Information Storage Devices, Inc.
2045 Hamilton Avenue
San Jose, California 95125
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Our Shareholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Information Storage Devices, Inc. (the "Company") will be held at the Pruneyard
Inn, 1995 South Bascom Avenue, Campbell, CA 95008 on Thursday, August 20, 1998
at 9:00 a.m. local time, for the following purposes:
1. To elect six directors of the Company, each to hold office until
the next Annual Meeting of Shareholders and until his successor
has been elected and qualified or until his earlier resignation or
removal. The Company's Board of Directors intends to present the
following nominees for election as directors:
David L. Angel Alan V. King
Frederick B. Bamber Eric J. Ochiltree
Eugene J. Flath Frederick L. Zieber
2. To approve an amendment of the Company's 1994 Equity Incentive
Plan to increase the authorized number of shares by 800,000
shares.
3. To approve an amendment of the Company's 1994 Employee Stock
Purchase Plan to increase the authorized number of shares by
120,000 shares.
4. To approve an amendment of the Company's 1994 Directors Plan to
increase the authorized number of shares by 80,000 shares.
5. To ratify the selection of Arthur Andersen LLP as independent
auditors for the Company for the current year.
6. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on June 22, 1998
are entitled to notice of and to vote at the meeting or any adjournment or
postponement thereof.
By Order of the Board of Directors
Felix J. Rosengarten
Vice President, Finance and Administration
and Chief Financial Officer
San Jose, California
June 26, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO
THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
<PAGE>
INFORMATION STORAGE DEVICES, INC.
2045 Hamilton Avenue
San Jose, California 95125
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PROXY STATEMENT
-------------------
The accompanying proxy is solicited on behalf of the Board of Directors
("Board of Directors" or "Board") of Information Storage Devices, Inc., a
California corporation (the "Company" or "ISD"), for use at the Annual Meeting
of Shareholders of the Company to be held at the Pruneyard Inn, 1995 South
Bascom Avenue, Campbell, CA 95008, on Thursday, August 20, 1998, at 9:00 a.m.
local time (the "Meeting"). All proxies will be voted in accordance with the
instructions contained therein, and, if no choice is specified, the proxies will
be voted in favor of the nominees and the proposals set forth in the
accompanying Notice of Meeting and this Proxy Statement. This Proxy Statement
and the accompanying form of proxy were first mailed to shareholders on or about
June 29, 1998.
VOTING RIGHTS AND SOLICITATION OF PROXIES
Holders of record of the Company's Common Stock at the close of
business on June 22, 1998 (the "Record Date") are entitled to one vote for each
share held as of the Record Date. At the close of business on the Record Date,
the Company had 9,855,577 shares of Common Stock outstanding and entitled to
vote. Only holders of record of the Company's Common Stock at the close of
business on the Record Date will be entitled to vote at the Meeting. A majority
of the shares outstanding on the Record Date will constitute a quorum for the
transaction of business.
In the event that a broker indicates on a proxy that it does not have
discretionary authority as to certain shares to vote on a particular matter,
those shares will be counted for purposes of determining the presence or absence
of a quorum for the transaction of business, but will not be considered present
and entitled to vote with respect to that matter.
With respect to Proposal No. 1, the affirmative vote of a plurality of
the votes of the shares of Common Stock present in person or represented by
proxy at the Meeting and entitled to vote on the election of directors is
required to approve the election of all directors. Shareholders will not be
allowed to cumulate votes.
Proposal Nos. 2 through 5 require for approval the affirmative vote of
a majority of the shares of Common Stock present in person or represented by
proxy at the Meeting and entitled to vote. For purposes of such Proposals, (i)
the aggregate number of votes entitled to be cast by all shareholders present in
person or represented by proxy at the Meeting, whether such shareholders vote
"for," "against," "abstain" or give no instructions, will be counted for
purposes of determining the minimum number of affirmative votes required to
approve the proposal, (ii) the total number of shares cast for a proposal or
giving no instructions will be considered to have been voted in favor of the
proposal, and (iii) an abstention from voting on a matter by a shareholder
present in person or by proxy at the Meeting has the same effect as a vote
against the proposal.
In the event that sufficient votes in favor of the proposals are not
received by the date of the Meeting, the persons named as proxies may propose
one or more adjournments of the Meeting to permit further solicitations of
proxies. Any such adjournment would require the affirmative vote of the majority
of the shares of Common Stock present in person or represented by proxy at the
Meeting and entitled to vote.
The Company will pay the expenses of soliciting proxies for the
meeting. Following the original mailing of the proxies and other soliciting
materials, the Company will request that brokers, custodians, nominees and other
record holders forward copies of the proxy and other soliciting materials to
persons for whom they hold shares of Common Stock and request authority for the
exercise of proxies. In such cases, the Company, upon the request of the record
holders, will reimburse such holders for their reasonable expenses. The original
solicitation of proxies by mail may be supplemented by telephone, telegram and
personal solicitation by directors, officers and regular employees of the
Company.
<PAGE>
REVOCABILITY OF PROXIES
Any person signing a proxy in the form accompanying this Proxy
Statement has the power to revoke it prior to the Meeting or at the Meeting
prior to the vote pursuant to the proxy. A proxy may be revoked by a written
instrument delivered to the Company stating that the proxy is revoked, by a
subsequent proxy that is signed by the person who signed the earlier proxy and
is presented at the Meeting or by attendance at the Meeting and voting in
person. Please note, however, that, if a shareholder's shares are held of record
by a broker, bank or other nominee and that shareholder wishes to vote at the
Meeting, the shareholder must bring to the Meeting a letter from the broker,
bank or other nominee confirming that shareholder's beneficial ownership of the
shares.
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PROPOSAL NO. 1 - ELECTION OF DIRECTORS
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Nominees
A board of six (6) directors is to be elected at the Meeting. Each
director will be elected to hold office until the next annual meeting of
shareholders or until his successor is duly elected and qualified or until his
earlier resignation or removal. Shares represented by the accompanying proxy
will be voted for the election of each of the six (6) nominees named below
unless the proxy is marked in such a manner as to withhold authority so to vote.
If any nominee for any reason is unable to serve or for good cause will not
serve, the proxies may be voted for such substitute nominee as the proxy holder
may determine. The Company is not aware of any nominee who will be unable to or
for good cause will not serve as a director.
The Company's Bylaws currently provide that the number of directors of
the Company shall be from four (4) to seven (7), the actual number to be fixed
by resolution of the Board. The current number of authorized directors is six
(6).
The names of the nominees, each of whom is currently a director of the
Company, and certain information about them are set forth below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name of Director Age Principal Occupation Director Since
- ---------------- --- -------------------- --------------
David L. Angel 57 Chairman of the Board and Chief Executive Officer of the 1991
Company
Frederick B. Bamber 55 Managing Director of Applied Technology Investors, Inc. and 1990
a General Partner of Technologies for Information &
Publishing, L.P.
Eugene J. Flath 60 General Partner of AVI Management Partners 1988
Alan V. King 63 Chairman of the Board and Chief Executive Officer of 1997
Volterra Semiconductor Corporation
Eric J. Ochiltree 50 President and Chief Operating Officer of the Company 1997
Frederick L. Zieber 56 President, Pathfinder Research, Inc. 1995
</TABLE>
<PAGE>
Mr. Angel has served as Chief Executive Officer and a director of the
Company since he joined the Company in February 1991. He has served as Chairman
of the Board since November 1996 and was the President of the Company from
February 1991 to November 1996. From January 1989 to January 1991, he was Group
Vice President of the Semiconductor Group of Dataquest, Inc., a market research
company. He holds a B.Sc. degree from Marietta College.
Mr. Bamber has served as a director of the Company since March 1990. He
has been Managing Director of Applied Technology Investors, Inc., a venture
capital firm, since January 1983 and a general partner of Technologies for
Information & Publishing, L.P., a venture capital firm and shareholder of the
Company since June 1990. Since 1988, Mr. Bamber has also a been director of
Interleaf, Inc. He holds a B.A. degree from Yale University and an M.B.A. degree
from the Wharton School of Business of the University of Pennsylvania.
Mr. Flath has served as a director of the Company since October 1988
and as Chairman of the Board from January 1993 through November 1996. He has
been a general partner of AVI Management Partners, a venture capital firm and
an affiliate of various Company shareholders, since February 1988. Mr. Flath
holds a B.S.E.E. degree from the University of Wisconsin and an M.S.E.E. degree
from the University of New Hampshire.
Mr. King was appointed a director of the Company in May 1997. Mr. King
has been Chairman of the Board, President, and Chief Executive Officer of
Volterra Semiconductor Corporation, a semiconductor company, since September
1996. He also has served as Chairman of the Board of Arithmos, Inc., a
semiconductor company, since February 1995; has been a director of Smartflex
Systems, a turnkey contract assembler company, since October 1993; and has
been a Director of Elantec Semiconductor, Inc., an analog semiconductor
company, since December 1997. From September 1991 to November 1994, he
served as President and Chief Executive Officer of Silicon Systems, Inc. From
September 1986 to August 1991, he was President and Chief Executive Officer
of Precision Monolithics, Inc. Mr. King holds a B.S. Ceramic E. degree from the
University of Washington.
Mr. Ochiltree joined the Company as President and Chief Operating
Officer in November 1996. From August 1995 to November 1996, he was Vice
President, Products Group, of Exar Corporation, a semiconductor company. From
August 1991 to August 1995, he served as Vice President of Analog Devices, Inc.
and General Manager of Analog's Santa Clara site. He holds a B.S.E.E. degree
from Georgia Institute of Technology, an M.S.E.E. degree from Arizona State
University, and an M.B.A. degree from the University of Santa Clara.
Mr. Zieber was appointed a director of the Company in July 1995. He
has been President of Pathfinder Research, Inc., a semiconductor industry
consulting firm he founded, since May 1991. Mr. Zieber was employed by
Dataquest, Inc. from September 1974 until January 1991, most recently as
Executive Vice President. He holds B.S.E.E. and M.B.A. degrees from Stanford
University.
Board of Directors' Meetings and Committees
The Board of Directors met 10 times, including telephone conference
meetings, during 1997. No director attended fewer than 75% of the aggregate of
the total number of meetings of the Board of Directors (held during the period
for which he was a director) and the total number of meetings held by all
committees of the Board of Directors on which he served (during the period that
he served).
Standing committees of the Board of Directors include an Audit
Committee and a Compensation Committee. The Board of Directors does not have a
nominating committee or any committee performing similar functions.
The Audit Committee meets with the Company's management and independent
public accountants to review the adequacy of the Company's internal accounting
controls and procedures, the plan and results of the Company's annual audit, the
fees charged by the independent public accountants, and the performance of
non-audit services by the independent public accountants; to nominate
independent accountants, and, after review, to make recommendations and provide
such information as the committee may deem necessary for the Board of Directors,
including significant financial matters which require the Board's attention.
<PAGE>
Messrs. King and Zieber are currently the members of the Compensation
Committee. In 1997, Messrs. Flath, Bamber, King and Zieber were the members of
the Company's Compensation Committee. The Compensation Committee met six (6)
times during 1997. The Compensation Committee administers the Company's 1987
Stock Option Plan, 1994 Equity Incentive Plan and 1994 Employee Stock Purchase
Plan and determines the salaries and other compensation for officers and other
employees of the Company.
