SCHEDULE 14A INFORMATION
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Integrated Silicon Solution, Inc.
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[ISSI LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 6, 2002
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders (the "Annual
Meeting") of Integrated Silicon Solution, Inc., a Delaware corporation (the
"Company"), will be held on Wednesday, February 6, 2002 at 3:00 p.m., local
time, at the Silicon Valley Capital Club, Fairmont Plaza, 50 West San Fernando,
17th Floor, San Jose, California, for the following purposes:
1. To elect five (5) directors to serve for the ensuing year and
until their successors are duly elected and qualified.
2. To approve an amendment to the Company's 1993 Employee Stock
Purchase Plan to increase the number of shares available thereunder by
300,000 shares to an aggregate of 2,250,000 shares.
3. To ratify the appointment of Ernst & Young LLP as independent
auditors for the Company for the 2002 fiscal year.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing matters are more fully described in the Proxy Statement
accompanying this Notice.
Only stockholders of record at the close of business on December 12, 2001
are entitled to vote at the Annual Meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to mark,
sign and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope for that purpose. Any stockholder attending the meeting
may vote in person even if he or she has returned a proxy. However, if your
shares are held in the name of a bank, broker, or other holder of record, you
must obtain a proxy, executed in your favor, from the holder of record to be
able to vote at the Annual Meeting.
For the Board of Directors
/s/ MICHAEL McDONALD
Michael D. McDonald
Chief Financial Officer and Corporate
Secretary
Santa Clara, California
January 4, 2002
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO
COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
INTEGRATED SILICON SOLUTION, INC.
2231 LAWSON LANE
SANTA CLARA, CALIFORNIA 95054-3311
(408) 588-0800
PROXY STATEMENT FOR 2002
ANNUAL MEETING OF STOCKHOLDERS
The enclosed proxy ("Proxy") is solicited on behalf of the board of
directors (the "Board of Directors") of Integrated Silicon Solution, Inc. (the
"Company") for use at the annual meeting of stockholders (the "Annual Meeting")
to be held on Wednesday, February 6, 2002 at 3:00 p.m., local time, or at any
adjournment thereof, for the purposes set forth herein and in the accompanying
Notice of Annual Meeting. The Annual Meeting will be held at the Silicon Valley
Capital Club, Fairmont Plaza, 50 West San Fernando, 17th Floor, San Jose,
California.
These proxy solicitation materials were mailed on or about January 4, 2002
to all stockholders of record on December 12, 2001 (the "Record Date").
INFORMATION CONCERNING SOLICITATION AND VOTING
Your vote is important. Because many stockholders cannot attend the Annual
Meeting in person, it is necessary that a large number be represented by proxy.
Under Delaware law, stockholders may submit proxies electronically. Stockholders
who hold their shares in a brokerage account may have the choice of voting over
the Internet, by using a toll-free telephone number, or by completing a proxy
card and mailing it in the postage-paid envelope provided. Please refer to the
proxy card provided by your broker for details regarding the availability of
electronic voting. Please also be aware that if you vote over the Internet, you
may incur costs such as telephone and Internet access charges for which you will
be responsible.
REVOCABILITY OF PROXIES
Any Proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company, at the address noted above, written notice of revocation or a duly
executed proxy bearing a later date, or by attending the meeting and voting in
person.
The method by which you vote will in no way limit your right to vote at the
meeting if you later decide to attend in person. If your shares are held in the
name of a bank, broker, or other holder of record, you must obtain a proxy,
executed in your favor, from the holder of record to able to vote at the Annual
Meeting.
VOTING AND SOLICITATION
Proxies properly executed, duly returned to the Company and not revoked,
will be voted in accordance with the instructions contained in such proxy. Where
no instructions are given, such proxies will be voted as the management of the
Company may propose. If any matter not described in this proxy statement (the
"Proxy Statement") is properly presented for action at the meeting, the persons
named in the enclosed proxy will have discretionary authority to vote according
to their best judgment.
Each stockholder is entitled to one (1) vote for each share of common stock
held by such stockholder on all matters presented at the Annual Meeting. The
required quorum for the transaction of business at the Annual Meeting is a
majority of the votes eligible to be cast by holders of shares of common stock
issued and outstanding as of the Record Date. Shares that are voted "FOR,"
"AGAINST," "WITHHELD" or "ABSTAIN" are treated as being present at the meeting
for purposes of establishing a quorum and are also treated as shares entitled to
vote at the Annual Meeting (the "Votes Cast") with respect to such matter.
Abstentions will have the same effect as a vote against a proposal, except with
respect to the election of directors. Broker non-votes will be counted for
purposes of determining the presence or absence of a quorum
for the transaction of business, but such non-votes will not be counted for
purposes of determining the number of Votes Cast with respect to the particular
proposal on which a broker has expressly not voted. Thus, a broker non-vote will
not affect the outcome of the voting on the proposals to be considered at the
Annual Meeting.
The cost of soliciting proxies will be borne by the Company. The Company
may also reimburse brokerage firms and other persons representing beneficial
owners of shares for their expenses in forwarding solicitation materials to such
beneficial owners. Certain of the Company's directors, officers and employees,
without additional compensation, may also solicit proxies personally or by
telephone or telegram.
RECORD DATE
Stockholders of record at the close of business on December 12, 2001 are
entitled to notice of the Annual Meeting and to vote upon matters presented at
the Annual Meeting.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Stockholders of the Company may submit proper proposals for inclusion in
the Company's proxy statement and for consideration at the next annual meeting
of stockholders by submitting their proposals in writing to the Secretary of the
Company in a timely manner. In order to be included in the Company's proxy
materials for the annual meeting of stockholders to be held in the year 2003,
stockholder proposals must be received by the Secretary of the Company no later
than September 6, 2002, and must otherwise comply with the requirements of Rule
14a-8 of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
In addition, the Company's bylaws establish an advance notice procedure
with regard to business brought before an annual meeting, including stockholder
proposals not included in the Company's proxy statement. For nominations or
other business to be properly brought before the 2003 annual meeting by a
stockholder, such stockholder must provide written notice delivered to the
Secretary of the Company one hundred twenty (120) days prior to the anniversary
of the mailing of this Proxy Statement (i.e., September 6, 2002), which notice
must contain specified information concerning the matters to be brought before
such meeting and concerning the stockholder proposing such matters. In the event
that no annual meeting was held in the previous year or the date of the annual
meeting has been changed by more than thirty (30) days from the date
contemplated at the time of the previous year's proxy statement, for notice by
the stockholder to be timely it must be received a reasonable time before the
Company begins to print and mail its proxy materials.
The attached Proxy grants the proxy holders discretionary authority to vote
on any matter raised at the Annual Meeting. If such a stockholder fails to
comply with the foregoing notice provisions, proxy holders will be allowed to
use their discretionary voting authority should the stockholder proposal come
before the 2003 annual meeting.
A copy of the full text of the bylaw provisions governing the notice
requirements set forth above may be obtained by writing to the Secretary of the
Company. All notices of proposals and nominations by stockholders should be sent
to Integrated Silicon Solution, Inc., 2231 Lawson Lane, Santa Clara, California
95054, Attention: Corporate Secretary.
PROPOSAL ONE:
ELECTION OF DIRECTORS
NOMINEES
A board of five (5) directors is to be elected at the Annual Meeting.
