INFRASONICS, INC.
1995 STOCK OPTION PLAN
1. Purpose. The purpose of this plan (the "Plan")
is to secure for INFRASONICS, INC., a California corporation
(the "Company"), and its shareholders the benefits arising
from capital stock ownership by employees, directors and
consultants of the Company and its Parent Corporation or
Subsidiary (as defined in Section 17 hereof), if any, who
are expected to contribute to the Company's future growth
and success. The Plan is intended to enable the Company to
attract, retain and motivate recipients of options and to
align their interests with those of the Company's
shareholders.
2. TYPES OF AWARDS AND ADMINISTRATION.
a. TYPES OF AWARDS. Options granted pursuant
to the Plan shall be as specified herein and authorized by
action of the Board of Directors of the Company (or a
Committee designated by the Board of Directors) and may be
either incentive stock options ("Incentive Stock Options")
meeting the requirements of Section 422A of the Internal
Revenue Code of 1986, as amended (the "Code") or non
qualified stock options which are not intended to meet the
requirements of Section 422A.
b. ADMINISTRATION. The Plan will be
administered by the Board of Directors of the Company, whose
construction and interpretation of the terms and provisions
of the Plan shall be final and conclusive. The Board of
Directors may in its sole discretion, subject to the terms
of this Plan, grant options to purchase shares of the
Company's Common Stock and issue shares upon exercise of
such options, as provided in the Plan. The Board shall have
authority, subject to the express provisions of the Plan and
all applicable securities laws, rules and regulations, to
construe the respective option agreements and the Plan, to
prescribe, amend and rescind rules and regulations relating
to the Plan, to determine the terms and provisions of the
respective option agreements (which need not be identical),
to advance the lapse of any waiting or installment periods
and exercise dates, and to make all other determinations in
the judgment of the Board of Directors necessary or
desirable for the administration of the Plan.
Notwithstanding anything herein to the contrary, the Board
shall have no authority, discretion, or power to select the
non-employee directors of the Company who will receive
options under the Plan, to set the exercise price of the
options granted under the Plan to Non-Employee Directors (as
defined in Section 8), to determine the number of shares of
common stock to be granted under option to Non-Employee
Directors or the time at which such options are to be
granted to Non-Employee Directors, to establish the duration
of option grants of Non-Employee Directors, or to alter any
other terms or conditions specified in the Plan applicable
to non-employee directors, except in the sense of
administering the Plan subject to the provisions of the
Plan. The Board of Directors may correct any defect or
supply any omission or reconcile any inconsistency in the
Plan or in any option agreement in the manner and to the
extent it shall deem expedient to carry the Plan into effect
and it shall be the sole and final judge of such expediency.
No director shall be liable for any action or determination
made in good faith. The Board of Directors may, to the full
extent permitted by law, delegate any or all of its powers
under the Plan to a committee (the "Committee") appointed by
the Board of Directors. Such Committee may further delegate
to officers of the Company its authority with respect to the
granting of options to persons who are not then officers of
the Company. If the Committee is so appointed all
references to the Board of Directors in the Plan shall mean
and relate to such Committee and any officers to whom
authority is granted pursuant to the preceding sentence.
c. INDEMNIFICATION. In addition to such other
rights of indemnification as they may have as Directors or
as members of the Committee, members of the Board of
Directors and of the Committee shall be indemnified by the
Company against reasonable expenses, including attorneys'
fees, actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure
to act under or in connection with the Plan, or any option
(and/or related right) granted thereunder, and against all
amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected
by the Company), or paid by them in satisfaction of a
judgment of any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such
action, suit or proceeding that such person is liable for
negligence or misconduct in his duties; provided that within
sixty days after the institution of such action, suit or
proceeding, such person shall offer the Company, in writing,
the opportunity at its own expense, to handle and defend the
same.
3. ELIGIBILITY. Options shall be granted only to
persons who are, at the time of grant, officers, full-time
employees, directors or consultants of the Company or of any
Parent Corporation or Subsidiary, if any. No person shall
be granted any option under the Plan who, at the time such
option is granted, owns, directly or indirectly, Common
Stock of the Company possessing more than 10% of the total
combined voting power of all classes of stock of the Company
or of any Parent Corporation or Subsidiary, unless the
requirements of paragraph (b) of Section 11 are satisfied.