Director Compensation
Directors of the Company do not receive any compensation for their
services. The Board of Directors adopted, and shareholders approved adoption of,
the 1994 Directors Stock Option Plan (the "Directors Plan") in September 1994
which became effective on February 16, 1995.
Under the Directors Plan, each non-employee director is automatically
granted an option to purchase 7,500 shares of Common Stock ("Initial Option") on
the date such director first joins the Board. In addition, each non-employee
director is granted a succeeding option ("Succeeding Option") to purchase 7,500
shares of Common Stock. All Succeeding Options are granted on January 1 of each
year and vest at the rate of one-twelfth per month, for as long as the
non-employee director continuously remains a director of the Company. The
maximum number of shares issuable to any non-employee director under the
Directors Plan is 30,000. The exercise price for such options is the fair market
value of the Common Stock on the date of grant. A total of 120,000 shares of
Common Stock is reserved for issuance under the Directors Plan, 97,500 of which
were subject to outstanding options as of June 22, 1998. Shareholders are being
asked to approve an amendment to the Director's Plan to increase the number
shares reserved for issuance from 120,000 shares to 200,000 shares. See
"Proposal No. 4 Approval of Amendment to the 1994 Directors Stock Option Plan."
Messrs. Bamber, Flath, King and Zieber each received Succeeding Options
to purchase 7,500 shares on January 1, 1998 at an exercise price of $6.031 per
share.
The Board of Directors recommends a vote FOR the election of each of
the nominees listed above.
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PROPOSAL NO. 2 - APPROVAL OF AMENDMENT TO THE
1994 EQUITY INCENTIVE PLAN
================================================================================
Shareholders are being asked to approve an amendment to the Company's
1994 Equity Incentive Plan (the "Incentive Plan") that increases the number of
shares of Common Stock reserved for issuance thereunder by 800,000 shares, from
2,750,000 shares to 3,550,000 shares.
The Board believes that the increase in the number of shares reserved
for issuance under the Incentive Plan is in the best interests of the Company.
The granting of equity incentives under the Incentive Plan plays an important
role in the Company's efforts to attract and retain employees of outstanding
ability. The Board believes that the additional reserve of shares with respect
to which equity incentives may be granted will provide the Company with adequate
flexibility to ensure that the Company can continue to meet those goals.
The Board approved the proposed amendment on May 21, 1998. Shareholder
approval of the amendment requires the affirmative vote of a majority of the
shares of Common Stock present in person or represented by proxy and entitled to
vote at the Meeting.
Below is a summary of the principal provisions of the Incentive Plan,
assuming shareholder approval of the proposed amendment. This summary is not
necessarily complete, and reference is made to the full text of the Incentive
Plan.
<PAGE>
Equity Incentive Plan History
The Incentive Plan, covering 1,000,000 shares of Common Stock, was
adopted by the Board and approved by the shareholders in 1994 and became
effective in February 1995. In January 1996 the Board amended the Incentive Plan
to provide for automatic acceleration of the exercisability of all options
outstanding under the Incentive Plan in the event of certain corporate
transactions, and in March 1996 the Board amended the Incentive Plan to increase
the number of shares reserved for issuance under the Incentive Plan to 2,000,000
shares. The shareholders approved these amendments in May 1996. In April 1997
the Board amended the Incentive Plan to increase the number of shares reserved
for issuance under the Incentive Plan to 2,750,000 shares. The shareholders
approved this amendment in August 1997. The purpose of the Incentive Plan is to
attract, retain and provide equity incentives to selected persons to promote the
financial success of the Company through awards of stock options.
From the inception of the Incentive Plan in February 1995 to December
31, 1997, options to purchase an aggregate of 4,535,311 shares of the Company's
Common Stock were granted under the Incentive Plan. Of these, options to
purchase 1,304,636 shares had been cancelled in connection with repriced
options. During the same period, options were granted to each executive officer
named in the Summary Compensation Table, as follows: David L. Angel, 384,837
shares (less 182,000 shares that were cancelled in September 1996 in connection
with the repricing of options); Eric J. Ochiltree, 171,875 shares; Carl R.
Palmer, 129,688 shares (less 55,000 shares that were cancelled in the September
1996 repricing); Felix J. Rosengarten, 156,188 shares (less 71,000 shares that
were cancelled in the September 1996 repricing); and James Brennan, 81,250
shares. During the same period, the Company's current executive officers as a
group (9 persons) had been granted options to purchase an aggregate of 1,380,275
shares of Common Stock (less 473,324 shares that were cancelled in the September
1996 repricing), no options were granted to current directors or nominees for
election as a director who are not executive officers as a group (4 persons) and
no options were granted to associates of any of such executive officers,
directors or nominees.
Shares Subject to the Incentive Plan
The Board has reserved an aggregate of 3,550,000 shares of the
Company's authorized but unissued Common Stock for issuance under the Incentive
Plan (assuming approval of the proposed amendment). In addition, if any option
granted pursuant to the Incentive Plan or the Company's 1987 Stock Option Plan
(the "1987 Plan") expires or terminates for any reason without being exercised
in whole or in part, the shares released from such option will again become
available for grant and purchase under the Incentive Plan. As of December 31,
1997, 100,012 shares had been issued upon exercise of options and 2,493,361
shares were subject to outstanding options. As of that date, 1,049,823 shares
were available for future grant, after taking into account the proposed
amendment to the Incentive Plan and any shares issuable upon exercise of options
granted pursuant to the 1987 Plan that have become available for distribution
under the Incentive Plan. As of December 31, 1997, there were unexercised
options to purchase 144,387 shares of the Company's Common Stock outstanding
under the 1987 Plan. The number of shares reserved for issuance pursuant to the
Incentive Plan is subject to proportional adjustment to reflect stock splits,
stock dividends and other similar events. The closing price of the Company's
Common Stock on the Nasdaq National Market on June 22, 1998 was $5.188 per
share.
Eligibility
Employees, officers, directors, consultants, independent contractors
and advisors of the Company (and of any subsidiaries and affiliates) are
eligible to receive options under the Incentive Plan (the "Participants"). No
Participant is eligible to receive more than 500,000 shares of Common Stock
under the Incentive Plan throughout the life of the Incentive Plan. As of
December 31, 1997, approximately 173 employees were eligible to participate in
the Incentive Plan.
Administration
The Incentive Plan is administered by the Compensation Committee (the
"Committee"), the members of which are appointed by the Board. The Committee
currently consists of Alan V. King and Frederick L. Zieber, both of whom are
"non-employee directors," as defined in the rules promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and "outside
directors," as defined pursuant to Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"). In 1997, Messrs. Flath, Bamber, King and
Zieber were the members of the Committee.
<PAGE>
Subject to the terms of the Incentive Plan, the Committee determines
the persons who are to receive awards, the number of shares subject to each such
award and the terms and conditions of such awards. The Committee also has the
authority to construe and interpret any of the provisions of the Incentive Plan
or any awards granted thereunder.
Stock Options
The Incentive Plan permits the granting of options that are intended to
qualify either as Incentive Stock Options ("ISOs") or Nonqualified Stock Options
("NQSOs"). ISOs may be granted only to employees (including officers and
directors who are also employees) of the Company or any parent or subsidiary of
the Company.
The option exercise price for each ISO share must be no less than 100%
of the "fair market value" (as defined in the Incentive Plan) of a share of
Common Stock at the time the ISO is granted. The per share exercise price of an
ISO granted to a 10% shareholder must be no less than 110% of the fair market
value of a share of Common Stock at the time the ISO is granted. The option
exercise price for each NQSO share must be no less than 85% of the fair market
value of a share of Common Stock at the time of grant. The Company has not
granted options under the Incentive Plan at less than fair market value and does
not intend to do so in the foreseeable future.
The exercise price of options granted under the Incentive Plan may be
paid as approved by the Committee at the time of grant: (1) in cash (by check);
(2) by cancellation of indebtedness of the Company to the Participant; (3) by
surrender of shares of the Company's Common Stock owned by the Participant for
at least six months and having a fair market value on the date of surrender
equal to the aggregate exercise price of the option; (4) by tender of a full
recourse promissory note; (5) by waiver of compensation due to or accrued by the
Participant for services rendered; (6) by tender of property; (7) by a "same-day
sale" commitment from the Participant and a National Association of Securities
Dealers, Inc. ("NASD") broker; (8) by a "margin" commitment from the Participant
and a NASD broker; or (9) by any combination of the foregoing.
Restricted Stock Awards
The Committee may grant Participants restricted stock awards to
purchase stock either in addition to, or in tandem with, other awards under the
Incentive plan, under such terms, conditions and restrictions as the Committee
may determine. The purchase price for such awards must be no less than 85% of
the fair market value of the Company's Common Stock on the date of the award (in
the case of an award granted to a 10% shareholder, the purchase price must be
100% of fair market value), and can be paid for in any of the forms of
consideration listed in items (1) through (6) in "Stock Options" above, as are
approved by the Committee at the time of grant. The Company has not granted any
restricted stock awards under the Incentive Plan and does not intend to do so in
the foreseeable future.
Stock Bonus Awards
The Committee may grant Participants stock bonus awards either in
addition to, or in tandem with, other awards under the Incentive Plan, under
such terms, conditions and restrictions as the Committee may determine. The
Company has not granted any stock bonus awards under the Incentive Plan and does
not intend to do so in the foreseeable future.
Mergers, Consolidations, Change of Control
In the event of a merger, consolidation, dissolution or liquidation of
the Company, the sale of substantially all of the assets of the Company or any
other similar corporate transaction, in which the Company is not the successor
corporation, 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.
<PAGE>
Amendment of the Incentive Plan
The Board may at any time terminate or amend the Incentive Plan,
including amending any form of award agreement or instrument to be executed
pursuant to the Incentive Plan. The Board may not amend the Incentive Plan in
any manner that requires shareholder approval pursuant to the Code or the
regulations promulgated thereunder or pursuant to applicable securities laws.
Term of the Incentive Plan
Unless terminated earlier as provided in the Incentive Plan, the
Incentive Plan will terminate in September 2004, ten years from the date the
Incentive Plan was adopted by the Board.
Federal Income Tax Information
THE FOLLOWING IS A GENERAL SUMMARY OF THE FEDERAL INCOME TAX
CONSEQUENCES TO THE COMPANY AND PARTICIPANTS UNDER THE INCENTIVE PLAN. THE
FEDERAL TAX LAWS MAY CHANGE AND THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES
FOR ANY PARTICIPANT WILL DEPEND UPON HIS OR HER INDIVIDUAL CIRCUMSTANCES. EACH
PARTICIPANT HAS BEEN AND IS ENCOURAGED TO SEEK THE ADVICE OF A QUALIFIED TAX
ADVISOR REGARDING THE TAX CONSEQUENCES OF PARTICIPATION IN THE INCENTIVE PLAN.
Incentive Stock Options. A Participant will recognize no income upon
grant of an ISO and incur no tax on its exercise, unless the Participant is
subject to the alternative minimum tax (the "AMT"). If the Participant holds
shares acquired upon exercise of an ISO (the "ISO Shares") for more than one
year after the date the option was exercised and for more than two years after
the date the option was granted, the Participant generally will realize
long-term capital gain or loss (rather than ordinary income or loss) upon
disposition of the ISO Shares. This gain or loss will be equal to the difference
between the amount realized upon such disposition and the amount paid for the
ISO Shares.
