAGE> 16
Information Storage Devices, Inc.
Stock Option Agreement
2.2 Expiration. The Option shall expire on the Expiration Date
set forth above and must be exercised, if at all, on or before the Expiration
Date.
3. TERMINATION.
3.1 Termination for Any Reason Except Death or Disability. If
Participant is Terminated for any reason, except death or Disability, the
Option, to the extent (and only to the extent) that it would have been
exercisable by Participant on the date of Termination, may be exercised by
Participant no later than three (3) months after the date of Termination, but in
any event no later than the Expiration Date.
3.2 Termination Because of Death or Disability. If Participant
is Terminated because of death or Disability of Participant, the Option, to the
extent that it is exercisable by Participant on the date of Termination, may be
exercised by Participant (or Participant's legal representative) no later than
twelve (12) months after the date of Termination, but in any event no later than
the Expiration Date.
3.3 No Obligation to Employ. Nothing in the Plan or this
Agreement shall confer on Participant any right to continue in the employ of, or
other relationship with, the Company or any Parent, Subsidiary or Affiliate of
the Company, or limit in any way the right of the Company or any Parent,
Subsidiary or Affiliate of the Company to terminate Participant's employment or
other relationship at any time, with or without cause.
4. MANNER OF EXERCISE.
4.1 Stock Option Exercise Agreement. To exercise this Option,
Participant (or in the case of exercise after Participant's death, Participant's
executor, administra tor, heir or legatee, as the case may be) must deliver to
the Company an executed stock option exercise agreement in the form attached
hereto as Exhibit A, or in such other form as may be approved by the Company
from time to time (the "Exercise Agreement"), which shall set forth, inter alia,
Participant's election to exercise the Option, the number of Shares being
purchased, any restrictions imposed on the Shares and any representations,
warranties and agreements regarding Participant's investment intent and access
to information as may be required by the Company to comply with applicable
securities laws. If someone other than Participant exercises the Option, then
such person must submit documentation reasonably acceptable to the Company that
such person has the right to exercise the Option.
4.2 Limitations on Exercise. The Option may not be exercised
unless such exercise is in compliance with all applicable federal and state
securities laws, as they are in effect on the date of exercise. The Option may
not be exercised as to fewer than 100 Shares unless it is exercised as to all
Shares as to which the Option is then exercisable.
3
<PAGE> 17
Information Storage Devices, Inc.
Stock Option Agreement
4.3 Payment. The Exercise Agreement shall be accompanied by
full payment of the Exercise Price for the Shares being purchased in cash (by
check), or where permitted by law:
(a) by cancellation of indebtedness of the Company to the Participant;
(b) by surrender of shares of the Company's Common Stock that either:
(1) have been owned by Participant for more than six (6) months and
have been paid for within the meaning of SEC Rule 144 and, if such
shares were purchased from the Company by use of a promissory note,
such note has been fully paid with respect to such shares); or (2) were
obtained by Participant in the open public market; and (3) are clear of
all liens, claims, encumbrances or security interests;
(c) by tender of a full recourse promissory note having such terms as
may be approved by the Committee and bearing interest at a rate
sufficient to avoid imputation of income under Sections 483 and 1274 of
the Code; provided, however, that Participants who are not employees of
the Company shall not be entitled to purchase Shares with a promissory
note unless the note is adequately secured by collateral other than the
Shares; provided, further, that the portion of the Purchase Price equal
to the par value of the Shares, if any, must be paid in cash.
(d) by waiver of compensation due or accrued to Participant for
services rendered;
(d) by tender of property;
(f) provided that a public market for the Company's stock exists, (1)
through a "same day sale" commitment from Participant and a
broker-dealer that is a member of the National Association of
Securities Dealers (a "NASD Dealer") whereby Participant irrevocably
elects to exercise the Option and to sell a portion of the Shares so
purchased to pay for the exercise price and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the exercise
price directly to the Company, or (2) through a "margin" commitment
from Participant and a NASD -- Dealer whereby Participant irrevocably
elects to exercise the Option and to pledge the Shares so purchased to
the NASD Dealer in a margin account as security for a loan from the
NASD Dealer in the amount of the exercise price, and whereby the NASD
Dealer irrevocably commits upon receipt of such Shares to forward the
exercise price directly to the Company; or
(e) by any combination of the foregoing.
4
<PAGE> 18
Information Storage Devices, Inc.
Stock Option Agreement
4.4 Tax Withholding. Prior to the issuance of the Shares upon exercise
of the Option, Participant must pay or provide for any applicable federal or
state withholding obligations of the Company. If the Committee permits,
Participant may provide for payment of withholding taxes upon exercise of the
Option by requesting that the Company retain Shares with a Fair Market Value
equal to the minimum amount of taxes required to be withheld. In such case, the
Company shall issue the net number of Shares to the Participant by deducting the
Shares retained from the Shares issuable upon exercise.
4.5 Issuance of Shares. Provided that the Exercise Agreement and
payment are in form and substance satisfactory to counsel for the Company, the
Company shall
5
<PAGE> 19
Information Storage Devices, Inc.
Stock Option Agreement
issue the Shares registered in the name of Participant, Participant's authorized
assignee, or Participant's legal representative, and shall deliver certificates
representing the Shares with the appropriate legends affixed thereto.
5. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the Option is
an ISO, and if Participant sells or otherwise disposes of any of the Shares
acquired pursuant to the ISO on or before the later of (1) the date two years
after the Date of Grant, and (2) the date one year after transfer of such Shares
to Participant upon exercise of the Option, Participant shall immediately notify
the Company in writing of such disposition. Participant agrees that Participant
may be subject to income tax withholding by the Company on the compensation
income recognized by Participant from the early disposition by payment in cash
or out of the current wages or other compensation payable to Participant.
6. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of the Option and
the issuance and transfer of Shares shall be subject to compliance by the
Company and Partici pant with all applicable requirements of federal and state
securities laws and with all applicable requirements of any stock exchange on
which the Company's Common Stock may be listed at the time of such issuance or
transfer. Participant understands that the Company is under no obliga tion to
register or qualify the Shares with the Securities and Exchange Commission, any
state securities commission or any stock exchange to effect such compliance.
7. NONTRANSFERABILITY OF OPTION. The Option may not be transferred in
any manner other than by will or by the laws of descent and distribution and may
be exercised during the lifetime of Participant only by Participant. The terms
of the Option shall be binding upon the executors, administrators, successors
and assigns of Participant.