Incentive Stock Options may be granted only to persons who
are employees of the Company and any Subsidiaries. A person
who has been granted an option may, if he or she is
otherwise eligible, be granted additional options if the
Board of Directors shall so determine. However, in no event
may any person be granted options to purchase in excess of
100,000 shares in any fiscal year. Notwithstanding anything
herein to the contrary, Non-Employee Directors shall only
receive options pursuant to the non-discretionary grants
provided for in Section 8. As a condition to the grant of
an option under the Plan, each recipient of an option shall
execute an option agreement, substantially in such form not
inconsistent with the Plan as shall be specified by the
Board of Directors at the time such option is granted.
4. STOCK SUBJECT TO PLAN. Subject to adjustment as
provided in Sections 13 and 14 below, the initial maximum
number of shares of Common Stock of the Company which may be
issued and sold under the Plan is Five Hundred Fifteen
Thousand Nine Hundred (515,900) shares; which number shall
be increased beginning June 30, 1996 at the end of each
fiscal year by the Additional Amount (as defined below).
Such shares may be authorized and unissued shares. If an
option granted under the Plan shall expire or terminate for
any reason without having been exercised in full, or should
the Company reacquire any shares purchased pursuant to the
Plan, the unpurchased or reacquired shares subject to such
option shall again be available for subsequent option grants
under the Plan. Stock issuable upon exercise of an option
granted under the Plan may be subject to such restrictions
on transfer, repurchase rights or other restrictions as
shall be determined by the Board of Directors. The
"Additional Amount" shall be the number of shares which when
added to the number of shares previously authorized under
the Plan results in the total number of shares authorized
under the Plan equalling four and ninety-nine one-hundredths
percent (4.99%) of the total number of shares of the Company
outstanding at the end of the fiscal year. Incentive Stock
Options may not be granted for more than 515,900 shares
under this Plan and any shares represented by the Additional
Amount may only be used for non-qualified stock options.
5. PURCHASE PRICE.
a. GENERAL. The purchase price per share of
stock deliverable upon the exercise of an option shall be
determined by the Board of Directors, provided, however,
that in the case of an Incentive Stock Option, the exercise
price shall not be less than 100% of the fair market value
of such stock on the date of grant of such option, or less
than 110% of such fair market value in the case of options
described in paragraph (b) of Section 11. In the case of a
non-qualified stock option, the exercise price shall not be
less than 100% of the fair market value of such stock on the
date of grant of such option. As used herein, "fair market
value" on a given date shall mean the last sale (or closing)
price per share on the principal securities exchange (or the
Nasdaq National Market) if the Common Stock is so traded; or
if not so traded, "fair market value" shall mean the average
of closing "bid" and "ask" prices for one share of the
Common Stock of the Company as quoted on NASDAQ or a
successor quotation system, or on such other public market
system as the Common Stock of the Company is then-listed, or
in the event such quotations are not available, "fair market
value" shall be determined in the good faith discretion of
the Board of Directors.
b. PAYMENT OF PURCHASE PRICE. Options granted
under the Plan may provide for the payment of the exercise
price by delivery of (i) cash, (ii) a check to the order of
the Company in an amount equal to the exercise price of such
options, (iii) shares of Common Stock of the Company owned
by the optionee for a period of at least six months having a
fair market value equal in amount to the exercise price of
the options being exercised, or (iv) by any combination of
such methods of payment, as permitted by Section 408 of the
California Corporations Code. The fair market value of any
shares of the Company's Common Stock which may be delivered
upon exercise of an option shall be determined in the manner
specified above.
6. OPTION PERIOD. Each option and all rights
thereunder shall be expressed to expire on such date as the
Board of Directors shall determine, but in no event after
the expiration of ten years from the day on which the option
is granted (subject to the special limitations set forth in
paragraph (b) of Section 11), and shall be subject to
earlier termination as provided in the Plan.