If the Participant disposes of ISO Shares prior to the expiration of
either required holding period (a "disqualifying disposition"), the gain
realized upon such disposition, up to the difference between the fair market
value of the ISO Shares on the date of exercise (or, if less, the amount
realized on a sale of such shares) and the option exercise price, will be
treated as ordinary income. Any additional gain will be capital gain, taxed at a
rate that depends upon the amount of time the ISO Shares were held by the
Participant.
Alternative Minimum Tax. The difference between the fair market value
of the ISO shares on the date of exercise and the exercise price is an
adjustment to income for purposes of the AMT. The AMT (imposed to the extent it
exceeds the taxpayer's regular tax) is 26% of an individual taxpayer's
alternative minimum taxable income (28% in the case of alternative minimum
taxable income in excess of $175,000). A maximum 20% AMT rate applies to the
portion of alternative minimum taxable income that would otherwise be taxable as
net capital gain. Alternative minimum taxable income is determined by adjusting
regular taxable income for certain items, increasing that income by certain tax
preference items (including the difference between the fair market value of the
ISO Shares on the date of exercise and the exercise price) and reducing this
amount by the applicable exemption amount ($45,000 in case of a joint return,
subject to reduction under certain circumstances). If a disqualifying
disposition of the ISO Shares occurs in the same calendar year as exercise of
the ISO, there is no AMT adjustment with respect to those ISO Shares. Also, upon
a sale of ISO Shares that is not a disqualifying disposition, alternative
minimum taxable income is reduced in the year of sale by the excess of the fair
market value of the ISO Shares at exercise over the amount paid for the ISO
Shares.
Nonqualified Stock Options. A Participant will not recognize any
taxable income at the time a NQSO is granted. However, upon exercise of a NQSO,
the Participant must include in income as compensation an amount equal to the
difference between the fair market value of the shares on the date of exercise
and the Participant's exercise price. The included amount must be treated as
ordinary income by the Participant and may be subject to withholding by the
Company (either by payment in cash or withholding out of the Participant's
salary). Upon resale of the shares by the Participant, any subsequent
appreciation or depreciation in the value of the shares will be treated as
capital gain or loss.
<PAGE>
Restricted Stock and Stock Bonus Awards. Restricted stock and stock
bonus awards will generally be subject to tax at the time of receipt, unless
there are restrictions that enable the Participant to defer tax. At the time tax
is incurred, the tax treatment will be similar to that for NOSOs.
Maximum Tax Rates. The maximum tax rate applicable to ordinary income
is 39.6%. Long-term capital gain will be taxed at a maximum of 20%. In order to
receive long-term capital gain treatment, the stock must be held for more than
eighteen months. Mid-term capital gain will be taxed at a maximum rate of 28%.
In order to receive mid-term capital gain treatment, the stock must be held for
more that one year but not for more than eighteen months. Capital gains are
offset by capital losses, and up to $3,000 of capital losses may be offset
annually against ordinary income.
Tax Treatment of the Company. The Company generally will be entitled to
a deduction in connection with the exercise of a NQSO by a Participant or the
receipt of restricted stock or stock bonuses by a Participant to the extent that
the Participant recognizes ordinary income, provided that the Company timely
reports such income to the Internal Revenue Service. The Company will be
entitled to a deduction in connection with the disposition of ISO Shares only to
the extent that the Participant recognizes ordinary income on a disqualifying
disposition of the ISO Shares.
ERISA
The Incentive Plan is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA") and is not qualified
under Section 401(a) of the Code.
New Plan Benefits
The amounts of future option grants under the Incentive Plan are not
determinable because, under the terms of the Incentive Plan, such grants are
made in the discretion of the Committee. Future option exercise prices are not
determinable because they are based upon fair market value of the Company's
Common Stock on the date of grant.
The Board of Directors recommends a vote FOR the approval of the
amendment to the 1994 Equity Incentive Plan, described in Proposal No. 2 above.
================================================================================
PROPOSAL NO. 3 - APPROVAL OF AMENDMENT TO THE
1994 EMPLOYEE STOCK PURCHASE PLAN
================================================================================
Shareholders are being asked to approve an amendment to the Company's
1994 Employee Stock Purchase Plan (the "Stock Purchase Plan") to increase the
number of shares of Common Stock reserved for issuance thereunder by 120,000
shares, from 170,000 shares to 290,000 shares. The Board believes that the
increase in the number of shares reserved for issuance under the Stock Purchase
Plan is in the best interests of the Company because of the continuing need to
provide equity participation to attract and retain quality employees and remain
competitive in the industry. The Stock Purchase Plan plays an important role in
the Company's efforts to attract and retain employees of outstanding ability.
The Board approved the proposed amendment on May 21, 1998, to be
effective upon shareholder approval. Shareholder approval of the amendment
requires the affirmative vote of a majority of the shares of common stock
present in person or represented by proxy and entitled to vote at the meeting.
Below is a summary of the principal provisions of the Stock Purchase Plan,
assuming shareholder approval of the proposed amendment. The summary is not
necessarily complete, and reference is made to the full text of the Stock
Purchase Plan.
<PAGE>
Stock Purchase Plan History
The Stock Purchase Plan, covering 120,000 shares of Common Stock, was
adopted by the Board and approved by the shareholders in 1994 and became
effective in February 1995. In April 1997 the Board amended the Stock Purchase
Plan to increase the number of shares reserved for issuance under the Stock
Purchase Plan to 170,000 shares. The shareholders approved this amendment in
August 1997. The purpose of the Stock Purchase Plan is to provide employees of
the Company and its subsidiaries and affiliates designated by the Board as
eligible to participate in the Stock Purchase Plan ("Participating Employees")
with a convenient means to acquire an equity interest in the Company through
payroll deductions and to provide an incentive for continued employment. The
Company intends that the Stock Purchase Plan will qualify as an "employee stock
purchase plan" under Section 423 of the Code.
Shares Subject to the Stock Purchase Plan
The Board has reserved an aggregate of 290,000 shares of the Company's
authorized but unissued Common Stock for issuance under the Stock Purchase Plan
(assuming approval of the proposed amendment). This number of shares is subject
to proportional adjustment to reflect stock splits, stock dividends and other
similar events.
Administration
The Stock Purchase Plan is administered by the Committee. The
interpretation or construction by the Committee of any provisions of the Stock
Purchase Plan will be final and binding on all Participating Employees.
Eligibility
All employees of the Company, or any parent or subsidiary, are eligible
to participate in an Offering Period (as defined below) under the Stock Purchase
Plan, except the following:
(a) employees who are not employed by the Company on the
15th day of the month before the beginning of such
Offering Period;
(b) employees who are customarily employed for less than
20 hours per week;
(c) employees who are customarily employed for less than
five months in a calendar year; and
(d) employees who own stock or hold options to purchase
stock or who, as a result of participation in the
Stock Purchase Plan, would own stock or hold options
to purchase stock, possessing 5% or more of the total
combined voting power or value of all classes of
stock of the Company.
As of January 31, 1998, approximately 175 employees were eligible to
participate in the Stock Purchase Plan and 135,996 shares had been issued
pursuant to the Stock Purchase Plan. As of that date, 34,004 shares were
available for future issuance under the Stock Purchase Plan. As of June 22,
1998, the closing price of the Company's Common Stock on the Nasdaq National
Market was $5.188 per share.
Participating Employees participate in the Stock Purchase Plan through
payroll deductions. A Participating Employee sets the rate of such payroll
deductions, which may not be less than 2% nor more than 10% of the Participating
Employee's W-2 compensation, including, but not limited to, base salary, wages,
commissions, overtime, shift premiums, bonuses and draws against commissions,
before any deductions from the Participating Employee's salary pursuant to
Sections 125 or 401(k) of the Code. No Participating Employee is permitted to
purchase shares under the Stock Purchase Plan at a rate which, when aggregated
with such employee's rights to purchase stock under all similar purchase plans
of the Company, exceeds $25,000 in fair market value determined as of the
Offering Date for each calendar year.
<PAGE>
Offering Periods
Each offering of Common Stock under the Stock Purchase Plan is for a
period of six months (the "Offering Period"). Offering Periods are planned to
commence on February 1 and August 1 of each year and end on July 31 and January
31 of each year, respectively. The Board has the power to set the beginning of
any Offering Period and to change dates or the duration of Offering Periods
without shareholder approval if such change is announced at least 15 days before
the scheduled beginning of the first Offering Period to be affected. The first
day of each Offering Period is the "Offering Date" for such Offering Period.
Participating Employees will participate in the Stock Purchase Plan
during each Offering Period through regular payroll deductions as described
above. Participating Employees may elect to participate in any Offering Period
by enrolling as provided under the terms of the Stock Purchase Plan. Once
enrolled, a Participating Employee will automatically participate in each
succeeding Offering Period unless the Participating Employee withdraws from the
Offering Period or the Stock Purchase Plan is terminated. After the rate of
payroll deductions for an Offering Period has been set by a Participating
Employee, that rate will continue to be effective for the remainder of the
Offering Period (and for all subsequent Offering Periods in which the
Participating Employee is automatically enrolled) unless otherwise changed by
the Participating Employee. The Participating Employee may increase or lower the
rate of payroll deductions for any subsequent Offering Period, but may only
lower the rate of payroll deductions for an ongoing Offering Period. No more
than one change may be made during a single Offering Period.
Purchase Price
The purchase price of shares that may be acquired in any Offering
Period under the Stock Purchase Plan is 85% of the lesser of: (i) the fair
market value of the shares on the Offering Date; or (ii) the fair market value
of the shares on the last day of the Offering Period. The fair market value of a
share of the Company's Common Stock is deemed to be the closing price of the
Company's Common Stock on the Nasdaq National Market on the date of
determination as reported in The Wall Street Journal.
Purchase of Stock Under the Stock Purchase Plan
The number of whole shares a Participating Employee will be able to
purchase in any Offering Period will be determined by dividing the total payroll
amount withheld from the Participating Employee during the Offering Period
pursuant to the Stock Purchase Plan by the purchase price for each share
determined as described above. The purchase will take place automatically on the
last day of such Offering Period.
Withdrawal
A Participating Employee may withdraw from any Offering Period. Upon
withdrawal, the accumulated payroll deductions will be returned to the withdrawn
Participating Employee, without interest, provided that the withdrawal occurs at
least 15 days before the last day of the Offering Period. If the withdrawal
occurs less than 15 days before the last day of an Offering Period, payroll
deductions will continue for the remainder of that Offering Period. No further
payroll deductions for the purchase of shares will be made for the succeeding
Offering Period unless the Participating Employee enrolls in the new Offering
Period at least 15 days before the Offering Date.
Amendment of the Stock Purchase Plan
The Board may at any time amend, terminate or extend the term of the
Stock Purchase Plan, except that any such termination cannot affect the terms of
shares previously granted under the Stock Purchase Plan, nor may any amendment
make any change in the terms of shares previously granted which would adversely
affect the right of any participant, nor may any amendment be made without
shareholder approval if such amendment would: (a) increase the number of shares
that may be issued under the Stock Purchase Plan or (b) change the designation
of the employees (or class of employees) eligible for participation in the Stock
Purchase Plan.