8. TAX CONSEQUENCES. Set forth below is a brief summary as of the Date
of Grant of some of the federal and California tax consequences of exercise of
the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. PARTICIPANT
SHOULD CONSULT A TAX ADVISOR BEFORE EXERCISING THE OPTION OR DISPOSING OF THE
SHARES.
8.1 Exercise of ISO. If the Option qualifies as an ISO, there
will be no regular federal or California income tax liability upon the exercise
of the Option, although the excess, if any, of the fair market value of the
Shares on the date of exercise over the Exercise Price will be treated as a tax
preference item for federal income tax purposes and may subject the Participant
to the alternative minimum tax in the year of exercise.
8.2 Exercise of Nonqualified Stock Option. If the Option does
not qualify as an ISO, there may be a regular federal and California income tax
liability upon the
6
<PAGE> 20
Information Storage Devices, Inc.
Stock Option Agreement
exercise of the Option. Participant 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 Shares on the date of exercise over the
Exercise Price. The Company will be required to withhold from Participant's
compensation or collect from Participant and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at the
time of exercise.
8.3 Disposition of Shares. If the Shares are held for more
than twelve (12) months after the date of the transfer of the Shares pursuant to
the exercise of the Option (and, in the case of an ISO, are disposed of more
than two years after the Date of Grant), any gain realized on disposition of the
Shares will be treated as long term capital gain for federal and California
income tax purposes. If Shares purchased under an ISO are disposed of within one
year of exercise or within two years after the Date of Grant, 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 Fair Market Value of
the Shares on the date of exercise over the Exercise Price. The Company will be
required to withhold from Participant's compensation or collect from Participant
and pay to the applicable taxing authorities an amount equal to a percentage of
this compensation income at the time of exercise.
9. PRIVILEGES OF STOCK OWNERSHIP. Participant shall not have any of the
rights of a shareholder with respect to any Shares until Participant exercises
the Option and pays the Exercise Price.
10. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Participant or the Company to the Committee for
review. The resolution of such a dispute by the Committee shall be final and
binding on the Company and Participant.
11. ENTIRE AGREEMENT. The Plan is incorporated herein by reference.
This Agreement and the Plan constitute the entire agreement of the parties and
supersede all prior undertakings and agreements with respect to the subject
matter hereof.
12. NOTICES. Any notice required to be given or delivered to the
Company under the terms of this Agreement shall be in writing and addressed to
the Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to Participant shall be in writing and
addressed to Participant at the address indicated above or to such other address
as such party may designate in writing from time to time to the Company. All
notices shall be deemed to have been given or delivered upon: personal delivery;
three (3) days after deposit in the United States mail by certified or
registered mail (return receipt requested); one (1) business day after deposit
with any return receipt express courier (prepaid); or one (1) business day after
transmission by rapifax or telecopier.
13. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under
7
<PAGE> 21
Information Storage Devices, Inc.
Stock Option Agreement
this Agreement. This Agreement shall be binding upon and inure to the benefit of
the successors and assigns of the Company. Subject to the restrictions on
transfer set forth herein, this Agree ment shall be binding upon Participant and
Participant's heirs, executors, administrators, legal representatives,
successors and assigns.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
15. ACCEPTANCE. Participant hereby acknowledges receipt of a copy of
the Plan and this Agreement. Participant has read and understands the terms and
provisions thereof, and accepts the Option subject to all the terms and
conditions of the Plan and this Agreement. Participant acknowledges that there
may be adverse tax consequences upon exercise of the
8
<PAGE> 22
Information Storage Devices, Inc.
Stock Option Agreement
Option or disposition of the Shares and that Participant should consult a tax
advisor prior to such exercise or disposition.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in duplicate by its duly authorized representative and Participant has
executed this Agreement in duplicate as of the Effective Date.
INFORMATION STORAGE PARTICIPANT
DEVICES, INC.
By:
- - ------------------------------ ----------------------------
(Signature)
- - ------------------------------ ----------------------------
(Please print name) (Please print name)
- - --------------------------------------
(Please print title)
9
<PAGE> 23
Information Storage Devices, Inc.
Stock Option Agreement
EXHIBIT A
STOCK OPTION EXERCISE AGREEMENT
10
<PAGE> 24
Exhibit A
INFORMATION STORAGE DEVICES, INC.
STOCK OPTION EXERCISE AGREEMENT
I hereby elect to purchase the number of shares of Common Stock as
set forth below:
Participant Number of Shares Purchased:
Social Security Number: Purchase Price per Share:
Address: Aggregate Purchase Price:
___________________________________ Date of Option Agreement:
Type of Option: [ ] Incentive Stock Option Exact Name of Title to Shares:
[ ] Nonqualified Stock Option
Participant hereby delivers to the Company the Aggregate Purchase
Price, to the extent permitted in the Option Agreement as follows (check as
applicable and complete):
[ ] in cash (by check) in the amount of $__________________, receipt of
which is acknowledged by the Company;
[ ] by cancellation of indebtedness of the Company to Participant in the
amount of $_______________________;
[ ] by delivery of ___________ fully-paid, nonassessable and vested
shares of the common stock of the Company owned by Participant for at
least six (6) months prior to the date hereof (and which have been paid
for within the meaning of SEC Rule 144), or obtained by Participant in
the open public market, and owned free and clear of all liens, claims,
encumbrances or security interests, valued at the current Fair Market
Value of $_________ per share;
[ ] by tender of a full recourse promissory note in the principal amount
of $____________________________, secured by a Pledge Agreement of even
date herewith;
[ ] by the waiver hereby of compensation due or accrued to Participant for
services rendered in the amount of $ _______________;
[ ] by tender of property in the amount of $______________;
[ ] through a "same-day-sale" commitment, delivered herewith, from
Participant and the NASD Dealer named therein, in the amount of
$___________________; or
[ ] through a "margin" commitment, delivered herewith from Participant and
the NASD Dealer named therein, in the amount of $____________.
Market Standoff Agreement. Participant, if requested by the Company and
an underwriter of Common Stock (or other securities) of the Company, agrees not
to sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by Participant during the period requested by
the managing underwriter following the effective date of a registration
statement of the Company filed under the Exchange Act, provided that all
officers and directors of the Company are required to enter into similar
agreements. Such agreement shall be in writing in a form satisfactory to the
Company and such underwriter. The Company may impose stop-transfer instructions
with respect to the shares (or other securities) subject to the foregoing
restriction until the end of such period.