Unless otherwise instructed, the proxy holders will vote the Proxies received by
them for the Company's five (5) nominees named below, all of whom are current
directors of the Company. If any nominee of the Company is unable or declines to
serve as a director at the time of the Annual Meeting, the Proxies will be voted
for the nominee designated by the present Board of Directors to fill the
vacancy. It is not expected that any nominees will be unable or will
2
decline to serve as a director. The term of office of each person elected as a
director will continue until the next annual meeting or until such director's
successor has been duly elected and qualified.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The five (5) candidates receiving the highest number of "FOR" votes shall
be elected to the Company's Board of Directors. An abstention will have the same
effect as a vote withheld for the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
NOMINEES LISTED BELOW:
<Table>
<Caption>
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION
- --------------- --- --------------------
Jimmy S.M. Lee............. 46 Chief Executive Officer and Chairman of the Board of Directors
of the Company
Gary L. Fischer............ 50 President and Chief Operating Officer of the Company
Lip-Bu Tan................. 42 Chairman, Walden International
Hide L. Tanigami........... 51 President and Chief Executive Officer, Marubun USA Corporation
Chun Win Wong.............. 66 Chairman, Wearnes Technology Pte., Ltd.
</Table>
Except as set forth below, each nominee has been engaged in his principal
occupation described above during the past five (5) years. There are no family
relationships among any directors or executive officers of the Company.
Jimmy S.M. Lee has served as ISSI's Chief Executive Officer and a director
since he co-founded the Company in October 1988. He also served as ISSI's
president until May 2000. From 1985 to 1988, Mr. Lee was an engineering manager
at International CMOS Technology, Inc., a semiconductor company, and from 1983
to 1985, he was a design manager at Signetics Corporation, a semiconductor
company. Prior thereto, Mr. Lee was a project manager at Toshiba Semiconductor
Corporation and a design engineer at National Semiconductor Corporation. Mr. Lee
has served as a director of ICSI since September 1990, as a director of NexFlash
since October 1998, as chairman of the board of GetSilicon since July 2000, and
as chairman of the board of E-CMOS since September 2001. Mr. Lee holds a MS
degree in electrical engineering from Texas Tech University and a BS degree in
electrical engineering from National Taiwan University.
Gary L. Fischer has served as ISSI's President and Chief Operating Officer
since April 2001. He served as Executive Vice President and Chief Financial
Officer from April 1995 to March 2001, and as Vice President and Chief Financial
Officer from June 1993 to March 1995. From January 1989 to December 1992, Mr.
Fischer was Chief Financial Officer of Synergy Semiconductor Corporation, a
manufacturer of high performance SRAM and logic integrated circuits. He has also
been a director of E-CMOS since November 2001. Mr. Fischer holds a MBA degree
from the University of Santa Clara and a BA degree from the University of
California, Santa Barbara.
Lip-Bu Tan has served as a director of the Company since March 1990. Mr.
Tan is the founder and chairman of Walden International, a venture capital fund
with over $2 billion under management. He has served as a director of Creative
Technology Ltd. since 1990, as a director of Centillium Technology Ltd. since
1997, as a director of ICSI since 1998, and as a director of Accelerated
Networks, Inc. and Sina.com since 1999. Mr. Tan holds a MS degree in nuclear
engineering from the Massachusetts Institute of Technology, a MBA from the
University of San Francisco and a BS degree in physics from Nanyang University,
Singapore.
Hide L. Tanigami has served as a director of the Company since December
1997. Since January 1996, Mr. Tanigami has been president and chief executive
officer of Marubun USA Corporation, an electronic components trading company. He
also has been the chairman and chief executive officer of Marubun/Arrow USA, LLC
since August 2000. Since July 1998, he has been president and chief executive
officer of Global Technology Sourcing, Inc., a consulting company. From October
1985 until March 1994, Mr. Tanigami was a co-founder and vice president of
corporate development at Catalyst Semiconductor, Inc. Mr. Tanigami also served
as a director of Nexcom Technology, Inc. until its acquisition by the Company in
December 1997, and
3
has been a director of NexFlash and ICSI since October 1998. Mr. Tanigami holds
a MA degree from San Francisco State University and a BA degree from Kansai
University of Foreign Studies.
Chun Win Wong has served as a director of the Company since December 1994.
Mr. Wong was also a director of the Company from March 1991 to May 1994. Since
April 1994, Mr. Wong has been chairman of Wearnes Technology Pte, Ltd.
("Wearnes"), and since 1983 has been group general manager of Wearnes Brothers,
Limited, Singapore, the parent company of Wearnes, both of which are
multinational electronics companies. He was also managing director of Wearnes
from 1983 to 1994. From 1970 to 1980, Mr. Wong was the chief executive officer
of Industrial Electronics and Engineers Limited, an electronics company he
founded. He has also served as a director of Advanced Logic Research, Inc. since
1985, and was a director of ICSI from March 1991 until July 1993. Mr. Wong holds
a degree in electrical and control engineering from the Royal Melbourne
Institution of Technology in Australia and a degree from the Manchester College
of Science & Technology in England.
PRINCIPAL SHARE OWNERSHIP
BENEFICIAL OWNERS
At the Record Date, 26,623,793 shares of the Company's common stock, $.0001
par value per share, were issued and outstanding and no shares of the Company's
preferred stock, $.0001 par value per share, were issued and outstanding. As of
December 12, 2001, the following entities were known by the Company to be the
beneficial owners of more than 5% of the Company's common stock:
<Table>
<Caption>
BENEFICIAL OWNERSHIP
-----------------------------------
NAME OF 5% BENEFICIAL OWNER(1) NUMBER OF SHARES PERCENT OF TOTAL
- ------------------------------ ---------------- ----------------
Berger, LLC............................................ 3,437,120 12.9%
Suite 900
Denver, CO 80206
Dreyfus Corporation.................................... 2,139,000 8.0%
200 Park Avenue
New York, NY 10166
Fidelity Management & Research......................... 1,679,700 6.3%
One Federal Street
Boston, MA 02110-2003
</Table>
- ---------------
(1) Based on Schedule 13F filings as of September 30, 2001.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
common stock as of the Record Date (i) by each director of the Company, (ii) by
the Company's Chief Executive Officer and the four (4) other most highly paid
executive officers of the Company during fiscal 2001 (such officers are
hereinafter collectively referred to as the "Named Executive Officers"), and
(iii) by all current directors and Named Executive Officers as a group.
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Exchange Act, and is not necessarily
indicative of beneficial ownership for any other purpose. Under Rule 13d-3,
beneficial ownership includes any shares over which the individual has voting
power or investment power and any shares that the individual has the right to
acquire within sixty (60) days of the Record Date through the exercise of any
stock options.
The number and percentage of shares beneficially owned is computed on the
basis of 27,002,793 shares of common stock outstanding as of the Record Date.
Shares of common stock that a person has the right to acquire within sixty (60)
days of the Record Date are deemed outstanding for purposes of computing the
percentage ownership of the person holding such rights, but are not deemed
outstanding for purposes of
4
computing the percentage ownership of any other person, except with respect to
the percentage ownership of all directors and executive officers as a group.
