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INFORMATION STORAGE DEVICES, INC.
2045 HAMILTON AVENUE
SAN JOSE, CALIFORNIA 95125
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Our Shareholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Information Storage Devices, Inc. (the "Company") will be held at the Pruneyard
Inn, 1995 South Bascom Avenue, Campbell, CA 95008 on Thursday, August 7, 1997
at 9:00 a.m. local time, for the following purposes:
1. To elect six directors of the Company, each to hold office until
the next Annual Meeting of Shareholders and until his successor
has been elected and qualified or until his earlier resignation or
removal. The Company's Board of Directors intends to present the
following nominees for election as directors:
David L. Angel Alan V. King
Frederick B. Bamber Eric J. Ochiltree
Eugene J. Flath Frederick L. Zieber
2. To approve an amendment of the Company's 1994 Equity Incentive
Plan to increase the authorized number of shares by 750,000
shares.
3. To approve an amendment of the Company's 1994 Employee Stock
Purchase Plan to increase the authorized number of shares by
50,000 shares.
4. To ratify the selection of Arthur Andersen LLP as independent
auditors for the Company for the current year.
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on June 9, 1997
are entitled to notice of and to vote at the meeting or any adjournment
thereof.
By Order of the Board of Directors
Felix J. Rosengarten
Vice President, Finance and
Administration and Chief Financial
Officer
San Jose, California
June 19, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE
SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
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INFORMATION STORAGE DEVICES, INC.
2045 HAMILTON AVENUE
SAN JOSE, CALIFORNIA 95125
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PROXY STATEMENT
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The accompanying proxy is solicited on behalf of the Board of
Directors ("Board of Directors" or "Board") of Information Storage Devices,
Inc., a California corporation (the "Company" or "ISD"), for use at the Annual
Meeting of Shareholders of the Company to be held at the Pruneyard Inn, 1995
South Bascom Avenue, Campbell, CA 95008, on Thursday, August 7, 1997, at 9:00
a.m. local time (the "Meeting"). All proxies will be voted in accordance with
the instructions contained therein, and, if no choice is specified, the proxies
will be voted in favor of the nominees and the proposals set forth in the
accompanying Notice of Meeting and this Proxy Statement. This Proxy Statement
and the accompanying form of proxy were first mailed to shareholders on or
about June 19, 1997.
VOTING RIGHTS AND SOLICITATION OF PROXIES
Holders of record of the Company's Common Stock at the close of
business on June 9, 1997 (the "Record Date") are entitled to one vote for each
share held as of the Record Date. At the close of business on the Record Date,
the Company had 9,759,752 shares of Common Stock outstanding and entitled to
vote. Only holders of record of the Company's Common Stock at the close of
business on the Record Date will be entitled to vote at the Meeting. A majority
of the shares outstanding on the Record Date will constitute a quorum for the
transaction of business.
In the event that a broker indicates on a proxy that it does not have
discretionary authority as to certain shares to vote on a particular matter,
those shares will be counted for purposes of determining the presence or
absence of a quorum for the transaction of business, but will not be considered
present and entitled to vote with respect to that matter.
With respect to Proposal No. 1, the affirmative vote of a plurality of
the votes of the shares of Common Stock present in person or represented by
proxy at the Meeting and entitled to vote on the election of directors is
required to approve the election of all directors. Shareholders will not be
allowed to cumulate votes.
Proposal Nos. 2 through 4 require for approval the affirmative vote of
a majority of the shares of Common Stock present in person or represented by
proxy at the Meeting and entitled to vote. For purposes of such Proposals, (i)
the aggregate number of votes entitled to be cast by all shareholders present
in person or represented by proxy at the Meeting, whether such shareholders
vote "for," "against," "abstain" or give no instructions, will be counted for
purposes of determining the minimum number of affirmative votes required to
approve the proposal, (ii) the total number of shares cast for a proposal or
giving no instructions will be considered to have been voted in favor of the
proposal, and (iii) an abstention from voting on a matter by a shareholder
present in person or by proxy at the Meeting has the same effect as a vote
against the proposal.
In the event that sufficient votes in favor of the proposals are not
received by the date of the Meeting, the persons named as proxies may propose
one or more adjournments of the Meeting to permit further solicitations of
proxies. Any such adjournment would require the affirmative vote of the
majority of the shares of Common Stock present in person or represented by
proxy at the Meeting and entitled to vote.
The cost of preparing, assembling, printing and mailing the Proxy
Statement, the Notice of Annual Meeting of Shareholders and the enclosed form
of proxy, as well as the cost of soliciting proxies relating to the Meeting,
will be borne by the Company. Following the original mailing of the proxies and
other soliciting materials, the Company will request that brokers, custodians,
nominees and other record holders forward copies of the proxy and other
soliciting materials to persons for whom they hold shares of Common Stock and
request authority for the exercise of proxies. In such cases, the Company, upon
the request of the record holders, will reimburse such holders for their
reasonable expenses. The original solicitation of proxies by mail may be
supplemented by telephone, telegram and personal solicitation by directors,
officers and regular employees of the Company.
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REVOCABILITY OF PROXIES
Any person signing a proxy in the form accompanying this Proxy
Statement has the power to revoke it prior to the Meeting or at the Meeting
prior to the vote pursuant to the proxy. A proxy may be revoked by a written
instrument delivered to the Company stating that the proxy is revoked, by a
subsequent proxy that is signed by the person who signed the earlier proxy and
is presented at the Meeting or by attendance at the Meeting and voting in
person. Please note, however, that, if a shareholder's shares are held of
record by a broker, bank or other nominee and that shareholder wishes to vote
at the Meeting, the shareholder must bring to the Meeting a letter from the
broker, bank or other nominee confirming that shareholder's beneficial
ownership of the shares.
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PROPOSAL NO. 1 - ELECTION OF DIRECTORS
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NOMINEES
A board of six (6) directors is to be elected at the Meeting. Each
director will be elected to hold office until the next annual meeting of
shareholders or until his successor is duly elected and qualified or until his
earlier resignation or removal. Shares represented by the accompanying proxy
will be voted for the election of each of the six (6) nominees named below
unless the proxy is marked in such a manner as to withhold authority so to
vote. If any nominee for any reason is unable to serve or for good cause will
not serve, the proxies may be voted for such substitute nominee as the proxy
holder may determine. The Company is not aware of any nominee who will be
unable to or for good cause will not serve as a director.
The Company's Bylaws currently provide that the number of directors of
the Company shall be from four (4) to seven (7), the actual number to be fixed
by resolution of the Board. The current number of authorized directors is six
(6).
The names of the nominees, each of whom is currently a director of the
Company, and certain information about them are set forth below:
NAME OF DIRECTOR AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
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David L. Angel 56 Chairman of the Board and Chief Executive Officer of the 1991
Company
Frederick B. Bamber 54 Managing Director of Applied Technology Investors, Inc. 1990
and a General Partner of Technologies for Information &
Publishing, L.P.
Eugene J. Flath 59 General Partner of AVI Management Partners 1988
Alan V. King 62 Chairman of the Board and Chief Executive Officer of 1997
Berkeley Integrated Technologies, Inc., Chairman of the
Board of Arithmos, Inc., and a director of Smartflex
Systems
Eric J. Ochiltree 49 President and Chief Operating Officer of the Company 1997
Frederick L. Zieber 55 President, Pathfinder Research, Inc. 1995
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Mr. Angel has served as Chairman of the Board, Chief Executive Officer
and a director of the Company since November 1996. Mr. Angel served as
President, Chief Executive Officer and a director of the Company since he
joined the Company in February 1991. From January 1989 to January 1991, he was
Group Vice President of the Semiconductor Group of Dataquest, Inc., a market
research company. He holds a B.Sc. degree from Marietta College.
Mr. Bamber has served as a director of the Company since March 1990.
He has been Managing Director of Applied Technology Investors, Inc., a venture
capital firm, since January 1983 and a general partner of Technologies for
Information & Publishing, L.P., a venture capital firm and shareholder of the
Company since June 1990. Since 1988, Mr. Bamber has also a been director of
Interleaf, Inc. He holds a B.A. degree from Yale University and an M.B.A.
degree from the Wharton School of Business of the University of Pennsylvania.
Mr. Flath has served as a director of the Company since October 1988
and as Chairman of the Board from January 1993 through November 1996. He has
been a general partner of AVI Management Partners, a venture capital firm and
an affiliate of various Company shareholders, since February 1988. Mr. Flath
holds a B.S.E.E. degree from the University of Wisconsin and an M.S.E.E. degree
from the University of New Hampshire.
Mr. King was appointed a director of the Company in May 1997. Mr.
King has been Chairman of the Board and Chief Executive Officer of Berkeley
Integrated Technologies, Inc. since September 1996. He also has served as
Chairman of the Board of Arithmos, Inc. since February 1995 and has been a
director of Smartflex Systems since October 1993. From September 1991 to
November 1994, he served as President and Chief Executive Officer of Silicon
Systems, Inc. From September 1986 to August 1991, he was President and Chief
Executive Officer of Precision Monolithics, Inc. Mr. King holds a B.S. Ceramic
E. degree from the University of Washington.
Mr. Ochiltree joined the Company as President and Chief Operating
Officer in November 1996. From August 1995 to November 1996, he was Vice
President, Products Group, of Exar Corporation, a semiconductor company. From
August 1991 to August 1995, he served as Vice President of Analog Devices, Inc.
and General Manager of Analog's Santa Clara site. He holds a B.S.E.E. degree
from Georgia Institute of Technology, an M.S.E.E. degree from Arizona State
University, and an M.B.A. degree from the University of Santa Clara.
Mr. Zieber was appointed a director of the Company in July 1995. He
has been President of Pathfinder Research, Inc., a semiconductor industry
consulting firm he founded, since May 1991. Mr. Zieber was employed by
Dataquest, Inc. from September 1974 until January 1991, most recently as
Executive Vice President. He holds B.S.E.E. and M.B.A. degrees from Stanford
University.
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
The Board of Directors met 13 times, including telephone conference
meetings, during 1996. No director attended fewer than 75% of the aggregate of
the total number of meetings of the Board of Directors (held during the period
for which he was a director) and the total number of meetings held by all
committees of the Board of Directors on which he served (during the period that
he served).
Standing committees of the Board of Directors include an Audit
Committee and a Compensation Committee. The Board of Directors does not have a
nominating committee or any committee performing similar functions.
Messrs. Bamber and Zieber are currently the members of the Audit
Committee. The Audit Committee met one time during 1996. The Audit Committee
meets with the Company's independent public accountants to review the adequacy
of the Company's internal control systems and financial reporting procedures,
review the general scope of the Company's annual audit and the fees charged by
the independent public accountants, review and monitor the performance of
non-audit services by the Company's independent public accountants, review the
fairness of any proposed transaction between any officer, director or other
affiliate of the Company and the Company and, after such review, makes
recommendations to the full Board of Directors and performs such further
functions as may be required by any stock exchange or over-the-counter market
upon which the Company's Common Stock is listed.
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In 1996, Messrs. Flath (except for the period from March 20 through
October 28), Bamber and Zieber (from March 20 through the present) were the
members of the Company's Compensation Committee. The Compensation Committee met
nine (9) times during 1996. The Compensation Committee administers the
Company's 1987 Stock Option Plan, 1994 Equity Incentive Plan and 1994 Employee
Stock Purchase Plan and determines the salaries and other compensation for
officers and other employees of the Company.
DIRECTOR COMPENSATION
Directors of the Company do not receive any compensation for their
services as such but are reimbursed for their reasonable expenses in attending
meetings of the Board of Directors. The Board of Directors adopted, and
shareholders approved adoption of, the 1994 Directors Stock Option Plan (the
"Directors Plan") in September 1994 which became effective on February 16,
1995.
Under the Directors Plan, each non-employee director initially elected
to the Board of Directors on or after February 16, 1995 is automatically
granted an option to purchase 7,500 shares of Common Stock ("Initial Option")
on the date such director first joins the Board. In addition, each
non-employee director was granted a succeeding option ("Succeeding Option") to
purchase 7,500 shares of Common Stock on the anniversary of such director's
election to the Board of Directors. The right to purchase these shares vests
at the rate of 25% of the shares for each year following the date of grant that
the non-employee director continuously remains a director of the Company.
Effective March 21, 1996, the Directors Plan was amended to provide that all
Succeeding Options for 1996 would be granted on March 21, 1996 and would vest
ratably over the remainder of the year. Initial Options granted on or after
March 21, 1996 will also vest one-twelfth per month. After 1996, all
Succeeding Options will be granted on January 1 of each year and vest at the
rate of one-twelfth per month, for as long as the non-employee director
continuously remains a director of the Company. The maximum number of shares
issuable to any non-employee director under the Directors Plan is 30,000. The
exercise price for such options is the fair market value of the Common Stock on
the date of grant. A total of 120,000 shares of Common Stock is reserved for
issuance under the Directors Plan, 67,500 of which were subject to outstanding
options as of June 9, 1997.
On March 21, 1996, Mr. Bamber and Mr. Flath were each granted
Succeeding Options to purchase 7,500 shares at an exercise price of $8.375 per
share. These options became fully vested on December 31, 1996. From March 20,
1996 through October 28, 1996, Mr. Flath was an employee of the Company and
ineligible for option grants under the Directors Plan during this time. In
connection with his employment, Mr. Flath was granted an option to purchase
50,000 shares of the Company's Common Stock under the Company's 1994 Equity
Incentive Plan. Messrs. Zieber, Flath and Bamber each received Succeeding
Options to purchase 7,500 shares on January 1, 1997 at an exercise price of
$7.375 per share. Mr. King received an Initial Option to purchase 7,500 shares
under the Directors Plan on May 30, 1997, vesting over a one year period at an
exercise price of $7.125 per share.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF
THE NOMINEES LISTED ABOVE.
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PROPOSAL NO. 2 - APPROVAL OF AMENDMENT TO THE
1994 EQUITY INCENTIVE PLAN
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Shareholders are being asked to approve an amendment to the Company's
1994 Equity Incentive Plan (the "Incentive Plan") that increases the number of
shares of Common Stock reserved for issuance thereunder by 750,000 shares, from
2,000,000 shares to 2,750,000 shares.
The Board believes that the increase in the number of shares reserved
for issuance under the Incentive Plan is in the best interests of the Company.
The granting of equity incentives under the Incentive Plan plays an important
role in the Company's efforts to attract and retain employees of outstanding
ability. The Board believes that the additional reserve of shares with respect
to which equity incentives may be granted will provide the Company with
adequate flexibility to ensure that the Company can continue to meet those
goals.
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The Board approved the proposed amendment described above on April 30,
1997. Shareholder approval of the amendment requires the affirmative vote of a
majority of the shares of Common Stock present in person or represented by
proxy and entitled to vote at the Meeting.
Below is a summary of the principal provisions of the Incentive Plan,
assuming shareholder approval of the proposed amendment. This summary is not
necessarily complete, and reference is made to the full text of the Incentive
Plan.