7. EXERCISE OF OPTIONS. Each option may be
exercisable, in part or in full, at any time and from time
to time, and subject to such conditions and restrictions as
determined by the Board of Directors and as set forth in the
agreement evidencing such option during a ten year period
following the date of grant thereof. The maturity of any
option may be accelerated at the discretion of the Board of
Directors. To the extent that an option to purchase shares
is not exercised by an optionee when it becomes initially
exercisable, it shall not expire but shall be carried
forward and shall be exercisable, on a cumulative basis,
until the expiration of the exercise period.
8. GRANTS OF OPTIONS TO NON-EMPLOYEE DIRECTORS AND
TERMS OF SUCH GRANTS. Options granted to directors of the
Company who, at the time of such grant, are not employees of
the Company or of any Parent Corporation or Subsidiary
("Non-Employee Directors") shall be granted only pursuant to
the terms of this Section 8. Options granted to Non
Employee Directors shall be nonqualified stock options. It
is the intent of the Company to administer grants of options
pursuant to this Section 8 so as to comply with the
provisions established for a "formula plan" by Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any successor rule. Subject to
execution by a Non-Employee Director of an appropriate
Option Agreement, options shall be granted to Non-Employee
Directors automatically and without further action of the
Board, as follows:
i. On the day two business days after the
release by the Company of its quarterly earnings for each of
the first three fiscal quarters and on the day two days
after the release by the Company of its annual earnings,
each Non-Employee director shall receive an immediately
exercisable option to purchase 5,000 shares of Common Stock
with an exercise price equal to the fair market value of the
Common Stock on the date of grant and with a term of five
years from the date of grant.
ii. Notwithstanding the foregoing, any
Non-Employee Director may elect not to receive an option
granted pursuant to this Section 8 by delivering written
notice of such election to the Board no later than six
months prior to the date upon which such Option would
otherwise be granted.
iii. Notwithstanding any other provision
of the Plan to the contrary, no option shall be granted to
any individual on a day when he or she is no longer serving
as a Non-Employee Director of the Company.
9. NONTRANSFERABILITY OF OPTIONS. No option
granted under the Plan shall be assignable or transferable
by the person to whom it is granted, either voluntarily or
by operation of law, except by will or the laws of descent
and distribution. During the life of the recipient, the
option shall be exercisable only by such person.
10. EFFECT OF TERMINATION OF EMPLOYMENT. No option
may be exercised unless, at the time of such exercise, the
optionee is, and has been continuously since the date of
grant of his or her option, employed by or (in the case of
directors or consultants) providing service to one or more
of the Company, a Parent Corporation or a Subsidiary, except
that if and to the extent the option agreement so provides:
a. The option may be exercised within the
period of three months after the date the optionee ceases to
be an employee, or to provide service to of any of the
foregoing entities (or within such lesser period as may be
specified in the option agreement; provided, however, that
the expiration of the option shall not be less than thirty
days after the termination of employment or service of the
optionee);
b. If the optionee dies while in the employ of
the Company, a Parent Corporation or a Subsidiary or within
three months after the optionee ceases to be such an
employee, the option may be exercised by the person to whom
it is transferred by will or the laws of descent and
distribution within the period of one year after the date of
death (or within such lesser period as may be specified in
the option agreement or instrument, but in no event shall
the period be less than six months after the date of death);
and
c. If the optionee becomes disabled (within
the meaning of Section 105(d)(4) of the Code) while in the
employ of the Company, a Parent Corporation or a Subsidiary,
the option may be exercised within the period of one year
after the date the optionee ceases to be an employee of any
of the foregoing entities because of such disability (or
within such lesser period as may be specified in the option
agreement or instrument but in no event shall the period be
less than six months after the date the optionee ceases to
be an employee because of such disability); provided,
however, that in no event may any option be exercised after
the expiration date of the option. For all purposes of the
Plan and any option or purchase right granted hereunder,
"employment" shall be defined in accordance with the
provisions of Section 1.421-7(h) of the Income Tax
Regulations (or any successor regulations).