<Table>
<Caption>
BENEFICIAL OWNERSHIP
---------------------
NAME NUMBER PERCENT
- ---- --------- ---------
Jimmy S.M. Lee(1)........................................... 394,650 1.5%
Thomas C. Endicott.......................................... -- *
Gary L. Fischer(2).......................................... 61,341 *
Thomas C. Doczy(3).......................................... 47,749 *
Paul Jei-Zen Song(4)........................................ 87,665 *
Lip-Bu Tan(5)............................................... 116,698 *
Hide L. Tanigami(6)......................................... 18,779 *
Chun Win Wong(7)............................................ 161,878 *
All directors and executive officers as a group (8
persons)(8)............................................... 888,760 3.3%
</Table>
- ---------------
* Less than 1%
(1) Includes 174,961 shares issuable upon exercise of options that are
exercisable within sixty (60) days of the Record Date. Also includes 49,000
shares held by Mr. Lee as custodian for his minor children.
(2) Includes 38,197 shares issuable upon exercise of options that are
exercisable within sixty (60) days of the Record Date.
(3) Includes 47,749 shares issuable upon exercise of options that are
exercisable within sixty (60) days of the Record Date.
(4) Includes 64,760 shares issuable upon exercise of options that are
exercisable within sixty (60) days of the Record Date.
(5) Includes 23,333 shares issuable upon exercise of options held by Mr. Tan
that are exercisable within sixty (60) days of the Record Date. Also
includes 83,333 shares held by IVCIC. Mr. Tan is President of IVCIC and may
be deemed to be a beneficial owner of the shares held by such entity.
(6) Includes 12,500 shares issuable upon exercise of options that are
exercisable within sixty (60) days of the Record Date.
(7) Includes 17,500 shares issuable upon exercise of options held by Mr. Wong
that are exercisable within sixty (60) days of the Record Date. Also
includes an aggregate of 137,378 shares held by Wearnes Technology Pte. Ltd.
and United Wearnes Technology Pte. Ltd. Mr. Wong is the Managing Director of
Wearnes and may be deemed to be a beneficial owner of the shares held by
such entities.
(8) Includes 379,000 shares issuable upon the exercise of options that are
exercisable within sixty (60) days of the Record Date. See notes 1 through 7
above.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors held five (5) meetings during fiscal 2001. The Board
of Directors maintains three (3) standing committees: the Audit Committee, the
Stock Committee, and the Compensation Committee. The Board of Directors
currently has no nominating committee or committee performing a similar
function.
The Audit Committee. From September 2000 until April 2001, the Audit
Committee consisted of Ms. Pauline Lo Alker, Mr. Tanigami and Mr. Wong. Since
April 2001, the Audit Committee has consisted of Messrs. Tan, Tanigami and Wong.
The Audit Committee held three (3) meetings during fiscal year 2001. The Audit
Committee reviews the financial statements and the internal financial reporting
system and controls of the Company with the Company's management and independent
auditors, recommends resolutions for any dispute between the Company's
management and its auditors, and reviews other matters relating to the
relationship of the Company with its auditors.
5
The Stock Committee. The Stock Committee consists of Messrs. Lee and Tan.
The Stock Committee held five (5) meetings during fiscal 2001. The Stock
Committee has the authority to make routine stock option grants to non-executive
officers of the Company.
The Compensation Committee. The Compensation Committee consists of Messrs.
Tan and Tanigami. The Compensation Committee held three (3) meetings during
fiscal 2001. The Compensation Committee makes recommendations to the Board of
Directors regarding the Company's executive compensation policies and executive
stock option grants.
Each director attended at least 75% of the aggregate of (i) the total
number of meetings of the Board of Directors held during fiscal 2001 and (ii)
the total number of meetings held by all committees of the Board of Directors
that such director was required to attend during fiscal 2001.
COMPENSATION OF DIRECTORS
Non-employee directors receive $1,000 for attendance at each Board of
Directors meeting and are reimbursed for all reasonable expenses incurred by
them in attending Board of Directors and Committee meetings. In addition, each
non-employee director is eligible to participate in the Company's 1995 Director
Stock Option Plan (the "Director Plan"). Under the Director Plan, each
non-employee director is automatically granted a nonstatutory option to purchase
10,000 shares of common stock upon the date which such person first becomes a
non-employee director. In addition, each director who has been a non-employee
director for at least six (6) months will automatically receive a nonstatutory
option to purchase 2,500 shares of common stock upon such director's annual
reelection to the Board of Directors by the stockholders. Options granted under
the Director Plan have a term of ten (10) years unless terminated sooner upon
the termination of the optionee's status as a director or otherwise pursuant to
the Director Plan. The exercise price of each option granted under the Director
Plan is equal to the fair market value of the common stock on the date of grant.
Options granted under the Director Plan are subject to cumulative monthly
vesting over a twelve (12) month period commencing at the date of grant. On
February 6, 2001, Mr. Tan, Mr. Wong, Mr. Tanigami and Ms. Alker were each
granted an option under the Director Plan to purchase 2,500 shares of common
stock at an exercise price of $17.0625 per share. The options expire upon the
earlier of ten (10) years from the date of grant unless terminated sooner upon
termination of the optionee's status as a director. Ms. Alker's option expired
unexercised upon her resignation from the Board of Directors on April 12, 2001.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors currently consists of
Messrs. Tan and Tanigami, neither of whom has been or is an officer or an
employee of the Company. No member of the Compensation Committee or executive
officer of the Company has a relationship that would constitute an interlocking
relationship with executive officers or directors of another entity.
REPORT OF THE AUDIT COMMITTEE(1)
The Audit Committee of the Board of Directors has furnished the following
report:
The Board of Directors has adopted a written charter for the Audit
Committee (the "Audit Committee Charter"), which is attached as Appendix A to
this proxy statement.
The Board of Directors has determined that each member of the Audit
Committee is "independent," as defined in the listing standards of the National
Association of Securities Dealers.
- ---------------
(1) The material in this report is not "soliciting material," is not deemed
"filed" with the Securities and Exchange Commission (the "SEC"), and is not to
be incorporated by reference into any filing of the Company under the Securities
Act of 1933, as amended, or the Exchange Act, whether made before or after the
date hereof and irrespective of any general incorporation language contained in
such filing.
6
As noted in the Audit Committee Charter, the Company's management is
responsible for preparing financial statements and independent auditors are
responsible for auditing the financial statements. The activities of the Audit
Committee are in no way designed to supersede or alter those traditional
responsibilities. The Audit Committee's role does not provide any special
assurances with regard to the Company's financial statements, nor does it
involve a professional evaluation of the quality of the audits performed by the
independent auditors.
The Audit Committee has reviewed and discussed the audited financial
statements with the Company's management.
The Audit Committee has discussed with the independent auditors, Ernst &
Young LLP, the matters required to be discussed by Statement of Auditing
Standards No. 61, Communication with Audit Committees.
The Audit Committee has received the written disclosures and the letter
from the independent auditors required by Independence Standards Board Standard
No. 1, Independence Discussions with Audit Committees, has considered the
compatibility of receiving non-audit services from the independent auditors with
maintaining the independent auditors' independence, and has discussed with the
independent auditors the independent auditors' independence.
Based on the review and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 2001.
Audit Committee of the Board of
Directors
Lip-Bu Tan
Hide Tanigami
C. W. Wong
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The members of the Compensation Committee of the Board of Directors are
Messrs. Tan and Tanigami. All such members are non-employee directors. The
Compensation Committee reviews compensation levels of senior management and
recommends to the Board of Directors for approval the salaries and other
compensation paid to senior management.