EQUITY INCENTIVE PLAN HISTORY
The Incentive Plan, covering 1,000,000 shares of Common Stock, was
adopted by the Board and approved by the shareholders in 1994 and became
effective in February 1995. In January 1996 the Board amended the Incentive
Plan to provide for automatic acceleration of the exercisability of all options
outstanding under the Incentive Plan in the event of certain corporate
transactions and in March 1996 the Board amended the Incentive Plan to increase
the number of shares reserved for issuance under the Incentive Plan to
2,000,000 shares. The shareholders approved these amendments in May 1996. The
purpose of the Incentive Plan is to attract, retain and provide equity
incentives to selected persons to promote the financial success of the Company
through awards of stock options.
In September 1996, to respond to the substantial increase in
competitive attempts to recruit employees essential to the success of the
Company, the Compensation Committee elected to reprice options. Competition
for skilled engineers and other key employees in the semiconductor industry is
intense and the use of significant options for retention and motivation of such
personnel is pervasive in the high technology industries. The Compensation
Committee believes that share options are a critical component of the
compensation offered by the Company to promote long-term retention of key
employees, motivate high levels of performance and recognize employee
contributions to the success of the Company. In light of a substantial decline
in the market price of the Company's Common Stock, the Compensation Committee
believed that the large numbers of outstanding stock options with an exercise
price in excess of the actual market price were no longer an effective tool to
encourage employee retention or to motivate high levels of performance. As a
result, on September 24, 1996, the Compensation Committee approved option
repricing programs.
All employees including executive officers were eligible to
participate under the September 1996 repricing program. All eligible optionees
with options that were granted under the Company's option plans, whether vested
or unvested, and that had exercise prices greater than $6.875, which was the
closing price of a share of Common Stock on the Nasdaq National Market on
September 21, 1996, could exchange such options for new options. Optionees
with a total of 849,048 shares of Common Stock exchanged such options on a
one-for-one basis for new options that are exercisable at a price of $6.875 per
share. The other terms of the new options were the same as the terms of the
options that were cancelled, except that the vesting schedule of the new
options granted to all employees of the Company at the director level and
above, including all Company officers, was adjusted to begin on September 24,
1996, with any prior vesting being forfeited. All other employees retained the
prior vesting date.
From the inception of the Incentive Plan in February 1995 to December
31, 1996, options to purchase an aggregate of 3,527,432 shares of the Company's
Common Stock were granted under the Incentive Plan. Of these, options to
purchase 1,304,636 shares had been cancelled in connection with repriced
options. During the same period, options were granted to each executive
officer named in the Summary Compensation Table, as follows: David L. Angel,
364,000 shares (less 182,000 shares that were cancelled in the September 1996
repricing); Carl R. Palmer, 112,500 shares (less 55,000 shares that were
cancelled in the September 1996 repricing); P. Ross Hayden, 94,478 shares (less
47,200 shares that were cancelled in the September 1996 repricing); James
Brennan, 53,750 shares and Felix J. Rosengarten, 142,500 shares (less 71,000
shares that were cancelled in the September 1996 repricing). During the same
period, the Company's current executive officers as a group (9 persons) had
been granted options to purchase an aggregate of 1,210,688 shares of Common
Stock (less 473,324 shares that were cancelled in the September 1996
repricing), no options were granted to current directors or nominees for
election as a director who are not executive officers as a group (4 persons)
and no options were granted to associates of any of such executive officers,
directors or nominees.
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SHARES SUBJECT TO THE INCENTIVE PLAN
The Board has reserved an aggregate of 2,750,000 shares of the
Company's authorized but unissued Common Stock for issuance under the Incentive
Plan (assuming approval of the proposed amendment). In addition, if any option
granted pursuant to the Incentive Plan or the Company's 1987 Stock Option Plan
(the "1987 Plan") expires or terminates for any reason without being exercised
in whole or in part, the shares released from such option will again become
available for grant and purchase under the Incentive Plan. As of December 31,
1996, 10,190 shares had been issued upon exercise of options and 1,763,492
shares were subject to outstanding options. As of that date, 1,066,989 shares
were available for future grant, after taking into account the proposed
amendment to the Incentive Plan and any shares issuable upon exercise of
options granted pursuant to the 1987 Plan that have become available for
distribution under the Incentive Plan. As of December 31, 1996, there were
unexercised options to purchase 208,453 shares of the Company's Common Stock
outstanding under the 1987 Plan. The number of shares reserved for issuance
pursuant to the Incentive Plan is subject to proportional adjustment to reflect
stock splits, stock dividends and other similar events. The closing price of
the Company's Common Stock on the Nasdaq National Market on June 9, 1997 was
$7.375 per share.
ELIGIBILITY
Employees, officers, directors, consultants, independent contractors
and advisors of the Company (and of any subsidiaries and affiliates) are
eligible to receive options under the Incentive Plan (the "Participants"). No
Participant is eligible to receive more than 500,000 shares of Common Stock
under the Incentive Plan throughout the life of the Incentive Plan. As of
December 31, 1996, approximately 135 employees were eligible to participate in
the Incentive Plan.
ADMINISTRATION
The Incentive Plan is administered by the Compensation Committee (the
"Committee"), the members of which are appointed by the Board. The Committee
currently consists of Frederick B. Bamber, Eugene J. Flath, and Frederick L.
Zieber, all of whom are "non-employee directors," as defined in the rules
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and "outside directors," as defined pursuant to Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code").
Subject to the terms of the Incentive Plan, the Committee determines
the persons who are to receive awards, the number of shares subject to each
such award and the terms and conditions of such awards. The Committee also has
the authority to construe and interpret any of the provisions of the Incentive
Plan or any awards granted thereunder.
STOCK OPTIONS
The Incentive Plan permits the granting of options that are intended
to qualify either as Incentive Stock Options ("ISOs") or Nonqualified Stock
Options ("NQSOs"). ISOs may be granted only to employees (including officers
and directors who are also employees) of the Company or any parent or
subsidiary of the Company.
The option exercise price for each ISO share must be no less than 100%
of the "fair market value" (as defined in the Incentive Plan) of a share of
Common Stock at the time the ISO is granted. The per share exercise price of
an ISO granted to a 10% shareholder must be no less than 110% of the fair
market value of a share of Common Stock at the time the ISO is granted. The
option exercise price for each NQSO share must be no less than 85% of the fair
market value of a share of Common Stock at the time of grant. The Company has
not granted options under the Incentive Plan at less than fair market value and
does not intend to do so in the foreseeable future.
The exercise price of options granted under the Incentive Plan may be
paid as approved by the Committee at the time of grant: (1) in cash (by
check); (2) by cancellation of indebtedness of the Company to the Participant;
(3) by surrender of shares of the Company's Common Stock owned by the
Participant for at least six months and having a fair market value on the date
of surrender equal to the aggregate exercise price of the option; (4) by tender
of a full recourse promissory note; (5) by waiver of compensation due to or
accrued by the Participant for services rendered; (6) by tender of property;
(7) by a "same-day sale" commitment from the Participant and a National
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Association of Securities Dealers, Inc. ("NASD") broker; (8) by a "margin"
commitment from the Participant and a NASD broker; or (9) by any combination of
the foregoing.
RESTRICTED STOCK AWARDS
The Committee may grant Participants restricted stock awards to
purchase stock either in addition to, or in tandem with, other awards under the
Incentive plan, under such terms, conditions and restrictions as the Committee
may determine. The purchase price for such awards must be no less than 85% of
the fair market value of the Company's Common Stock on the date of the award
(in the case of an award granted to a 10% shareholder, the purchase price must
be 100% of fair market value), and can be paid for in any of the forms of
consideration listed in items (1) through (6) in "Stock Options" above, as are
approved by the Committee at the time of grant. The Company has not granted
any restricted stock awards under the Incentive Plan and does not intend to do
so in the foreseeable future.
STOCK BONUS AWARDS
The Committee may grant Participants stock bonus awards either in
addition to, or in tandem with, other awards under the Incentive Plan, under
such terms, conditions and restrictions as the Committee may determine. The
Company has not granted any stock bonus awards under the Incentive Plan and
does not intend to do so in the foreseeable future.
MERGERS, CONSOLIDATIONS, CHANGE OF CONTROL
In the event of a merger, consolidation, dissolution or liquidation of
the Company, the sale of substantially all of the assets of the Company or any
other similar corporate transaction, in which the Company is not the successor
corporation, each option shall be automatically accelerated so that each option
shall, immediately before the specified effective date for the corporate
transaction, become fully exercisable with respect to the total number of
shares and may be exercised for all or any portion of such shares; provided,
that an option shall not be accelerated if and to the extent that such option
is, in connection with the corporate transaction, either to be assumed by the
successor corporation or parent thereof or to be replaced with a comparable
option to purchase shares of the capital stock of the successor corporation or
parent thereof. The determination of comparability shall be made by the Board
or the Committee, and the Board or the Committee's determination shall be
final, binding and conclusive. Upon the consummation of a corporate
transaction, all outstanding options shall, to the extent not previously
exercised or assumed by the successor corporation or its parent, terminate and
cease to be exercisable.
AMENDMENT OF THE INCENTIVE PLAN
The Board may at any time terminate or amend the Incentive Plan,
including amending any form of award agreement or instrument to be executed
pursuant to the Incentive Plan. The Board may not amend the Incentive Plan in
any manner that requires shareholder approval pursuant to the Code or the
regulations promulgated thereunder or pursuant to the Exchange Act or Rule
16b-3 promulgated thereunder (or its successor).
TERM OF THE INCENTIVE PLAN
Unless terminated earlier as provided in the Incentive Plan, the
Incentive Plan will terminate in September 2004, ten years from the date the
Incentive Plan was adopted by the Board.
FEDERAL INCOME TAX INFORMATION
THE FOLLOWING IS A GENERAL SUMMARY OF THE FEDERAL INCOME TAX
CONSEQUENCES TO THE COMPANY AND PARTICIPANTS UNDER THE INCENTIVE PLAN. THE
FEDERAL TAX LAWS MAY CHANGE AND THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES
FOR ANY PARTICIPANT WILL DEPEND UPON HIS OR HER INDIVIDUAL CIRCUMSTANCES. EACH
PARTICIPANT HAS BEEN AND IS ENCOURAGED TO SEEK THE ADVICE OF A QUALIFIED TAX
ADVISOR REGARDING THE TAX CONSEQUENCES OF PARTICIPATION IN THE INCENTIVE PLAN.
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Incentive Stock Options. A Participant will recognize no income upon
grant of an ISO and incur no tax on its exercise (unless the Participant is
subject to the alternative minimum tax) (the "AMT"). If the Participant holds
shares acquired upon exercise of an ISO (the "ISO Shares") for more than one
year after the date the option was exercised and for more than two years after
the date the option was granted, the Participant generally will realize
long-term capital gain or loss (rather than ordinary income or loss) upon
disposition of the ISO Shares. This gain or loss will be equal to the
difference between the amount realized upon such disposition and the amount
paid for the ISO Shares.
If the Participant disposes of ISO Shares prior to the expiration of
either required holding period (a "disqualifying disposition"), the gain
realized upon such disposition, up to the difference between the fair market
value of the ISO Shares on the date of exercise (or, if less, the amount
realized on a sale of such shares) and the option exercise price, will be
treated as ordinary income. Any additional gain will be long-term or
short-term capital gain, depending upon the amount of time the ISO Shares were
held by the Participant.
Alternative Minimum Tax. The difference between the fair market value
of the ISO shares on the date of exercise and the exercise price is an
adjustment to income for purposes of the AMT. The AMT (imposed to the extent
it exceeds the taxpayer's regular tax) is 26% of an individual taxpayer's
alternative minimum taxable income (28% in the case of alternative minimum
taxable income in excess of $175,000). Alternative minimum taxable income is
determined by adjusting regular taxable income for certain items, increasing
that income by certain tax preference items (including the difference between
the fair market value of the ISO Shares on the date of exercise and the
exercise price) and reducing this amount by the applicable exemption amount
($45,000 in case of a joint return, subject to reduction under certain
circumstances). If a disqualifying disposition of the ISO Shares occurs in the
same calendar year as exercise of the ISO, there is no AMT adjustment with
respect to those ISO Shares. Also, upon a sale of ISO Shares that is not a
disqualifying disposition, alternative minimum taxable income is reduced in the
year of sale by the excess of the fair market value of the ISO Shares at
exercise over the amount paid for the ISO Shares.
Nonqualified Stock Options. A Participant will not recognize any
taxable income at the time a NQSO is granted. However, upon exercise of a
NQSO, the Participant must include in income as compensation an amount equal to
the difference between the fair market value of the shares on the date of
exercise and the Participant's exercise price. The included amount must be
treated as ordinary income by the Participant and may be subject to withholding
by the Company (either by payment in cash or withholding out of the
Participant's salary). Upon resale of the shares by the Participant, any
subsequent appreciation or depreciation in the value of the shares will be
treated as capital gain or loss.
Omnibus Budget Reconciliation Act of 1993. The Omnibus Budget
Reconciliation Act of 1993 provides that the maximum tax rate applicable to
ordinary income is 39.6%. Long-term capital gain will be taxed at a maximum of
28%. For this purpose, in order to receive long-term capital gain treatment,
the shares must be held for more than one year. Capital gains may be offset by
capital losses and up to $3,000 of capital losses may be offset annually
against ordinary income.
Tax Treatment of the Company. The Company generally will be entitled
to a deduction in connection with the exercise of a NQSO by a Participant to
the extent that the Participant recognizes ordinary income and the Company
withholds tax. The Company will be entitled to a deduction in connection with
the disposition of ISO Shares only to the extent that the Participant
recognizes ordinary income on a disqualifying disposition of the ISO Shares.
ERISA
The Incentive Plan is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA").
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NEW PLAN BENEFITS
The amounts of future option grants under the Incentive Plan are not
determinable because, under the terms of the Incentive Plan, such grants are
made in the discretion of the Committee. Future option exercise prices are not
determinable because they are based upon fair market value of the Company's
Common Stock on the date of grant.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
AMENDMENT TO THE 1994 EQUITY INCENTIVE PLAN, DESCRIBED IN PROPOSAL NO. 2
ABOVE.
================================================================================
PROPOSAL NO. 3 - APPROVAL OF AMENDMENTS TO THE
1994 EMPLOYEE STOCK PURCHASE PLAN
================================================================================
Shareholders are being asked to approve an amendment to the Company's
1994 Employee Stock Purchase Plan (the "Stock Purchase Plan") to increase the
number of shares of Common Stock reserved for issuance thereunder by 50,000
shares, from 120,000 shares to 170,000 shares. The Board believes that the
increase in the number of shares reserved for issuance under the Stock Purchase
Plan is in the best interests of the Company because of the continuing need to
provide equity participation to attract and retain quality employees and remain
competitive in the industry. The Stock Purchase Plan plays an important role
in the Company's efforts to attract and retain employees of outstanding
ability.
The Board approved the proposed amendment on April 30, 1997, to be
effective upon shareholder approval. Below is a summary of the principal
provisions of the Stock Purchase Plan, assuming shareholder approval of the
proposed amendment. The summary is not necessarily complete, and reference is
made to the full text of the Stock Purchase Plan.
STOCK PURCHASE PLAN HISTORY
The Stock Purchase Plan was adopted by the Board and approved by the
shareholders in 1994 and became effective in February 1995. The purpose of the
Stock Purchase Plan is to provide employees of the Company and its subsidiaries
and affiliates designated by the Board as eligible to participate in the Stock
Purchase Plan ("Participating Employees") with a convenient means to acquire an
equity interest in the Company through payroll deductions and to provide an
incentive for continued employment. The Company intends that the Stock
Purchase Plan will qualify as an "employee stock purchase plan" under Section
423 of the Code.