11. INCENTIVE STOCK OPTIONS. Options granted under
the Plan which are intended to be Incentive Stock Options
shall be specifically designated as Incentive Stock Options
and shall be subject to the following additional terms and
conditions:
a. DOLLAR LIMITATION. The aggregate fair
market value (determined as of the respective date or dates
of grant) of the Common Stock which may be made the subject
of Incentive Stock Options granted under the Plan (and under
any other stock option plans of the Company, and any Parent
Corporation and Subsidiary) to any employee, which first
become exercisable in any one calendar year shall not exceed
the sum of $100,000 or such greater amount as may be
permitted under subsequent amendments to the Code.
b. 10% SHAREHOLDER. If an employee to whom an
Incentive Stock Option is to be granted under the Plan is at
the time of the grant of such option the owner of stock
possessing more than 10% of the total combined voting power
of all classes of stock of the Company or of any Parent
Corporation or any Subsidiary, then the purchase price per
share of the Common Stock subject to such Incentive Stock
Option shall not be less than one hundred ten percent (110%)
of the fair market value of one share of Common Stock of the
Company at the time of grant and the Incentive Stock Option
shall have a maximum term of five years.
Except as modified by the preceding provisions of this
Section 11, all the provisions of the Plan shall be
applicable to Incentive Stock Options granted hereunder.
12. RIGHTS AS A SHAREHOLDER. The holder of an
option shall have no rights as a shareholder with respect to
any shares covered by the option until the date of issue of
a stock certificate to him or her for such shares. Except
as otherwise expressly provided in the Plan, no adjustment
shall be made for dividends or other rights for which the
record date is prior to the date such stock certificate is
issued.
13. RECAPITALIZATION. In the event that the
outstanding shares of Common Stock of the Company are
changed into or exchanged for a different number or kind of
shares or other securities of the Company by reason of any
recapitalization, reclassification, stock split, stock
dividend, combination or subdivision, appropriate adjustment
shall be made in the number and kind of shares available
under the Plan and under any options granted under the Plan.
Such adjustment to outstanding options shall be made without
change in the total price applicable to the unexercised
portion of such options, and a corresponding adjustment in
the applicable option price per share shall be made. No
such adjustment shall be made which would, within the
meaning of any applicable provisions of the Code, constitute
a modification, extension or renewal of any option or a
grant of additional benefits to the holder of an option.
14. REORGANIZATION. In case the Company is merged
or consolidated with another corporation and the Company is
not the surviving corporation, or in case the acquiring
corporation is not assuming the obligations of the Company
with respect to its outstanding options, or in the case all
or substantially all of the assets or more than fifty
percent (50%) of the outstanding voting stock of the Company
is acquired by another corporation, or in the case of a
reorganization or liquidation of the Company, the Board of
Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company, shall,
as to outstanding options, either (i) make appropriate
provision for the protection of any such outstanding options
by the substitution on an equitable basis of appropriate
stock of the Company, or of the merged, consolidated or
otherwise reorganized corporation which will be issuable in
respect to the shares of Common Stock of the Company,
provided that no additional benefits shall be conferred upon
optionees or offerees as a result of such substitution, and
the excess of the aggregate fair market value of the shares
subject to the options immediately after such substitution
over the purchase price thereof is not more than the excess
of the aggregate fair market value of the shares subject to
such options immediately before such substitution over the
purchase price thereof, or (ii) upon written notice to the
optionees or offerees, provide that all unexercised options
must be exercised within a specified number of days (which
shall not be less than thirty) of the date of such notice or
they will be terminated. In any such case, the Board of
Directors may, in its discretion, accelerate the exercise
dates of outstanding options, and any options which are not
assumed or substituted for by the acquiring corporation
shall be immediately exercisable upon the date of the notice
provided for in clause (ii) of the preceding sentence.