<PAGE>
Term of the Stock Purchase Plan
The Stock Purchase Plan will continue until the earlier to occur of:
(i) termination of the Stock Purchase Plan by the Board; (ii) the issuance of
all the shares of Common Stock reserved for issuance under the Stock Purchase
Plan; or (iii) September 2004, ten years after the date the Stock Purchase Plan
was adopted by the Board.
Federal Income Tax Information
THE FOLLOWING IS A GENERAL SUMMARY OF THE FEDERAL INCOME TAX
CONSEQUENCES TO THE COMPANY AND EMPLOYEES PARTICIPATING IN THE STOCK PURCHASE
PLAN. THE FEDERAL TAX LAWS MAY CHANGE AND THE FEDERAL, STATE AND LOCAL TAX
CONSEQUENCES FOR ANY PARTICIPATING EMPLOYEE WILL DEPEND UPON HIS OR HER
INDIVIDUAL CIRCUMSTANCES. EACH PARTICIPATING EMPLOYEE HAS BEEN AND IS ENCOURAGED
TO SEEK THE ADVICE OF A QUALIFIED TAX ADVISER REGARDING THE TAX CONSEQUENCES OF
PARTICIPATION IN THE STOCK PURCHASE PLAN.
The Stock Purchase Plan is intended to qualify as an "employee stock
purchase plan" within the meaning of Section 423 of the Code.
Tax Treatment of the Participating Employee. Participating Employees
will not recognize income for federal income tax purposes either upon enrollment
in the Stock Purchase Plan or upon the purchase of shares. All tax consequences
are deferred until a Participating Employee sells the shares, disposes of the
shares by gift or dies.
If shares are held for more than one year after the date of purchase
and more than two years from the beginning of the applicable Offering Period, or
if the Participating Employee dies while owning the shares, the Participating
Employee realizes ordinary income on a sale (or a disposition by way of gift or
upon death) to the extent of the lesser of: (i) 15% of the fair market value of
the shares at the beginning of the Offering Period; or (ii) the actual gain (the
amount by which the market value of the shares on the date of sale, gift or
death exceeds the purchase price). All additional gain upon the sale of shares
is treated as capital gain. The tax rates applicable to ordinary income and
long-term capital gain are as described in "Proposal No. 2 - Amendment of 1994
Equity Incentive Plan - Federal Income Tax Information". If the shares are sold
and the sale price is less than the purchase price, there is no ordinary income
and the Participating Employee has a capital loss for the difference between the
sale price and the purchase price.
If the shares are sold or are otherwise disposed of including by way of
gift (but not death, bequest or inheritance) (in any case, a "disqualifying
disposition") within either the one-year or the two-year holding periods
described above, the Participating Employee realizes ordinary income at the time
of sale or other disposition, taxable to the extent that the fair market value
of the shares at the date of purchase is greater than the purchase price. This
excess will constitute ordinary income (not currently subject to withholding) in
the year of the sale or other disposition even if no gain is realized on the
sale or if a gratuitous transfer is made. The difference, if any, between the
proceeds of sale and the aggregate fair market value of the shares at the date
of purchase is a capital gain or loss. Capital gains may be offset by capital
losses, and up to $3,000 of capital losses may be offset annually against
ordinary income.
Tax Treatment of the Company. The Company will be entitled to a
deduction in connection with the disposition of shares acquired under the Stock
Purchase Plan only to the extent that the Participating Employee recognizes
ordinary income on a disqualifying disposition of the shares. The Company will
treat any transfer of record ownership of shares as a disposition, unless it is
notified to the contrary. In order to enable the Company to learn of
disqualifying dispositions and ascertain the amount of the deductions to which
it is entitled, Participating Employees will be required to notify the Company
in writing of the date and terms of any disposition of shares purchased under
the Stock Purchase Plan.
ERISA
The Stock Purchase Plan is not subject to any of the provisions of
ERISA and is not qualified under Section 401(a) of the Code.
<PAGE>
New Plan Benefits
The amounts of future stock purchases under the Stock Purchase Plan are
not determinable because, under the terms of the Stock Purchase Plan, purchases
are based upon elections made by Participating Employees. Future purchase prices
are not determinable because they are based upon fair market value of the
Company's Common Stock.
The Board of Directors recommends a vote FOR the approval of the
amendment to the Stock Purchase Plan, described in Proposal No. 3 above.
================================================================================
PROPOSAL NO. 4 - APPROVAL OF AMENDMENT
TO THE 1994 DIRECTORS STOCK OPTION PLAN
================================================================================
Shareholders are being asked to approve an amendment to the
Company's 1994 Directors Stock Option Plan (the "Directors Plan") to increase
the number of shares of Common Stock reserved for issuance thereunder by 80,000
shares, from 120,000 shares to 200,000 shares. The Board believes that the
amendment is in the best interests of the Company. Members of the Company's
Board of Directors are not compensated for their services (with the exception of
reimbursement for certain expenses) other than through the Directors Plan. The
Board believes that the amendment will enable the Company to continue to provide
financial incentives to better enable the Company to attract and retain
non-employee directors of outstanding ability.
The Board approved the proposed amendment described above on May 21,
1998. Shareholder approval of the amendment requires the affirmative vote of a
majority of the shares of common stock present in person or represented by proxy
and entitled to vote at the Meeting.
Below is a summary of the principal provisions of the Directors Plan,
assuming shareholder approval of the proposed amendment. The summary is not
necessarily complete, and reference is made to the full text of the Directors
Plan.
Directors Plan History
The Board and shareholders originally adopted the Directors Plan in
1994. The Directors Plan became effective in February 1995. In March 1996 the
Board amended the Directors Plan to (i) to reduce the period during which
options granted pursuant to the Directors Plan become exercisable from four (4)
years to one (1) year, and (ii) to change the date of grant of the automatic
"succeeding" option grants to directors from each such director's anniversary
date of joining the Board to, in 1996, March 21, 1996, and in 1997 and in all
succeeding years, to January 1 of each such year. The shareholders approved
these amendments in August 1997. The purpose of the Directors Plan is to enhance
the Company's ability through the use of equity incentives to attract and retain
highly qualified non-employee directors.
Shares Subject to the Directors Plan
The Board has reserved an aggregate of 200,000 shares of the Company's
authorized but unissued Common Stock for issuance under the Directors Plan
(assuming approval of the proposed amendment). In addition, if any option
granted pursuant to the Directors Plan expires or terminates for any reason
without being exercised in whole or in part, the shares released from such
option will again become available for grant and purchase under the Directors
Plan. As of December 31, 1997, no shares had been issued upon exercise of
options and 67,500 shares were subject to outstanding options. As of that date,
52,500 shares were available for future grant, after taking into account the
proposed amendment to the Directors Plan. The number of shares reserved for
issuance pursuant to the Directors Plan is subject to proportional adjustment to
reflect stock splits, stock dividends and other similar events. The closing
price of the Company's Common Stock on the Nasdaq National Market on June 22,
1998 was $5.188 per share.
<PAGE>
Administration
The Directors Plan may be administered by the Board or by a committee
of the Board, and is currently administered by the Board. The interpretation by
the Board of any of the provisions of the Directors Plan or any option granted
under the Directors Plan is final and conclusive. No non-employee director may
receive more than 30,000 shares under the Directors Plan.
Eligibility
Under the Directors Plan, the Company automatically grants options to
each director of the Company who is not an employee of the Company (or any
parent subsidiary or affiliate of the Company) in accordance with the formula
specified in the next paragraph. Directors who are consultants or independent
contractors of the Company are eligible to participate in the Directors Plan. As
of December 31, 1997 four persons were eligible to receive options pursuant to
the Directors Plan.
Formula for Option Grants
Each non-employee director will automatically be granted (the "Initial
Grant") an option on the day he or she joins the Board to purchase 7,500 shares
of Common Stock under the Directors Plan. On January 1 of each succeeding year,
each such non-employee director will automatically be granted an option (each
such grant referred to as a "Succeeding Grant") to purchase 7,500 shares of
Common Stock under the Directors Plan, so long as he or she is serving as a
director on such date.
Terms of Option Grants
Options granted pursuant to the Directors Plan are intended to qualify
as NQSOs. Each Initial Grant and Succeeding Grant is exercisable at the rate of
one-twelfth (1/12) of the shares per month and therefore is fully vested as to
all of the shares at the end of one full year following the grant date, so long
as the director continuously remains a director of the Company.
The option exercise price will be the fair market value of the shares
of Common Stock as of the date of grant of the option. The option exercise price
will be payable in cash (by check) and as further described in "Proposal No. 2 -
Amendment of 1994 Equity Incentive Plan - Stock Options" above.
Mergers, Consolidations, Change of Control
In the event of a merger, consolidation, dissolution or liquidation of
the Company, the sale of substantially all of the assets of the Company or any
other similar corporate transaction, in which the Company is not the successor
corporation, 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, and the
Board'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.
Amendment of the Directors Plan
The Board, to the extent permitted by law, and with respect to any
shares at the time not subject to options, may terminate or amend the Directors
Plan; provided, however, that no amendment of the Directors Plan may adversely
affect any then outstanding options or any unexercised portions thereof without
the written consent of the non-employee director.
<PAGE>
Term of the Directors Plan
Unless terminated earlier as provided in the Directors Plan, the
Directors Plan will terminate in September 2004, ten years from the date the
Directors Plan was adopted by the Board.
Federal Income Tax Information and ERISA
For the federal income tax implications to the non-employee directors
and the Company of options granted under the Directors Plan, please refer to the
discussion of the tax implications of nonqualified stock options in "Proposal
No. 2 - Amendment of 1994 Equity Incentive Plan - Federal Income Tax
Information" and "-ERISA."
New Plan Benefits
Only non-employee directors of the Company are eligible to participate
in the Directors Plan. The grant of options under the Directors Plan is not
discretionary. Under the Directors Plan, each such non-employee director who is
a director of the Company on January 1 of any year will be granted an option to
purchase 7,500 shares of the Company's Common Stock on January 1 of such year.
Any new non-employee director will be granted an option to purchase 7,500 shares
of the Company's Common Stock on the date of his or her first appointment to the
Board. The exercise prices of these options are not determinable because they
are equal to fair market value of the Company's Common Stock on the date of
grant.
The Board of Directors recommends a vote FOR the approval of the
amendment to the Directors Plan, described in Proposal No. 4 above.
================================================================================
PROPOSAL NO. 5 - RATIFICATION OF SELECTION OF
INDEPENDENT AUDITORS
================================================================================
The Board of Directors has selected Arthur Andersen LLP as the
Company's independent auditors to perform the audit of the Company's financial
statements for the year ending December 31, 1998, and the shareholders are being
asked to ratify such selection. Notwithstanding the selection, the Board, in its
discretion may direct the appointment of new independent auditors at any time
during the year, if the Board feels that such a change would be in the best
interests of the Company and its shareholders. In the event of a negative vote
of such ratification, the Board of Directors will reconsider its selection.