SHARES SUBJECT TO THE STOCK PURCHASE PLAN
The Board has reserved an aggregate of 170,000 shares of the Company's
authorized but unissued Common Stock for issuance under the Stock Purchase Plan
(assuming approval of the proposed amendment). This number of shares is
subject to proportional adjustment to reflect stock splits, stock dividends and
other similar events.
ADMINISTRATION
The Stock Purchase Plan is administered by the Committee. The
interpretation or construction by the Committee of any provisions of the Stock
Purchase Plan will be final and binding on all Participating Employees.
ELIGIBILITY
All employees of the Company, or any parent or subsidiary, are
eligible to participate in an Offering Period (as defined below) under the
Stock Purchase Plan, except the following:
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(a) employees who are not employed by the Company on the
15th day of the month before the beginning of such
Offering Period;
(b) employees who are customarily employed for less than
20 hours per week;
(c) employees who are customarily employed for less than
five months in a calendar year; and
(d) employees who own stock or hold options to purchase
stock or who, as a result of participation in the
Stock Purchase Plan, would own stock or hold options
to purchase stock, possessing 5% or more of the total
combined voting power or value of all classes of
stock of the Company.
As of January 31, 1997, approximately 135 employees were eligible to
participate in the Stock Purchase Plan and 74,167 shares had been issued
pursuant to the Stock Purchase Plan. As of that date, 45,833 shares were
available for future issuance under the Stock Purchase Plan. As of June 9,
1997, the closing price of the Company's Common Stock on the Nasdaq National
Market was $7.375 per share.
Participating Employees participate in the Stock Purchase Plan through
payroll deductions. A Participating Employee sets the rate of such payroll
deductions, which may not be less than 2% nor more than 10% of the
Participating Employee's W-2 compensation, including, but not limited to, base
salary, wages, commissions, overtime, shift premiums, bonuses and draws against
commissions, before any deductions from the Participating Employee's salary
pursuant to Sections 125 or 401(k) of the Code. No Participating Employee is
permitted to purchase shares under the Stock Purchase Plan at a rate which,
when aggregated with such employee's rights to purchase stock under all similar
purchase plans of the Company, exceeds $25,000 in fair market value determined
as of the Offering Date for each calendar year.
OFFERING PERIODS
Each offering of Common Stock under the Stock Purchase Plan is for a
period of six months (the "Offering Period"). Offering Periods are planned to
commence on February 1 and August 1 of each year and end on July 31 and January
31 of each year, respectively. The Board has the power to set the beginning of
any Offering Period and to change dates or the duration of Offering Periods
without shareholder approval if such change is announced at least 15 days
before the scheduled beginning of the first Offering Period to be affected.
The first day of each Offering Period is the "Offering Date" for such Offering
Period.
Participating Employees will participate in the Stock Purchase Plan
during each Offering Period through regular payroll deductions as described
above. Participating Employees may elect to participate in any Offering Period
by enrolling as provided under the terms of the Stock Purchase Plan. Once
enrolled, a Participating Employee will automatically participate in each
succeeding Offering Period unless the Participating Employee withdraws from the
Offering Period or the Stock Purchase Plan is terminated. After the rate of
payroll deductions for an Offering Period has been set by a Participating
Employee, that rate will continue to be effective for the remainder of the
Offering Period (and for all subsequent Offering Periods in which the
Participating Employee is automatically enrolled) unless otherwise changed by
the Participating Employee. The Participating Employee may increase or lower
the rate of payroll deductions for any subsequent Offering Period, but may only
lower the rate of payroll deductions for an ongoing Offering Period. No more
than one change may be made during a single Offering Period.
PURCHASE PRICE
The purchase price of shares that may be acquired in any Offering
Period under the Stock Purchase Plan is 85% of the lesser of: (i) the fair
market value of the shares on the Offering Date; or (ii) the fair market value
of the shares on the last day of the Offering Period. The fair market value of
a share of the Company's Common Stock is deemed to be the closing price of the
Company's Common Stock on the Nasdaq National Market on the date of
determination as reported in The Wall Street Journal.
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PURCHASE OF STOCK UNDER THE STOCK PURCHASE PLAN
The number of whole shares a Participating Employee will be able to
purchase in any Offering Period will be determined by dividing the total
payroll amount withheld from the Participating Employee during the Offering
Period pursuant to the Stock Purchase Plan by the purchase price for each share
determined as described above. The purchase will take place automatically on
the last day of such Offering Period.
WITHDRAWAL
A Participating Employee may withdraw from any Offering Period. Upon
withdrawal, the accumulated payroll deductions will be returned to the
withdrawn Participating Employee, without interest, provided that the
withdrawal occurs at least 15 days before the last day of the Offering Period.
If the withdrawal occurs less than 15 days before the last day of an Offering
Period, payroll deductions will continue for the remainder of that Offering
Period. No further payroll deductions for the purchase of shares will be made
for the succeeding Offering Period unless the Participating Employee enrolls in
the new Offering Period at least 15 days before the Offering Date.
AMENDMENT OF THE STOCK PURCHASE PLAN
The Board may at any time amend, terminate or extend the term of the
Stock Purchase Plan, except that any such termination cannot affect the terms
of shares previously granted under the Stock Purchase Plan, nor may any
amendment make any change in the terms of shares previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without shareholder approval if such amendment would: (a) increase the number
of shares that may be issued under the Stock Purchase Plan; (b) change the
designation of the employees (or class of employees) eligible for participation
in the Stock Purchase Plan; or (c) constitute an amendment for which
shareholder approval is required in order to comply with Rule 16b-3 (or any
successor rule) under the Exchange Act.
TERM OF THE STOCK PURCHASE PLAN
The Stock Purchase Plan will continue until the earlier to occur of:
(i) termination of the Stock Purchase Plan by the Board; (ii) the issuance of
all the shares of Common Stock reserved for issuance under the Stock Purchase
Plan; or (iii) September 2004, ten years after the date the Stock Purchase Plan
was adopted by the Board.
FEDERAL INCOME TAX INFORMATION
THE FOLLOWING IS A GENERAL SUMMARY OF THE FEDERAL INCOME TAX
CONSEQUENCES TO THE COMPANY AND EMPLOYEES PARTICIPATING IN THE STOCK PURCHASE
PLAN. THE FEDERAL TAX LAWS MAY CHANGE AND THE FEDERAL, STATE AND LOCAL TAX
CONSEQUENCES FOR ANY PARTICIPATING EMPLOYEE WILL DEPEND UPON HIS OR HER
INDIVIDUAL CIRCUMSTANCES. EACH PARTICIPATING EMPLOYEE HAS BEEN AND IS
ENCOURAGED TO SEEK THE ADVICE OF A QUALIFIED TAX ADVISER REGARDING THE TAX
CONSEQUENCES OF PARTICIPATION IN THE STOCK PURCHASE PLAN.
The Stock Purchase Plan is intended to qualify as an "employee stock
purchase plan" within the meaning of Section 423 of the Code.
Tax Treatment of the Participating Employee. Participating Employees
will not recognize income for federal income tax purposes either upon
enrollment in the Stock Purchase Plan or upon the purchase of shares. All tax
consequences are deferred until a Participating Employee sells the shares,
disposes of the shares by gift or dies.
If shares are held for more than one year after the date of purchase
and more than two years from the beginning of the applicable Offering Period,
or if the Participating Employee dies while owning the shares, the
Participating Employee realizes ordinary income on a sale (or a disposition by
way of gift or upon death) to the extent of the lesser of: (i) 15% of the fair
market value of the shares at the beginning of the Offering Period; or (ii) the
actual gain (the amount by which the market value of the shares on the date of
sale, gift or death exceeds the purchase price). All additional gain upon the
sale of shares is treated as long-term capital gain. If the shares are
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sold and the sale price is less than the purchase price, there is no ordinary
income and the Participating Employee has a long-term capital loss for the
difference between the sale price and the purchase price.
If the shares are sold or are otherwise disposed of including by way
of gift (but not death, bequest or inheritance) (in any case, a "disqualifying
disposition") within either the one-year or the two-year holding periods
described above, the Participating Employee realizes ordinary income at the
time of sale or other disposition, taxable to the extent that the fair market
value of the shares at the date of purchase is greater than the purchase price.
This excess will constitute ordinary income (not currently subject to
withholding) in the year of the sale or other disposition even if no gain is
realized on the sale or if a gratuitous transfer is made. The difference, if
any, between the proceeds of sale and the aggregate fair market value of the
shares at the date of purchase is a capital gain or loss. Capital gains may be
offset by capital losses, and up to $3,000 of capital losses may be offset
annually against ordinary income.
Tax Treatment of the Company. The Company will be entitled to a
deduction in connection with the disposition of shares acquired under the Stock
Purchase Plan only to the extent that the Participating Employee recognizes
ordinary income on a disqualifying disposition of the shares. The Company will
treat any transfer of record ownership of shares as a disposition, unless it is
notified to the contrary. In order to enable the Company to learn of
disqualifying dispositions and ascertain the amount of the deductions to which
it is entitled, Participating Employees will be required to notify the Company
in writing of the date and terms of any disposition of shares purchased under
the Stock Purchase Plan.
ERISA
The Stock Purchase Plan is not subject to any of the provisions of
ERISA.
NEW PLAN BENEFITS
The amounts of future stock purchases under the Stock Purchase Plan
are not determinable because, under the terms of the Stock Purchase Plan,
purchases are based upon elections made by Participating Employees. Future
purchase prices are not determinable because they are based upon fair market
value of the Company's Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
AMENDMENT TO THE STOCK PURCHASE PLAN, DESCRIBED IN PROPOSAL NO. 3 ABOVE.
================================================================================
PROPOSAL NO. 4 - RATIFICATION OF SELECTION OF
INDEPENDENT AUDITORS
================================================================================
The Board of Directors has selected Arthur Andersen LLP as the
Company's independent auditors to perform the audit of the Company's financial
statements for the year ending December 31, 1997, and the shareholders are
being asked to ratify such selection. Notwithstanding the selection, the Board,
in its discretion may direct the appointment of new independent auditors at any
time during the year, if the Board feels that such a change would be in the
best interests of the Company and its shareholders. In the event of a negative
vote of such ratification, the Board of Directors will reconsider its
selection.
Representatives of Arthur Andersen LLP will be present at the Meeting,
will have the opportunity to make a statement at the Meeting if they desire to
do so and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE SELECTION
OF ARTHUR ANDERSEN LLP.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the
Company, as of June 9, 1997, with respect to beneficial ownership of the
Company's Common Stock by (i) each shareholder known by the Company to be the
beneficial owner of more than 5% of the Company's Common Stock, (ii) each
present director, (iii) each executive officer named in the Summary
Compensation Table below (the "Named Officers") and (iv) all executive officers
and directors as a group.
SHARES BENEFICIALLY
OWNED (1)
--------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
------------------------ --------- -------
Frederick B. Bamber
Technologies for Information & Publishing, L.P. (2)....................... 563,895 5.78%
David L. Angel (3)............................................................. 187,207 1.92%
Gene J. Flath (4).............................................................. 112,130 1.15%
Felix J. Rosengarten (5)....................................................... 92,684 *
Eric J. Ochiltree (6).......................................................... 25,000 *
Frederick L. Zieber (7)........................................................ 20,624 *
James Brennan (8).............................................................. 19,500 *
Carl R. Palmer (9)............................................................. 13,198 *
P. Ross Hayden (10)............................................................ 11,629 *
Alan V. King (11).............................................................. 1,250 *
All executive officers and directors as a group (13 persons)(12)...............1,220,036 12.50%
- - ----------------
* less than 1%
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission that deem shares to be beneficially
owned by any person who has or shares voting or investment power with
respect to such shares. Unless otherwise indicated, the persons named in
this table have sole voting and sole investment power with respect to all
shares shown as beneficially owned, subject to community property laws
where applicable. Shares of Common Stock subject to options that are
currently exercisable or exercisable within 60 days of June 9, 1997 are
deemed to be outstanding and to be beneficially owned by the person
holding such options for the purpose of computing the percentage ownership
of such person but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person.
(2) Mr. Bamber, a director of the Company, is a managing general partner of
such partnership. The other managing general partners of the partnership
are David A. Boucher and Thomas H. Grant. The managing general partners
share voting and investment power over the shares held by the partnership.
The address for Messrs. Bamber, Boucher and Grant and the partnership is
One Cranberry Hill, Lexington, Massachusetts 02173. Also includes 16,249
shares subject to options exercisable within 60 days of June 9, 1997.
(3) Includes 69,166 shares subject to options exercisable within 60 days of
June 9, 1997. Mr. Angel is Chairman of the Board, Chief Executive Officer
and a director of the Company.
(4) Includes 57,655 shares subject to options exercisable within 60 days of
June 9, 1997. Mr. Flath is a director of the Company. The address for
Mr. Flath is 1010 El Camino, Suite 300, Menlo Park, California 94025.
(5) Includes 35,352 shares subject to options exercisable within 60 days of
June 9, 1997. Mr. Rosengarten is Vice President, Finance and
Administration, and Chief Financial Officer of the Company.
(6) Includes 25,000 shares subject to options exercisable within 60 days of
June 9, 1997. Mr. Ochiltree is President, Chief Operating Officer, and a
director of the Company.
(7) Includes 15,624 shares subject to options exercisable within 60 days of
June 9, 1997. Mr. Zieber is a director of the Company. The address for
Mr. Zieber is 1620 Old Oakland Road, D-207, San Jose, California 95131.
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(8) Includes 17,500 shares subject to options exercisable within 60 days
of June 9, 1997. Mr. Brennan is Vice President, Technology and
Advanced Development, of the Company.
(9) Includes 11,458 shares subject to options exercisable within 60 days
of June 9, 1997. Mr. Palmer is Vice President, Engineering, of the
Company.
(10) Includes 11,579 shares subject to options exercisable within 60 days
of June 9, 1997. Mr. Hayden is Vice President, Sales of the Company.
(11) Includes 1,250 shares subject to options exercisable within 60 days of
June 9, 1997. Mr. King is a director of the Company. The address for
Mr. King is 2730 San Tomas Expressway, Suite 210, Santa Clara,
California 95051-0952.
(12) Includes the shares subject to options stated to be included in
footnotes (2) through (11), and 50,647 additional shares subject to
options exercisable within 60 days of June 9, 1997.
EXECUTIVE OFFICERS
The following table lists certain information regarding the Company's executive
officers as of June 9, 1997.
NAME AGE POSITION
---- --- --------
David L. Angel 56 Chairman of the Board and Chief Executive Officer
Karin L. Bootsma 32 Vice President, Marketing
James Brennan 53 Vice President, Technology and Advanced Development
Michael Geilhufe 53 Vice President, Business Development
P. Ross Hayden 52 Vice President, Sales
Eric J. Ochiltree 49 Director of the Board, President and Chief Operating Officer
Carl R. Palmer 45 Vice President, Engineering
Felix J. Rosengarten 62 Vice President, Finance and Administration and Chief
Financial Officer, Assistant Secretary of the Board
Alfred R. Woodhull 57 Vice President, Manufacturing
- - -----------
Information regarding David L. Angel and Eric J. Ochiltree is listed
under "Proposal No. 1 - Election of Directors."