Tax Consequences. PARTICIPANT UNDERSTANDS THAT PARTICIPANT MAY SUFFER
ADVERSE TAX CONSEQUENCES AS A RESULT OF PARTICIPANT'S PURCHASE OR DISPOSITION OF
THE SHARES. PARTICIPANT REPRESENTS THAT PARTICIPANT HAS CONSULTED WITH ANY TAX
CONSULTANT(S) PARTICIPANT DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR
DISPOSITION OF THE SHARES AND THAT PARTICIPANT IS NOT RELYING ON THE COMPANY FOR
ANY TAX ADVICE.
Entire Agreement. The Plan and Option Agreement are incorporated herein
by reference. This Exercise Agreement, the Plan and the Option Agreement
constitute the entire agreement of the parties and supersede in their entirety
all prior undertakings and agreements of the Company and Participant with
respect to the subject matter hereof, and is governed by California law except
for that body of law pertaining to conflict of laws.
Date:
Signature of Participant
<PAGE> 25
SPOUSE'S CONSENT
I acknowledge that I have read the Stock Option Exercise Agreement (the
"Agreement") and that I know its contents. I am aware that by the Agreement's
provisions my spouse (the "Participant") agrees to sell the Number of Shares
Purchased (as provided for in the Agreement and hereinafter referred to as
"Shares"), including any community property interest I may have, on the
occurrence of certain events. I hereby consent to the sale, approve the
provisions of the Agreement and agree that these Shares and any interest I may
have in them are subject to the provisions of the Agreement. I will take no
action at any time to hinder operation of the Agreement on these Shares or any
interest I may have on them.
Spouse of Participant
__________________________________ Date:__________________
___________________________________ Date:__________________
Participant's Name
<PAGE> 1
EXHIBIT 10.03
INFORMATION STORAGE DEVICES, INC.
1994 DIRECTORS STOCK OPTION PLAN
As Adopted September 12, 1994
As Amended Through March 21, 1996
1. Purpose. This 1994 Directors Stock Option Plan (this "Plan") is
established to provide equity incentives for nonemployee members of the Board of
Directors of Information Storage Devices, Inc. (the "Company"), who are
described in Section 6.1 below, by granting such persons options to purchase
shares of stock of the Company.
2. Adoption and Shareholder Approval. This Plan shall become effective
on the closing of the first registration of the Company's Common Stock for sale
to the public under the Securities Act (the "Effective Date"). This Plan shall
be approved by the shareholders of the Company, consistent with applicable laws,
within twelve (12) months after the date this Plan is adopted by the Board of
Directors of the Company (the "Board"). Options ("Options") may be granted under
this Plan after the Effective Date provided that, in the event that shareholder
approval is not obtained within the time period provided herein, this Plan, and
all Options granted hereunder, shall terminate. No Option that is issued as a
result of any increase in the number of shares authorized to be issued under
this Plan shall be exercised prior to the time such increase has been approved
by the shareholders of the Company and all such Options granted pursuant to such
increase shall similarly terminate if such shareholder approval is not obtained.
So long as the Company is subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended, (the "Exchange Act") the Company will comply with the
requirements of Rule 16b-3 with respect to shareholder approval.
3. Types of Options and Shares. Options granted under this Plan shall
be nonqualified stock options ("NQSOs"). The shares of stock that may be
purchased upon exercise of Options granted under this Plan (the "Shares") are
shares of the Common Stock of the Company.
4. Number of Shares. The maximum number of Shares that may be issued
pursuant to Options granted under this Plan is 120,000 Shares, subject to
adjustment as provided in this Plan. If any Option is terminated for any reason
without being exercised in whole or in part, the Shares thereby released from
such Option shall be available for purchase under other Options subsequently
granted under this Plan. At all times during the term of this Plan, the Company
shall reserve and keep available such number of Shares as shall be required to
satisfy the requirements of outstanding Options under this Plan.
5. Administration. This Plan shall be administered by the Board or by a
committee of not less than two members of the Board appointed to administer this
Plan (the "Committee"). As used in this Plan, references to the Committee shall
mean either such Committee or the Board if no Committee has been established.
The interpretation by the Committee of any of the provisions of this Plan or any
Option granted under this Plan shall be final and binding upon the Company and
all persons having an interest in any Option or any Shares purchased pursuant to
an Option.
6. Eligibility and Award Formula.
<PAGE> 2
6.1 Eligibility. Options may be granted only to directors of the
Company who are not employees of the Company or any Parent, Subsidiary or
Affiliate of the Company, as those terms are defined in Section 17 below (each
an "Optionee").
6.2 Initial Grant. Each Optionee who on or after the Effective
Date becomes a member of the Board will automatically be granted an Option for
7,500 Shares (the "Initial Grant"). Initial Grants shall be made on the date
such Optionee first joins the Board.
6.3 Succeeding Grants. Each year following the effective date of
the amendment to this Plan giving effect hereto ("Amendment Effective Date") on
January 1 of such year, if the Optionee is still a member of the Board, the
Optionee will automatically be granted an Option for 7,500 Shares (the
"Succeeding Grant").
6.4 Maximum Shares. The maximum number of Shares that may be
issued to any one Optionee under this Plan is 30,000. No grant will be made if
such grant will cause the number of Shares issued or subject to outstanding
Options under this Plan to exceed the number specified in Section 4 above.
7. Terms and Conditions of Options. Subject to the following and
to Section 6 above:
7.1 Form of Option Grant. Each Option granted under this Plan
shall be evidenced by a written Stock Option Grant ("Grant") in such form (which
need not be the same for each Optionee) as the Committee shall from time to time
approve, which Grant shall comply with and be subject to the terms and
conditions of this Plan.
7.2 Vesting. Options granted under this Plan shall be
exercisable as they vest. The date an Optionee receives an Initial Grant or a
Succeeding Grant is referred to in this Plan as the "Start Date" for such
Option. Each Initial Grant granted prior to the Amendment Effective Date will
fully vest as to twenty-five percent (25%) of the Shares at the end of each full
year following the Start Date, so long as the Optionee continuously remains a
director of the Company. Each Succeeding Grant granted prior to the Amendment
Effective Date will vest as to twenty-five percent (25%) of the Shares at the
end of each full year following the Start Date, so long as the Optionee
continuously remains a director of the Company. Each Initial Grant or Succeeding
Grant granted following the Amendment Effective Date will vest ratably at the
end of each of the twelve months following the Start Date and will be fully
vested on the first anniversary of the Start Date, so long as the Optionee
continuously remains a director of the Company until each such first
anniversary.