Representatives of Arthur Andersen LLP will be present at the Meeting,
will have the opportunity to make a statement at the Meeting if they desire to
do so and will be available to respond to appropriate questions.
The Board of Directors Recommends a Vote FOR the Ratification of the Selection
of Arthur Andersen LLP.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company, as
of June 22, 1998, with respect to beneficial ownership of the Company's Common
Stock by (i) each shareholder known by the Company to be the beneficial owner of
more than 5% of the Company's Common Stock, (ii) each present director, (iii)
each Named Officer and (iv) all executive officers and directors as a group.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Shares Beneficially
Owned (1)
----------------------
Name of Beneficial Owner Number Percent
------------------------ ------ -------
Amber Arbitrage(2)..............................................................1,339,177 13.6%
Winbond Electronics Corp.(3)....................................................1,228,000 12.5%
Kaufmann Fund Inc.(4)........................................................... 709,000 7.2%
Frederick B. Bamber
Technologies for Information & Publishing, L.P.(5)......................... 573,270 5.8%
Dimensional Fund Advisors Inc.(6)............................................... 503,500 5.1%
David L. Angel(7)............................................................... 201,458 2.0%
Eugene J. Flath(8).............................................................. 118,694 1.2%
Felix J. Rosengarten(9)......................................................... 111,620 1.1%
Eric J. Ochiltree(10)........................................................... 74,493 *
James Brennan(11)............................................................... 35,020 *
Frederick L. Zieber(12)......................................................... 32,155 *
Carl R. Palmer(13).............................................................. 28,835 *
Alan V. King(14)................................................................ 11,875 *
All executive officers and directors as a group (13 persons)(15)................1,429,169 14.5%
- ----------------
* less than 1%
</TABLE>
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission that deem shares to be beneficially
owned by any person who has or shares voting or investment power with
respect to such shares. Unless otherwise indicated, the persons named in
this table have sole voting and sole investment power with respect to all
shares shown as beneficially owned, subject to community property laws
where applicable. Shares of Common Stock subject to options that are
currently exercisable or exercisable within 60 days of June 22, 1998 are
deemed to be outstanding and to be beneficially owned by the person
holding such options for the purpose of computing the percentage ownership
of such person but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person.
(2) The share ownership is as reported on Schedule 13G as filed dated May 13,
1998. The address for Amber Arbitrage is c/o Custom House Fund Management
Ltd., 31 Kindare Street, Dublin, Ireland, E9, 00001.
(3) The share ownership is as reported on Schedule 13D as filed dated May 22,
1998. The address for Winbond Electronics Corp. is No. 4, Creation Road,
III, Science-Based Industrial Park, Hsinchu, Taiwan, R.O.C.
(4) The share ownership is as reported on Schedule 13G as amended dated
January 29, 1998. The address for Kaufmann Fund Incorporated is 140 East
45th Street, 43rd Floor, Suite 2624, New York, New York 10017.
(5) Mr. Bamber, a director of the Company, is a managing general partner of
such partnership. The other managing general partners of the partnership
are David A. Boucher and Thomas H. Grant. The managing general partners
share voting and investment power over the shares held by the partnership.
The address for Messrs. Bamber, Boucher and Grant and the partnership is
One Cranberry Hill, Lexington, Massachusetts 02173. Also includes 25,624
shares subject to options exercisable within 60 days of June 22, 1998.
(6) The share ownership is as reported on Schedule 13G as amended dated
February 10, 1998. The address for Dimensional Fund Advisors Incorporated
is 1299 Ocean Avenue, 11th Floor, Santa Monica, California 90401.
(7) Includes 83,417 shares subject to options exercisable within 60 days of
June 22, 1998. Mr. Angel is Chairman of the Board, Chief Executive Officer
and a director of the Company.
<PAGE>
(8) Includes 67,187 shares subject to options exercisable within 60 days
of June 22, 1998. Mr. Flath is a director of the Company.
(9) Includes 40,187 shares subject to options exercisable within 60 days of
June 22, 1998. Mr. Rosengarten is Vice President, Finance and
Administration, and Chief Financial Officer of the Company.
(10) Includes 65,626 shares subject to options exercisable within 60 days
of June 22, 1998. Mr. Ochiltree is President and Chief Operating Officer
of the Company.
(11) Includes 33,020 shares subject to options exercisable within 60 days of
June 22, 1998. Mr. Brennan is Vice President, Technology and Advanced
Development, of the Company.
(12) Includes 25,155 shares subject to options exercisable within 60 days
of June 22, 1998. Mr. Zieber is a director of the Company.
(13) Includes 25,937 shares subject to options exercisable within 60 days of
June 22, 1998. Mr. Palmer is Vice President, Engineering, of the Company.
(14) Includes 11,875 shares subject to options exercisable within 60 days
of June 22, 1998. Mr. King is a director of the Company.
(15) Includes the shares subject to options stated to be included in footnotes
(5) and (7) through (14) and 378,028 additional shares subject to options
exercisable within 60 days of June 22, 1998.
<PAGE>
EXECUTIVE OFFICERS
The following table lists certain information regarding the Company's
executive officers as of June 22, 1998.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name Age Position
- ---- --- --------
David L. Angel 57 Chairman of the Board and Chief Executive Officer
Eric J. Ochiltree 50 Director, President and Chief Operating Officer
Karin L. Bootsma 33 Vice President, Marketing
James Brennan 55 Vice President, Technology and Advanced Development
Michael Geilhufe 55 Vice President, Business Development
P. Ross Hayden 53 Vice President, Sales
Carl R. Palmer 46 Vice President, Engineering
Felix J. Rosengarten 63 Vice President, Finance and Administration and Chief Financial
Officer, Assistant Secretary of the Board
Alfred R. Woodhull 58 Vice President, Manufacturing
- -----------
</TABLE>
Information regarding David L. Angel and Eric J. Ochiltree is listed
under "Proposal No. 1 - Election of Directors."
Ms. Bootsma joined the Company in April 1993 as Marketing Manager. She
became Director of Marketing in January 1994, Managing Director of Marketing
in November 1996, and she was appointed Vice President of Marketing in March
1997. From July 1990 to April 1993, she was a Product Marketing Manager for
Cirrus Logic. She holds a B.S.M.E. degree from the University of the Pacific
and an M.B.A. degree from the University of Santa Clara.
Mr. Brennan joined the Company in June 1995 as principal engineer
and was appointed Vice President, Technology and Advanced Development in
March 1996. From 1989 until he joined the Company Mr. Brennan held a similar
position at Intel. Mr. Brennan has a B.S.E.E. degree from Duke University and
an M.S.E.E. degree from the University of Houston.
Mr. Geilhufe co-founded the Company in December 1987. He has served
as Vice President, Business Development since February 1997 and Vice President,
Quality and Reliability from May 1993 to February 1997. From June 1989 to May
1993, he served as Vice President, Manufacturing of the Company. Mr. Geilhufe
was also a director of the Company from December 1987 to May 1990. He holds
a B.S.E.E. degree from the University of California at Berkeley, an M.S.E.E.
degree from California State University at Long Beach and an M.B.A. degree
from the University of Santa Clara.
Mr. Hayden joined the Company in December 1993 as Director of North
American Sales. He became Director of World Wide Sales in August 1996 and was
appointed Vice President of Sales in February 1997. From April 1993 to December
1993, he was Director of World Wide Sales for Austek Microsystems, a
semiconductor company. He holds B.S.E.E. and M.S.E.E. degrees from the
University of Louisville.
Mr. Palmer joined the Company in November 1995 as Director, IC Design
Center, and was appointed Vice President, Engineering in March 1996. From 1983
until he joined the Company, Mr. Palmer held various engineering management
positions at SuperFlow Corporation, a manufacturer of computer automated
engine, vehicle, and emissions test equipment, the most recent being Vice
President, Engineering. He holds B.S.E.E. and M.S.E.E. degrees from University
of Florida and an M.B.A. from the University of Colorado.
Mr. Rosengarten joined the Company as Acting Vice President of Finance
and Administration in March 1991. He was appointed Chief Financial Officer of
the Company in May 1991 and was elected Vice President, Finance and
Administration and Chief Financial Officer in July 1991. From May 1989 to
December 1990, he was Vice President and General Manager of the West Coast
operations of Drytek, Inc., a semiconductor processing equipment manufacturer.
Mr. Rosengarten has a B.S. Chem.E. degree from Cornell University and an
M.B.A. degree from Villanova University.
<PAGE>
Mr. Woodhull has served as Vice President, Manufacturing since he
joined the Company in April 1994. From November 1989 to April 1994, he was Vice
President, Operations, of Avasem, a semiconductor company, and of Avasem/ICS
after Avasem's acquisition by Integrated Circuit Systems, Inc. He was also
founder and President of Advanced World Products, a company providing
duplication services and equipment repair, from October 1989 to December 1992.
Mr. Woodhull completed undergraduate studies through Lafayette College.
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by
or paid for services rendered to the Company in all capacities by, the Company's
Chief Executive Officer and the Company's four other most highly compensated
executive officers who were serving as executive officers at the end of 1997
(together, the "Named Officers") during 1997, 1996, and 1995.
Summary Compensation Table
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Annual Compensation
----------------------------
All Other
Name and Principal Position Year Salary Bonus Options Granted Compensation
--------------------------- ---- ------ ----- --------------- ------------
David L. Angel............................. 1997 $249,000 $ 0 20,837 $ 0
Chairman and Chief Executive Officer 1996 175,000 0 282,000 (1) 22,245 (2)
1995 175,000 30,000 82,000 0
Eric J. Ochiltree.......................... 1997 215,000 10,000 21,875 0
President and Chief Operating Officer 1996 24,460 0 150,000 0
Carl R. Palmer............................. 1997 155,000 0 17,188 28,774 (3)
Vice President, Engineering 1996 125,000 20,000 87,500 (4) 23,576 (5)
1995 15,019 0 25,000 0
Felix J. Rosengarten....................... 1997 155,000 0 13,688 8,942 (2)
Vice President, Finance and Administration 1996 130,000 0 111,500 (6) 8,525 (2)
and Chief Financial Officer 1995 130,000 30,000 31,000 0
James Brennan.............................. 1997 155,000 0 27,500 217 (7)
Vice President, Technology and Advanced 1996 140,400 0 28,750 0
Development 1995 74,683 20,000 25,000 0
</TABLE>
(1) Mr. Angel received 100,000 shares as new option grants in 1996. Options
granted in 1996 also include grants of options to purchase 182,000 shares
associated with the repricing of previously granted options.
(2) Represents payment for vacation accrued in excess of 20 days.
(3) Represents compensation for relocation of $8,300 and accrued vacation of
$20,474.
(4) Mr. Palmer received 32,500 shares as new option grants in 1996. Options
granted in 1996 also include grants of options to purchase 55,000 shares
associated with the repricing of previously granted options.
(5) Represents payment for relocation.
(6) Mr. Rosengarten received 40,500 shares as new option grants in 1996.
Options granted in 1996 also include grants of options to purchase
71,000 shares associated with the repricing of previously granted options.
(7) Represents awards received in connection with the filing of new patent
applications.