Ms. Bootsma joined the Company in April 1993 as Marketing Manager.
She became Director of Marketing in January 1994, Managing Director of
Marketing in November 1996, and she was appointed Vice President of Marketing
in March 1997. From July 1990 to April 1993, she was a Product Marketing
Manager for Cirrus Logic. She holds a B.S.M.E. degree from the University of
the Pacific and an M.B.A. degree from the University of Santa Clara.
Mr. Brennan joined the Company in June 1995 as principal engineer and
was appointed Vice President, Technology and Advanced Development in March
1996. From 1989 until he joined the Company Mr. Brennan held a similar
position at Intel. Mr. Brennan has a B.S.E.E. degree from Duke University and
an M.S.E.E. degree from the University of Houston.
Mr. Geilhufe co-founded the Company in December 1987. He has served as
Vice President, Business Development since February 1997 and Vice President,
Quality and Reliability from May 1993 to February 1997. From June 1989 to May
1993, he served as Vice President, Manufacturing of the Company. Mr. Geilhufe
was also a director of the Company from December 1987 to May 1990. He holds a
B.S.E.E. degree from the University of California at Berkeley, an M.S.E.E.
degree from California State University at Long Beach and an M.B.A. degree from
the University of Santa Clara.
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Mr. Hayden joined the Company in December 1993 as Director of North
American Sales. He became Director of World Wide Sales in August 1996 and was
appointed Vice President of Sales in February 1997. From April 1993 to
December 1993, he was Director of World Wide Sales for Austek Microsystems. He
holds B.S.E.E. and M.S.E.E. degrees from the University of Louisville.
Mr. Palmer joined the Company in November 1995 as Director, IC Design
Center, and was appointed Vice President, Engineering in March 1996. From 1983
until he joined the Company, Mr. Palmer held various engineering management
positions at SuperFlow Corporation in Colorado Springs, Colorado, the most
recent being Vice President, Engineering. He holds B.S.E.E. and M.S.E.E.
degrees from University of Florida and an M.B.A. from the University of
Colorado.
Mr. Rosengarten joined the Company as Acting Vice President of Finance
and Administration in March 1991. He was appointed Chief Financial Officer of
the Company in May 1991 and was elected Vice President, Finance and
Administration and Chief Financial Officer in July 1991. From May 1989 to
December 1990, he was Vice President and General Manager of the West Coast
operations of Drytek, Inc., a semiconductor processing equipment manufacturer.
Mr. Rosengarten has a B.S. Chem.E. degree from Cornell University and an M.B.A.
degree from Villanova University.
Mr. Woodhull has served as Vice President, Manufacturing since he
joined the Company in April 1994. From November 1989 to April 1994, he was
Vice President, Operations, of Avasem, a semiconductor company, and of
Avasem/ICS after Avasem's acquisition by Integrated Circuit Systems, Inc. He
was also founder and President of Advanced World Products, a company providing
duplication services and equipment repair, from October 1989 to December 1992.
From January 1987 to November 1989, Mr. Woodhull was Vice President and General
Manager of National Computer Consulting, Inc., a distributor of computer
supplies. Mr. Woodhull completed undergraduate studies through Lafayette
College.
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EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by
or paid for services rendered to the Company in all capacities by, the
Company's Chief Executive Officer and the Company's four other most highly
compensated executive officers (together, the "Named Officers") during 1996,
1995 and 1994.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
-------------------
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS GRANTED COMPENSATION
--------------------------- ---- ------ -------- --------------- -------------
David L. Angel ............................... 1996 $ 175,000 $ 0 282,000 (1) $ 235,245 (2)
Chairman and Chief Executive Officer ...... 1995 175,000 30,000 82,000 0
1994 140,000 200,000 0 37,881 (3)
Carl R. Palmer ............................... 1996 125,000 20,000 87,500 (4) 23,576 (5)
Vice President, Engineering ............... 1995 15,019 0 25,000 0
P. Ross Hayden ............................... 1996 95,017 0 46,978 (6) 55,488 (7)
Vice President, Sales ..................... 1995 95,017 0 21,400 155,137 (8)
1994 90,584 0 0 49,020 (9)
James Brennan ................................ 1996 140,400 0 28,750 0
Vice President, Technology and Advanced ... 1995 74,683 20,000 25,000 0
Development
Felix J. Rosengarten ......................... 1996 130,000 0 111,500 (10) 8,525 (11)
Vice President, Finance and Administration, 1995 130,000 30,000 31,000 0 (12)
and Chief Financial Officer ............... 1994 104,000 85,000 0 8,044
(1) Mr. Angel received 100,000 shares as new option grants in 1996. Options
granted represent these current grants plus grants associated with the
repricing of his 1995 and 1996 option grants, which were cancelled. See
"Proposal No. 2 - Approval of Amendment to the 1994 Equity Incentive Plan -
Equity Incentive Plan History."
(2) Represents compensation in connection with the sale of the Company's stock
issued upon the exercise of stock options in the amount of $213,000 and
payment for vacation accrued in excess of 20 days in the amount of $22,245.
(3) Represents premium for term life insurance of $595 and payment for vacation
accrued in excess of 20 days in the amount of $4,846, and forgiveness by
the Company of $32,440 of indebtedness.
(4) Mr. Palmer received 32,500 shares as new option grants in 1996. Options
granted represent these current grants plus grants associated with the
repricing of his 1995 option grants and 30,000 shares of his 1996 option
grants, which were cancelled. See "Proposal No. 2 - Approval of Amendment
to the 1994 Equity Incentive Plan - Equity Incentive Plan History."
(5) Represents compensation for relocation.
(6) Mr. Hayden received 25,878 shares as new option grants in 1996. Options
granted represent 20,878 shares of these current grants plus grants
associated with the repricing of 21,100 shares of his 1995 option grants
and 5,000 shares of his 1996 option grants, which were cancelled. See
"Proposal No. 2 - Approval of Amendment to the 1994 Equity Incentive Plan -
Equity Incentive Plan History."
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(7) Represents compensation in connection with the sale of the Company's stock
issued upon the exercise of stock options in the amount of $17,750 and
commissions in the amount of $37,738.
(8) Represents compensation in connection with the sale of the Company's stock
issued upon the exercise of stock options in the amount of $82,625 and
commissions in the amount of $72,512.
(9) Represents commissions.
(10)Mr. Rosengarten received 40,500 shares as new option grants in 1996.
Options granted represent these current grants plus grants associated with
the repricing of his 1995 option grants and 40,000 shares of his 1996
option grants, which were cancelled. See "Proposal No. 2 - Approval of
Amendment to the 1994 Equity Incentive Plan - Equity Incentive Plan
History."
(11)Represents payment for vacation accrued in excess of 20 days.
(12)Represents premium for term life insurance of $444 and payment for vacation
accrued in excess of 20 days in the amount of $7,600.
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The following table shows, as to each of the Named Officers, option
grants during the last year and the potential realizable value of those
options, assuming 5% and 10% appreciation, at the end of their term:
OPTION GRANTS IN 1996
INDIVIDUAL GRANTS
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE
SECURITIES OPTIONS AT ASSUMED ANNUAL RATES
UNDERLYING GRANTED TO OF STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION FOR OPTION TERM
NAME GRANTED(1) CURRENT YEAR(2) PRICE DATE(3) 5%(4) 10%(4)
- - -------------- ----------- --------------- ----- ------- ----- ------
David L. Angel 100,000 (5) 4.0% $ 8.38 3/21/06 $526,699 $1,334,759
David L. Angel 182,000 7.3% 6.88 9/24/06 786,904 1,994,170
Carl R. Palmer 30,000 (5) 1.2% 8.38 9/24/06 158,010 400,428
Carl R. Palmer 55,000 2.2% 6.88 9/24/06 237,801 602,634
Carl R. Palmer 2,500 0.1% 6.81 12/19/96 10,712 27,145
P. Ross Hayden 5,000 (5) 0.2% 8.38 3/21/06 26,335 66,738
P. Ross Hayden 26,100 1.0% 6.88 9/24/06 112,847 285,977
P. Ross Hayden 20,878 0.8% 6.81 12/19/96 89,455 226,697
James Brennan 10,000 0.4% 8.38 3/21/06 52,670 133,476
James Brennan 18,750 0.7% 6.81 12/19/96 80,337 203,591
Felix J. Rosengarten 40,000 (5) 1.6% 8.38 3/21/06 210,680 533,904
Felix J. Rosengarten 71,000 2.8% 6.88 9/24/06 306,979 777,946
Felix J. Rosengarten 500 0.0% 6.81 12/19/96 2,142 5,429
- - ------------------
(1) Options granted under the Company's 1994 Stock Option Plan typically have a
10-year term, vest over a four-year period of employment and have an
exercise price equal to market value on the date of grant.
(2) Options to purchase an aggregate of 1,658,950 shares of Common Stock of the
Company were granted to employees during the year ended December 31, 1996
plus options to purchase 849,048 shares of Common Stock were re-granted as
a result of repricing in September 1996.
(3) Options may terminate before their expiration dates if the optionee's
status as an employee or consultant is terminated, upon the optionee's
death or upon an acquisition of the Company.
(4) Potential realizable value is based on an assumption that the market price
of the stock appreciates at the stated rate, compounded annually, from the
date of grant until the end of the ten-year option term. These values are
calculated based on requirements promulgated by the Securities and Exchange
Commission and do not reflect the Company's estimate of future stock price
appreciation. Annual compounding results in total appreciation of 63% (at
5% per year) and 159% (at 10% per year). If the price of the Company's
Common Stock were to increase at such rates from the exercise price over
the next ten years, the resulting stock prices at 5% and 10% appreciation
would be $12.01 and $19.13, respectively.
(5) This option was cancelled in September 1996 in connection with the
repricing as shown in the Summary Compensation and the Ten-Year Option
Repricing Tables.
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The following table sets forth certain information concerning the
exercise of options by each of the Named Officers during 1996, including the
aggregate amount of gain on the date of exercise. In addition, the table
includes the number of shares covered by both exercisable and unexercisable
stock options as of December 31, 1996. Also reported are values of
"in-the-money" options that represent the difference between the respective
exercise prices of outstanding stock options and the fair market value of the
Company's Common Stock as of December 31, 1996 ($7.375 per share), based on the
closing price of the Company's stock on December 31, 1996. No stock
appreciation rights were exercised during 1996, and no stock appreciation
rights were outstanding at the end of the year.
AGGREGATE OPTION EXERCISES IN 1996 AND YEAR-END OPTION VALUES
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT YEAR-END (#) AT YEAR-END
--------------- -----------
SHARES
ACQUIRED VALUE
NAME ON EXERCISE (#) REALIZED (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ----------- ------------- ----------- -------------
David L. Angel ..... 46,875 $540,781 19,097 199,361 $129,382 $208,621
Carl R. Palmer ..... 0 0 0 57,500 0 28,905
P. Ross Hayden ..... 2,000 23,750 2,150 49,894 9,406 37,540
James Brennan ...... 0 0 8,542 45,208 0 0
Felix J. Rosengarten 10,000 80,000 17,435 75,666 121,138 64,161
--------
(1) "Value Realized" represents the fair market value of the shares of
Common Stock underlying the options on the date of exercise based on
the closing price of the Company's stock on the date of exercise.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1, 1996, there have been no transactions or series of
transactions involving more than $60,000 between the Company and any current
executive officer, director, 5% beneficial owner of the Company's Common Stock
or any member of the immediate family of any of the foregoing in which one or
more of the foregoing individuals or entities had a material interest, except
as indicated below and in "Proposal No. 1 - Election of Directors - Director
Compensation" and "Executive Compensation" above.
In January 1996, the Company entered into option amendment agreements
with certain of the Company's officers and key employees that provide for the
acceleration of vesting of options granted under the 1994 Plan and the 1987
Plan.
In January 1996, the Company entered into employment agreements with
certain of the Company's officers and the same key employees that provide for:
(i) salary at their current rates; (ii) bonuses as determined by the Board of
Directors; and (iii) the payment of severance pay equal to 2.5 times salary in
the event (a) of any corporate reorganization or business combination that is
not approved by the Board and in which the beneficial ownership of 50% or more
of ISD's outstanding voting stock is transferred or (b) that a person or entity
or group of persons or entities acquires 15% or more of the Company's
outstanding stock pursuant to a tender or exchange offer that the Board does
not recommend and that the shareholders of the Company accept or a change in
the composition of the Company's Board of Directors by reason of a contested
election.
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21
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee establishes the general compensation policy
of the Company. The role of the Compensation Committee is to review, establish
guidelines, and approve salaries, cash bonuses, stock options and other
compensation of the executive officers. In 1996, the Compensation Committee
consisted of outside directors Eugene J. Flath (except for the period from
March 20 through October 28), Frederick B. Bamber, and Frederick L. Zieber
(from March 20 through the present). David L. Angel, Chairman of the Board and
Chief Executive Officer of the Company, attends certain of the meetings of the
Compensation Committee and makes recommendations regarding executive
compensation. Mr. Angel did not attend any Compensation Committee meetings
where Mr. Angel's compensation package was being discussed by the Compensation
Committee. The Compensation Committee administers the 1994 Equity Incentive
Plan, the 1987 Stock Option Plan and the Employee Stock Purchase Plan.
GENERAL COMPENSATION POLICY
The Compensation Committee has set forth the following as criteria for
total executive compensation:
- The Company's total executive compensation package must be
competitive in the marketplace so as to enable the Company to
attract and retain top caliber executive talent.
- The Company's executive compensation must be linked to the
Company's overall performance. The philosophy of the Compensation
Committee is that base salary should be on par with industry
averages for comparable companies; however, the executive officers
should have significant cash bonus incentives if the Company meets
or exceeds the goals committed to the Board, particularly in view
of the Board's opinion of the relative difficulty in reaching
these goals given competitive market conditions and other factors
affecting the Company's performance.
- The Compensation Committee believes that stock options play an
important role in attracting and retaining qualified personnel in
that stock options provide personnel with a reward directly tied
to increased stock values.
The Committee's philosophy in compensating executive officers,
including the CEO, is to relate compensation directly to corporate performance.
Thus, the Company's compensation policy, which applies to management and other
employees of the Company, relates a portion of each individual's total
compensation to the Company's corporate objectives set forth at the beginning
of the Company's fiscal year, as well as to individual contributions.
Consistent with this policy, a designated portion of the compensation of the
executive officers of the Company is contingent on corporate performance and
adjusted based on the individual officer's performance as measured against
established personal objectives. Long-term equity incentives for executive
officers are effected through the granting of stock options under the 1994
Equity Incentive Plan. Stock options generally have value for the executive
only if the price of the Company's stock increases above the fair market value
on the grant date and the executive remains in the Company's employ for the
period required for the shares to vest.
1996 EXECUTIVE COMPENSATION
Base Salaries. The base salary for each executive officer for 1996
was determined by the Compensation Committee after a review of compensation
survey data including the Radford Executive Compensation Report, private
venture capital salary survey data, compensation data published in the initial
public offering prospectuses of comparable industry companies and compensation
data regarding public companies published in the San Jose Mercury News and the
San Francisco Chronicle.