7.3 Exercise Price. The exercise price of an Option shall be the
Fair Market Value (as defined in Section 17.4) of the Shares, at the time that
the Option is granted.
7.4 Termination of Option. Except as provided below in this
Section, each Option shall expire ten (10) years after the Start Date (the
"Expiration Date"). The Option shall cease to vest if the Optionee ceases to be
a member of the Board. The date on which the Optionee ceases to be a member of
the Board shall be referred to as the "Termination Date". An Option may be
exercised after the Termination Date only as set forth below:
(a) Termination Generally. If the Optionee ceases to be a
member of the Board for any reason except death or disability, each Option, to
the extent (and only to the extent) that it would have been exercisable by the
Optionee on the Termination Date, may be exercised by the Optionee within three
(3) months after the Termination Date, but in no event later than the Expiration
Date.
-2-
<PAGE> 3
(b) Death or Disability. If the Optionee ceases to be a
member of the Board because of the death of the Optionee or the disability of
the Optionee within the meaning of Section 22(e)(3) of the Internal Revenue Code
of 1986, as amended (the "Code"), each Option, to the extent (and only to the
extent) that it would have been exercisable by the Optionee on the Termination
Date, may be exercised by the Optionee (or the Optionee's legal representative)
within twelve (12) months after the Termination Date, but in no event later than
the Expiration Date.
8. Exercise of Options.
8.1 Notice. Options may be exercised only by delivery to the
Company of an exercise agreement in a form approved by the Committee stating the
number of Shares being purchased, the restrictions imposed on the Shares and
such representations and agreements regarding the Optionee's investment intent
and access to information as may be required by the Company to comply with
applicable securities laws, together with payment in full of the exercise price
for the number of Shares being purchased.
8.2 Payment. Payment for the Shares may be made (a) in cash or by
check; (b) by surrender of shares of Common Stock of the Company that have been
owned by the Optionee for more than six (6) months (and which have been paid for
within the meaning of SEC Rule 144 and, if such shares were purchased from the
Company by use of a promissory note, such note has been fully paid with respect
to such shares) or were obtained by the Optionee in the open public market,
having a Fair Market Value equal to the exercise price of the Option; (c) by
waiver of compensation due or accrued to the Optionee for services rendered; (d)
provided that a public market for the Company's stock exists, through a "same
day sale" commitment from the Optionee and a broker-dealer that is a member of
the National Association of Securities Dealers (a "NASD Dealer") whereby the
Optionee irrevocably elects to exercise the Option and to sell a portion of the
Shares so purchased to pay for the exercise price and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the exercise price
directly to the Company; (e) provided that a public market for the Company's
stock exists, through a "margin" commitment from the Optionee and a NASD Dealer
whereby the Optionee irrevocably elects to exercise the Option and to pledge the
Shares so purchased to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the exercise price, and whereby the
NASD Dealer irrevocably commits upon receipt of such Shares to forward the
exercise price directly to the Company; or (f) by any combination of the
foregoing.
8.3 Withholding Taxes. Prior to issuance of the Shares upon
exercise of an Option, the Optionee shall pay or make adequate provision for any
federal or state withholding obligations of the Company, if applicable.
8.4 Limitations on Exercise. Notwithstanding the exercise periods
set forth in the Grant, exercise of an Option shall always be subject to the
following limitations:
(a) An Option shall not be exercisable until such time as
the Plan or, in the case of Options granted pursuant to an amendment to the
number of shares that may be issued pursuant to the Plan, the amendment has been
approved by the shareholders of the Company in accordance with Section 15
hereof.
(b) An Option shall not be exercisable unless such
exercise is in compliance with the Securities Act, and all applicable state
securities laws, as they are in effect on the date of exercise.
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<PAGE> 4
(c) The Committee may specify a reasonable minimum number
of Shares that may be purchased on any exercise of an Option, provided that such
minimum number will not prevent the Optionee from exercising the full number of
Shares as to which the Option is then exercisable.
9. Nontransferability of Options. During the lifetime of the Optionee,
an Option shall be exercisable only by the Optionee or by the Optionee's
guardian or legal representative, unless otherwise permitted by the Committee.
No Option may be sold, pledged, assigned, hypothecated, transferred or disposed
of in any manner other than by will or by the laws of descent and distribution.
10. Privileges of Stock Ownership. No Optionee shall have any of the
rights of a shareholder with respect to any Shares subject to an Option until
the Option has been validly exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
of exercise, except as provided in this Plan. The Company shall provide to each
Optionee a copy of the annual financial statements of the Company, at such time
after the close of each fiscal year of the Company as they are released by the
Company to its shareholders.
11. Adjustment of Option Shares. In the event that the number of
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration,
the number of Shares available under this Plan and the number of Shares subject
to outstanding Options and the exercise price per share of such Options shall be
proportionately adjusted, subject to any required action by the Board or
shareholders of the Company and compliance with applicable securities laws;
provided, however, that no certificate or scrip representing fractional shares
shall be issued upon exercise of any Option and any resulting fractions of a
Share shall be rounded up to the nearest Share.
12. No Obligation to Continue as Director. Nothing in this Plan or any
Option granted under this Plan shall confer on any Optionee any right to
continue as a director of the Company.
13. Compliance With Laws. The grant of Options and the issuance of
Shares upon exercise of any Options shall be subject to and conditioned upon
compliance with all applicable requirements of law, including without limitation
compliance with the Securities Act, compliance with all other applicable state
securities laws and compliance with the requirements of any stock exchange or
national market system on which the Shares may be listed. The Company shall be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration or qualification requirement of any state securities laws,
stock exchange or national market system.
l4. Acceleration of Options. In the event of a dissolution or
liquidation of the Company, a merger in which the Company is not the surviving
corporation, the sale of substantially all of the assets of the Company, or any
other transaction which qualifies as a "corporate transaction" under Section 424
of the Code wherein the shareholders of the Company give up all of their equity
interest in the Company, the vesting of all options granted pursuant to the Plan
will accelerate and the options will become exercisable in full prior to the
consummation of such event at such times and on such conditions as the Committee
determines.