Compensation Philosophy. The Company's executive pay programs are designed
to attract and retain executives who will contribute to the Company's long-term
success, to reward executives for achieving both short and long-term strategic
Company goals, to link executive and stockholder interests through equity based
plans, and to provide a compensation package that recognizes individual
contributions and Company performance. A meaningful portion of each executive's
total compensation is intended to be variable and to relate to and be contingent
upon Company performance and upon individual performance. The Company's
compensation philosophy is that cash compensation must be competitive with other
semiconductor companies of comparable size in order to help motivate and retain
existing staff and provide a strong incentive to achieve specific Company goals.
The Company believes that the use of stock options as a long-term incentive
links the interests of the employees to that of the stockholders and motivates
key employees to remain with the Company to a degree that is critical to the
Company's long-term success.
Components of Executive Compensation. The three key components of the
Company's senior management compensation program in fiscal 2001 were base
salary, bonus, and long-term incentives, represented by the Company's stock
option program. No bonus was paid in fiscal year 2000 and the bonus paid in
fiscal year 2001 reflects, in part, performance in fiscal 2000. The Compensation
Committee utilizes an industry recognized independent annual survey of companies
and has determined that the Company's senior management compensation is within
the competitive range. Base salary is set for each senior manager commensurate
with that person's level of responsibility and within the parameters of
companies of comparable
7
size within the semiconductor industry. Mr. Lee's base annual salary was
increased by $12,200 to $280,000 in October 2000. In April 2001, the Company
instituted salary reductions as part of a cost control program. To compensate
for salary reductions, officers of the company were granted options to purchase
additional shares of common stock. As a result, in April 2001, Mr. Lee's base
annual salary was reduced by $70,000 to $210,000, and he was granted an option
to purchase 8,750 shares of common stock. Mr. Endicott's base annual salary was
increased by $10,000 to $250,000 in October 2000. Mr. Fischer's base annual
salary was increased by $15,000 to $205,000 in October 2000. In April 2001, upon
his appointment as president and chief operating officer in March 2001, Mr.
Fischer's base annual salary was increased by $20,000 to $225,000. In April
2001, Mr. Fischer's base annual salary was reduced by $56,250 to $168,750, and
he was granted an option to purchase 7,031 shares of common stock. Mr. Doczy's
base annual salary was increased by $20,000 to $180,000 in October 2000. Mr.
Song's base annual salary was increased by $29,263 to $180,000 in October 2000.
In April 2001, Mr. Song's base annual salary was reduced by $45,000 to $135,000,
and he was granted an option to purchase 5,625 shares of common stock.
In addition to the above components of compensation, it is the policy of
the Company to offer financial incentives for certain positions. For fiscal year
2001, Mr. Doczy, senior vice president of sales and marketing, was paid
incentive compensation of $81,613. No other executive officer received incentive
compensation.
Stock options are generally granted when an employee joins the Company and
additional options may be granted from time-to-time thereafter. The options
granted to each employee generally vest over a four (4) year period. In addition
to the stock option program, employees are eligible to participate in the
Company's 1993 Employee Stock Purchase Plan.
Other elements of executive compensation include participation in
Company-wide medical and dental benefits, the ability to defer compensation
pursuant to a 401(k) plan, and a non-qualified deferred compensation program.
The Company does not match annual contributions under the 401(k) plan at this
time.
The Compensation Committee has considered the potential impact of Section
162(m) of the Internal Revenue Code of 1986, as amended, and the regulations
thereunder (the "Section"). The Section disallows a tax deduction for any
publicly held corporation for individual compensation exceeding $1 million in
any taxable year for any of the Named Executive Officers, unless such
compensation is performance based. Since the cash compensation of each of the
Named Executive Officers is below the $1 million threshold and the Compensation
Committee believes that any options granted under the Company's stock option
plan would meet the requirements of being performance based, the Compensation
Committee believes that the Section will not reduce the tax deduction available
to the Company. The Company's policy is to qualify, to the extent reasonable,
its executive officers' compensation for deductibility under applicable tax
laws. However, the Compensation Committee believes that its primary
responsibility is to provide a compensation program that will attract, retain
and reward the executive talent necessary to the Company's success.
Consequently, the Compensation Committee recognizes that the loss of a tax
deduction could be necessary in some circumstances.
Mr. Jimmy Lee receives no other material compensation or benefits not
provided to all executive officers.
Compensation Committee of the Board of
Directors
Lip-Bu Tan
Hide Tanigami
8
PROPOSAL TWO:
APPROVAL OF AMENDMENT TO 1993 EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors and stockholders have previously adopted and
approved the Company's 1993 Employee Stock Purchase Plan (the "ESPP"). A total
of 1,950,000 shares of common stock are presently reserved for issuance under
the ESPP. In September 2001, the Board of Directors approved an amendment to the
ESPP, which, if approved by the stockholders, will increase the shares reserved
for issuance thereunder by 300,000 shares, bringing the total number of shares
issuable under the ESPP to 2,250,000 shares. As of the Record Date, 776,656
shares were available for future issuance under the ESPP. The Board of Directors
believes that the amendment will enable the Company to continue to attract and
retain key personnel.
At the Annual Meeting, the stockholders are requested to approve the
proposed amendment to the ESPP to increase the number of shares of common stock
reserved for issuance thereunder by 300,000 shares, bringing the total number of
shares issuable under the ESPP to 2,250,000. The ESPP has consecutive and
overlapping twenty-four (24) month offering periods that begin every six (6)
months (the "Offering Periods"). Each twenty-four (24) month Offering Period
includes four six (6) month purchase periods (each a "Purchase Period"), during
which employee payroll deductions are accumulated and, at the end of which,
shares of common stock are purchased with a participant's accumulated payroll
deductions. Eligible employees will have the opportunity to purchase Company
common stock through accumulated payroll deductions at a purchase price of not
less than 85% of the lesser of the fair market value on either (i) the first day
of a designated Offering Period or (ii) the last day of the Purchase Period.
For a more complete description of the principal features of the ESPP, see
Appendix B -- "Description of the 1993 Employee Stock Purchase Plan" attached
hereto.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The approval of the amendment to the ESPP requires the affirmative vote of
a majority of the Votes Cast on the proposal at the Annual Meeting.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
AMENDMENT TO THE ESPP TO INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE
THEREUNDER.
PROPOSAL THREE:
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP, independent
auditors, to audit the financial statements of the Company for the 2002 fiscal
year. This nomination is being presented to the stockholders for ratification at
the meeting. Ernst & Young LLP has audited the Company's financial statements
since 1990. A representative of Ernst & Young LLP is expected to be present at
the meeting, will have the opportunity to make a statement, and is expected to
be available to respond to appropriate questions.
AUDIT AND RELATED FEES
AUDIT FEES
The aggregate fees billed to the Company by Ernst & Young LLP during the
Company's 2001 fiscal year for the audit of the Company's annual financial
statements and for the review of the financial statements included in the
Company's quarterly reports on Form 10-Q totaled $363,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
The Company did not engage Ernst & Young LLP to provide advice to the
Company regarding financial information systems design and implementation during
the 2001 fiscal year.
