INTEGRATED SYSTEMS, INC.
1988 Stock Option Plan
As Adopted September 26, 1988
As Amended through March 28, 1997
1. PURPOSE. This Stock Option Plan ("Plan") is established to provide
incentive for selected persons to promote the financial success and progress of
Integrated Systems, Inc. (the "Company") by granting such persons options to
purchase shares of common stock of the Company.
2. ADOPTION AND SHAREHOLDER APPROVAL. 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 of Directors of the Company (the "Board") and after the date of
certain amendments to the Plan. In addition, no later than twelve (12) months
after the Company becomes subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") the Company will comply with the
requirements of Rule 16b-3 with respect to shareholder approval.
3. TYPES OF OPTIONS AND SHARES. Options granted under this Plan (the
"Options") may be either (a) incentive stock options ("ISOs") within the meaning
of Section 422 of the Internal Revenue Code of 1986 (the "Code"), or (b)
nonqualified stock options ("NQSOs"), as designated at the time of grant. The
shares of stock that may be purchased upon exercise of Options granted under
this Plan (the "Shares") are shares of the common stock of the Company.
4. NUMBER OF SHARES. The maximum number of Shares that may be issued
pursuant to Options granted under this Plan is Six Million (6,000,000) Shares,
subject to adjustment as provided in this Plan. If any Option is terminated for
any reason without being exercised in whole or in part, the Shares thereby
released from such Option shall be available for purchase under other Options
subsequently granted under this Plan. At all times during the term of this Plan,
the Company shall reserve and keep available such number of Shares as shall be
required to satisfy the requirements of outstanding Options under this Plan.
5. ADMINISTRATION. This Plan may be administered by the Board or a
Committee appointed by the Board (the "Committee"). If, at the time the Company
registers under the Exchange Act, a majority of the Board is not comprised of
Disinterested Persons, the Board shall appoint a Committee consisting of not
less than three persons (who need not be members of the Board), each of whom is
a "Disinterested Person" (as defined in Section 6(b)(iv) of the Plan) and an
"Outside Director" (as defined in Section 6(b)(vi) of the Plan) or qualifies
under transition rules as an Outside Director. 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 or on the grant of any Options
pursuant to this Plan to any officer or director of the Company or other person
(in each case, an "Insider") whose transactions in the Company's common stock
are subject to Section 16(b) of the Exchange Act, but any such member may be
counted for determining the existence of a quorum at any meeting of the Board
during which action is taken with respect to Options or administration of this
Plan and may vote on the grant of any Options pursuant to this Plan other than
to Insiders. The interpretation by the Committee of any of the provisions of
this Plan or any Option granted under this Plan shall be final and binding upon
the Company and all persons having an interest in any Option or any Shares
purchased pursuant to an Option. The Committee may delegate the authority to
officers of the Company to grant Options under this Plan to Optionees who are
not Insiders of the Company. No Optionee shall be eligible to receive more than
250,000 Shares at any time during the term of this Plan pursuant to the grant of
Options hereunder.
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6. ELIGIBILITY. Options may be granted only to such employees,
officers, directors and consultants of the Company or any Parent, Subsidiary or
Affiliate of the Company (as defined below) as the Committee shall select from
time to time in its sole discretion ("Optionees"), provided that only employees
of the Company or a Parent or Subsidiary of the Company shall be eligible to
receive ISOs. An Optionee may be granted more than one Option under this Plan.
(a) Assumption of Options. The Company may, from time to time,
assume outstanding options granted by another company, whether in connection
with an acquisition of such other company or otherwise, by either (i) granting
an option under this Plan in replacement of the option assumed by the Company,
or (ii) treating the assumed 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 assumption shall be permissible if the holder of the assumed
option would have been eligible to be granted an option hereunder if the other
Company had applied the rules of this Plan to such grant.
(b) Definitions. As used in the Plan, the following terms
shall have the following meanings:
(i) "Parent" means any corporation (other than
the Company) in an unbroken chain of corporations ending with the Company if, at
the time of the granting of the Option, each of such corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
(ii) "Subsidiary" means any corporation (other
than the Company) in an unbroken chain of corporations beginning with the
Company if, at the time of granting of the Option, each of the corporations
other than the last corporation in the unbroken chain owns stock possessing 50%
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
(iii) "Affiliate" means any corporation that
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with another corporation, where
"control" (including the terms "controlled by" and "under common control with")
means the possession, direct or indirect, of the power to cause the direction of
the management and policies of the corporation, whether through the ownership of
voting securities, by contract or otherwise.