15. Amendment or Termination of Plan. The Committee may at any time
terminate or amend this Plan but not the terms of any outstanding option;
provided, however, that the Committee shall not, without the approval of the
shareholders of the Company, increase the total number of Shares available under
this Plan (except by operation of the provisions of Sections 4 and 11 above) or
change the class of persons eligible to
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<PAGE> 5
receive Options. Further, the provisions in Sections 6 and 7 of this Plan shall
not be amended more than once every six (6) months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act or the rules
thereunder. In any case, no amendment of this Plan may adversely affect any then
outstanding Options or any unexercised portions thereof without the written
consent of the Optionee.
16. Term of Plan. Options may be granted pursuant to this Plan from
time to time within a period of ten (10) years from the date this Plan is
adopted by the Board.
17. Certain Definitions. As used in this Plan, the following terms
shall have the following meanings:
17.1 "PARENT" means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company if, at the time of the
granting of the Option, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
17.2 "SUBSIDIARY" means any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company if, at the time
of granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
17.3 "AFFILIATE" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, another corporation, where "control" (including
the terms "controlled by" and "under common control with") means the possession,
direct or indirect, of the power to cause the direction of the management and
policies of the corporation, whether through the ownership of voting securities,
by contract or otherwise.
17.4 "FAIR MARKET VALUE" shall mean, as of any date, the value
of a share of the Company's Common Stock determined by the Board in its sole
discretion, exercised in good faith; provided, however, that where there is a
public market for the Common Stock, the Fair Market Value per share shall be the
average of the closing bid and asked prices of the Common Stock on the last
trading day prior to the date of determination as reported in The Wall Street
Journal (or, if not so reported, as otherwise reported by the Nasdaq Stock
Market) or, in the event the Common Stock is listed on a stock exchange or on
the Nasdaq National Market, the Fair Market Value per share shall be the closing
price on the exchange or on the Nasdaq National Market on the last trading date
prior to the date of determination as reported in The Wall Street Journal.
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<PAGE> 6
Information Storage Devices, Inc. Directors Stock Option Grant
INFORMATION STORAGE DEVICES, INC.
DIRECTORS NONQUALIFIED STOCK OPTION GRANT
Optionee:
---------------------------
Address:
---------------------------
Total Shares Subject to Option: 7500
---------------------------
Exercise Price Per Share:
---------------------------
Date of Grant:
---------------------------
Expiration Date:
---------------------------
1. GRANT OF OPTION. Information Storage Devices, Inc., a California
corporation (the "Company"), has granted to the optionee named above
("Optionee") an option (this "Option") to purchase the total number of shares of
Common Stock of the Company set forth above (collectively, the "Shares") at the
exercise price per share set forth above (the "Exercise Price"), subject to all
of the terms and conditions of this Grant and the Company's 1994 Directors Stock
Option Plan, as amended to the date hereof (the "Plan"). Unless otherwise
defined herein, capitalized terms used herein shall have the meanings ascribed
to them in the Plan.
2. EXERCISE AND VESTING OF OPTION. Subject to the terms and conditions
of the Plan and this Grant, this Option shall be exercisable as it vests.
Subject to the terms and conditions of the Plan and this Grant, this Option
shall vest as to twenty-five percent (25%) of the Shares at the end of each full
year following the date of grant so long as the Optionee continuously remains a
member of the Board of Directors of the Company (a "Board Member").
3. RESTRICTION ON EXERCISE. This Option may not be exercised unless
such exercise is in compliance with the 1933 Securities Act, and all applicable
state securities laws, as they
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<PAGE> 7
Information Storage Devices, Inc. Directors Stock Option Grant
are in effect on the date of exercise, and the requirements of any stock
exchange or national market system on which the Company's Common Stock may be
listed at the time of exercise. Optionee understands that the Company is under
no obligation to register, qualify or list the Shares with the SEC, any state
securities commission or any stock exchange or national market system to effect
such compliance.
4. TERMINATION OF OPTION. Except as provided below in this
Section, this Option shall terminate and may not be exercised if Optionee
ceases to be a Board Member. The date on which Optionee ceases to be a Board
Member shall be referred to as the "Termination Date."
4.1 Termination Generally. If Optionee ceases to be a Board
Member for any reason except death or disability, this Option, to the extent
(and only to the extent) that it would have been exercisable by Optionee on the
Termination Date, may be exercised by Optionee within three (3) months after the
Termination Date, but in no event later than the Expiration Date.
4.2 Death or Disability. If Optionee ceases to be a Board Member
because of the death of Optionee or the disability of Optionee within the
meaning of Section 22(e)(3) of the Code, this Option, to the extent (and only to
the extent) that it would have been exercisable by Optionee on the Termination
Date, may be exercised by Optionee (or Optionee's legal representative) within
twelve (12) months after the Termination Date, but in no event later than the
Expiration Date.
5. MANNER OF EXERCISE.
5.1 Exercise Agreement. This Option shall be exercisable by
delivery to the Company of an executed written Directors Stock Option Exercise
Agreement in the form attached hereto as Exhibit A, or in such other form as may
be approved by the Committee, which shall set forth Optionee's election to
exercise some or all of this Option, the number of Shares being purchased, any
restrictions imposed on the Shares and such other representations and agreements
as may be required by the Company to comply with applicable securities laws.
5.2 Payment. Payment for the Shares may be made (a) in cash or
by check; (b) by surrender of shares of Common Stock of the Company that have
been owned by Optionee for more than six (6) months (and which have been paid
for within the meaning of SEC Rule 144 and, if such shares were purchased from
the Company by use of a promissory note, such note has been fully paid with
respect to such shares) or were obtained by the Optionee in the open public
market, having a Fair Market Value equal to the Exercise Price of
-2-
<PAGE> 8
Information Storage Devices, Inc. Directors Stock Option Grant
the Option; (c) by waiver of compensation due or accrued to Optionee for
services rendered; (d) provided that a public market for the Company's stock
exists, through a "same day sale" commitment from the Optionee and a
broker-dealer that is a member of the National Association of Securities Dealers
(a "NASD Dealer") whereby the Optionee irrevocably elects to exercise the Option
and to sell a portion of the Shares so purchased to pay for the Exercise Price
and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the Exercise Price directly to the Company; (e) provided that a public
market for the Company's stock exists, through a "margin" commitment from the
Optionee and a NASD Dealer whereby the Optionee irrevocably elects to exercise
the Option and to pledge the Shares so purchased to the NASD Dealer in a margin
account as security for a loan from the NASD Dealer in the amount of the
Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the Exercise Price directly to the Company; or (f) by any
combination of the foregoing.
5.3 Withholding Taxes. Prior to the issuance of the Shares upon
exercise of this Option, Optionee shall pay or make adequate provision for any
applicable federal or state withholding obligations of the Company.