9
ALL OTHER FEES
The aggregate fees billed to the Company by Ernst & Young LLP for services
rendered to the Company during its 2001 fiscal year, other than the services
described above under "Audit Fees," including tax planning, tax compliance, and
accounting consultations, totaled $265,000.
The Audit Committee considered and determined that the provision of the
services other than the services described under "Audit Fee" is compatible with
maintaining the independence of the independent auditors.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
The affirmative vote of a majority of the Votes Cast on the proposal at the
Annual Meeting is required to ratify the Board of Directors' selection. If the
stockholders reject the nomination, the Board of Directors will reconsider its
selection.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE 2002 FISCAL YEAR.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth all compensation received for services
rendered to the Company and the Company's subsidiaries in all capacities during
the last three (3) fiscal years by (i) the Company's Chief Executive Officer and
(ii) the Company's four (4) other Named Executive Officers:
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
ANNUAL COMPENSATION(1) LONG TERM
------------------------------------------- COMPENSATION
FISCAL OTHER ANNUAL AWARDS
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(2) COMPENSATION OPTIONS
- --------------------------- ------ -------- -------- ------------ ------------
Jimmy S.M. Lee......................... 2001 $250,150 $ 90,300 $ -- 48,750
Chief Executive Officer 2000 267,800 -- -- 72,000
1999 258,267 -- -- 176,390
Thomas C. Endicott(3).................. 2001 131,770 9,231 3,600 35,000
President and Chief Operating Officer 2000 96,923 134,977 3,000 240,000
1999 -- -- -- --
Gary L. Fischer........................ 2001 190,144 57,308 -- 122,031
President and Chief Operating Officer 2000 190,000 -- -- 32,000
1999 184,885 -- -- 109,750
Thomas C. Doczy(4)..................... 2001 106,121 81,613 44,364 12,000
Senior Vice President Marketing 2000 157,539 66,288 -- 24,000
1999 152,930 -- -- 108,500
Paul Jei-Zen Song...................... 2001 160,399 48,298 -- 17,625
Senior Vice President Engineering 2000 150,686 5,500 1,524 29,000
1999 146,661 -- -- 78,044
</Table>
- ---------------
(1) Excludes perquisites and other personal benefits that for each Named
Executive Officer did not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus for such officer.
(2) Includes incentive awards earned for performance in the fiscal year noted
even though such amounts are payable in subsequent years. Excludes incentive
awards paid in the fiscal year noted but earned in prior years.
(3) Mr. Endicott served as president and chief operating officer of the company
until March 2001.
(4) Mr. Doczy served as senior vice president marketing until April 2001.
10
OPTION GRANTS IN FISCAL YEAR 2001
The following table sets forth information concerning grants of stock
options to each of the Named Executive Officers during the fiscal year ended
September 30, 2001.
<Table>
<Caption>
INDIVIDUAL GRANTS(1)
-----------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
OPTIONS AT ANNUAL RATES OF STOCK
GRANTED TO EXERCISE OR PRICE APPRECIATION FOR
EMPLOYEES BASE PRICE OPTION TERM(2)
OPTIONS IN FISCAL PER EXPIRATION ---------------------------
NAME GRANTED YEAR SHARE DATE 5% 10%
- ---- ------- ---------- ----------- ---------- ----------- -------------
Jimmy S.M. Lee............... 3,800 0.2% $ 8.0625 12/04/10 $ 19,268 $ 48,828
36,200 2.2% 8.0625 12/04/10 183,551 465,154
8,750 0.6% 11.3000 04/09/11 62,182 157,581
Thomas C. Endicott........... 35,000 2.2% $ 8.0625 12/04/10 $177,466 $ 449,734
Gary L. Fischer.............. 12,200 0.7% $ 8.0625 12/04/10 $ 61,860 $ 156,764
2,800 0.2% 8.0625 12/04/10 14,197 35,979
100,000 6.2% 11.3000 04/09/11 710,651 1,800,929
7,031 0.4% 11.3000 04/09/11 49,966 126,623
Thomas C. Doczy.............. 12,000 0.7% $ 8.0625 12/04/10 $ 60,846 $ 154,195
Paul Jei-Zen Song............ 12,000 0.8% $ 8.0625 12/04/10 $ 60,846 $ 154,195
3,500 0.2% 11.3000 04/09/11 24,873 63,032
2,125 0.1% 11.3000 04/09/11 15,101 38,270
</Table>
- ---------------
(1) Each of these options was granted pursuant to the authorized stock plans and
is subject to the terms of such plans. These options were granted at an
exercise price equal to the fair market value of the Company's common stock
as determined by the Board of Directors of the Company on the date of grant
and, as long as the optionee maintains continuous employment with the
Company, generally vest over a four (4) year period at the rate of
one-fourth ( 1/4) of the shares on the first anniversary of the date of
grant and one-forty-eighth ( 1/48) of the shares per month thereafter.
(2) In accordance with Securities and Exchange Commission (the "SEC") rules,
shown are the hypothetical gains or "option spreads" that would exist for
the respective options. These gains are based on assumed rates of annual
compounded stock price appreciation of 5% and 10% from the date the option
was granted over the full option term. The 5% and 10% assumed rates of
appreciation are mandated by SEC rules and do not represent the Company's
estimate or projection of future increases in the price of its common stock.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information concerning options
exercised by the Named Executive Officers in fiscal 2001, and exercisable and
unexercisable stock options held by each of the Named Executive Officers as of
September 30, 2001.
<Table>
<Caption>
FISCAL YEAR-END OPTION VALUES
---------------------------------------------------------
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR END FISCAL YEAR END(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
Jimmy S.M. Lee.......... 36,041 $275,941 165,501 82,208 $672,718 $124,213
Thomas C. Endicott...... -- -- -- -- -- --
Gary L. Fischer......... 2,663 14,021 36,187 142,121 83,480 85,623
Thomas C. Doczy......... 24,417 430,380 37,187 34,146 152,644 89,562
Paul Jei-Zen Song....... -- -- 52,030 37,219 199,379 85,195
</Table>
- ---------------
(1) The value of an "in the money" option represents the difference between the
exercise price of such option and the fair market value of the Company's
common stock at September 30, 2001, multiplied by the total number of shares
subject to the option.
11
COMPARISON OF TOTAL CUMULATIVE STOCKHOLDER RETURN
The following graph sets forth the Company's total cumulative stockholder
return compared to the Standard & Poor's 500 Index and the Philadelphia
Semiconductor Index for the period February 3, 1995 (the date of the Company's
initial public offering) through September 30, 2001. Total stockholder return
assumes $100 invested at the beginning of the period in the common stock of the
Company, the stocks represented in the Standard & Poor's 500 Index and the
stocks represented in the Philadelphia Semiconductor Index ("SOX"),
respectively. Total return also assumes reinvestment of dividends; the Company
has paid no dividends on its common stock.
HISTORICAL STOCK PRICE PERFORMANCE SHOULD NOT BE RELIED UPON AS INDICATIVE
OF FUTURE STOCK PRICE PERFORMANCE.