15. NO SPECIAL EMPLOYMENT RIGHTS. Nothing
contained in the Plan or in any option granted under the
Plan shall confer upon any option holder any right with
respect to the continuation of his or her employment by the
Company (or any Parent Corporation or Subsidiary) or
interfere in any way with the right of the Company (or any
Parent Corporation or Subsidiary), subject to the terms of
any separate employment agreement to the contrary, at any
time to terminate such employment or to increase or decrease
the compensation of the option holder from the rate in
existence at the time of the grant of an option. Whether an
authorized leave of absence, or absence in military or
government service, shall constitute termination of
employment shall be determined by the Board of Directors at
the time.
16. OTHER EMPLOYEE BENEFITS. The amount of any
compensation deemed to be received by an employee as a
result of the exercise of an option, or the sale of shares
received upon such exercise will not constitute "earnings"
with respect to which any other employee benefits of such
employee are determined, including without limitation
benefits under any pension, profit sharing, life insurance
or salary continuation plan.
17. DEFINITION OF SUBSIDIARY AND PARENT
CORPORATION.
a. SUBSIDIARY. The term "Subsidiary" as used
in the Plan shall mean any corporation in an unbroken chain
of corporations beginning with the Company if 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.
b. PARENT CORPORATION. The term "Parent
Corporation" as used in the Plan shall mean any corporation
(other than the Company) in an unbroken chain of
corporations ending with the Company if each of the
corporations other than the Company owns stock possessing
50% or more of the combined voting power of all classes of
stock in one of the other corporations in such chain.
18. AMENDMENT OF THE PLAN. The Board of Directors
may at any time and from time to time modify, amend or
terminate the Plan in any respect, except that the Board of
Directors may not modify or amend the Plan without the
approval of the shareholders of the Company, if such
approval would be required to comply with Rule 16b-3
promulgated under the Securities Exchange Act of 1934, the
Internal Revenue Code, or any other applicable law or
regulation. Additionally, the Board may in its discretion
determine, with respect to any other amendments of the Plan,
that such amendments shall only become effective upon
approval by the shareholders of the Company, if the Board
determines that such shareholder approval may be advisable
(such as for the purpose of obtaining or retaining any
statutory or regulatory benefits under securities or tax or
other laws, or of satisfying any applicable stock listing
requirements). The termination or any modification or
amendment of the Plan shall not, without the consent of an
optionee, affect his or her rights under an option
previously granted to him or her. With the consent of the
optionee affected, the Board of Directors may amend
outstanding option agreements in a manner not inconsistent
with the Plan. The Board of Directors shall have the right
to amend or modify the terms and provisions of the Plan and
of any outstanding Incentive Stock Options granted under the
Plan to the extent necessary to qualify any or all such
options for such favorable federal income tax treatment
(including deferral of taxation upon exercise) as may be
afforded incentive stock options under Section 422A of the
Code.
19. WITHHOLDING. The Company's obligation to
deliver shares upon the exercise of any option granted under
the Plan shall be subject to the option holder's
satisfaction of all applicable federal, state and local
income and employment tax withholding requirements.
20. EFFECTIVE DATE AND DURATION OF THE PLAN.
a. Effective Date. The Plan shall become
effective when adopted by the Board of Directors, but no
Incentive Stock Option granted under the Plan shall become
exercisable unless and until the Plan shall have been
approved by the Company's shareholders. If such shareholder
approval is not obtained within twelve months after the date
of the Board's adoption of the Plan, any Incentive Stock
Options previously granted under the Plan shall terminate
and no further Incentive Stock Options shall be granted.
Subject to this limitation, options may be granted under the
Plan at any time after the effective date and before the
date fixed for termination of the Plan.
b. TERMINATION. Unless sooner terminated in
accordance with Section 13, the Plan shall terminate upon
the earlier of (i) the close of business on the day next
preceding the tenth anniversary of the date of its adoption
by the Board of Directors, or (ii) the date on which all
shares available for issuance under the Plan shall have been
issued pursuant to the exercise or cancellation of options
granted under the Plan. If the date of termination is
determined under (i) above, then options outstanding on such
date shall continue to have force and effect in accordance
with the provisions of the instruments evidencing such
options.
APPROVED BY THE BOARD OF DIRECTORS: July 20, 1995
APPROVED BY THE SHAREHOLDERS: October 19, 1995