5.4 Issuance of Shares. Provided that such notice and payment
are in form and substance satisfactory to counsel for the Company, the Company
shall cause the Shares to be issued in the name of Optionee or Optionee's legal
representative. To enforce any restrictions on Optionee's Shares, the Committee
may require Optionee to deposit all certificates, together with stock powers or
other instruments of transfer approved by the Committee appropriately endorsed
in blank, with the Company or an agent designated by the Company to hold in
escrow until such restrictions have lapsed or terminated, and the Committee may
cause a legend or legends referencing such restrictions to be placed on the
certificates.
6. NONTRANSFERABILITY OF OPTION. During the lifetime of the Optionee,
this Option shall be exercisable only by Optionee or by Optionee's guardian or
legal representative, unless otherwise permitted by the Committee. No Option may
be sold, pledged, assigned, hypothecated, transferred or disposed of in any
manner other than by will or by the laws of descent and distribution.
7. INTERPRETATION. Any dispute regarding the interpretation of this
Grant shall be submitted by Optionee or the Company to the Committee that
administers the Plan, which shall review such dispute at its next regular
meeting. The resolution of such a dispute by the Committee shall be final and
binding on the Company and on Optionee. Nothing in the Plan or this Grant shall
confer on Optionee any right to continue as a Board Member.
-3-
<PAGE> 9
Information Storage Devices, Inc. Directors Stock Option Grant
8. ENTIRE AGREEMENT. The Plan and the Directors Stock Option Exercise
Agreement are incorporated herein by this reference. This Grant, the Plan and
the Directors Stock Option Exercise Agreement constitute the entire agreement of
the parties hereto and supersede all prior undertakings and agreements with
respect to the subject matter hereof.
INFORMATION STORAGE
DEVICES, INC.
B y :
--------------------------------------------
N a m e :
---------------------------------------
T i t l e :
-----------------------------------
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<PAGE> 10
Information Storage Devices, Inc. Directors Stock Option Grant
ACCEPTANCE
Optionee hereby acknowledges receipt of a copy of the Plan, represents
that Optionee has read and understands the terms and provisions thereof, and
accepts this Option subject to all the terms and conditions of the Plan and this
Grant. Optionee acknowledges that there may be adverse tax consequences upon
exercise of this Option or disposition of the Shares and that Optionee should
consult a qualified tax advisor prior to such exercise or disposition.
---------------------------------
Optionee
-5-
<PAGE> 11
EXHIBIT A
DIRECTORS STOCK OPTION EXERCISE AGREEMENT
<PAGE> 12
Exhibit A
INFORMATION STORAGE DEVICES, INC.
1994 DIRECTORS STOCK OPTION PLAN
DIRECTORS STOCK OPTION EXERCISE AGREEMENT
I hereby elect to purchase the number of shares of common stock as
set forth below:
Optionee: Number of Shares Purchased:
Social Security Number: Purchase Price per Share:
Address: Aggregate Purchase Price:
Date of Stock Option Grant:
Type of Stock Option: Nonqualified Stock Option Exact Name of Title to Shares:
Optionee hereby delivers to the Company the Aggregate Purchase Price,
to the extent permitted in the Directors Nonqualified Stock Option Grant as
follows (check as applicable and complete):
[ ] in cash (by check) in the amount of $__________________, receipt of
which is acknowledged by the Company;
[ ] by delivery of ___________ fully-paid, nonassessable and vested
shares of the common stock of the Company owned by Optionee for at
least six (6) months prior to the date hereof (and which have been paid
for within the meaning of SEC Rule 144), or obtained by Optionee in the
open public market, and owned free and clear of all liens, claims,
encumbrances or security interests, valued at the current Fair Market
Value of $_________ per share;
[ ] by the waiver hereby of compensation due or accrued to Optionee for
services rendered in the amount of $___________;
[ ] through a "same-day-sale" commitment, delivered herewith, from Optionee
and the NASD Dealer named therein, in the amount of
$___________________; or
[ ] through a "margin" commitment, delivered herewith from Optionee and
the NASD Dealer named therein, in the amount of $_____________________.
Market Standoff Agreement. Optionee agrees in connection with any
registration of the Company's securities that, upon the request of the Company
or the underwriters managing any public offering of the Company's securities,
Optionee will not sell or otherwise dispose of any Shares without the prior
written consent of the Company or such underwriters, as the case may be, for
such period of time from the effective date of such registration as the Company
or the underwriters may specify for the Company's officers and directors.
Tax Consequences. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE
TAX CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF THE
SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX
CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR
DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR
ANY TAX ADVICE.
Entire Agreement. The Plan and Directors Nonqualified Stock Option
Grant are incorporated herein by reference. This Agreement, the Plan and the
Directors Nonqualified Stock Option Grant constitute the entire agreement of the
parties and supersede in their entirety all prior undertakings and agreements of
the Company and Optionee with respect to the subject matter hereof, and is
governed by California law except for that body of law pertaining to conflict of
laws.
-1-
<PAGE> 13
Date:
Signature of Optionee
-2-
<PAGE> 14
SPOUSE'S CONSENT
I acknowledge that I have read the Directors Stock Option Exercise
Agreement (the "Agreement") and that I know its contents. I am aware that by the
Agreement's provisions my spouse (the "Optionee") agrees to sell the Number of
Shares Purchased (as provided for in the Agreement and hereinafter referred to
as "Shares"), including any community property interest I may have, on the
occurrence of certain events. I hereby consent to the sale, approve the
provisions of the Agreement and agree that these Shares and any interest I may
have in them are subject to the provisions of the Agreement. I will take no
action at any time to hinder operation of the Agreement on these Shares or any
interest I may have in them.
Spouse of Optionee
__________________________________ Date:_________________________
___________________________________ Date:_________________________
Optionee's Name
-3-
<PAGE> 1
1996 Q1 Information Storage Devices, Inc.
EXHIBIT 10.23
[ISD LETTERHEAD]
January 19, 1996
[Employee Name]
[Employee Address]
Re: Your Employment With Information Storage Devices, Inc.
Dear [Name]: {See Attached Schedule}
This letter will set forth the binding agreement of employment (the
"Agreement"), effective as of January 19, 1996 (the "Effective Date"), between
you and Information Storage Devices, Inc., a California corporation ("ISD").