[PERFORMANCE GRAPH]
<Table>
<Caption>
ISSI S&P 500 SOX
---- ------- ---
2/3/95 100.00 100.00 100.00
2/28/95 150.00 101.83 111.08
3/31/95 184.21 104.61 119.48
4/28/95 202.63 107.54 135.11
5/31/95 213.82 111.44 146.63
6/30/95 275.00 113.81 167.13
7/31/95 363.16 117.43 96.63
8/31/95 261.84 117.39 94.40
9/29/95 196.05 122.10 94.21
10/31/95 164.81 121.49 87.19
11/30/95 126.32 126.48 77.92
12/29/95 88.07 128.68 68.72
1/31/96 86.18 132.88 63.95
2/29/96 71.05 133.80 63.76
3/29/96 69.74 134.86 60.27
4/30/96 87.50 136.67 70.58
5/31/96 78.62 139.80 70.52
6/28/96 60.53 140.11 59.83
7/31/96 53.95 133.70 53.41
8/30/96 46.71 136.22 58.04
9/30/96 60.20 143.60 64.20
10/31/96 42.76 147.35 64.08
11/29/96 52.63 158.16 81.60
12/31/96 45.39 154.76 82.30
1/31/97 51.65 164.25 98.88
2/28/97 48.03 165.22 89.98
3/31/97 45.07 158.18 92.08
4/30/97 38.16 167.42 97.01
5/30/97 51.32 177.23 106.60
6/30/97 39.97 184.93 104.71
7/31/97 61.84 199.38 125.43
8/29/97 76.97 187.92 127.81
9/30/97 58.55 197.91 130.69
10/31/97 52.63 191.09 103.39
11/28/97 51.65 199.61 99.54
12/31/97 40.13 202.75 90.29
1/30/98 52.63 204.81 99.02
2/27/98 55.26 219.23 108.37
3/31/98 47.70 230.18 102.30
4/30/98 46.71 232.27 108.19
5/29/98 36.84 227.90 88.81
6/30/98 36.84 236.89 84.23
7/31/98 26.48 234.14 87.38
8/31/98 15.29 200.00 66.26
9/30/98 21.05 212.48 72.87
10/30/98 22.21 229.54 89.94
11/30/98 16.45 243.11 104.85
12/31/98 16.45 256.82 120.06
1/29/99 17.11 267.35 143.99
2/26/99 14.64 258.72 122.01
3/31/99 14.47 268.76 126.97
4/30/99 15.79 278.95 126.81
5/28/99 13.82 271.99 132.93
6/30/99 30.59 286.79 165.91
7/30/99 35.86 277.60 169.17
8/31/99 56.91 275.87 178.76
9/30/99 51.65 267.99 170.92
10/29/99 36.84 284.75 190.36
11/30/99 47.86 290.18 208.70
12/31/99 87.17 306.96 241.30
1/31/00 74.34 291.34 266.47
2/29/00 146.38 285.48 400.86
3/31/00 154.28 313.09 404.77
4/28/00 160.86 303.45 401.26
5/31/00 156.25 296.80 341.94
6/30/00 200.00 303.90 390.61
7/31/00 110.53 298.94 340.37
8/31/00 154.61 317.08 394.87
9/29/00 74.67 300.12 291.64
10/31/00 70.39 298.64 254.06
11/30/00 40.46 274.73 183.91
12/29/00 75.66 275.84 197.48
1/31/01 111.84 285.39 250.76
2/28/01 70.39 259.05 185.36
3/30/01 68.42 242.42 186.66
4/30/01 78.84 261.04 226.95
5/31/01 70.68 262.37 205.04
6/29/01 73.16 255.81 213.74
7/31/01 71.05 253.06 207.50
8/31/01 79.63 236.83 192.72
9/28/01 45.21 217.48 127.98
</Table>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on its review of copies of filings under Section 16(a) of the
Securities Exchange Act of 1934, as amended, received by it, or written
representations from certain reporting persons, the Company believes that during
fiscal 2001, all Section 16 filing requirements were met, except that Mr. Chun
Win Wong, a director of the Company, filed a late Form 4.
CERTAIN TRANSACTIONS
For the fiscal year ended September 30, 2001, the Company sold
approximately $188,000 of memory products to ICSI. The Company currently has
approximately a 29% ownership interest in ICSI. The Company's chairman and chief
executive officer ("CEO"), Jimmy S.M. Lee, is a director of ICSI. The Company
also provides services and licenses certain products to ICSI. As of September
30, 2001, the Company had an accounts receivable balance from ICSI of
approximately $327,000.
The Company purchases goods and contract manufacturing services from ICSI.
For the fiscal year ended September 30, 2001, purchases of goods and services
were approximately $12,815,000. As of September 30, 2001, the Company had an
accounts payable balance to ICSI of approximately $551,000.
12
The Company received approximately $183,000 in sublease income from
NexFlash in the fiscal year ended September 30, 2001. The Company currently has
approximately a 14% ownership interest in NexFlash. The Company's chairman and
CEO, Jimmy S.M. Lee, is a director of NexFlash. In addition, the Company
provides NexFlash various administrative support services for which it is
reimbursed. As of September 30, 2001, the Company had an accounts receivable
balance from NexFlash of approximately $81,000.
The Company provides goods and services to GetSilicon in which the Company
currently has approximately a 20% ownership interest. The Company's chairman and
CEO, Jimmy S.M. Lee, is the chairman of GetSilicon. For the fiscal year ended
September 30, 2001, the Company provided goods and services of approximately
$559,000 to GetSilicon. As of September 30, 2001, the Company had an accounts
receivable balance from GetSilicon of approximately $30,000.
In January 2001, the Company entered into an agreement for
business-to-business data exchange and application services with GetSilicon. For
the fiscal year ended September 30, 2001, the purchase of services under this
agreement was approximately $259,000. As of September 30, 2001, the Company had
an accounts payable balance to GetSilicon of approximately $32,000.
For the year ended September 30, 2001, the Company sold approximately
$292,000 of memory products to E-CMOS in which the Company currently has
approximately a 22% ownership interest. The Company's chairman and CEO, Jimmy
S.M. Lee, is the chairman of E-CMOS, and the Company's president and chief
operating officer, Gary L. Fischer, is a director of E-CMOS. As of September 30,
2001, the Company had an accounts receivable balance from E-CMOS of
approximately $159,000.
The Company receives administrative support services and reimburses E-CMOS
for expenses incurred on its behalf. As of September 30, 2001, the Company had
an accounts payable balance to E-CMOS of approximately $271,000.
OTHER MATTERS
The Company knows of no other matters to be submitted at the Annual
Meeting. If any other matters properly come before the meeting, it is the
intention of the persons named in the enclosed proxy to vote the shares they
represent as the Board of Directors of the Company may recommend.
The Board of Directors
Santa Clara, California
January 4, 2002
13
APPENDIX A
ISSI AUDIT COMMITTEE CHARTER
ADOPTED JUNE 12, 2000
ORGANIZATION
The audit committee of the board of directors shall be comprised of at
least three (3) directors who are independent of management and the Company.
Members of the audit committee shall be considered independent if they have no
relationship to the Company that may interfere with the exercise of their
independence from management and the Company. All audit committee members will
be financially literate, and at least one (1) member will have accounting or
related financial management expertise.
STATEMENT OF POLICY
The audit committee shall provide assistance to the directors in fulfilling
their responsibility to the stockholders, potential stockholders, and investment
community relating to corporate accounting, reporting practices of the company,
and the quality and integrity of financial reports of the company. In so doing,
it is the responsibility of the audit committee to maintain free and open
communication between the directors, the independent auditors, the designated
internal auditors, and the financial management of the Company. In discharging
its oversight role, the committee is empowered to investigate any matter brought
to its attention with full access to all books, records, facilities and
personnel of the Company and to retain outside counsel, or other experts for
this purpose.