(iv) "Disinterested Person" shall have the
meaning set forth in Rule 16b-3(d)(3) as promulgated by the Securities and
Exchange Commission ("SEC") under Section 16(b) of the Exchange Act, as such
rule is amended from time to time and as interpreted by the SEC.
(v) "Fair Market Value" shall mean the fair
market value of the Shares as determined by the Committee from time to time in
good faith. If a public market exists for the Shares, the Fair Market Value
shall be the average of the last reported bid and asked prices for Common Stock
of the Company on the last trading day prior to the date of determination or, in
the event the Common Stock of the Company is listed on a stock exchange or the
Nasdaq National Market, the Fair Market Value shall be the closing price on such
exchange or quotation system on the last trading day prior to the date of
determination.
(vi) "Outside Director" shall mean any director
who is not (i) a current employee of the Company or any Parent, Subsidiary or
Affiliate of the Company, (ii) 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), (iii) a
current or former officer of the Company or any Parent, Subsidiary or Affiliate
of the Company or (iv) 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) of the Code, is defined
in the regulations promulgated under Section 162(m), "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.
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7. TERMS AND CONDITIONS OF OPTIONS. The Committee shall determine
whether each Option is to be an ISO or an NQSO, the number of Shares for which
the Option shall be granted, the exercise price of the Option, the periods
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following terms and conditions:
(a) Form of Option Grant. Each Option granted under this Plan
shall be evidenced by a written Stock Option Grant ("Grant") in such form (which
need not be the same for each Optionee) as the Committee shall from time to time
approve, which Grant shall comply with and be subject to the terms and
conditions of this Plan.
(b) Exercise Price. The exercise price of an Option shall be
not less than the Fair Market Value of the Shares, at the time that the Option
is granted. The exercise price of any Option granted to a person owning 10% or
more of the total combined voting power of all classes of stock of the Company
or any Parent or Subsidiary of the Company ("Ten Percent Shareholder") shall not
be less than 110% of the Fair Market Value of the Shares at the time of the
grant, as determined by the Committee in good faith.
(c) Exercise Period. Options shall be exercisable within the
times or upon the events determined by the Committee as set forth in the option
grant; provided, however, that no Option shall be exercisable after the
expiration of ten years from the date the option is granted, and provided
further that no Option granted to a Ten Percent Shareholder shall be exercisable
after the expiration of five years from the date the Option is granted.
(d) Limitations on ISOs. The aggregate Fair Market Value
(determined as of the time an Option is granted) of stock with respect to which
ISOs are exercisable for the first time by an Optionee during the calendar year
(under this Plan or under any other incentive stock option plan of the Company
or any Parent or Subsidiary of the Company) shall not exceed $100,000. If the
Fair Market Value of stock with respect to which ISOs are first exercised
exceeds $100,000, the Options for the first $100,000 worth of stock shall be
ISOs and options for the amount in excess of $100,000 shall be NQSOs.
(e) Date of Grant. The date of grant of an Option shall be the
date on which the Committee makes the determination to grant such Option unless
otherwise specified by the Committee. The Grant representing the Option shall be
delivered to the Optionee within a reasonable time after the granting of the
Option.
(f) Assumed Options. In the event the Company assumes an
option granted by another company, the terms and conditions of such option shall
remain unchanged (except the exercise price and the number and nature of shares
issuable upon exercise, which will be adjusted appropriately pursuant to Section
425(c) of the Code). In the event the Company elects to grant a new option
rather than assuming an existing option (as specified in Section 6(a), such new
option need not be granted at Fair Market Value on the date of grant and may
instead be granted with a similarly adjusted exercise price.
8. EXERCISE OF OPTIONS.
(a) Notice. Options may be exercised only by delivery to the
Company of a written notice and exercise agreement in a form approved by the
Committee, stating the number of Shares being purchased, the restrictions
imposed on the Shares and such representations and agreements regarding the
Optionee's investment intent and access to information as may be required by the
Company to comply with applicable securities laws together with payment in full
of the exercise price for the number of Shares being purchased.