1. EMPLOYMENT AND DUTIES. During the Employment Term, as defined in
Section 3 below, you will serve as {See Attached Schedule} of ISD. You will have
such duties and authority as are customary for, and commensurate with such
position, including _______________________________, and such other reasonable
duties and authority as the Board of Directors of ISD (the "Board") [or the
President of ISD] prescribes from time to time.
2. COMPENSATION.
(a) Salary. For your services hereunder, ISD will pay as
salary to you the amount of ${See Attached Schedule} per month during each of
the calendar years of the Employment Term, as defined in Section 3 below,
prorated for any year in which this Agreement is in effect for only a portion of
the calendar year. Such salary will be paid in conformity with ISD's normal
payroll period. Your salary will be reviewed by the Board from time to time at
its discretion, and you will receive such salary increases, if any, as the Board
in its sole discretion determines.
(b) Bonus. In addition to the salary set forth in Section 2(a)
hereof, you will be eligible starting in fiscal 1996, for an annual bonus
pursuant to a formula, and determined in accordance with criteria, in each case
to be established by the Board of Directors and/or its Compensation Committee,
which formula and criteria will be communicated to you in writing reasonably in
advance of the commencement of the performance period to which such bonus will
relate.
(c) Other Benefits. You will be entitled to participate in and
receive benefits under ISD's standard company benefits plans as in effect from
time to time, including medical insurance, sick leave, and vacation time,
subject to and on a basis
<PAGE> 2
1996 Q1 Information Storage Devices, Inc.
consistent with the terms, conditions and overall administration of such plans
and ISD policies.
(d) Expenses. During the term of your employment hereunder,
you will be entitled to receive prompt reimbursement from the ISD for all
reasonable business-related expenses incurred by you, in accordance with ISD's
policies and procedures as in effect from time to time, provided that you will
properly account for such business expenses in accordance with ISD's policy.
(e) Deductions and Withholding. All amounts payable or which
become payable under any provision of this Agreement will be subject to any
deductions authorized in writing by you and any deductions and withholdings
required by law.
3. TERM OF EMPLOYMENT.
(a) Term. This Agreement will continue in full force and
effect from and including the Effective Date through and including January 18,
1997, unless sooner terminated or extended as hereinafter provided (the
"Employment Term").
(b) Extension of Term. The term hereof may be extended by a
written amendment to this Agreement signed by both you and ISD.
(c) Early Termination. Your employment with ISD under this
Agreement may be terminated by ISD at any time during the Employment Term by
[the President or] [DELETE FOR DAVE ANGEL] the Board, for any reason and without
cause, upon delivery of written notice by ISD. ISD is not required to give you
any advance notice of termination which, in the sole discretion of ISD, may be
effective immediately upon delivery of written notice to you. You may terminate
this Agreement at any time by giving ISD written notice of your resignation at
least 30 days in advance; provided, however, that the Board may determine upon
receipt of such notice that the effective date of such resignation will be
immediate or some time prior to the expiration of the notice period stated in
your written notice to ISD.
(d) Termination for Cause. Prior to the expiration of the
Employment Term, your employment may be terminated for Cause by the Board,
immediately upon delivery of termination notice thereof to you. For these
purposes, termination for "Cause" will include, without limitation, termination
because of your (i) personal dishonesty, willful misconduct, or breach of
fiduciary duty involving personal profit or (ii) willful violation of any felony
law, in each case as determined in good faith by the Board after consultation
with you to determine the validity of the basis for such termination, or (iii)
willful breach by you of a material provision of this Agreement after written
notice, in reasonable detail as the alleged breach, has been given to you by the
Board and you have had a reasonable opportunity to cure such breach.
(e) Termination Due to Death or Disability. Your employment
hereunder will terminate immediately upon your death. In the event that by
reason of injury, illness or other physical or mental impairment you are (i)
completely unable to perform your services
<PAGE> 3
1996 Q1 Information Storage Devices, Inc.
hereunder for more than two consecutive months, or (ii) unable in the good faith
judgment of the Board to perform your services hereunder for 50% or more of the
normal working day throughout six consecutive months, then ISD may terminate
your employment hereunder at the end of such two-month or six-month period, as
applicable, by delivery to you of written notice of such termination.
4. PAYMENTS AND BENEFITS AFTER TERMINATION OF EMPLOYMENT.
(a) Termination For Cause, Death or Disability, or Voluntary
Termination. Upon termination of your employment by the Company under Section
3(d) hereof ("Termination for Cause"), Section 3(e) hereof ("Termination Due to
Death or Disability"), or upon your voluntary termination of employment pursuant
to Section 3(c) hereof ("Early Termination"), all salary and benefits hereunder
will cease immediately.
(b) Involuntary Termination After Corporate Transaction or Change of
Control.
(i) Definitions. For purposes of this Section 4(b):
(A) A "Corporate Transaction" is defined as any
corporate reorganization or business combination that is not approved by the
Board and in which the beneficial ownership of 50% or more of the Company's
outstanding voting stock is transferred.
(B) A "Change in Control" will be deemed to occur:
(1) when a person or related group of persons, other than the Company or a
person that directly or indirectly controls, is controlled by or is under common
control with the Company, becomes the beneficial owner (within the meaning of
Rule 13d-3 of the General Rules and Regulations under the Securities Exchange
Act of 1934) of 15% or more of the Company's outstanding voting stock pursuant
to a tender or exchange offer that the Board does not recommend and that the
stockholders of the Company accept; or (2) on the first date within any period
of twenty-four (24) consecutive months or less on which there is effected a
change in the composition of the Board by reason of a contested election such
that a majority of the Board members cease to be comprised of individuals who
either (a) have been members of the Board continuously since the beginning of
such period or (b) have been elected or nominated for election as Board members
during such period by at least a majority of the Board members described in
clause (2)(a) of this paragraph who were still in office at the time such
election or nomination was approved by the Board.
(C) The "Post-Transaction Period" is defined as the
six-month period commencing on the date of a Change of Control or of the closing
or effectiveness of a Corporate Transaction, as applicable, and ending on the
same numerical date in such sixth month as the date upon which such Change of
Control or closing or effectiveness of the Corporate Transaction occurred in the
original month, and if such sixth month period ends in February, and the date
within the original month on which such Change of Control occurred or Corporate
Transaction closed or completed was the 29th, 30th or 31st
<PAGE> 4
1996 Q1 Information Storage Devices, Inc.
day of such original month, then counting the last day of February as the 29th,
30th or 31st day of the month as applicable.
