Form 10-Q

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PJoyL0BrEuwKIlT3cnj5nOKoIRZejrZhQGuYbh3cJKVbnEF/vEzAnjkrAfY5idS0 ffkq4NaDBCupim7wzAFmEQ== 0001021408-02-014158.txt : 20021114 0001021408-02-014158.hdr.sgml : 20021114 20021114152437 ACCESSION NUMBER: 0001021408-02-014158 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALIFORNIA MICRO DEVICES CORP CENTRAL INDEX KEY: 0000800460 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS & ACCESSORIES [3670] IRS NUMBER: 942672609 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15449 FILM NUMBER: 02824881 BUSINESS ADDRESS: STREET 1: 215 TOPAZ ST CITY: MILPITAS STATE: CA ZIP: 95035-5430 BUSINESS PHONE: 4082633214 MAIL ADDRESS: STREET 1: 215 TOPAZ STREET STREET 2: 215 TOPAZ STREET CITY: MILPITAS STATE: CA ZIP: 95035-5430 10-Q 1 d10q.htm FORM 10-Q Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the period ended September 30, 2002

TRANSITION REPORT PURSUANT TO SECTION 10 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-15449

CALIFORNIA MICRO DEVICES CORPORATION

(Exact name of registrant as specified in its charter)

California		94-2672609
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

430 N. McCarthy Blvd. Milpitas, California		95035
(Address of principal executive offices)		(Zip Code)

(408) 263-3214

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address, and former fiscal year if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Applicable Only to Corporate Issuers

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

The number of shares of the registrant’s Common Stock outstanding as of November 8, 2002 was 14,275,189.

CALIFORNIA MICRO DEVICES CORPORATION

INDEX

PART I. FINANCIAL INFORMATION

		Page Number

Item 1.	Condensed Financial Statements

	Condensed Statements of Operations Three and Six Months Ended September 30, 2002 and 2001	3

	Condensed Balance Sheets September 30, 2002 and March 31, 2002	4

	Condensed Statements of Cash Flows Six Months Ended September 30, 2002 and 2001	5

	Notes to Condensed Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14

Item 4.	Controls and Procedures	14

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	16

Item 2.	Submission of Matters to a Vote of Security Holders	17

Item 3.	Other Information	17

Item 4.	Exhibits and Reports on Form 8-K	17

Signature		18

ITEM 1. Financial Statements.

CALIFORNIA MICRO DEVICES CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

(amounts in thousands, except per share data)

(Unaudited)

	Three Months Ended September 30,						Six Months Ended September 30,
	2002			2001			2002			2001
Net sales	$	10,761		$	8,638		$	20,129		$	14,743
Costs and expenses:
Cost of sales		8,436			8,986			16,584			15,644
Research and development		894			1,027			1,776			1,925
Selling, general and administrative		2,507			2,463			5,167			5,177
Special charges					4,110						4,110

Total costs and expenses		11,837			16,586			23,527			26,856

Operating loss		(1,076	)		(7,948	)		(3,398	)		(12,113	)
Other expense, net		265			313			506			439

Net loss	$	(1,341	)	$	(8,261	)	$	(3,904	)	$	(12,552	)

Net loss per share—basic and diluted	$	(0.09	)	$	(0.71	)	$	(0.28	)	$	(1.09	)

Weighted average common shares outstanding—basic and diluted		14,209			11,575			14,069			11,525

The accompanying notes are an integral part of these financial statements.

CALIFORNIA MICRO DEVICES CORPORATION

CONDENSED BALANCE SHEETS

(amounts in thousands, except share data)

	September 30, 2002			March 31, 2002*
	(unaudited)
ASSETS
Current assets:
Cash, cash equivalents and short-term investments	$	4,084		$	7,240
Accounts receivable, net		5,638			4,561
Inventories		4,390			2,784
Prepaids and other current assets		756			679

Total current assets		14,868			15,264
Property, plant and equipment, net		11,186			10,853
Restricted cash		972			888
Other long-term assets		1,003			1,232

Total assets	$	28,029		$	28,237

LIABILITIES & SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt	$	1,094		$	—
Accounts payable		5,419			5,085
Accrued liabilities		3,231			4,345
Deferred margin on sales to distributors		1,737			1,193
Current maturities of long-term debt and capital lease obligations		1,601			2,256

Total current liabilities		13,082			12,879
Long-term debt and capital lease obligations, less current maturities		9,240			7,069
Other long-term liabilities		283			509

Total liabilities		22,605			20,457

Shareholders’ equity:
Common stock—no par value; 25,000,000 shares authorized; shares issued and outstanding: 14,249,270 as of September 30, 2002 and 13,850,765 as of March 31, 2002		69,282			67,732
Accumulated other comprehensive income (loss)		—			2
Accumulated deficit		(63,858	)		(59,954	)

Total shareholders’ equity		5,424			7,780

Total liabilities and shareholders’ equity	$	28,029		$	28,237

Derived from audited financial statements.