<PAGE>
The following table shows, as to each of the Named Officers, option
grants during the last year and the potential realizable value of those options,
assuming 5% and 10% appreciation, at the end of their term:
Option Grants in 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Individual Grants
--------------------------------------------
Number of % of Total Potential Realizable Value
Securities Options Exercise at Assumed Annual Rates
Underlying Granted to Price of Stock Price Appreciation
Options Employees in Per Expiration for Option Term
------------------------------
Name Granted(1) 1997(2) Share Date(3) 5%(4) 10%(4)
- ---------------------- ------------- ---------------- --------- ------------- ------------- --------------
David L. Angel 20,837 2.0% $ 6.625 1/1/08 $ 86,816 $ 220,008
Eric J. Ochiltree 21,875 2.1% 6.625 1/1/08 91,140 230,968
Carl R. Palmer 17,188 1.7% 6.625 1/1/08 71,612 181,480
Felix J. Rosengarten 13,688 1.3% 6.625 1/1/08 57,030 144,525
James Brennan 27,500 2.6% 6.625 1/1/08 114,576 290,360
</TABLE>
(1) Options granted under the Company's 1994 Stock Option Plan typically have a
10-year term, vest over a four-year period of employment and have an
exercise price equal to market value on the date of grant.
(2) Options to purchase an aggregate of 1,007,879 shares of Common Stock of the
Company were granted to employees during the year ended December 31, 1997.
(3) Options may terminate before their expiration dates if the optionee's
status as an employee or consultant is terminated, upon the optionee's
death or upon an acquisition of the Company.
(4) Potential realizable value is based on an assumption that the market price
of the stock appreciates at the stated rate, compounded annually, from the
date of grant until the end of the ten-year option term. These values are
calculated based on requirements promulgated by the Securities and Exchange
Commission and do not reflect the Company's estimate of future stock price
appreciation.
The following table sets forth certain information concerning the
exercise of options by each of the Named Officers during 1997, including the
aggregate amount of gain on the date of exercise. In addition, the table
includes the number of shares covered by both exercisable and unexercisable
stock options as of December 31, 1997. Also reported are values of
"in-the-money" options that represent the difference between the respective
exercise prices of outstanding stock options and the fair market value of the
Company's Common Stock as of December 31, 1997 ($ 6.031 per share), based on the
closing price of the Company's stock on December 31, 1997. The Company does not
grant stock appreciation rights.
Aggregated Option Exercises in 1997 and Year-End Option Values
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Year-End (#) at Year-End
Shares Acquired Value ----------------------- --------------------
Name on Exercise (#) Realized(1) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- ----------- ----------- ------------- ----------- -------------
David L. Angel 0 $ 0 93,333 145,962 $ 198,003 $ 0
Eric J. Ochiltree 8,000 0 32,625 131,250 1,011 3,391
Carl R. Palmer 0 0 17,188 57,500 0 0
Felix J. Rosengarten 14,101 91,656 29,688 63,000 40,733 0
James Brennan 0 0 23,021 58,229 0 0
- --------------
</TABLE>
(1) "Value Realized" represents the fair market value of the shares of Common
Stock underlying the options on the date of exercise based on the closing
price of the Company's stock on the date of exercise, less the aggregate
exercise price of the options.
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. King and Zieber. The
members of the Compensation Committee are independent outside directors. There
is no interlocking relationship between the Board or Compensation Committee
and the board of directors or compensation committee of any other company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1, 1997, there have been no transactions or series of
transactions involving more than $60,000 between the Company and any current
executive officer, director, 5% beneficial owner of the Company's Common Stock
or any member of the immediate family of any of the foregoing in which one or
more of the foregoing individuals or entities had a material interest, except as
indicated in "Proposal No. 1 - Election of Directors Director Compensation" and
"Executive Compensation" above.
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee establishes the general compensation policy
of the Company. The role of the Compensation Committee is to review, establish
guidelines, and approve salaries, cash bonuses, stock options and other
compensation of the executive officers. In 1997, the Compensation Committee
consisted of outside directors Frederick B. Bamber, Eugene J. Flath, Alan V.
King (from July 1 through the present), and Frederick L. Zieber (from March 20
through the present). David L. Angel, Chairman of the Board and Chief Executive
Officer of the Company, and Eric J. Ochiltree, President and Chief Operating
Officer, attend certain of the meetings of the Compensation Committee and make
recommendations regarding executive compensation. Neither Mr. Angel nor Mr.
Ochiltree attended any Compensation Committee meetings where Mr. Angel's or Mr.
Ochiltree's compensation package was being discussed by the Compensation
Committee. The Compensation Committee administers the 1994 Equity Incentive
Plan, the 1987 Stock Option Plan and the Employee Stock Purchase Plan.
In 1998, the Compensation Committee was comprised of Alan V. King
and Frederick L. Zieber. The President or CEO and the Director of Human
Resources are ex officio members of the Committee.
General Compensation Policy
The Compensation Committee has set forth the following as criteria for
total executive compensation:
* The Company's total executive compensation package must be
competitive in the marketplace so as to enable the Company to
attract and retain top caliber executive talent.
* The Company's executive compensation must be linked to the
Company's overall performance. The philosophy of the Compensation
Committee is that base salary should be on par with industry
averages for comparable companies; however, the executive officers
should have significant cash bonus incentives if the Company meets
or exceeds the goals committed to the Board, particularly in view
of the Board's opinion of the relative difficulty in reaching
these goals given competitive market conditions and other factors
affecting the Company's performance.
* The Compensation Committee believes that stock options play an
important role in attracting and retaining qualified personnel in
that stock options provide personnel with a reward directly tied
to increased stock values.
The Committee's philosophy in compensating executive officers,
including the CEO, is to relate compensation directly to corporate performance.
Thus, the Company's compensation policy, which applies to management and other
employees of the Company, relates a portion of each individual's total
compensation to the Company's corporate objectives set forth at the beginning of
the Company's fiscal year, as well as to individual contributions. Consistent
with this policy, a designated portion of the compensation of the executive
officers of the Company is contingent on corporate performance and adjusted
based on the individual officer's performance as measured against established
personal objectives. Long-term equity incentives for executive officers are
effected through the granting of stock options under the 1994 Equity Incentive
Plan. Stock options generally have value for the executive only if the price of
the Company's stock increases above the fair market value on the grant date and
the executive remains in the Company's employ for the period required for the
shares to vest.
1997 Executive Compensation
Base Salaries. The base salary for each executive officer for 1997 was
determined by the Compensation Committee after a review of compensation survey
data including the Radford Executive Compensation Report, private venture
capital salary survey data, compensation data published in the initial public
offering prospectuses of comparable industry companies and compensation data
regarding public companies published in the San Jose Mercury News and the San
Francisco Chronicle.
Incentive Compensation. Once base salaries were determined, an
additional portion of total compensation was offered to Company executives based
upon corporate performance under the Executive Bonus Plan of 1996. Under this
plan, cash awards would have been made to certain officers and key employees
based upon the Company's overall performance measured by pre-tax income. In
1997, as a result of the Company's performance, no bonus pool was established.
<PAGE>
Stock Options. Stock option grants by the Compensation Committee take
into consideration the anticipated future contribution and ability to impact
corporate business results of each affected executive officer. In 1997, the
Committee determined that each executive officer should have an approximately
equal number of shares of Company stock that can be exercised, each year,
through 2000. The Compensation Committee believes that its 1997 determination is
an effective technique to enhance executive officer performance and retention.
1997 CEO Compensation
In 1997, Mr. Angel's total compensation was $249,000 (as compared to
$175,000 in 1996). Mr. Angel received no bonus in 1997 and no bonus in 1996. The
basis for no bonus paid to Mr. Angel was that the Company's financial
performance remained unprofitable throughout 1997, and established objectives
were not met. As a result of the Company's overall performance, the Compensation
Committee granted Mr. Angel an option for 20,837 shares in January 1998. The
Compensation Committee believes such option is appropriate for Mr. Angel's level
of responsibility and is well within competitive practices, taking into account
prior stock option grant history, the level of vested shares and the number of
shares Mr. Angel already owns. The Compensation Committee determined that this
new option grant provided the necessary incentive to Mr. Angel.
Compliance with Section 162(m) of the Internal Revenue Code of 1986
The Company intends to comply with the requirements of Section 162(m)
of the Code. The 1994 Equity Incentive Plan is currently in compliance with
Section 162(m) by virtue of the inclusion of a limitation on the number of
shares that an executive officer may receive under the 1994 Equity Incentive
Plan. The Company does not expect cash compensation for 1998 to be affected by
the requirements of Section 162(m).
COMPENSATION COMMITTEE
Frederick B. Bamber
Eugene J. Flath
Alan V. King (from July 1, 1997)
Frederick L. Zieber (from March 20, 1997)
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the Company's
Annual Meeting of Shareholders in 1999 must be received by the Company at its
principal executive offices no later than March 10, 1999 in order to be included
in the Company's Proxy Statement and form of proxy relating to that meeting.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act as amended, requires the
Company's directors and officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission. Such persons are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file. Based solely on its review of
the copies of such forms furnished to the Company and written representations
from the executive officers and directors of the Company, the Company believes
that all filings required to be made by the Company's officers, directors and
10% shareholders during 1997 were made in a timely manner.
<PAGE>
COMPANY STOCK PRICE PERFORMANCE
Comparison of Shareholder Return
The graph below compares the cumulative total shareholder return on the
Company's Common Stock from February 8, 1995 (the effective date of the
Company's initial public offering) through December 31, 1997 with the cumulative
return on the Nasdaq Stock Market (U.S.) Index and the Nasdaq Electronic
Component Stock Index over the same period (assuming the investment of $100 in
the Company's Common Stock and in each of the indexes on February 8, 1995 and
reinvestment of all dividends).
The stock price performance graph below is required by the SEC and
shall not be deemed to be incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act of 1933, as amended, or under the Exchange Act, except to the
extent that the Company specifically incorporates this information by reference,
and shall not otherwise be deemed soliciting material or filed under such Acts.
The comparisons in the graph below are based on historical data and are not
intended to forecast the possible future performance of the Company's Common
Stock.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Quarter) ISD Nasdaq Stock Market Nasdaq Elec. Comp.
---------------- ----- ------------------- ------------------
<S> <C> <C> <C>
2/8/95 100 100 100
3/95 143.3 104.4 110.4
6/95 166.7 119.4 156.9
9/95 150.8 133.8 169.1
12/95 74.2 135.4 146.1
3/96 56.7 141.8 145.2
6/96 63.3 153.3 165.9
9/96 46.7 158.8 201.1
12/96 49.2 166.6 252.7
3/97 45.4 157.6 254.7
6/97 47.5 186.4 272.2
9/97 75.0 218.0 353.5
12/97 40.2 204.5 265.0
</TABLE>
<PAGE>
OTHER BUSINESS
The Board of Directors does not presently intend to bring any other
business before the Meeting, and, so far as is known to the Board of Directors,
no matters are to be brought before the Meeting except as specified in the
notice of the Meeting. As to any business that may properly come before the
Meeting, however, it is intended that proxies, in the form enclosed, will be
voted in respect thereof in accordance with the judgment of the persons voting
such proxies.
Dated: June 26, 1998
By Order of the Board of Directors
/S/ Felix J. Rosengarten
----------------------------------
Felix J. Rosengarten
Vice President, Finance and Administration
and Chief Financial Officer
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE,
SIGN AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
<PAGE>
INFORMATION STORAGE DEVICES, INC.