Incentive Compensation. Once base salaries were determined, an
additional portion of total compensation was offered to Company executives
based upon corporate performance under the Executive Bonus Plan of 1996. Under
this plan, cash awards would have been made to certain officers and key
employees based upon the Company's overall performance measured by pre-tax
income. In 1996, the bonus pool was established as 10% of pre-tax income. The
Executive Bonus Plan Pool availability was contingent upon the Company meeting
the Board-approved revenue and profit plan. The CEO and each officer were given
a bonus target at the beginning of the year
20
22
and specific commitments that had to be achieved, in addition to the Company
meeting the Board-approved financial performance plan, in order for each
executive officer to earn the specific cash bonus. After the end of the year,
since established objectives were not met, the Executive Bonus Plan Pool was
not allocated by the Board.
Stock Options. Stock option grants by the Compensation Committee take
into consideration the anticipated future contribution and ability to impact
corporate business results of each affected executive officer. In 1996, the
Committee determined that each executive officer should have an approximately
equal number of shares of Company stock that can be exercised, each year,
through 1999. The Compensation Committee believes that its 1996 determination
is an effective technique to enhance executive officer performance and
retention.
STOCK OPTION EXCHANGE
In September 1996, the Compensation Committee offered to all employees
(including officers) the opportunity to cancel stock options outstanding with
exercise prices in excess of $6.875, the fair market value of the Company's
Common Stock at that time, in exchange for options exercisable at $6.875 per
share. The new options were otherwise identical to the cancelled options,
except that the vesting schedule of the new options granted to all employees of
the Company at the director level and above, including all Company officers,
was adjusted to begin on September 24, 1996, with any prior vesting being
forfeited. All other employees retained the prior vesting date. The option
exchange was an acknowledgment of the importance to the Company of providing
equity incentives to key employees in order to promote long-term retention of
key employees, motivate high levels of performance and recognize employee
contributions to the success of the Company. The Compensation Committee
believed that stock options that are "out of the money" are not an effective
tool to encourage employee retention or to motivate high levels of performance.
The Compensation Committee decided to include officers in the exchange because
of the importance of their administrative and technical leadership to the
success of the Company's business.
The following table sets forth information concerning the repricing of
options held by the Named Officers during 1995 and 1996.
TEN-YEAR OPTION REPRICING TABLE
MARKET EXERCISE LENGTH OF
OPTION VALUE AT PRICE AT NEW ORIGINAL OPTION
DATE OF SHARES TIME OF TIME OF EXERCISE TERM AT TIME OF
NAME REPRICING REPRICED REPRICING REPRICING PRICE REPRICING
- - ---- --------- -------- --------- --------- ----- ----------
Angel, David 9/24/96 82,000 $6.88 $15.00 $6.88 8 yrs., 5 mos.
Angel, David 9/24/96 100,000 6.88 8.38 6.88 9 yrs., 6 mos.
Brennan, James -- -- -- -- -- --
Hayden, Ross 12/19/95 21,100 10.50 15.00 10.50 9 yrs., 2 mos.
Hayden, Ross 9/24/96 21,100 6.88 10.50 6.88 9 yrs., 3 mos.
Hayden, Ross 9/24/96 5,000 6.88 8.38 6.88 9 yrs., 6 mos.
Palmer, Carl 9/24/96 25,000 6.88 10.50 6.88 9 yrs., 3 mos.
Palmer, Carl 9/24/96 30,000 6.88 8.38 6.88 9 yrs., 6 mos.
Rosengarten, 9/24/96 31,000 6.88 15.00 6.88 8 yrs., 5 mos.
Felix
Rosengarten, 9/24/96 40,000 6.88 8.38 6.88 9 yrs., 6 mos.
Felix
21
23
1996 CEO COMPENSATION
In 1996, Mr. Angel's total compensation was $175,000 (as compared to
$205,000 in 1995). Mr. Angel received no bonus in 1996 (payable in 1997) (as
compared to $30,000 in 1995). The basis for no bonus paid to Mr. Angel was
that the Company's financial performance remained unprofitable throughout 1996,
and established objectives were not met. As a result of the Company's overall
performance and the fact that the prior year's stock option grant was based on
exercise prices well in excess of the fair market value on January 1, 1996, the
Compensation Committee granted Mr. Angel an option for 100,000 shares. The
Compensation Committee believes such option is appropriate for Mr. Angel's
level of responsibility in January 1996 and is well within competitive
practices, taking into account prior stock option grant history, the level of
vested shares and the number of shares Mr. Angel already owns. The Compensation
Committee determined that this new option grant provided the necessary
incentive to Mr. Angel.
COMPLIANCE WITH SECTION 162(M) OF THE INTERNAL REVENUE CODE OF 1986
The Company intends to comply with the requirements of Section 162(m)
of the Internal Revenue Code of 1986 for 1996. The 1994 Equity Incentive Plan
is currently in compliance with Section 162(m) by virtue of the inclusion of a
limitation on the number of shares that an executive officer may receive under
the 1994 Equity Incentive Plan. The Company does not expect cash compensation
for 1996 to be affected by the requirements of Section 162(m).
COMPENSATION COMMITTEE
FREDERICK B. BAMBER
EUGENE J. FLATH
FREDERICK L. ZIEBER
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the Company's
1997 Annual Meeting of Shareholders must be received by the Company at its
principal executive offices no later than February 20, 1998 in order to be
included in the Company's Proxy Statement and form of proxy relating to that
meeting.
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16 of the Exchange Act as amended, requires the Company's
directors and officers, and persons who own more than 10% of a registered class
of the Company's equity securities, to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission.
Such persons are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file. Based solely on its review of the copies
of such forms furnished to the Company and written representations from the
executive officers and directors of the Company, the Company believes that all
filings required to be made by the Company's officers, directors and 10%
shareholders during 1996 were made in a timely manner.
22
24
COMPANY STOCK PRICE PERFORMANCE
COMPARISON OF SHAREHOLDER RETURN
The graph below compares the cumulative total shareholder return on
the Company's Common Stock from February 8, 1995 (the effective date of the
Company's initial public offering) through December 31, 1996 with the
cumulative return on the Nasdaq Stock Market (U.S.) Index and the Nasdaq
Electronic Component Stock Index over the same period (assuming the investment
of $100 in the Company's Common Stock and in each of the indexes on February 8,
1995 and reinvestment of all dividends).
The stock price performance graph below is required by the SEC and
shall not be deemed to be incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act of 1933, as amended, or under the Exchange Act, except to the
extent that the Company specifically incorporates this information by
reference, and shall not otherwise be deemed soliciting material or filed under
such Acts. The comparisons in the graph below are based on historical data and
are not intended to forecast the possible future performance of the Company's
Common Stock.
[COMPARISON GRAPH]
2/8/95 3/31/95 6/30/95 9/29/95 12/31/95 3/31/96 6/30/96 9/30/96 12/31/96
------ ------- ------- ------- -------- ------- ------- ------- --------
ISD $ 100.0 $ 143.3 $ 166.7 $ 150.8 $ 74.2 $ 56.7 $ 63.3 $ 46.7 $ 49.2
Nasdaq Stock Market $ 100.0 $ 104.4 $ 119.4 $ 133.8 $ 135.4 $ 141.8 $ 153.3 $ 158.8 $ 166.6
Nasdaq Component Stock $ 100.0 $ 110.4 $ 156.9 $ 169.0 $ 146.1 $ 145.2 $ 165.8 $ 200.9 $ 252.5
23
25
OTHER BUSINESS
The Board of Directors does not presently intend to bring any other
business before the Meeting, and, so far as is known to the Board of Directors,
no matters are to be brought before the Meeting except as specified in the
notice of the Meeting. As to any business that may properly come before the
Meeting, however, it is intended that proxies, in the form enclosed, will be
voted in respect thereof in accordance with the judgment of the persons voting
such proxies.
Dated: June 19, 1997
By Order of the Board of Directors
Felix J. Rosengarten
Vice President, Finance and
Administration and Chief Financial
Officer
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE,
SIGN AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
24
26
PROXY
INFORMATION STORAGE DEVICES, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
AUGUST 7, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY
The undersigned hereby appoints David L. Angel and Felix J.
Rosengarten, or either of them, as proxies, each with full power of
substitution, and hereby authorizes them to represent and to vote, as
designated below, all shares of Common Stock, no par value, of Information
Storage Devices, Inc. (the "Company"), held of record by the undersigned on
June 9, 1997, at the Annual Meeting of Shareholders of the Company to be held
at the Pruneyard Inn, 1995 South Bascom Avenue, Campbell, California 95008, on
Thursday, August 7, 1997, at 9:00 a.m. local time, and at any adjournments or
postponements thereof.
THIS PROXY WILL BE VOTED AS DIRECTED ON THE REVERSE SIDE. WHEN NO
CHOICE IS INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES
LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4. In their discretion, the
proxy holders are authorized to vote upon such other business as may properly
come before the meeting or any adjournments or postponements thereof to the
extent authorized by Rule 14a-4(c) promulgated under the Securities Exchange
Act of 1934, as amended.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE SIDE
27
[X] Please mark votes as in this example.
The Board of Directors recommends that you vote FOR the election of all
nominees listed in Proposal 1 and FOR Proposals 2, 3 and 4.
1. Election of Directors
Nominees: David L. Angel, Frederick B. Bamber, Eugene J. Flath, Alan V. King,
Eric J. Ochiltree and Frederick L. Zieber
FOR all nominees WITHHOLD AUTHORITY
listed above to vote for all nominees
listed above
[ ] [ ]
For all nominees except as noted below MARK HERE [ ]
FOR ADDRESS
[ ] CHANGE AND
- - ------------------------------------------------- NOTE BELOW
(INSTRUCTION: To withhold authority to vote for
any individual nominee, write that nominee's name
in the space provided above)
FOR AGAINST ABSTAIN
2. To approve an amendment of the Company's 1994 [ ] [ ] [ ]
Equity Incentive Plan to increase the authorized
number of shares by 750,000 shares.
3. To approve an amendment of the Company's 1994 [ ] [ ] [ ]
Employee Stock Purchase Plan to increase the
authorized number of shares by 60,000 shares.
4. To ratify the selection of Arthur Andersen LLP [ ] [ ] [ ]
as independent auditors for the Company for
the current fiscal year.
5. To transact such other business as may properly come before the meeting or
any adjournment thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
Please sign exactly as your name(s) appear(s) on your stock certificate. If
shares of stock stand of record in the names of two or more persons or in the
name of husband and wife, whether as joint tenants or otherwise, both or all of
such persons should sign the proxy. If shares of stock are held of record by a
corporation, the proxy should be executed by the president or vice president
and the secretary or assistant secretary. Executors, administrators or their
fiduciaries who execute the above proxy for a decreased shareholder should give
their full title. Please date the proxy.
Signature: ______________ Date: ________ Signature: _____________ Date: ________
28
INFORMATION STORAGE DEVICES, INC.
1994 EQUITY INCENTIVE PLAN
As Adopted September 12, 1994
As Amended through January 25, 1996
1. PURPOSE. The purpose of the Plan is to provide
incentives to attract, retain and motivate eligible persons whose present and
potential contributions are important to the success of the Company, its
Parent, Subsidiaries and Affiliates, by offering them an opportunity to
participate in the Company's future performance through awards of Options,
Restricted Stock and Stock Bonuses. Capitalized terms not defined in the text
are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to
Sections 2.2 and 18, the total number of Shares reserved and available for
grant and issuance pursuant to the Plan shall be 2,000,000 Shares. Any shares
issuable upon exercise of options granted pursuant to the 1987 Stock Option
Plan (the "Prior Plan") that expire or become unexercisable for any reason
without having been exercised in full, shall no longer be available for
distribution under the Prior Plan, but shall be available for distribution
under this Plan. Subject to Sections 2.2 and 18, Shares shall again be
available for grant and issuance in connection with future Awards under the
Plan that: (a) are subject to issuance upon exercise of an Option but cease to
be subject to such Option for any reason other than exercise of such Option,
(b) are subject to an Award granted hereunder but are forfeited or are
repurchased by the Company at the original issue price, or (c) are subject to
an Award that otherwise terminates without Shares being issued.
2.2 Adjustment of Shares. In the event that the
number of outstanding Shares is changed by a stock dividend, recapitalization,
stock split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under the Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards shall be
proportionately adjusted, subject to any required action by the Board or the
shareholders of the Company and compliance with applicable securities laws;
provided, however, that fractions of a Share shall not be issued but shall
either be paid in cash at Fair Market Value or shall be rounded up to the
nearest Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may
be granted only to employees (including officers and directors who are also
employees) of the Company or of a Parent or Subsidiary of the Company. All
other Awards may be granted to employees, officers, directors, consultants,
independent contractors and advisors of the Company or any Parent, Subsidiary
or Affiliate of the Company; provided such consultants, contractors and
advisors render bona fide services not in connection with the offer and sale of
securities in a capital- raising transaction. No person shall be eligible to
receive more than 500,000 Shares at any time during the term of this Plan
pursuant to the grant of Awards hereunder. A person may be granted more than
one Award under the Plan.
4. ADMINISTRATION.
4.1 Committee Authority. The Plan shall be
administered by the Committee or the Board acting as the Committee. Subject to
the general purposes, terms and conditions of the Plan, and to the direction of
the Board, the Committee shall have full power to implement and carry out the
Plan. The Committee shall have the authority to:
29
(a) construe and interpret the Plan, any Award Agreement
and any other agreement or document executed pursuant
to the Plan;
(b) prescribe, amend and rescind rules and regulations
relating to the Plan;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration
subject to Awards;
(f) determine whether Awards will be granted singly, in
combination, in tandem with, in replacement of, or as
alternatives to, other Awards under the Plan or any
other incentive or compensation plan of the Company or
any Parent, Subsidiary or Affiliate of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of
Awards;
(i) correct any defect, supply any omission, or reconcile
any inconsistency in the Plan, any Award or any Award
Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable
for the administration of the Plan.
4.2 Committee Discretion. Any determination made
by the Committee with respect to any Award shall be made in its sole discretion
at the time of grant of the Award or, unless in contravention of any express
term of the Plan or Award, at any later time, and such determination shall be
final and binding on the Company and all persons having an interest in any
Award under the Plan. The Committee may delegate to one or more officers of
the Company the authority to grant an Award under the Plan to Participants who
are not Insiders of the Company.
4.3 Exchange Act Requirements. If two or more
members of the Board are Outside Directors, the Committee shall be comprised of
at least two members of the Board, all of whom are Outside Directors and
Disinterested Persons. The Company will take appropriate steps to comply with
the disinterested administration requirements of Section 16(b) of the Exchange
Act, which shall consist of the appointment by the Board of a Committee
consisting of not less than two members of the Board, each of whom is a
Disinterested Person.
5. OPTIONS. The Committee may grant Options to eligible
persons and shall determine whether such Options shall be Incentive Stock
Options within the meaning of the Code ("ISOs") or Nonqualified Stock Options
("NQSOs"), the number of Shares subject to the Option, the Exercise Price of
the Option, the period during which the Option may be exercised, and all other
terms and conditions of the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted
under the Plan shall be evidenced by an Award Agreement which shall expressly
identify the Option as an ISO or NQSO ("Stock Option Agreement"), and be in
such form and contain such provisions (which need not be the same for each
Participant) as the Committee shall from time to time approve, and which shall
comply with and be subject to the terms and conditions of the Plan.