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(b) Payment. Payment for the Shares may be made (i) in cash
(by check); (ii) by surrender of shares of common stock of the Company that have
been owned by Optionee for more than six (6) months (and which have been paid
for within the meaning of SEC Rule 144 and, if such shares were purchased from
the Company by use of a promissory note, such note has been fully paid with
respect to such shares) or were obtained by the Optionee in the open public
market, having a Fair Market Value equal to the exercise price of the Option;
(iii) where permitted by applicable law and approved by the Committee in its
sole discretion, by tender of a full recourse promissory note having such terms
as may be approved by the Committee; (iv) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (a "NASD Dealer") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
exercise price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the exercise price directly to the Company; or (v) by any
combination of the foregoing where approved by the Committee in its sole
discretion. Optionees who are not employees or directors of the Company shall
not be entitled to purchase Shares with a promissory note unless the note is
adequately secured by collateral other than the Shares.
(c) Withholding Taxes. Prior to issuance of the Shares upon
exercise of an Option, the Optionee shall pay or make adequate provision for any
federal or state withholding obligations of the Company, if applicable.
(d) Limitations on Exercise. Notwithstanding the exercise
periods set forth in the Grant, exercise of an Option shall always be subject to
the following limitations:
(i) If an Optionee ceases to be employed by the
Company or any Parent, Subsidiary or Affiliate of the Company for any reason
except death or disability, the Optionee may exercise such Optionee's Options to
the extent (and only to the extent) that it would have been exercisable upon the
date of termination, within three (3) months after the date of termination (or
such shorter time period as may be specified in the Grant), provided that, if
Optionee is an Insider and the Company is subject to Section 16(b) of the
Exchange Act, the Optionee's Option will be exercisable for a period of time
sufficient to allow such Optionee from having a matching purchase and sale under
Section 16(b), with any extension beyond three (3) months from termination of
employment in the case of an Option constituting an ISO being deemed to be as an
NQSO, and provided further that in no event may an Option be exercisable later
than the expiration date of the Option.
(ii) If an Optionee's employment with the Company
or any Parent, Subsidiary or Affiliate of the Company is terminated because of
the death of the Optionee or disability of Optionee within the meaning of
Section 22(e)(3) of the Code, such Optionee's Options may be exercised to the
extent (and only to the extent) that it would have been exercisable by the
Optionee on the date of termination, by the Optionee (or the Optionee's legal
representative) within twelve (12) months after the date of termination (or such
shorter time period as may be specified in the Grant), but in any event no later
than the expiration date of the Options.
(iii) The Committee shall have discretion to
determine whether the Optionee has ceased to be employed by the Company or any
Parent, Subsidiary or Affiliate of the Company and the effective date on which
such employment terminated.
(iv) In the case of an Optionee who is a
director, independent consultant, contractor or advisor, the Committee will have
the discretion to determine whether the Optionee is "employed by the Company or
any Parent, Subsidiary or Affiliate of the Company" pursuant to the foregoing
Sections.
(v) An Option shall not be exercisable unless
such exercise is in compliance with the Securities Act of 1933, as amended, and
all applicable state securities laws, as they are in effect on the date of
exercise.
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(vi) The Committee may specify a reasonable
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent the Optionee from exercising
the full number of Shares as to which the Option is then exercisable.
9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
an Option shall be exercisable only by the Optionee. No Option may be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner other
than by will or by the laws of descent and distribution.
10. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the
rights of a shareholder with respect to any Shares subject to an Option until
the Option has been validly exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
of exercise, except as provided in this Plan. The Company shall provide to each
Optionee a copy of the annual financial statements of the Company, at such time
after the close of each fiscal year of the Company as they are released by the
Company to its shareholders.
11. ADJUSTMENT OF OPTIONS SHARES. In the event that the number of
outstanding shares of common stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration,
the number of Shares available under this Plan and the number of Shares subject
to outstanding Options and the exercise price per share of such Options shall be
proportionately adjusted, subject to any required action by the Board or
shareholders of the Company and compliance with applicable securities; provided,
however, that no certificate or scrip representing fractional shares shall be
issued upon exercise of any Option and any resulting fractions of a Share shall
be ignored.
12. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option granted
under this Plan shall confer on any Optionee any right to continue in the employ
of the Company or any Parent, Subsidiary or Affiliate of the Company or limit in
any way the right of the Company or any Parent, Subsidiary or Affiliate of the
Company to terminate the Optionee's employment at any time, with or without
cause.
13. COMPLIANCE WITH LAWS. The grant of Options and the issuance of
Shares upon exercise of any Options shall be subject to and conditioned upon
compliance with all applicable requirements of law, including without limitation
compliance with the Securities Act of 1933, as amended, any required approval by
the Commissioner of Corporations of the State of California, compliance with all
other applicable state securities laws and compliance with the requirements of
any stock exchange on which the Shares may be listed. The Company shall be under
no obligation to register the Shares with the SEC or to effect compliance with
the registration or qualification requirements of any state securities laws or
stock exchange.
14. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself or its assignee(s) in the Grant (a) a right of
first refusal to purchase any Shares that an Optionee (or a subsequent
transferee) may propose to transfer to a third party and (b) a right to
repurchase all Shares held by an Optionee upon the Optionee's termination of
employment or service with the Company or its Parent, Subsidiary or Affiliate of
the Company for any reason within a specified time as determined by the
Committee at the time of grant at (i) the Optionee's original purchase price
(provided that the right to repurchase at such price shall lapse at the rate of
at least 20% per year from the date of grant), (ii) the Fair Market Value of
such Shares as determined by the Committee in good faith or (iii) a price
determined by a formula or other provision set forth in the Grant.
15. ASSUMPTION OF OPTIONS BY SUCCESSORS. In the event of a dissolution
or liquidation of the Company, a merger in which the Company is not the
surviving corporation, or the sale of substantially all of the assets of the
Company, any or all outstanding Options shall, notwithstanding any contrary
terms of the Grant, accelerate and become exercisable in full at least ten days
prior to (and shall expire on) the consummation of such dissolution,
liquidation, merger or sale of stock or sale of assets on such conditions as the
Committee shall determine unless the successor corporation assumes the
outstanding Options or substitutes substantially equivalent options. The
aggregate Fair Market Value (determined at the time an Option is granted) of
stock with respect to ISOs which first become exercisable in the year of such
dissolution, liquidation, merger, sale of stock or sale of
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assets cannot exceed $100,000. Any remaining accelerated ISOs shall be NQSOs.
16. AMENDMENT OR TERMINATION OF PLAN. The Committee may at any time
terminate or amend this Plan in any respect (including, but not limited to, any
form of Grant, agreement or instrument to be executed pursuant to this Plan);
provided, however, that the Committee shall not, without the approval of the
holders of a majority of the outstanding voting shares of the Company, amend
this Plan in any manner that requires such shareholder approval pursuant to the
Code or the regulations promulgated thereunder as such provisions apply to
incentive stock option plans or pursuant to the Exchange Act or Rule 16b-3 (or
its successor) promulgated thereunder.
17. TERM OF PLAN. Options may be granted pursuant to this Plan from
time to time within a period of ten years from the date this Plan is adopted by
the Board.
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STOCK OPTION GRANT
Optionee:
Address:
Grant Number:
Total Options Granted:
Date of Grant:
Vesting Commencement Date:
Expiration Date:
Type of Stock Option:
1. Grant of Option. Integrated Systems, Inc. (the "Company"), a
California corporation, hereby grants to the optionee named on the previous page
("Optionee") an option (this "Option") to purchase the total number of shares of
common stock of the Company (the "Shares") at the exercise price per Share (the
"Exercise Price"), subject to all of the terms and conditions of this Grant and
the Company's 1988 Stock Option Plan as adopted September 26, 1988 and as
amended through May 25, 1994 (the "Plan"). If designated as an Incentive Stock
Option above, this Option is intended to qualify as an "incentive stock option"
("ISO") within the meaning of Section 422A of the Internal Revenue Code of 1986
(the "Code").