(D) A "Constructive Termination Event" will be deemed
to have occurred if any of the following actions is taken by the Company and
such action is not reversed in full by the Company within two weeks after the
effective date thereof: (1) your aggregate benefits are [materially] reduced
below those in effect immediately prior to the effective date of such
Constructive Termination Event, and/or (2) your duties and/or authority within
the Company are [materially] decreased following the effective date of such
Constructive Termination Event in a way adverse to you, and/or (3) your title is
changed to a title that, under customary usage within the semiconductor
industry, would be considered to be a lower-level title than your prior title,
(4) you are required to perform your employment obligations (other than routine
travel consistent with that prior to the effective date of such Constructive
Termination Event) at a location more than ___ miles away from your principal
place of work for ISD as such place of work was in effect immediately prior to
the effective date of such Constructive Termination Event.
(ii) Severance Pay For Involuntary Termination Without Cause
During Post-Transaction Period. If at any time during the Post-Transaction
Period (A) your employment is terminated by the Company without cause, pursuant
to Section 3(c) hereof, (but not if your employment is terminated during the
Post-Transaction Period for Cause (under Section 3(d) hereof) or by reason of
your death or disability (under Section 3(e) hereof), nor if you voluntarily
terminate your employment under Section 3(c) hereof except if such voluntary
termination is as a result of a Constructive Termination Event), or (B) a
Constructive Termination Event occurs and you voluntarily terminate your
employment thereafter before such Constructive Termination Event is reversed by
the Company as set forth in Section 4(b)(i)(D) hereof, then from and after the
date of such termination, you will be paid severance pay by ISD, for a period of
six months from and after the date of such termination (prorated for the first
and last month of such six-month period if your employment is terminated other
than at the end of a calendar month) of 2.5 times the total amount of your
annualized salary as in effect immediately prior to such termination or
Constructive Termination Event, to be paid in six equal installments each paid
on the date you otherwise would have been paid your salary had your employment
continued.
(c) Bonus, Benefits; Cooperation. In the event of any termination of
your employment, for whatever reason, you also will be paid, when otherwise due,
any bonus to which you otherwise would be entitled, and to such continuation of
your benefits listed in Section 2(c) hereof as may be provided by Company policy
or required by law. After any such termination of your employment, except to the
extent you are not able to do so by reason of your death or disability, you will
cooperate with ISD in providing for the orderly transition of your duties and
responsibilities to other individuals, as is reasonably requested by ISD.
5. MISCELLANEOUS. This Agreement contains the entire understanding and
sole and entire agreement between the parties with respect to the subject matter
hereof, and supersedes any and all prior agreements, negotiations and
discussions between the parties
<PAGE> 5
1996 Q1 Information Storage Devices, Inc.
hereto with respect to the subject matter covered hereby and may only be
modified by an agreement in writing signed by ISD and you, and which states the
intent of the parties to amend this Agreement. If any provision of this
Agreement is held to be invalid or otherwise unenforceable, in whole or in part,
the remainder of such provision and the remainder of this Agreement will not be
affected thereby and will be enforced to the fullest extent permitted by law.
Neither this Agreement nor the rights or obligations hereunder will be
assignable by you. ISD may assign this Agreement to any successor of ISD, and
upon such assignment any such successor will be deemed substituted for ISD upon
the terms and subject to the conditions hereof. This Agreement will be binding
upon the successors and assigns of the parties hereof and upon your heirs,
executors and administrators. This Agreement has been negotiated and executed
in, and will be governed by and construed with the laws of, the State of
California. Any notice, request, demand or other communication required or
permitted hereunder will be deemed to be properly given when personally served
in writing, or when deposited in the United States mail, postage pre-paid,
addressed to ISD at the address shown at the beginning of this letter, or to you
at the address shown below, or by facsimile upon confirmation of receipt. Each
party hereto may change its address by written notice in accordance with this
Section 5.
Sincerely,
----------------------
David L. Angel
President
[GENE FLATH
CHAIRMAN OF THE BOARD
SIGNS FOR DAVE ANGEL]
ACCEPTED AND AGREED:
- - ----------------------------------------
[Name]
Date signed: , 1996
--------
Address:
-------------------------------
-------------------------------
-------------------------------
-------------------------------
Facsimile:
-------------------------------
<PAGE> 6
1996 Q1 Information Storage Devices, Inc.
Schedule of Employment Agreement Terms
<TABLE>
<CAPTION>
Name Position Salary
(Section 1) (Section 2(a))
----------- --------------
<S> <C> <C>
David L. Angel President & CEO $14,584
James Brennan Vice President, Advanced $11,700
Development
Michael Geilhufe Vice President, Quality and $10,417
Reliability
Genda Hu Vice President, Technology $10,417
Scott Owen Chief Operating Officer $13,334
Carl Palmer Vice President, Engineering $10,834
Felix J. Rosengarten Vice President, Finance and $10,834
Administration, CFO
Richard Schuppert Director, Manufacturing $ 8,487
Engineering
David Sowards Director, Design Engineering $ 8,923
Jenny Twaddle Controller $ 7,219
Alfred Woodhull Vice President, Manufacturing $10,834
Jon Zierk Director, Worldwide Sales $ 7,917
</TABLE>
<PAGE> 7
1996 Q1 Information Storage Devices, Inc.
EXHIBIT 11.01
INFORMATION STORAGE DEVICES, INC.
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
1995 1996
---- ----
<S> <C> <C>
Net income $ 1,089 $ (1,977)
======== ========
Weighted average common stock outstanding 6,795 10,235
Common stock equivalents:
Stock options 759 --
Warrants 126 --
-------- --------
Total shares used in computing net income per share 7,680 10,235
-------- --------
Net income per share $ .14 $ (.19)
-------- --------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 37608
<SECURITIES> 18637
<RECEIVABLES> 7265
<ALLOWANCES> (325)
<INVENTORY> 10,827
<CURRENT-ASSETS> 77,402
<PP&E> 9,667
<DEPRECIATION> 4,204
<TOTAL-ASSETS> 95,661
<CURRENT-LIABILITIES> 15,030
<BONDS> 2,465
0
0
<COMMON> 78,695
<OTHER-SE> (838)
<TOTAL-LIABILITY-AND-EQUITY> 77,857
<SALES> 12,335
<TOTAL-REVENUES> 12,335
<CGS> 9,428
<TOTAL-COSTS> 9,428
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 124
<INCOME-PRETAX> (3,041)
<INCOME-TAX> (1,064)
<INCOME-CONTINUING> (1,977)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,977)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