5.2 Date of Grant. The date of grant of an Option
shall be the date on which the Committee makes the determination to grant such
Option, unless otherwise specified by the Committee. The Stock
-2-
30
Option Agreement and a copy of the Plan will be delivered to the Participant
within a reasonable time after the granting of the Option.
5.3 Exercise Period. Options shall be exercisable
within the times or upon the events determined by the Committee as set forth in
the Stock Option Agreement; provided, however, that no Option shall be
exercisable after the expiration of ten (10) years from the date the Option is
granted, and provided further that no ISO granted to a person who directly or
by attribution owns more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary of the
Company ("Ten Percent Shareholder") shall be exercisable after the expiration
of five (5) years from the date the ISO is granted. The Committee also may
provide for the exercise of Options to become exercisable at one time or from
time to time, periodically or otherwise, in such number or percentage as the
Committee determines.
5.4 Exercise Price. The Exercise Price shall be
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant; provided that
(i) the Exercise Price of an ISO shall be not less than 100% of the Fair Market
Value of the Shares on the date of grant and (ii) the Exercise Price of any ISO
granted to a Ten Percent Shareholder shall not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of the Plan.
5.5 Method of Exercise. Options may be exercised
only by delivery to the Company of a written stock option exercise agreement
(the "Exercise Agreement") in a form approved by the Committee (which need not
be the same for each Participant), stating the number of Shares being
purchased, the restrictions imposed on the Shares, if any, and such
representations and agreements regarding Participant's investment intent and
access to information and other matters, if any, as may be required or
desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise
periods set forth in the Stock Option Agreement, exercise of an Option shall
always be subject to the following:
(a) If the Participant is Terminated for any reason except
death or Disability, then Participant may exercise such
Participant's Options only to the extent that such
Options would have been exercisable upon the
Termination Date no later than three (3) months after
the Termination Date (or such shorter time period as
may be specified in the Stock Option Agreement), but in
any event, no later than the expiration date of the
Options.
(b) If the Participant is terminated because of death or
Disability (or the Participant dies within three (3)
months of such termination), then Participant's Options
may be exercised only to the extent that such Options
would have been exercisable by Participant on the
Termination Date and must be exercised by Participant
(or Participant's legal representative or authorized
assignee) no later than twelve (12) months after the
Termination Date (or such shorter time period as may be
specified in the Stock Option Agreement), but in any
event no later than the expiration date of the Options.
5.7 Limitations on Exercise. The Committee may
specify a reasonable minimum number of Shares that may be purchased on any
exercise of an Option, provided that such minimum number will not prevent
Participant from exercising the Option for the full number of Shares for which
it is then exercisable.
5.8 Limitations on ISOs. The aggregate Fair Market
Value (determined as of the date of grant) of Shares with respect to which ISOs
are exercisable for the first time by a Participant during any calendar year
(under the Plan or under any other incentive stock option plan of the Company
or any Affiliate, Parent or Subsidiary of the Company) shall not exceed
$100,000. If the Fair Market Value of Shares on the date of grant with respect
to which ISOs are exercisable for the first time by a Participant during any
calendar year exceeds $100,000, the Options for the first $100,000 worth of
Shares to become exercisable in such calendar year shall be ISOs and the
-3-
31
Options for the amount in excess of $100,000 that become exercisable in that
calendar year shall be NQSOs. In the event that the Code or the regulations
promulgated thereunder are amended after the Effective Date of the Plan to
provide for a different limit on the Fair Market Value of Shares permitted to
be subject to ISOs, such different limit shall be automatically incorporated
herein and shall apply to any Options granted after the effective date of such
amendment.
5.9 Modification, Extension or Renewal. The
Committee may modify, extend or renew outstanding Options and authorize the
grant of new Options in substitution therefor, provided that any such action
may not, without the written consent of Participant, impair any of
Participant's rights under any Option previously granted. Any outstanding ISO
that is modified, extended, renewed or otherwise altered shall be treated in
accordance with Section 424(h) of the Code. The Committee may reduce the
Exercise Price of outstanding Options without the consent of Participants
affected by a written notice to them; provided, however, that the Exercise
Price may not be reduced below the minimum Exercise Price that would be
permitted under Section 5.4 of the Plan for Options granted on the date the
action is taken to reduce the Exercise Price.
5.10 No Disqualification. Notwithstanding any other
provision in the Plan, no term of the Plan relating to ISOs shall be
interpreted, amended or altered, nor shall any discretion or authority granted
under the Plan be exercised, so as to disqualify the Plan under Section 422 of
the Code or, without the consent of the Participant affected, to disqualify any
ISO under Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer
by the Company to sell to an eligible person Shares that are subject to
restrictions. The Committee shall determine to whom an offer will be made, the
number of Shares the person may purchase, the price to be paid (the "Purchase
Price"), the restrictions to which the Shares shall be subject, and all other
terms and conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases
under a Restricted Stock Award made pursuant to the Plan shall be evidenced by
an Award Agreement ("Restricted Stock Purchase Agreement") that shall be in
such form (which need not be the same for each Participant) as the Committee
shall from time to time approve, and shall comply with and be subject to the
terms and conditions of the Plan. The offer of Restricted Stock shall be
accepted by the Participant's execution and delivery of the Restricted Stock
Purchase Agreement and full payment for the Shares to the Company within thirty
(30) days from the date the Restricted Stock Purchase Agreement is delivered to
the person. If such person does not execute and deliver the Restricted Stock
Purchase Agreement along with full payment for the Shares to the Company within
thirty (30) days, then the offer shall terminate, unless otherwise determined
by the Committee.
6.2 Purchase Price. The Purchase Price of Shares
sold pursuant to a Restricted Stock Award shall be determined by the Committee
and shall be at least 85% of the Fair Market Value of the Shares on the date
the Restricted Stock Award is granted, except in the case of a sale to a Ten
Percent Shareholder, in which case the Purchase Price shall be 100% of the Fair
Market Value. Payment of the Purchase Price may be made in accordance with
Section 8 of the Plan.
6.3 Restrictions. Restricted Stock Awards shall be
subject to such restrictions as the Committee may impose. The Committee may
provide for the lapse of such restrictions in installments and may accelerate
or waive such restrictions, in whole or part, based on length of service,
performance or such other factors or criteria as the Committee may determine.
7. STOCK BONUSES.
7.1 Awards of Stock Bonuses. A Stock Bonus is an
award of Shares (which may consist of Restricted Stock) for services rendered
to the Company or any Parent, Subsidiary or Affiliate of the Company. A Stock
Bonus may be awarded for past services already rendered to the Company, or any
Parent, Subsidiary or Affiliate of the Company pursuant to an Award Agreement
(the "Stock Bonus Agreement") that shall be in such form (which need not be the
same for each Participant) as the Committee shall from time to time
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approve, and shall comply with and be subject to the terms and conditions of
the Plan. A Stock Bonus may be awarded upon satisfaction of such performance
goals as are set out in advance in the Participant's individual Award Agreement
(the "Performance Stock Bonus Agreement") that shall be in such form (which
need not be the same for each Participant) as the Committee shall from time to
time approve, and shall comply with and be subject to the terms and conditions
of the Plan. Stock Bonuses may vary from Participant to Participant and
between groups of Participants, and may be based upon the achievement of the
Company, Parent, Subsidiary or Affiliate and/or individual performance factors
or upon such other criteria as the Committee may determine.
7.2 Terms of Stock Bonuses. The Committee shall
determine the number of Shares to be awarded to the Participant and whether
such Shares shall be Restricted Stock. If the Stock Bonus is being earned upon
the satisfaction of performance goals pursuant to a Performance Stock Bonus
Agreement, then the Committee shall determine: (a) the nature, length and
starting date of any period during which performance is to be measured (the
"Performance Period") for each Stock Bonus; (b) the performance goals and
criteria to be used to measure the performance, if any; (c) the number of
Shares that may be awarded to the Participant; and (d) the extent to which such
Stock Bonuses have been earned. Performance Periods may overlap and
Participants may participate simultaneously with respect to Stock Bonuses that
are subject to different Performance Periods and different performance goals
and other criteria. The number of Shares may be fixed or may vary in
accordance with such performance goals and criteria as may be determined by the
Committee. The Committee may adjust the performance goals applicable to the
Stock Bonuses to take into account changes in law and accounting or tax rules
and to make such adjustments as the Committee deems necessary or appropriate to
reflect the impact of extraordinary or unusual items, events or circumstances
to avoid windfalls or hardships.
7.3 Form of Payment. The earned portion of a Stock
Bonus may be paid currently or on a deferred basis with such interest or
dividend equivalent, if any, as the Committee may determine. Payment may be
made in the form of cash, whole Shares, including Restricted Stock, or a
combination thereof, either in a lump sum payment or in installments, all as
the Committee shall determine.
7.4 Termination During Performance Period. If a
Participant is Terminated during a Performance Period for any reason, then such
Participant shall be entitled to payment (whether in Shares, cash or otherwise)
with respect to the Stock Bonus only to the extent earned as of the date of
Termination in accordance with the Performance Stock Bonus Agreement, unless
the Committee shall determine otherwise.
8. PAYMENT FOR SHARE PURCHASES.
8.1 Payment. Payment for Shares purchased pursuant
to the Plan may be made in cash (by check) or, where expressly approved for the
Participant by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been
owned by Participant for more than six (6) months and
have been paid for within the meaning of SEC Rule 144
(and, if such shares were purchased from the Company by
use of a promissory note, such note has been fully paid
with respect to such shares); or (2) were obtained by
Participant in the public market;
(c) by tender of a full recourse promissory note having
such terms as may be approved by the Committee and
bearing interest at a rate sufficient to avoid
imputation of income under Sections 483 and 1274 of the
Code; provided, however, that Participants who are not
employees of the Company shall not be entitled to
purchase Shares with a promissory note unless the note
is adequately secured by collateral other than the
Shares; provided, further, that the portion of the
Purchase Price equal to the par value of the Shares, if
any, must be paid in cash.
(d) by waiver of compensation due or accrued to Participant
for services rendered;
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(e) by tender of property;
(f) with respect only to purchases upon exercise of an
Option, and provided that a public market for the
Company's stock exists:
(1) through a "same day sale" commitment from
Participant and a broker-dealer that is a
member of the National Association of
Securities Dealers (a "NASD Dealer") whereby
the Participant irrevocably elects to exercise
the Option and to sell a portion of the Shares
so purchased to pay for the Exercise Price, and
whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the
Exercise Price directly to the Company; or
(2) through a "margin" commitment from Participant
and a NASD Dealer whereby Participant
irrevocably elects to exercise the Option and
to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the
Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares
to forward the Exercise Price directly to the
Company;
or
(g) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the
Participant pay for Shares purchased under the Plan by authorizing a guarantee
by the Company of a third-party loan to the Participant.
9. WITHHOLDING TAXES.
9.1 Withholding Generally. Whenever Shares are to
be issued in satisfaction of Awards granted under the Plan, the Company may
require the Participant to remit to the Company an amount sufficient to satisfy
federal, state and local withholding tax requirements prior to the delivery of
any certificate or certificates for such Shares. Whenever, under the Plan,
payments in satisfaction of Awards are to be made in cash, such payment shall
be net of an amount sufficient to satisfy federal, state, and local withholding
tax requirements.
9.2 Stock Withholding. When, under applicable tax
laws, a Participant incurs tax liability in connection with the exercise or
vesting of any Award that is subject to tax withholding and the Participant is
obligated to pay the Company the amount required to be withheld, the Committee
may allow the Participant to satisfy the minimum withholding tax obligation by
electing to have the Company withhold from the Shares to be issued that number
of Shares having a Fair Market Value equal to the minimum amount required to be
withheld, determined on the date that the amount of tax to be withheld is to be
determined (the "Tax Date"). All elections by a Participant to have Shares
withheld for this purpose shall be made in writing in a form acceptable to the
Committee and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable
Tax Date;
(b) once made, then except as provided below, the election
shall be irrevocable as to the particular Shares as to
which the election is made;
(c) all elections shall be subject to the consent or
disapproval of the Committee;
(d) if the Participant is an Insider and if the Company is
subject to Section 16(b) of the Exchange Act: (1) the
election may not be made within six (6) months of the
date of grant of the Award, except as otherwise
permitted by SEC Rule 16b-3(e) under the Exchange Act,
and (2) either (A) the election to use stock
withholding must be irrevocably made at
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least six (6) months prior to the Tax Date (although
such election may be revoked at any time at least six
(6) months prior to the Tax Date) or (B) the exercise
of the Option or election to use stock withholding must
be made in the ten (10) day period beginning on the
third day following the release of the Company's
quarterly or annual summary statement of sales or
earnings; and
(e) in the event that the Tax Date is deferred until six
(6) months after the delivery of Shares under Section
83(b) of the Code, the Participant shall receive the
full number of Shares with respect to which the
exercise occurs, but such Participant shall be
unconditionally obligated to tender back to the Company
the proper number of Shares on the Tax Date.
10. PRIVILEGES OF STOCK OWNERSHIP.
10.1 Voting and Dividends. No Participant shall
have any of the rights of a shareholder with respect to any Shares until the
Shares are issued to the Participant. After Shares are issued to the
Participant, the Participant shall be a shareholder and have all the rights of
a shareholder with respect to such Shares, including the right to vote and
receive all dividends or other distributions made or paid with respect to such
Shares; provided, that if such Shares are Restricted Stock, then any new,
additional or different securities the Participant may become entitled to
receive with respect to such Shares by virtue of a stock dividend, stock split
or any other change in the corporate or capital structure of the Company shall
be subject to the same restrictions as the Restricted Stock; provided, further,
that the Participant shall have no right to retain such stock dividends or
stock distributions with respect to Shares that are repurchased at the
Participant's original Purchase Price pursuant to Section 12.
10.2 Financial Statements. The Company shall
provide financial statements to each Participant prior to such Participant's
purchase of Shares under the Plan, and to each Participant annually during the
period such Participant has Awards outstanding; provided, however, the Company
shall not be required to provide such financial statements to Participants
whose services in connection with the Company assure them access to equivalent
information.
11. TRANSFERABILITY. Awards granted under the Plan, and
any interest therein, shall not be transferable or assignable by Participant,
and may not be made subject to execution, attachment or similar process,
otherwise than by will or by the laws of descent and distribution or as
consistent with the specific Plan and Award Agreement provisions relating
thereto. During the lifetime of the Participant an Award shall be exercisable
only by the Participant, and any elections with respect to an Award, may be
made only by the Participant.