2. Exercise Period of Option. Subject to the terms and conditions of
the Plan and this Grant, this Option shall become exercisable as follows:
(a) 25% of the Shares shall become exercisable one year after
the Vesting Commencement Date; and
(b) 1/48th of the Shares shall become exercisable at the end
of every one-month period thereafter;
provided, however, that this Option may not be exercised as to any fraction
of a Share and no compensation will be paid for any fractional Share; and
provided further that this Option shall expire on the Expiration Date and
must be exercised, if at all, on or before the Expiration Date.
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3. Restrictions on Exercise. Exercise of this Option is subject to the
following limitations:
(a) This Option may not be exercised unless such exercise is in
compliance with the Securities Act of 1933, as amended, and
all applicable state securities laws as they are in effect
on the date of exercise, any standback restrictions, and
the requirements of any stock exchange or national market
system on which the Company's Common Stock may be listed at
the time of exercise.
(b) This Option may not be exercised as to fewer than 100
Shares unless it is exercised as to all Shares as to which
this Option is then exercisable.
4. Termination of Option. Except as provided below in this Section,
this Option shall terminate and may not be exercised if Optionee ceases to be
employed by the Company or any Parent or Subsidiary of the Company (or in the
case of a nonqualified stock option, an Affiliate of the Company). Optionee
shall be considered to be employed by the Company if Optionee is an officer,
director or full-time employee of the Company, or any Parent, Subsidiary or
Affiliate of the Company or if the Board of Directors determines that Optionee
is rendering substantial services as a part-time employee, consultant or
independent contractor to the Company or any Parent, Subsidiary or Affiliate of
the Company. The Board of Directors of the Company shall have discretion to
determine whether Optionee has ceased to be employed by the Company or any
Parent, Subsidiary or Affiliate of the Company and the effective date on which
such employment terminated (the "Termination Date").
(a) If Optionee ceases to be employed by the Company or any
Parent, Subsidiary or Affiliate of the Company for any
reason except death or disability, this Option, to the
extent (and only to the extent) that it would have been
exercisable by Optionee on the Termination Date, may be
exercised by Optionee within three months after the
Termination Date; provided that if the Optionee is an
officer or director of the Company or other person (in
each case, an "Insider"), whose transactions in the
Company's Common Stock are subject to Section 16(b) of the
Exchange Act of 1934, as amended (the "Exchange Act") and
the Company is subject to Section 16(b) of the Exchange
Act, the Optionees's option will be exercisable for a
period of time sufficient to prevent such Optionee from
having a matching purchase and sale under Section 16(b).
Any extension beyond three (3) months from termination of
employment will be deemed to be an NQSO. In no event,
however, may an Option be exercisable later than the
Expiration Date.
(b) If Optionee's employment with the Company or any Parent,
Subsidiary or Affiliate of the Company is terminated
because of the death of Optionee or disability of Optionee
within the meaning of Section 22(e)(3) of the Code, this
Option, to the extent that it is exercisable by Optionee
on the Termination Date, may be exercised by Optionee (or
Optionee's legal representative)
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within twelve months after the Termination Date, but in
any event no later than the Expiration Date.
Nothing in this Plan or this Grant shall confer on Optionee any right
to continue in the employ of the Company or any Parent, Subsidiary or Affiliate
of the Company or limit in any way the right of the Company or any Parent,
Subsidiary or Affiliate of the Company to terminate Optionee's employment at any
time, with or without cause.
5. Manner of Exercise.
(a) This Option shall be exercisable by delivery to the Company
of an executed written Stock Option Exercise Form in the
form attached hereto as Exhibit A, or in such other form as
may be approved by the Company, which shall set forth
Optionee's election to exercise this Option, the number of
Shares being purchased, any restrictions imposed on the
Shares and such other representations and agreements
regarding Optionee's investment intent and access to
information as may be required by the Company to comply
with applicable securities laws.
(b) Such Stock Option Exercise Form shall be accompanied by
full payment of the Exercise Price for the Shares being
purchased (i) in cash (by check); (ii) where permitted by
applicable law and approved by the Committee in its sole
discretion, by tender of a full recourse promissory note
having such terms as may be approved by the Committee;
(iii) by any combination of the foregoing where approved by
the Committee in its sole discretion. Optionees who are not
employees or directors of the Company shall not be entitled
to purchase Shares with a promissory note unless the note
is adequately secured by collateral other than the Shares.
(c) Prior to the issuance of the Shares upon exercise of this
Option, Optionee must pay or make adequate provision for
any applicable federal or state withholding obligations of
the Company.