RESPONSIBILITIES AND PROCESSES
The primary responsibility of the audit committee is to oversee the
Company's financial reporting process on behalf of the board and report the
results of their activities to the board. Management is responsible for
preparing the Company's financial statements and the independent auditors are
responsible for auditing those financial statements. The committee in carrying
out its responsibilities believes its policies and procedures should remain
flexible, in order to best react to changing conditions and circumstances. The
committee will take the appropriate actions to set the overall corporate tone
for quality financial reporting, sound business risk practices and ethical
behavior.
The following shall be the principal recurring processes of the audit
committee in carrying out its oversight responsibilities. The processes are set
forth as a guide with the understanding that the committee may supplement them
as appropriate.
- The committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the board and the audit committee, as representatives of
the Company's stockholders. The committee shall have the ultimate
authority and responsibility to evaluate and, where appropriate,
recommend the replacement of the independent auditors. The committee
shall discuss with the auditors their independence from management and
the Company and the matters included in the written disclosures required
by the Independence Standards Board. Annually, the committee shall review
and recommend to the board the selection of the Company's independent
auditors, subject to stockholders' approval.
- The committee shall discuss with the independent auditors the overall
scope and plans for the audit, including the adequacy of the Company's
staffing and compensation. Also, the committee shall discuss with
management, designated internal auditors, and the independent auditors
the adequacy and effectiveness of the accounting and financial controls,
including the Company's system to monitor and manage business risk, and
legal and ethical compliance programs. Further, the committee shall meet
separately with the independent auditors to discuss the results of their
examinations.
- The committee shall review the interim financial statements with
management and the independent auditors prior to the filing of the
Company's Quarterly Report on Form 10-Q. Also, the committee shall
discuss the results of the quarterly review and any other matters
required to be communicated to
A-1
the committee by the independent auditors under generally accepted
auditing standards. The chair of the committee may represent the entire
committee for the purposes of this review.
- The committee shall review with management and the independent auditors
the financial statements to be included in the Company's Annual Report on
Form 10-K (or the annual report to stockholders if distributed prior to
the filing of Form 10-K). This review shall include their judgment about
the quality, not just acceptability, of accounting principles, the
reasonableness of significant judgments, and the clarity of the
disclosures in the financial statements. Also, the committee shall
discuss the results of the annual audit and any other matters required to
be communicated to the committee by the independent auditors under
generally accepted auditing standards.
- The committee shall review its charter from time-to-time and consider any
appropriate modifications.
A-2
APPENDIX B
DESCRIPTION OF THE 1993 EMPLOYEE STOCK PURCHASE PLAN
General. The 1993 Employee Stock Purchase Plan (the "ESPP") was adopted by
the Board of Directors in March 1993 and was activated in February 1995 in
connection with the Company's initial public offering. Prior to the proposed
amendment to the ESPP to be voted on at the Annual Meeting, a total of 1,950,000
shares of common stock have been reserved for issuance under the ESPP. In
September 2001, the Board of Directors approved an amendment to the ESPP,
subject to stockholder approval, to increase the shares reserved for issuance
thereunder by 300,000 shares, bringing the total number of shares issuable under
the ESPP to 2,250,000 shares. The purpose of the ESPP is to provide employees
with an opportunity to purchase common stock of the Company through accumulated
payroll deductions.
Administration. The ESPP may be administered by the Board of Directors or
a committee appointed by the Board of Directors. All questions of interpretation
or application of the ESPP are determined by the Board of Directors or its
appointed committee, and its decisions are final, conclusive and binding upon
all participants.
Eligibility. Each Employee of the Company (including officers), who works
at least twenty (20) hours per week and more than five (5) months in any
calendar year, is eligible to participate in the ESPP if so employed on the
first day of an Offering Period; provided, however, that certain limitations
imposed by Section 423(b) of the Code and limitations on stock ownership as set
forth in the ESPP may apply. Eligible Employees become participants in the ESPP
by filing with the Company a subscription agreement authorizing payroll
deductions prior to the first day of each Offering Period unless a different
time for filing the subscription agreement has been set by the Board of
Directors.
Participation in an Offering. The ESPP has consecutive and overlapping
twenty-four (24) month offering periods that begin every six (6) months (the
"Offering Periods"). Each twenty-four (24) month Offering Period includes four
six (6) month purchase periods (each a "Purchase Period"), during which payroll
deductions are accumulated and, at the end of which, shares of common stock are
purchased with a participant's accumulated payroll deductions. The Board of
Directors has the power to change the duration of future Offering Periods, if
such change is made at least five (5) days prior to the scheduled beginning of
the first Offering Period to be affected. To participate in the ESPP, an
eligible Employee must authorize payroll deductions pursuant to the ESPP. Such
payroll deductions may not exceed 10% of a participant's compensation during the
Offering Period. Once an Employee becomes a participant in the ESPP, the
Employee will automatically participate in each successive Offering Period until
such time as the Employee withdraws from the ESPP or the Employee's employment
with the Company terminates. At the beginning of each Offering Period, each
participant is automatically granted an option to purchase shares of the
Company's common stock. The option expires at the end of the Offering Period or
upon termination of employment, whichever is earlier, but is exercised at the
end of each Purchase Period to the extent of the payroll deductions accumulated
during such Purchase Period. In no event shall a participant be permitted to
purchase during each Purchase Period more than a number of shares determined by
dividing $12,500 by the Fair Market Value of a share of the Company's common
stock on the first day of the Offering Period, subject to exceptions and
limitations stated in the ESPP.
Purchase Price, Shares Purchased. Shares of common stock may be purchased
under the ESPP at a Purchase Price not less than 85% of the lesser of the Fair
Market Value of the common stock on (i) the first day of the Offering Period or
(ii) the last day of the Purchase Period. The Fair Market Value of the common
stock on any relevant date will be the closing price per share as reported on
the Nasdaq National Market (or the mean of the closing bid and asked prices, if
no sales were reported) as quoted on such exchange or reported in The Wall
Street Journal. The number of shares of common stock a participant purchases in
each Offering Period is determined by dividing the total amount of payroll
deductions withheld from the participant's compensation prior to the last day of
the Purchase Period by the Purchase Price.
Termination of Employment. Termination of a participant's employment for
any reason, including disability or death, or the failure of the participant to
remain in the continuous scheduled employ of the
B-1
Company for at least twenty (20) hours per week, cancels his or her option and
participation in the ESPP immediately. In such event, the payroll deductions
credited to the participant's account will be returned to him or her or, in the
case of death, to the person or persons entitled thereto as provided in the
ESPP.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, LIQUIDATION, MERGER OR
ASSET SALE
Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of shares reserved under the ESPP as
well as the price per share of common stock covered by each option under the
ESPP that 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, reverse stock split, stock dividend, combination or
reclassification of 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 of Directors, whose
determination in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of common stock subject to an option.
Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, any Offering Period will terminate immediately prior
to the consummation of such proposed action, unless otherwise provided by the
Board of Directors.