1994 EQUITY INCENTIVE PLAN
As Adopted September 12, 1994
As Amended through May 21, 1998
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 3,550,000 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:
(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;
<PAGE>
(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 Composition of Committee. 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.
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:
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.
<PAGE>
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 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 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.
<PAGE>
5.10 No Disqualification. Notwithstanding any other
provision in the Plan, no term of the Plan relating to ISO 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 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
<PAGE>
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 goal 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.
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
(g) by any combination of the foregoing.
<PAGE>
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. All elections by a Participant to have Shares withheld for this
purpose shall be made in accordance with the requirements established by the
Committee and be in writing in a form acceptable to the Committee.
10. PRIVILEGES OF STOCK OWNERSHIP.
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.
<PAGE>
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 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
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.
<PAGE>
"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 of the increase is not obtained within the time
period provided herein, all Awards granted hereunder pursuant to such increase
shall be canceled, any Shares issued pursuant to any Award made pursuant to such
increase shall be canceled and any purchase of Shares hereunder pursuant to such
increase shall be rescinded.
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 the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans.
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:
<PAGE>
"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.
"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.
"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.
<PAGE>
"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.
"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").
<PAGE>
INFORMATION STORAGE DEVICES, INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
As Adopted on September 12, 1994
As Amended through May 21, 1998
1. ESTABLISHMENT OF PLAN. Information Storage Devices, Inc.
(the "Company") proposes to grant options for purchase of the Company's Common
Stock to eligible employees of the Company and its Subsidiaries (as hereinafter
defined) pursuant to this Employee Stock Purchase Plan (this "Plan"). For
purposes of this Plan, "Parent Corporation" and "Subsidiary" (collectively,
"Subsidiaries") shall have the same meanings as "parent corporation" and
"subsidiary corporation" in Sections 424(e) and 424(f), respectively, of the
Internal Revenue Code of 1986, as amended (the "Code"). The Company intends the
Plan to qualify as an "employee stock purchase plan" under Section 423 of the
Code (including any amendments to or replacements of such Section), and the Plan
shall be so construed. Any term not expressly defined in the Plan but defined
for purposes of Section 423 of the Code shall have the same definition herein. A
total of 290,000 shares of the Company's Common Stock is reserved for issuance
under the Plan. Such number shall be subject to adjustments effected in
accordance with Section 14 of the Plan.
2 PURPOSE. The purpose of the Plan is to provide employees of
the Company and Subsidiaries designated by the Board of Directors of the Company
(the "Board") as eligible to participate in the Plan with a convenient means of
acquiring an equity interest in the Company through payroll deductions, to
enhance such employees' sense of participation in the affairs of the Company and
Subsidiaries, and to provide an incentive for continued employment.
3. ADMINISTRATION. This Plan may be administered by the Board
or a committee appointed by the Board (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. Subject to the provisions of the Plan and the
limitations of Section 423 of the Code or any successor provision in the Code,
all questions of interpretation or application of the Plan shall be determined
by the Board and its decisions shall be final and binding upon all participants.
Members of the Board shall receive no compensation for their services in
connection with the administration of the Plan, other than standard fees as
established from time to time by the Board for services rendered by Board
members serving on Board committees. All expenses incurred in connection with
the administration of the Plan shall be paid by the Company.
4. ELIGIBILITY. Any employee of the Company or the
Subsidiaries is eligible to participate in an Offering Period (as hereinafter
defined) under the Plan except the following:
(a) employees who are not employed by the Company or
Subsidiaries fifteen (15) days before the beginning of such Offering Period;
(b) employees who are customarily employed for less than
twenty (20) hours per week;
(c) employees who are customarily employed for less than five
(5) months in a calendar year;
(d) employees who, together with any other person whose stock
would be attributed to such employee pursuant to Section 424(d) of the Code, own
stock or hold options to purchase stock or who, as a result of being granted an
option under the Plan with respect to such Offering Period, would own stock or
hold options to purchase stock possessing 5 percent or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Subsidiaries.
<PAGE>
5. OFFERING DATES. The Offering Periods of the Plan (the
"Offering Period") shall be of 6 months duration commencing February 1 and
August 1 of each year and ending on July 31 and January 31 respectively, during
which payroll deductions of the participant are accumulated under this Plan. The
first day of each Offering Period is referred to as the "Offering Date". The
last business day of each Offering Period is referred to as the "Purchase Date".
The Board shall have the power to change the duration of Offering Periods with
respect to future offerings without shareholder approval if such change is
announced at least fifteen (15) days prior to the scheduled beginning of the
first Offering Period to be affected.
6. PARTICIPATION IN THE PLAN. Eligible employees may become
participants in an Offering Period under the Plan on the first Offering Date
after satisfying the eligibility requirements by delivering a subscription
agreement to the Company's or Subsidiary's (whichever employs such employee)
treasury department (the "Treasury Department") not later than the 15th day of
the month before such Offering Date unless a later time for filing the
subscription agreement authorizing payroll deductions is set by the Board for
all eligible employees with respect to a given Offering Period. An eligible
employee who does not deliver a subscription agreement to the Treasury
Department by such date after becoming eligible to participate in such Offering
Period shall not participate in that Offering Period or any subsequent Offering
Period unless such employee enrolls in the Plan by filing a subscription
agreement with the Treasury Department not later than the 15th day of the month
preceding a subsequent Offering Date. Once an employee becomes a participant in
an Offering Period, such employee will automatically participate in the Offering
Period commencing immediately following the last day of the prior Offering
Period unless the employee withdraws from the Plan or terminates further
participation in the Offering Period as set forth in Section 11 below. Such
participant is not required to file any additional subscription agreement in
order to continue participation in the Plan.
7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible
employee in the Plan with respect to an Offering Period will constitute the
grant (as of the Offering Date) by the Company to such employee of an option to
purchase on the Purchase Date up to that number of shares of Common Stock of the
Company determined by dividing the amount accumulated in such employee's payroll
deduction account during such Offering Period by the lower of (i) eighty-five
percent (85%) of the fair market value of a share of the Company's Common Stock
on the Offering Date or (ii) eighty-five percent (85%) of the fair market value
of a share of the Company's Common Stock on the Purchase Date; provided,
however, that the number of shares of the Company's Common Stock subject to any
option granted pursuant to this Plan shall not exceed the lesser of (a) the
maximum number of shares set by the Board pursuant to Section 10(c) below with
respect to the applicable Offering Period, or (b) the maximum number of shares
which may be purchased pursuant to Section 10(b) below with respect to the
applicable Offering Period. Fair market value of a share of the Company's Common
Stock shall be determined as provided in Section 8 hereof.
8. PURCHASE PRICE. The purchase price per share at which a
share of Common Stock will be sold in any Offering Period shall be eighty-five
percent (85%) of the lesser of:
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date.
For purposes of the Plan the term "fair market value" on a
given date shall mean the fair market value of the Company's Common Stock as
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.
<PAGE>
9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS;
ISSUANCE OF SHARES.
(a) The purchase price of the shares is accumulated by regular
payroll deductions made during each Offering Period. The deductions are made as
a percentage of the participant's compensation in one percent (1%) increments
not less than two percent (2%), nor greater than ten percent (10%), not to
exceed $25,000 per year or such lower limit set by the Committee. Compensation
shall mean all W-2 compensation, including, but not limited to base salary,
wages, commissions, overtime, shift premiums and bonuses, plus draws against
commissions; provided, however, that for purposes of determining a participant's
compensation, any election by such participant to reduce his or her regular cash
remuneration under Sections 125 or 401(k) of the Code shall be treated as if the
participant did not make such election. Payroll deductions shall commence on the
first payday following the Offering Date and shall continue to the end of the
Offering Period unless sooner altered or terminated as provided in the Plan.
(b) A participant may lower (but not increase) the rate of
payroll deductions during an Offering Period by filing with the Treasury
Department a new authorization for payroll deductions, in which case the new
rate shall become effective for the next payroll period commencing more than
fifteen (15) days after the Treasury Department's receipt of the authorization
and shall continue for the remainder of the Offering Period unless changed as
described below. Such change in the rate of payroll deductions may be made at
any time during an Offering Period, but not more than one change may be made
effective during any Offering Period. A participant may increase or decrease the
rate of payroll deductions for any subsequent Offering Period by filing with the
Treasury Department a new authorization for payroll deductions not later than
the 15th day of the month before the beginning of such Offering Period.
(c) All payroll deductions made for a participant are credited
to his or her account under the Plan and are deposited with the general funds of
the Company. No interest accrues on the payroll deductions. All payroll
deductions received or held by the Company may be used by the Company for any
corporate purpose, and the Company shall not be obligated to segregate such
payroll deductions.
(d) On each Purchase Date, so long as the Plan remains in
effect and provided that the participant has not submitted a signed and
completed withdrawal form before that date which notifies the Company that the
participant wishes to withdraw from that Offering Period under the Plan and have
all payroll deductions accumulated in the account maintained on behalf of the
participant as of that date returned to the participant, the Company shall apply
the funds then in the participant's account to the purchase of whole shares of
Common Stock reserved under the option granted to such participant with respect
to the Offering Period to the extent that such option is exercisable on the
Purchase Date. The purchase price per share shall be as specified in Section 8
of the Plan. Any cash remaining in a participant's account after such purchase
of shares shall be refunded to such participant in cash, without interest;
provided, however, that any amount remaining in such participant's account on a
Purchase Date which is less than the amount necessary to purchase a full share
of Common Stock of the Company shall be carried forward, without interest, into
the next Offering Period. In the event that the Plan has been oversubscribed,
all funds not used to purchase shares on the Purchase Date shall be returned to
the participant, without interest. No Common Stock shall be purchased on a
Purchase Date on behalf of any employee whose participation in the Plan has
terminated prior to such Purchase Date.
(e) As promptly as practicable after the Purchase Date, the
Company shall arrange the delivery to each participant of a certificate
representing the shares purchased upon exercise of his option.
(f) During a participant's lifetime, such participant's option
to purchase shares hereunder is exercisable only by him or her. The participant
will have no interest or voting right in shares covered by his or her option
until such option has been exercised. Shares to be delivered to a participant
under the Plan will be registered in the name of the participant or in the name
of the participant and his or her spouse.
10. LIMITATIONS ON SHARES TO BE PURCHASED.
(a) No employee shall be entitled to purchase stock under the
Plan at a rate which, when aggregated with his or her rights to purchase stock
under all other employee stock purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in the Plan.
<PAGE>
(b) No more than two hundred percent (200%) of the number of
shares determined by using eighty-five percent (85%) of the fair market value of
a share of the Company's Common Stock on the Offering Date as the denominator
may be purchased by a participant on any single Purchase Date.
(c) No employee shall be entitled to purchase more than the
Maximum Share Amount (as defined below) on any single Purchase Date. Not less
than thirty (30) days prior to the commencement of any Offering Period, the
Board may, in its sole discretion, set a maximum number of shares which may be
purchased by any employee at any single Purchase Date (hereinafter the "Maximum
Share Amount"). In no event shall the Maximum Share Amount exceed the amounts
permitted under Section 10(b) above. If a new Maximum Share Amount is set, then
all participants must be notified of such Maximum Share Amount not less than
fifteen (15) days prior to the commencement of the next Offering Period. Once
the Maximum Share Amount is set, it shall continue to apply with respect to all
succeeding Purchase Dates and Offering Periods unless revised by the Board as
set forth above.