12. RESTRICTIONS ON SHARES. At the discretion of the
Committee, the Company may reserve to itself and/or its assignee(s) in the
Award Agreement (a) a right of first refusal to purchase all Shares that a
Participant (or a subsequent transferee) may propose to transfer to a third
party, and/or (b) a right to repurchase a portion of or all Shares held by a
Participant following such Participant's Termination at any time within ninety
(90) days after the later of Participant's Termination Date and the date
Participant purchases Shares under the Plan, for cash or cancellation of
purchase money indebtedness, at: (A) with respect to Shares that are "Vested"
(as defined in the Award Agreement), the higher of: (l) Participant's original
Purchase Price, or (2) the Fair Market Value of such Shares on Participant's
Termination Date, provided, that such right of repurchase (i) must be exercised
as to all such "Vested" Shares unless a Participant consents to the Company's
repurchase of only a portion of such "Vested" Shares and (ii) terminates when
the Company's securities become publicly traded; or (B) with respect to Shares
that are not "Vested" (as defined in the Award Agreement), at the Participant's
original Purchase Price, provided, that the right to repurchase at the original
Purchase Price lapses at the rate of at least 20% per year over 5 years from
the date the Shares were purchased (or from the date of grant of options in the
case of Shares obtained pursuant to a Stock Option Agreement and Stock Option
Exercise Agreement), and if the right to repurchase is assignable, the assignee
must pay the Company, upon assignment of the right to repurchase, cash equal to
the excess of the Fair Market Value of the Shares over the original Purchase
Price.
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13. CERTIFICATES. All certificates for Shares or other
securities delivered under the Plan shall be subject to such stock transfer
orders, legends and other restrictions as the Committee may deem necessary or
advisable, including restrictions under any applicable federal, state or
foreign securities law, or any rules, regulations and other requirements of the
SEC or any stock exchange or automated quotation system upon which the Shares
may be listed.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions
on a Participant's Shares, the Committee may require the Participant to deposit
all certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause
a legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under the Plan shall
be required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to
the Company under the promissory note; provided, however, that the Committee
may require or accept other or additional forms of collateral to secure the
payment of such obligation and, in any event, the Company shall have full
recourse against the Participant under the promissory note notwithstanding any
pledge of the Participant's Shares or other collateral. In connection with any
pledge of the Shares, Participant shall be required to execute and deliver a
written pledge agreement in such form as the Committee shall from time to time
approve. The Shares purchased with the promissory note may be released from
the pledge on a prorata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at
any time or from time to time, authorize the Company, with the consent of the
respective Participants, to issue new Awards in exchange for the surrender and
cancellation of any or all outstanding Awards. The Committee may at any time
buy from a Participant an Award previously granted with payment in cash, Shares
(including Restricted Stock) or other consideration, based on such terms and
conditions as the Committee and the Participant shall agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An
Award shall not be effective unless such Award is in compliance with all
applicable federal and state securities laws, rules and regulations of any
governmental body, and the requirements of any stock exchange or automated
quotation system upon which the Shares may then be listed, as they are in
effect on the date of grant of the Award and also on the date of exercise or
other issuance. Notwithstanding any other provision in the Plan, the Company
shall have no obligation to issue or deliver certificates for Shares under the
Plan prior to (a) obtaining any approvals from governmental agencies that the
Company determines are necessary or advisable, and/or (b) completion of any
registration or other qualification of such shares under any state or federal
law or ruling of any governmental body that the Company determines to be
necessary or advisable. The Company shall be under no obligation to register
the Shares with the SEC or to effect compliance with the registration,
qualification or listing requirements of any state securities laws, stock
exchange or automated quotation system, and the Company shall have no liability
for any inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in the Plan or any
Award granted under the Plan shall confer or be deemed to confer on any
Participant any right to continue in the employ of, or to continue any other
relationship with, the Company or any Parent, Subsidiary or Affiliate of the
Company or limit in any way the right of the Company or any Parent, Subsidiary
or Affiliate of the Company to terminate Participant's employment or other
relationship at any time, with or without cause.
18. CORPORATE TRANSACTIONS.
18.1 Corporate Transactions. In the event of a
Corporate Transaction (as defined in this Section 18.1), the exercisability of
each Option shall be automatically accelerated so that each Option shall,
immediately before the specified effective date for the Corporate Transaction,
become fully exercisable with respect to the total number of Shares and may be
exercised for all or any portion of such Shares; provided, that an Option shall
not be accelerated if and to the extent that such Option is, in connection with
the Corporate Transaction, either to be assumed by the successor corporation or
parent thereof or to be replaced with a comparable option to purchase
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shares of the capital stock of the successor corporation or parent thereof.
The determination of comparability shall be made by the Board or the Committee,
and the Board or the Committee's determination shall be final, binding and
conclusive. Upon the consummation of a Corporate Transaction, all outstanding
Options shall, to the extent not previously exercised or assumed by the
successor corporation or its parent, terminate and cease to be exercisable.
"Corporate Transaction" means (i) a merger or
acquisition in which the Company is not the surviving entity (except for a
transaction the principal purpose of which is to change the State in which the
Company is incorporated), (ii) the sale, transfer or other disposition of all
or substantially all of the assets of the Company or (iii) any other corporate
reorganization or business combination that is not approved by the Board and in
which the beneficial ownership of 50% or more of the Company's outstanding
voting stock is transferred.
18.2 Dissolution. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent that
Options have not been previously exercised, such Options will terminate
immediately prior to the consummation of such proposed action.
18.3 Assumption of Awards by the Company. The
Company, from time to time, also may substitute or assume outstanding awards
granted by another company, whether in connection with an acquisition of such
other company or otherwise, by either (a) granting an Option under this Plan in
substitution of such other company's Option, or (b) assuming such Option as if
it had been granted under this Plan if the terms of such assumed Option could
be applied to an Option granted under this Plan. Such substitution or
assumption shall be permissible if the holder of the substituted or assumed
Option would have been eligible to be granted an Option under the Plan if the
other company had applied the rules of the Plan to such grant. In the event
the Company assumes an Option granted by another company, the terms and
conditions of such Option shall remain unchanged (except that the Exercise
Price and the number and nature of Shares issuable upon exercise of any such
option will be adjusted appropriately pursuant to Section 424(a) of the Code).
In the event the Company elects to grant a new Option rather than assuming an
existing option, such new Option may be granted with a similarly adjusted
Exercise Price.
19. ADOPTION AND SHAREHOLDER APPROVAL. The Plan shall
become effective on the closing of the first registration of the Company's
Common Stock for sale to the public under the Securities Act (the "Effective
Date"). The Plan shall be approved by the shareholders of the Company
(excluding Shares issued pursuant to this Plan), consistent with applicable
laws, within twelve (12) months before or after the date the Plan is adopted by
the Board. Upon the Effective Date, the Board may grant Awards pursuant to the
Plan; provided, however, that: (a) no Option may be exercised prior to initial
shareholder approval of the Plan; (b) no Option granted pursuant to an increase
in the number of Shares approved by the Board shall be exercised prior to the
time such increase has been approved by the shareholders of the Company; and
(c) in the event that shareholder approval is not obtained within the time
period provided herein, all Awards granted hereunder shall be canceled, any
Shares issued pursuant to any Award shall be canceled and any purchase of
Shares hereunder shall be rescinded. After the Company becomes subject to
Section 16(b) of the Exchange Act, the Company will comply with the
requirements of Rule 16b-3 (or its successor), as amended, with respect to
shareholder approval.
20. TERM OF PLAN. The Plan will terminate ten (10) years
from the date the Plan is adopted by the Board or, if earlier, the date of
shareholder approval.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any
time terminate or amend the Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to the Plan; provided, however, that the Board shall not, without the approval
of the shareholders of the Company, amend the Plan in any manner that requires
such shareholder approval pursuant to the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans or pursuant to the Exchange
Act or Rule 16b-3 (or its successor), as amended, thereunder.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of
the Plan by the Board, the submission of the Plan to the shareholders of the
Company for approval, nor any provision of the Plan shall be
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37
construed as creating any limitations on the power of the Board to adopt such
additional compensation arrangements as it may deem desirable, including,
without limitation, the granting of stock options and bonuses otherwise than
under the Plan, and such arrangements may be either generally applicable or
applicable only in specific cases.
23. DEFINITIONS. As used in the Plan, the following terms
shall have the following meanings:
"Affiliate" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, another corporation, where "control" (including
the terms "controlled by" and "under common control with") means the
possession, direct or indirect, of the power to cause the direction of the
management and policies of the corporation, whether through the ownership of
voting securities, by contract or otherwise.
"Award" means any award under the Plan, including any
Option, Restricted Stock or Stock Bonus.
"Award Agreement" means, with respect to each Award,
the signed written agreement between the Company and the Participant setting
forth the terms and conditions of the Award.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Committee" means the committee appointed by the Board
to administer the Plan, or if no committee is appointed, the Board.
"Company" means Information Storage Devices, Inc., a
corporation organized under the laws of the State of California, or any
successor corporation.
"Disability" means a disability, whether temporary or
permanent, partial or total, within the meaning of Section 22(e)(3) of the
Code, as determined by the Committee.
"Disinterested Person" means a director who has not,
during the period that person is a member of the Committee and for one year
prior to service as a member of the Committee, been granted or awarded equity
securities pursuant to the Plan or any other plan of the Company or any Parent,
Subsidiary or Affiliate of the Company, except in accordance with the
requirements set forth in Rule 16b-3(c)(2)(i) (and any successor regulation
thereto) as promulgated by the SEC under Section 16(b) of the Exchange Act, as
such rule is amended from time to time and as interpreted by the SEC.
"Exchange Act" means the Securities Exchange Act of
1934, as amended.
"Exercise Price" means the price at which a holder of
an Option may purchase the Shares issuable upon exercise of the Option.
"Fair Market Value" means, as of any date, the value of
a share of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq
National Market, its closing price on the Nasdaq
National Market on the last trading day prior to the
date of determination as reported in The Wall Street
Journal;
(b) if such Common Stock is publicly traded and is then
listed on a national securities exchange, its closing
price on the last trading day prior to the date of
determination on the
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principal national securities exchange on which the
Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
(c) if such Common Stock is publicly traded but is not
quoted on the Nasdaq National Market nor listed or
admitted to trading on a national securities exchange,
the average of the closing bid and asked prices on the
last trading day prior to the date of determination as
reported by The Wall Street Journal; or
(d) if none of the foregoing is applicable, by the Board in
good faith.
"Insider" means an officer or director of the Company
or any other person whose transactions in the Company's Common Stock are
subject to Section 16 of the Exchange Act.
"Outside Director" means any director who is not (a) a
current employee of the Company or any Parent, Subsidiary or Affiliate of the
Company, (b) a former employee of the Company or any Parent, Subsidiary or
Affiliate of the Company who is receiving compensation for prior services
(other than benefits under a tax-qualified pension plan), (c) a current or
former officer of the Company or any Parent, Subsidiary or Affiliate of the
Company or (d) currently receiving compensation for personal services in any
capacity, other than as a director, from the Company or any Parent, Subsidiary
or Affiliate of the Company; provided, however, that at such time as the term
"Outside Director", as used in Section 162(m) is defined in regulations
promulgated under Section 162(m) of the Code, "Outside Director" shall have the
meaning set forth in such regulations, as amended from time to time and as
interpreted by the Internal Revenue Service.
"Option" means an award of an option to purchase Shares
pursuant to Section 5.
"Parent" means any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company, if at the time of
the granting of an Award under the Plan, each of such corporations other than
the Company owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
"Participant" means a person who receives an Award
under the Plan.
"Plan" means this Information Storage Devices, Inc.
1994 Equity Incentive Plan, as amended from time to time.
"Restricted Stock Award" means an award of Shares
pursuant to Section 6.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as
amended.
"Shares" means shares of the Company's Common Stock
reserved for issuance under the Plan, as adjusted pursuant to Sections 2 and
15, and any successor security.
"Stock Bonus" means an award of Shares, or cash in lieu
of Shares, pursuant to Section 7.
"Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if, at
the time of granting of the Award, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
"Termination" or "Terminated" means, for purposes of
the Plan with respect to a Participant, that the Participant has ceased to
provide services as an employee, director, consultant, independent contractor
or adviser, to the Company or a Parent, Subsidiary or Affiliate of the Company,
except in the case of sick
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39
leave, military leave, or any other leave of absence approved by the Committee,
provided, that such leave is for a period of not more than ninety (90) days, or
reinstatement upon the expiration of such leave is guaranteed by contract or
statute. The Committee shall have sole discretion to determine whether a
Participant has ceased to provide services and the effective date on which the
Participant ceased to provide services (the "Termination Date").
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40
INFORMATION STORAGE DEVICES, INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
As Adopted on September 12, 1994
1. Establishment of Plan. Information Storage Devices, Inc. (the
"Company") proposes to grant options for purchase of the Company's Common Stock
to eligible employees of the Company and its Subsidiaries (as hereinafter
defined) pursuant to this Employee Stock Purchase Plan (this "Plan"). For
purposes of this Plan, "Parent Corporation" and "Subsidiary" (collectively,
"Subsidiaries") shall have the same meanings as "parent corporation" and
"subsidiary corporation" in Sections 424(e) and 424(f), respectively, of the
Internal Revenue Code of 1986, as amended (the "Code"). The Company intends
the Plan to qualify as an "employee stock purchase plan" under Section 423 of
the Code (including any amendments to or replacements of such Section), and the
Plan shall be so construed. Any term not expressly defined in the Plan but
defined for purposes of Section 423 of the Code shall have the same definition
herein. A total of 120,000 shares of the Company's Common Stock is reserved
for issuance under the Plan. Such number shall be subject to adjustments
effected in accordance with Section 14 of the Plan.
2. Purpose. The purpose of the Plan is to provide employees of the
Company and Subsidiaries designated by the Board of Directors of the Company
(the "Board") as eligible to participate in the Plan with a convenient means of
acquiring an equity interest in the Company through payroll deductions, to
enhance such employees' sense of participation in the affairs of the Company
and Subsidiaries, and to provide an incentive for continued employment.
3. Administration. This Plan may be administered by the Board or a
committee appointed by the Board (the "Committee"). If, at the time the
Company registers under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), a majority of the Board is not comprised of Disinterested
Persons as defined in Rule 16b-3(d) promulgated under the Exchange Act, the
Board shall appoint a committee consisting of at least two (2) members of the
Board, each of whom is a Disinterested Person. As used in this Plan,
references to the "Committee" shall mean either such committee or the Board if
no committee has been established. After registration of the Company under the
Exchange Act, Board members who are not Disinterested Persons may not vote on
any matters affecting the administration of this Plan, but any such member may
be counted for determining the existence of a quorum at any meeting of the
Board. Subject to the provisions of the Plan and the limitations of Section
423 of the Code or any successor provision in the Code, all questions of
interpretation or application of the Plan shall be determined by the Board and
its decisions shall be final and binding upon all participants. Members of the
Board shall receive no compensation for their services in connection with the
administration of the Plan, other than standard fees as established from time
to time by the Board for services rendered by Board members serving on Board
committees. All expenses incurred in connection with the administration of the
Plan shall be paid by the Company.
4. Eligibility. Any employee of the Company or the Subsidiaries is
eligible to participate in an Offering Period (as hereinafter defined) under
the Plan except the following:
41
(a) employees who are not employed by the Company or Subsidiaries
fifteen (15) days before the beginning of such Offering Period;
(b) employees who are customarily employed for less than twenty
(20) hours per week;
(c) employees who are customarily employed for less than five (5)
months in a calendar year;
(d) employees who, together with any other person whose stock
would be attributed to such employee pursuant to Section 424(d) of the Code,
own stock or hold options to purchase stock or who, as a result of being
granted an option under the Plan with respect to such Offering Period, would
own stock or hold options to purchase stock possessing 5 percent or more of the
total combined voting power or value of all classes of stock of the Company or
any of its Subsidiaries.