(d) Provided that such notice and payment are in form and
substance satisfactory to counsel for the Company, the
Company shall issue the shares registered in the name of
Optionee or Optionee's legal representative.
6. Notice of Disqualifying Disposition of ISO Shares. If the Option
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the date of this Grant, and (2) the date
one year after transfer of such Shares to the Optionee upon the exercise of the
ISO, the Optionee shall immediately notify the Company in writing of such
disposition. Optionee agrees that Optionee may be subject to income tax
withholding by the Company on the compensation income recognized by the Optionee
from the early disposition by payment in cash or out of the current earnings
paid to the Optionee.
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7. Compliance with Laws and Regulations. The issuance and transfer of
Shares shall be subject to compliance by the Company and the Optionee with all
applicable requirements of federal and state securities laws and with all
applicable requirements of any stock exchange on which the Company's Common
Stock may be listed at the time of such issuance or transfer. Optionee
understands that the Company is under no obligation to register or qualify the
Shares with the Securities and Exchange Commission, any state securities
commission or any stock exchange to effect such compliance.
8. Nontransferability of Option. This Option may not be transferred in
any manner other than by will or by the laws of descent and distribution and may
be exercised during the lifetime of the Optionee only by the Optionee. The terms
of this Option shall be binding upon the executors, administrators, successors
and assigns of the Optionee.
9. Tax Consequences. Set forth below is a brief summary as of the date
of this Option of some of the federal and California tax consequences of
exercise of this Option and disposition of the Shares. This summary is
necessarily incomplete, and the tax laws and regulations are subject to change.
Optionee should consult a tax adviser before exercising this Option or disposing
of the shares.
(a) Exercise of ISO. If this Option qualifies as an ISO, there
will be no regular federal income tax liability or
California income tax liability upon the exercise of the
Option, although the excess, if any, of the fair market
value of the Shares on the date of exercise over the
Exercise Price will be treated as a tax preference item
for federal income tax purposes and may subject the
Optionee to the alternative minimum tax in the year of
exercise.
(b) Exercise of Nonqualified Stock Option. If this Option does
not qualify as an ISO, there may be a regular federal
income tax liability and a California income tax liability
upon the exercise of the Option. The Optionee will be
treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of
the fair market value of the Shares on the date of
exercise over the Exercise Price. The Company will be
required to withhold from Optionee's compensation or
collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this
compensation income at the time of exercise.
(c) Disposition of Shares. In the case of an NQSO, if Shares
acquired pursuant to the Option are held for at least one
year, any gain realized on disposition of the Shares will
be treated as long term capital gain for federal and
California income tax purposes. In the case of an ISO, if
Shares transferred pursuant to the Option are held for at
least one year after exercise and are disposed of at least
two years after the Date of Grant, any gain realized on
disposition of the Shares will also be treated as long
term capital gain for federal and California income tax
purposes. If Shares purchased under an ISO are disposed of
within
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such one year period or within two years after the Date of
Grant, any gain realized on such disposition will be
treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the fair
market value of the Shares on the date of exercise over
the Exercise Price.
10. Interpretation. Any dispute regarding the interpretation of this
agreement shall be submitted by Optionee or the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the
Plan, which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Board or committee shall be final and
binding on the Company and on Optionee.
11. Entire Agreement. The Plan and the Stock Option Exercise Form
attached as Exhibit A are incorporated herein by reference. This Grant, the
Plan and the Stock Option Exercise Form constitute the entire agreement of the
parties and supersede all prior undertakings and agreements with respect to
the subject matter hereof.
INTEGRATED SYSTEMS, INC.
By:____________________________
David St. Charles
President and CEO
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ACCEPTANCE
Optionee hereby acknowledges receipt of a copy of the Plan and the Form S-8
Prospectus relating thereto, represents that Optionee had read and understands
the terms and provisions thereof, and accept this option, Grant Number _____,
dated ______, subject to all the terms and conditions of the Plan and this Stock
Option Grant. Optionee acknowledges that there may be adverse tax consequences
upon exercise of this Option or disposition of the Shares and that Optionee
should consult a tax advisor prior to such exercise or disposition.
Optionee: __________________________
6