(d) If the number of shares to be purchased on a Purchase Date
by all employees participating in the Plan exceeds the number of shares then
available for issuance under the Plan, the Company will make a pro rata
allocation of the remaining shares in as uniform a manner as shall be
practicable and as the Board shall determine to be equitable. In such event, the
Company shall give written notice of such reduction of the number of shares to
be purchased under a participant's option to each participant affected thereby.
(e) Any payroll deductions accumulated in a participant's
account which are not used to purchase stock due to the limitations in this
Section 10 shall be returned to the participant as soon as practicable after the
end of the Offering Period, without interest.
11. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period
under the Plan by signing and delivering to the Treasury Department notice on a
form provided for such purpose. Such withdrawal may be elected at any time at
least fifteen (15) days prior to the end of an Offering Period.
(b) Upon withdrawal from the Plan, the accumulated payroll
deductions shall be returned to the withdrawn participant, without interest, and
his or her interest in the Plan shall terminate. In the event a participant
voluntarily elects to withdraw from the Plan, he or she may not resume his or
her participation in the Plan during the same Offering Period, but he or she may
participate in any Offering Period under the Plan which commences on a date
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth above for initial participation in
the Plan.
12. TERMINATION OF EMPLOYMENT. Termination of a participant's
employment for any reason, including retirement, death or the failure of a
participant to remain an eligible employee, immediately terminates his or her
participation in the Plan. In such event, the payroll deductions credited to the
participant's account will be returned to him or her or, in the case of his or
her death, to his or her legal representative, without interest. For purposes of
this Section 12, an employee will not be deemed to have terminated employment or
failed to remain in the continuous employ of the Company in the case of sick
leave, military leave, or any other leave of absence approved by the Board;
provided that such leave is for a period of not more than ninety (90) days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's
interest in the Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event the Plan is terminated by the Board, the Company
shall promptly deliver to the participant all payroll deductions credited to his
account. No interest shall accrue on the payroll deductions of a participant in
the Plan.
<PAGE>
14. CAPITAL CHANGES. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each option under the Plan which has not yet been exercised and the number of
shares of Common Stock which have been authorized for issuance under the Plan
but have not yet been placed under option (collectively, the "Reserves"), as
well as the price per share of Common Stock covered by each option under the
Plan which has not yet been exercised, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split or the payment of a stock dividend (but only on the Common
Stock) or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration". Such adjustment shall
be made by the Board, whose determination shall be final, binding and
conclusive. Except as expressly provided herein, no issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the
Company, the Offering Period will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the Board.
The Board may, in the exercise of its sole discretion in such instances, declare
that the options under the Plan shall terminate as of a date fixed by the Board
and give each participant the right to exercise his or her option as to all of
the optioned stock, including shares which would not otherwise be exercisable.
In the event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation, each
option under the Plan shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, that the participant
shall have the right to exercise the option as to all of the optioned stock. If
the Board makes an option exercisable in lieu of assumption or substitution in
the event of a merger or sale of assets, the Board shall notify the participant
that the option shall be fully exercisable for a period of twenty (20) days from
the date of such notice, and the option will terminate upon the expiration of
such period.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, or in the event of the Company being consolidated with or merged into any
other corporation.
15. NONASSIGNABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect.
16. REPORTS. Individual accounts will be maintained for each
participant in the Plan. Each participant shall receive promptly after the end
of each Offering Period a report of his or her account setting forth the total
payroll deductions accumulated, the number of shares purchased, the per share
price thereof and the remaining cash balance, if any, carried forward to the
next Offering Period.
17. NOTICE OF DISPOSITION. Each participant shall notify the
Company if the participant disposes of any of the shares purchased in any
Offering Period pursuant to this Plan if such disposition occurs within two (2)
years from the Offering Date or within one (1) year from the Purchase Date on
which such shares were purchased (the "Notice Period"). Unless such participant
is disposing of any of such shares during the Notice Period, such participant
shall keep the certificates representing such shares in his or her name (and not
in the name of a nominee) during the Notice Period. The Company may, at any time
during the Notice Period, place a legend or legends on any certificate
representing shares acquired pursuant to the Plan requesting the Company's
transfer agent to notify the Company of any transfer of the shares. The
obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on the certificates.
<PAGE>
18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor
the grant of any option hereunder shall confer any right on any employee to
remain in the employ of the Company or any Subsidiary, or restrict the right of
the Company or any Subsidiary to terminate such employee's employment.
19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall
have equal rights and privileges with respect to the Plan so that the Plan
qualifies as an "employee stock purchase plan" within the meaning of Section 423
or any successor provision of the Code and the related regulations. Any
provision of the Plan which is inconsistent with Section 423 or any successor
provision of the Code shall, without further act or amendment by the Company or
the Board, be reformed to comply with the requirements of Section 423. This
Section 19 shall take precedence over all other provisions in the Plan.
20. NOTICES. All notices or other communications by a
participant to the Company under or in connection with the Plan shall be deemed
to have been duly given when received in the form specified by the Company at
the location, or by the person, designated by the Company for the receipt
thereof.
21. TERM; SHAREHOLDER APPROVAL. This Plan shall become
effective on the date that it is adopted by the Board. This Plan shall be
approved by the shareholders of the Company, in any manner permitted by
applicable corporate law, within twelve (12) months before or after the date
this Plan is adopted by the Board. No purchase of shares pursuant to the Plan
shall occur prior to such shareholder approval. The Plan shall continue until
the earlier to occur of termination by the Board, issuance of all of the shares
of Common Stock reserved for issuance under the Plan or ten (10) years from the
adoption of the Plan by the Board.
22. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to the end of an Offering Period but prior to delivery to him of such
shares and cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's account under the
Plan in the event of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares or cash to the executor or administrator of the estate of
the participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its discretion, may deliver such
shares or cash to the spouse or to any one or more dependents or relatives of
the participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF
SHARES. Shares shall not be issued with respect to an option unless the exercise
of such option and the issuance and delivery of such shares pursuant thereto
shall comply with all applicable provisions of law, domestic or foreign,
including, without limitation, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
24. APPLICABLE LAW. The Plan shall be governed by the
substantive laws (excluding the conflict of laws rules) of the State of
California.
<PAGE>
25. AMENDMENT OR TERMINATION OF THE PLAN. The Board may at any
time amend, terminate or the extend the term of the Plan, except that any such
termination cannot affect options previously granted under the Plan, nor may any
amendment make any change in an option previously granted which would adversely
affect the right of any participant, nor may any amendment be made without
approval of the shareholders of the Company obtained in accordance with Section
21 hereof within twelve (12) months of the adoption of such amendment (or
earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under the
Plan; or
(b) change the designation of the employees (or class of
employees) eligible for participation in the Plan.
<PAGE>
INFORMATION STORAGE DEVICES, INC.
1994 DIRECTORS STOCK OPTION PLAN
As Adopted September 12, 1994
As Amended Through May 21, 1998
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 share authorized to be issued under this
Plan shall be exercised prior to the time such increase has been approved by the
shareholder of the Company and all such Options granted pursuant to such
increase shall similarly terminate if such shareholder approval is not obtained.
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 200,000 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.
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").
<PAGE>
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. Except as otherwise provided in this Section 7.2, 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.
Except as otherwise provided in this Section 7.2, 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. Except as otherwise
provided in this Section 7.2, 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 State 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. Any Initial Grant or
Succeeding Grant made during the calendar year of 1996 will vest fully on
December 31, 1996, which options vesting monthly following the State Date.
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 with three (3) months after the Termination Date, but in no event later
than the Expiration Date.
(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 with 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 Optinee'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.
<PAGE>
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 wherby 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 Limitation 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 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.
(b) 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,
unless otherwise permitted by the Committee.
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.
<PAGE>
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.
14. 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 or any outstanding option; provided, however, that
the Committee shall not terminate or amend the terms of any outstanding option
without the consent of the Optionee. 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 ending with the Company if, at the
time of the granting of the Option, each of such 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 in The Wall Street Journal.
17.5 "Securities Act" means the Securites Act of 1933, as
amended.
<PAGE>
DETACH HERE
PROXY
INFORMATION STORAGE DEVICES, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
AUGUST 20, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY
The undersigned hereby appoints David L. Angel and Felix J.
Rosengarten, or either of them, as proxies, each with full power of
substitution, and hereby authorizes them to represent and to vote, as designated
below, all shares of Common Stock, no par value, of Information Storage Devices,
Inc. (the "Company"), held of record by the undersigned on June 22, 1998, at the
Annual Meeting of Shareholders of the Company to be held at the Pruneyard Inn,
1995 South Bascom Avenue, Campbell, California 95008, on Thursday, August 20,
1998, at 9:00 a.m. local time, and at any adjournments or postponements thereof.
THIS PROXY WILL BE VOTED AS DIRECTED ON THE REVERSE SIDE. WHEN NO CHOICE IS
INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES LISTED IN
PROPOSAL 1 AND FOR PROPOSALS 2, 3, 4 AND 5. In their discretion, the proxy
holders are authorized to vote upon such other business as may properly come
before the meeting or any adjournments or postponements thereof to the extent
authorized by Rule 14a-4(c) promulgated under the Securities Exchange Act of
1934, as amended.
- ------------- -------------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ------------- -------------
DETACH HERE
[ X ] Please mark votes as
in this example.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
The Board of Directors recommends that you vote FOR the election of all nominees
listed in Proposal 1 and FOR Proposals 2, 3, 4 and 5.
1. Election of Directors.
Nominees: David L. Angel; Frederick B. Bamber; Eugene J. Flath;
Alan V. King; Eric J. Ochiltree and Frederick L. Zieber
[ ]FOR ALL NOMINEES [ ] WITHHELD FROM ALL NOMINEES
[ ]For all nominees except as noted below
-----------------------------------------------------
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name in the space provided above)
[ ]MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW
<PAGE>
2. To approve an amendment to the Company's 1994 Equity Incentive Plan to
increase the authorized number of shares by 800,000 shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To approve an amendment of the Company's 1994 Employee Stock Purchase Plan to
increase the authorized number of shares by 120,000 shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. To approve an amendment of the Company's 1994 Directors Plan to increase the
authorized number of shares by 80,000 shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. To ratify the selection of Arthur Andersen LLP as independent auditors for
the Company for the current fiscal year.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
6. To transact such other business as may properly come before the meeting or
any adjournment thereof.
Please sign exactly as your name(s) appear(s) on your stock certificate. If
shares of stock stand of record in the names of two or more persons or in the
name of husband and wife, whether as joint tenants or otherwise, both or all of
such persons should sign the proxy. If shares of stock are held by record by a
corporation, the proxy should be executed by the president or vice president and
the secretary or assistant secretary. Executors, administrators or their
fiduciaries who execute the above proxy for a deceased shareholder should give
their full title. Please date the proxy.
Signature:_________________________________________ Date:_______________________
Signature:_________________________________________ Date:_______________________