5. Offering Dates. The Offering Periods of the Plan (the "Offering
Period") shall be of 6 months duration commencing February 1 and August 1 of
each year and ending on July 31 and January 31 respectively, during which
payroll deductions of the participant are accumulated under this Plan. The
first day of each Offering Period is referred to as the "Offering Date". The
last business day of each Offering Period is referred to as the "Purchase
Date". The Board shall have the power to change the duration of Offering
Periods with respect to future offerings without shareholder approval if such
change is announced at least fifteen (15) days prior to the scheduled beginning
of the first Offering Period to be affected.
6. Participation in the Plan. Eligible employees may become
participants in an Offering Period under the Plan on the first Offering Date
after satisfying the eligibility requirements by delivering a subscription
agreement to the Company's or Subsidiary's (whichever employs such employee)
treasury department (the "Treasury Department") not later than the 15th day of
the month before such Offering Date unless a later time for filing the
subscription agreement authorizing payroll deductions is set by the Board for
all eligible employees with respect to a given Offering Period. An eligible
employee who does not deliver a subscription agreement to the Treasury
Department by such date after becoming eligible to participate in such Offering
Period shall not participate in that Offering Period or any subsequent Offering
Period unless such employee enrolls in the Plan by filing a subscription
agreement with the Treasury Department not later than the 15th day of the month
preceding a subsequent Offering Date. Once an employee becomes a participant
in an Offering Period, such employee will automatically participate in the
Offering Period commencing immediately following the last day of the prior
Offering Period unless the employee withdraws from the Plan or terminates
further participation in the Offering Period as set forth in Section 11 below.
Such participant is not required to file any additional subscription agreement
in order to continue participation in the Plan.
7. Grant of Option on Enrollment. Enrollment by an eligible employee
in the Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing the amount accumulated in such employee's payroll
deduction account during such Offering Period by the lower of (i) eighty-five
percent (85%) of the fair market value of a share of the Company's Common Stock
on the Offering Date or (ii) eighty-five percent (85%) of the fair market value
of a share of the Company's Common Stock on the Purchase Date; provided,
however, that the number of shares of the Company's Common Stock subject to any
option granted pursuant to this Plan shall not exceed the lesser of (a) the
maximum number of shares set by the Board pursuant to Section 10(c) below with
respect to the
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applicable Offering Period, or (b) the maximum number of shares which may be
purchased pursuant to Section 10(b) below with respect to the applicable
Offering Period. Fair market value of a share of the Company's Common Stock
shall be determined as provided in Section 8 hereof.
8. Purchase Price. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be eighty- five percent
(85%) of the lesser of:
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date.
For purposes of the Plan the term "fair market value" on a given
date shall mean the fair market value of the Company's Common Stock as
determined by the Board in its sole discretion, exercised in good faith;
provided, however, that where there is a public market for the Common Stock,
the fair market value per share shall be the average of the closing bid and
asked prices of the Common Stock on the last trading day prior to the date of
determination, as reported in The Wall Street Journal (or if not so reported,
as otherwise reported by the Nasdaq Stock Market), or, in the event the Common
Stock is listed on a stock exchange or on the Nasdaq National Market, the fair
market value per share shall be the closing price on the exchange or on the
Nasdaq National Market on the last trading date prior to the date of
determination as reported in The Wall Street Journal.
9. Payment Of Purchase Price; Changes In Payroll Deductions; Issuance
Of Shares.
(a) The purchase price of the shares is accumulated by regular
payroll deductions made during each Offering Period. The deductions are made
as a percentage of the participant's compensation in one percent (1%)
increments not less than two percent (2%), nor greater than ten percent (10%),
not to exceed $25,000 per year or such lower limit set by the Committee.
Compensation shall mean all W-2 compensation, including, but not limited to
base salary, wages, commissions, overtime, shift premiums and bonuses, plus
draws against commissions; provided, however, that for purposes of determining
a participant's compensation, any election by such participant to reduce his or
her regular cash remuneration under Sections 125 or 401(k) of the Code shall be
treated as if the participant did not make such election. Payroll deductions
shall commence on the first payday following the Offering Date and shall
continue to the end of the Offering Period unless sooner altered or terminated
as provided in the Plan.
(b) A participant may lower (but not increase) the rate of payroll
deductions during an Offering Period by filing with the Treasury Department a
new authorization for payroll deductions, in which case the new rate shall
become effective for the next payroll period commencing more than fifteen (15)
days after the Treasury Department's receipt of the authorization and shall
continue for the remainder of the Offering Period unless changed as described
below. Such change in the rate of payroll deductions may be made at any time
during an Offering Period, but not more than one change may be made effective
during any Offering Period. A participant may increase or decrease the rate of
payroll deductions for any subsequent Offering Period by filing with the
Treasury Department a new authorization for payroll deductions not later than
the 15th day of the month before the beginning of such Offering Period.
(c) All payroll deductions made for a participant are credited to
his or her account under the Plan and are deposited with the general funds of
the Company. No interest accrues on the payroll deductions. All payroll
deductions received or held by the Company may be used by the
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Company for any corporate purpose, and the Company shall not be obligated to
segregate such payroll deductions.
(d) On each Purchase Date, so long as the Plan remains in effect
and provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the
participant wishes to withdraw from that Offering Period under the Plan and
have all payroll deductions accumulated in the account maintained on behalf of
the participant as of that date returned to the participant, the Company shall
apply the funds then in the participant's account to the purchase of whole
shares of Common Stock reserved under the option granted to such participant
with respect to the Offering Period to the extent that such option is
exercisable on the Purchase Date. The purchase price per share shall be as
specified in Section 8 of the Plan. Any cash remaining in a participant's
account after such purchase of shares shall be refunded to such participant in
cash, without interest; provided, however, that any amount remaining in such
participant's account on a Purchase Date which is less than the amount
necessary to purchase a full share of Common Stock of the Company shall be
carried forward, without interest, into the next Offering Period. In the event
that the Plan has been oversubscribed, all funds not used to purchase shares on
the Purchase Date shall be returned to the participant, without interest. No
Common Stock shall be purchased on a Purchase Date on behalf of any employee
whose participation in the Plan has terminated prior to such Purchase Date.
(e) As promptly as practicable after the Purchase Date, the
Company shall arrange the delivery to each participant of a certificate
representing the shares purchased upon exercise of his option.
(f) During a participant's lifetime, such participant's option to
purchase shares hereunder is exercisable only by him or her. The participant
will have no interest or voting right in shares covered by his or her option
until such option has been exercised. Shares to be delivered to a participant
under the Plan will be registered in the name of the participant or in the name
of the participant and his or her spouse.
10. Limitations on Shares to be Purchased.
(a) No employee shall be entitled to purchase stock under the
Plan at a rate which, when aggregated with his or her rights to purchase stock
under all other employee stock purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in the Plan.
(b) No more than two hundred percent (200%) of the number of
shares determined by using eighty-five percent (85%) of the fair market value
of a share of the Company's Common Stock on the Offering Date as the
denominator may be purchased by a participant on any single Purchase Date.
(c) No employee shall be entitled to purchase more than the
Maximum Share Amount (as defined below) on any single Purchase Date. Not less
than thirty (30) days prior to the commencement of any Offering Period, the
Board may, in its sole discretion, set a maximum number of shares which may be
purchased by any employee at any single Purchase Date (hereinafter the "Maximum
Share Amount"). In no event shall the Maximum Share Amount exceed the amounts
permitted under Section 10(b) above. If a new Maximum Share Amount is set,
then all participants must be notified of such Maximum Share Amount not less
than fifteen (15) days prior to the
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commencement of the next Offering Period. Once the Maximum Share Amount is
set, it shall continue to apply with respect to all succeeding Purchase Dates
and Offering Periods unless revised by the Board as set forth above.
(d) If the number of shares to be purchased on a Purchase Date by
all employees participating in the Plan exceeds the number of shares then
available for issuance under the Plan, the Company will make a pro rata
allocation of the remaining shares in as uniform a manner as shall be
practicable and as the Board shall determine to be equitable. In such event,
the Company shall give written notice of such reduction of the number of shares
to be purchased under a participant's option to each participant affected
thereby.
(e) Any payroll deductions accumulated in a participant's account
which are not used to purchase stock due to the limitations in this Section 10
shall be returned to the participant as soon as practicable after the end of
the Offering Period, without interest.
11. Withdrawal.
(a) Each participant may withdraw from an Offering Period under
the Plan by signing and delivering to the Treasury Department notice on a form
provided for such purpose. Such withdrawal may be elected at any time at least
fifteen (15) days prior to the end of an Offering Period.
(b) Upon withdrawal from the Plan, the accumulated payroll
deductions shall be returned to the withdrawn participant, without interest,
and his or her interest in the Plan shall terminate. In the event a
participant voluntarily elects to withdraw from the Plan, he or she may not
resume his or her participation in the Plan during the same Offering Period,
but he or she may participate in any Offering Period under the Plan which
commences on a date subsequent to such withdrawal by filing a new authorization
for payroll deductions in the same manner as set forth above for initial
participation in the Plan.
12. Termination of Employment. Termination of a participant's
employment for any reason, including retirement, death or the failure of a
participant to remain an eligible employee, immediately terminates his or her
participation in the Plan. In such event, the payroll deductions credited to
the participant's account will be returned to him or her or, in the case of his
or her death, to his or her legal representative, without interest. For
purposes of this Section 12, an employee will not be deemed to have terminated
employment or failed to remain in the continuous employ of the Company in the
case of sick leave, military leave, or any other leave of absence approved by
the Board; provided that such leave is for a period of not more than ninety
(90) days or reemployment upon the expiration of such leave is guaranteed by
contract or statute.
13. Return of Payroll Deductions. In the event a participant's
interest in the Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event the Plan is terminated by the Board, the Company
shall promptly deliver to the participant all payroll deductions credited to
his account. No interest shall accrue on the payroll deductions of a
participant in the Plan.
14. Capital Changes. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each option under the Plan which has not yet been exercised and the number of
shares of Common Stock which have been authorized for issuance under the Plan
but have not yet been placed under option (collectively, the "Reserves"), as
well as
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the price per share of Common Stock covered by each option under the Plan which
has not yet been exercised, shall be proportionately adjusted for any increase
or decrease in the number of issued shares of Common Stock resulting from a
stock split or the payment of a stock dividend (but only on the Common Stock)
or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration". Such
adjustment shall be made by the Board, whose determination shall be final,
binding and conclusive. Except as expressly provided herein, no issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option.
In the event of the proposed dissolution or liquidation of the Company,
the Offering Period will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Board. The Board may,
in the exercise of its sole discretion in such instances, declare that the
options under the Plan shall terminate as of a date fixed by the Board and give
each participant the right to exercise his or her option as to all of the
optioned stock, including shares which would not otherwise be exercisable. In
the event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation, each
option under the Plan shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, that the participant
shall have the right to exercise the option as to all of the optioned stock.
If the Board makes an option exercisable in lieu of assumption or substitution
in the event of a merger or sale of assets, the Board shall notify the
participant that the option shall be fully exercisable for a period of twenty
(20) days from the date of such notice, and the option will terminate upon the
expiration of such period.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the
price per share of Common Stock covered by each outstanding option, in the
event that the Company effects one or more reorganizations, recapitalizations,
rights offerings or other increases or reductions of shares of its outstanding
Common Stock, or in the event of the Company being consolidated with or merged
into any other corporation.
15. Nonassignability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option
or to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect.
16. Reports. Individual accounts will be maintained for each
participant in the Plan. Each participant shall receive promptly after the end
of each Offering Period a report of his or her account setting forth the total
payroll deductions accumulated, the number of shares purchased, the per share
price thereof and the remaining cash balance, if any, carried forward to the
next Offering Period.
17. Notice of Disposition. Each participant shall notify the Company
if the participant disposes of any of the shares purchased in any Offering
Period pursuant to this Plan if such disposition occurs within two (2) years
from the Offering Date or within one (1) year from the Purchase Date on which
such shares were purchased (the "Notice Period"). Unless such participant is
disposing of any of such shares during the Notice Period, such participant
shall keep the
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certificates representing such shares in his or her name (and not in the name
of a nominee) during the Notice Period. The Company may, at any time during
the Notice Period, place a legend or legends on any certificate representing
shares acquired pursuant to the Plan requesting the Company's transfer agent to
notify the Company of any transfer of the shares. The obligation of the
participant to provide such notice shall continue notwithstanding the placement
of any such legend on the certificates.
18. No Rights to Continued Employment. Neither this Plan nor the
grant of any option hereunder shall confer any right on any employee to remain
in the employ of the Company or any Subsidiary, or restrict the right of the
Company or any Subsidiary to terminate such employee's employment.
19. Equal Rights And Privileges. All eligible employees shall have
equal rights and privileges with respect to the Plan so that the Plan qualifies
as an "employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision of
the Plan which is inconsistent with Section 423 or any successor provision of
the Code shall, without further act or amendment by the Company or the Board,
be reformed to comply with the requirements of Section 423. This Section 19
shall take precedence over all other provisions in the Plan.
20. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. Term; Shareholder Approval. This Plan shall become effective on
the date that it is adopted by the Board. This Plan shall be approved by the
shareholders of the Company, in any manner permitted by applicable corporate
law, within twelve (12) months before or after the date this Plan is adopted by
the Board. No purchase of shares pursuant to the Plan shall occur prior to
such shareholder approval. Thereafter, no later than twelve (12) months after
the Company becomes subject to Section 16(b) of the Exchange Act, the Company
will comply with the requirements of Rule 16b-3 with respect to shareholder
approval. The Plan shall continue until the earlier to occur of termination by
the Board, issuance of all of the shares of Common Stock reserved for issuance
under the Plan or ten (10) years from the adoption of the Plan by the Board.
22. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to the end of an Offering Period but prior to delivery to him of
such shares and cash. In addition, a participant may file a written
designation of a beneficiary who is to receive any cash from the participant's
account under the Plan in the event of such participant's death prior to a
Purchase Date.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares or cash to the executor or administrator of the estate of
the participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its discretion, may deliver such
shares or cash to the spouse or to any one or more
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dependents or relatives of the participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company may
designate.
23. Conditions Upon Issuance of Shares; Limitation on Sale of Shares.
Shares shall not be issued with respect to an option unless the exercise of
such option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated thereunder, and the requirements of any
stock exchange upon which the shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
24. Applicable Law. The Plan shall be governed by the substantive
laws (excluding the conflict of laws rules) of the State of California.
25. Amendment or Termination of the Plan. The Board may at any time
amend, terminate or the extend the term of the Plan, except that any such
termination cannot affect options previously granted under the Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the shareholders of the Company obtained in accordance with
Section 21 hereof within twelve (12) months of the adoption of such amendment
(or earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under the
Plan;
(b) change the designation of the employees (or class of
employees) eligible for participation in the Plan; or
(c) constitute an amendment for which shareholder approval is
required in order to comply with Rule 16b-3 (or any successor rule) of the
Exchange Act.
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