Merger or Asset Sale. In the event of any merger, consolidation,
acquisition of assets or like occurrence involving the Company, each option
under the ESPP shall be assumed or an equivalent option shall be substituted by
such successor corporation or a parent or subsidiary of such successor
corporation. In the event the successor corporation refuses to assume or
substitute for the options, the Board of Directors shall shorten any Purchase
Periods and Offering Periods then in progress by setting a new Exercise Date
(the "New Exercise Date") and any Offering Periods shall end on the New Exercise
Date. The New Exercise Date shall be prior to the merger, consolidation or asset
sale. If the Board of Directors shortens any Purchase Periods and Offering
Periods then in progress, the Board of Directors shall notify each participant
in writing, at least ten (10) business days prior to the New Exercise Date, that
the Exercise Date has been changed to the New Exercise Date and that all options
will be exercised automatically on the New Exercise Date, unless the participant
has already withdrawn from the Offering Period.
Amendment and Termination of the Plan. The Board of Directors may at any
time terminate or amend the ESPP. The Board of Directors may terminate an
Offering Period at the end of any Purchase Period if the Board of Directors
determines that termination of the ESPP is in the best interests of the Company
and its stockholders. Generally, no such termination can affect options
previously granted. No amendment shall be effective unless it is approved by the
holders of a majority of the votes cast at a duly held stockholders' meeting, if
such amendment would require stockholder approval in order to comply with
Section 423 of the Code. The ESPP will terminate in 2003.
Withdrawal. Generally, a participant may withdraw from an Offering Period
at any time by written notice without affecting his or her eligibility to
participate in future Offering Periods. However, once a participant withdraws
from a particular Offering Period, that participant may not participate again in
the same Offering Period. To participate in a subsequent Offering Period, the
participant must deliver to the Company a new subscription agreement.
Federal Tax Information for ESPP. The ESPP, and the right of participants
to make purchases thereunder, is intended to qualify under the provisions of
Sections 421 and 423 of the Code. Under these provisions, no income will be
taxable to a participant until the shares purchased under the ESPP are sold or
otherwise disposed of. Upon sale or other disposition of the shares, the
participant will generally be subject to tax and the amount of the tax will
depend upon the holding period. If the shares are sold or otherwise disposed of
more than two (2) years from the first day of the Offering Period, the
participant will recognize ordinary income measured as the lesser of (i) the
excess of the fair market value of the shares at the time of such sale
B-2
or disposition over the purchase price, or (ii) an amount equal to 15% of the
fair market value of the shares as of the first day of the Offering Period. Any
additional gain will be treated as long-term capital gain. If the shares are
sold or otherwise disposed of before the expiration of this holding period, the
participant will recognize ordinary income generally measured as the excess of
the fair market value of the shares on the date the shares are purchased over
the purchase price. Any additional gain or loss on such sale or disposition will
be long-term or short-term capital gain or loss, depending on the holding
period. The Company is not entitled to a deduction for amounts taxed as ordinary
income or capital gain to a participant except to the extent of ordinary income
recognized by participants upon a sale or disposition of shares prior to the
expiration of the holding period(s) described above.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON THE PARTICIPANT AND THE COMPANY WITH RESPECT TO THE SHARES PURCHASED UNDER
THE ESPP. REFERENCE SHOULD BE MADE TO THE APPLICABLE PROVISIONS OF THE CODE. IN
ADDITION, THE SUMMARY DOES NOT DISCUSS THE TAX CONSEQUENCES OF A PARTICIPANT'S
DEATH OR THE INCOME TAX LAWS OF ANY STATE OR FOREIGN COUNTRY IN WHICH THE
PARTICIPANT MAY RESIDE.
ESPP Benefits. The Company is unable to predict the amount of benefits
that will be received by or allocated to any particular participant under the
ESPP. The following table sets forth the dollar amount and the number of shares
purchased under the ESPP during the last fiscal year to (i) each of the
Company's Named Executive Officers, (ii) all executive officers as a group,
(iii) all non-employee directors as a group and (iv) all employees other than
executive officers as a group.
ESPP BENEFITS TABLE
<Table>
<Caption>
VALUE OF SHARES
NAME NUMBER OF SHARES PURCHASED(1)
- ---- ---------------- ---------------
Jimmy S.M. Lee.............................................. 4,687 $ 96,251
Thomas C. Endicott.......................................... -- --
Gary L. Fischer............................................. 3,897 76,495
Thomas C. Doczy............................................. 4,223 89,739
Paul Jei-Zen Song........................................... 3,300 64,863
All executive officers as a group (6 persons)............... 16,107 327,348
All non-employee directors as a group (3 persons)........... -- --
All employees other than executive officers as a group...... 179,096 3,411,586
</Table>
- ---------------
(1) The dollar value of shares purchased under the ESPP was computed by
multiplying the number of shares purchased times the market price of the
common stock on the purchase date. In accordance with the terms of the ESPP,
the shares of common stock were purchased at a price equal to 85% of the
lesser of the fair market value of the common stock on the first day of the
Offering Period or the last day of the Purchase Period.
B-3
INTEGRATED SILICON SOLUTION, INC.
PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints JIMMY S.M. LEE and GARY L. FISCHER, jointly and
severally, proxies, with full power of substitution, to vote all shares of
Common Stock of Integrated Silicon Solution, Inc., a Delaware corporation, which
the undersigned is entitled to vote at the Annual Meeting of Stockholders to be
held at the Silicon Valley Capital Club, Fairmont Plaza, 50 West San Fernando,
17th Floor, San Jose, California, on February 6, 2002, at 3:00 p.m., local time,
or any adjournment thereof. THE PROXIES ARE BEING DIRECTED TO VOTE AS SPECIFIED
BELOW OR, IF NO SPECIFICATION IS MADE, FOR THE ELECTION OF DIRECTORS, FOR THE
PROPOSAL TO AMEND THE COMPANY'S 1993 EMPLOYEE STOCK PURCHASE PLAN, FOR THE
APPOINTMENT OF ERNST & YOUNG, LLP AS INDEPENDENT AUDITORS AND IN ACCORDANCE WITH
THEIR DISCRETION ON SUCH OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE
MEETING.
The directors recommend a FOR vote on each item.
(Continued and to be signed on reverse side.)
FOR WITHHELD AUTHORITY
all nominees to vote for
listed (except nominees listed
as withheld)
FOR AGAINST ABSTAIN
1. ELECTION OF DIRECTORS 2. Proposal to amend the
(Instruction: To withhold [ ] [ ] Company's 1993 Employee [ ] [ ] [ ]
authority to vote for any Stock Purchase Plan to
individual nominees, strike increase the number of
that nominee's name below.) shares available for
issuance thereunder by
Nominees: (01) Jimmy S.M. Lee (04) Hide Tanigami 300,000 shares to an
(02) Gary L. Fischer (05) Chun Win Wong aggregate of 2,250,000
(03) Lip-Bu Tan shares:
3. Proposal to ratify the
appointment of Ernst & [ ] [ ] [ ]
Young, LLP as independent
auditors for the 2002
fiscal year
I plan to attend YES NO
the Meeting: [ ] [ ]
Signature(s) ____________________________________________ Date ______________
(Signature(s) must be exactly as name(s) appear on this Proxy. If signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such, and, if signing for a corporation, please give your title. When shares
are in the names of more than one person, each should sign this Proxy.)