The accompanying notes are an integral part of these financial statements.

CALIFORNIA MICRO DEVICES CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(Unaudited)

	Six Months Ended September 30,
	2002			2001
Cash flows from operating activities:
Net (loss)	$	(3,904	)	$	(12,552	)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash portion of special charges		—			3,395
Write-off of discontinued inventory		—			511
Depreciation and amortization		1,399			1,627
Stock based compensation		71
(Loss) on the sale of fixed assets		(3	)
Changes in assets and liabilities:
Accounts receivable		(1,077	)		3,437
Inventories		(1,606	)		2,180
Prepaid expenses and other current assets		(77	)		101
Accounts payable and other current liabilities		(482	)		286
Other long term assets		221			14
Other long term liabilities		(226	)		—
Deferred margin on distributor sales		544			(253	)

Net cash used in operating activities		(5,140	)		(1,254	)

Cash flows from investing activities:
Purchases of short-term investments		—			(4,772	)
Sales of short-term investments		300			5,929
Capital expenditures		(1,945	)		(1,180	)
Net change in restricted cash		(84	)		(69	)

Net cash used in investing activities		(1,729	)		(92	)

Cash flows from financing activities:
Short-term borrowings		1,094			—
Repayments of capital lease obligations		(3	)		(165	)
Repayments of long-term debt		(2,056	)		(687	)
Borrowings of long-term debt		3,499			499
Proceeds from issuance of common stock		1,479			751

Net cash provided by (used in) financing activities		4,013			398

Net decrease in cash and cash equivalents		(2,856	)		(948	)
Cash and cash equivalents at beginning of period		6,940			2,309

Cash and cash equivalents at end of period		4,084		$	1,361

Supplemental disclosures of non-cash investing and financing activities:
Assets purchased under capital lease	$	76		$	—

The accompanying notes are an integral part of these financial statements.

CALIFORNIA MICRO DEVICES CORPORATION

Notes to Condensed Financial Statements

(unaudited)

1. Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of California Micro Devices Corporation (the “Company”, “we”, “us” or “our”) as of September 30, 2002, results of operations for the three and six-month periods ended September 30, 2002 and 2001, and cash flows for the six months ended September 30, 2002 and 2001. Results for the three and six-month periods are not necessarily indicative of fiscal year results.

The condensed financial statements should be read in conjunction with the financial statements included with our annual report on Form 10-K for the fiscal year ended March 31, 2002.

2. Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our estimates are based on historical experience, input from sources outside of the company, and other relevant facts and circumstances. Actual results could differ from those estimates.

3. Inventories

The components of inventory consist of the following (amounts in thousands):

	September 30, 2002		March 31, 2002
Raw materials	$	563	$	355
Work-in-process		2,256		1,602
Finished goods		1,571		827

	$	4,390	$	2,784

4. Litigation

We are a party to lawsuits, claims, investigations, and proceedings, including commercial and employment matters, which are being handled and defended in the ordinary course of business. We review the current status of any pending or threatened proceedings with our outside counsel on a regular basis and, considering all the other known relevant facts and circumstances, recognize any loss that we consider probable and estimable as of the balance sheet date. As of September 30, 2002 and March 31, 2002, we had not recorded any liability on our balance sheet for any pending or threatened litigation, claims, or proceedings.

We have two cases pending in the Santa Clara County, State of California Superior Court in which the amount sought by the plaintiffs is several millions of dollars, and therefore a verdict in their favor would be materially adverse to our business. Although several years old, both cases have been stayed by courts until fairly recently; as a result, both cases are early in the discovery phase, making it difficult to assess the probability of the opposing parties or ourselves prevailing with a significant degree of confidence. As a result, we have not made any accrual for these cases.

The first case involves counterclaims brought by our former CEO, Chan Desaigoudar, after we sued him for fraud and breach of fiduciary duty. The counterclaims are for, among other items, wrongful termination and improper termination of his stock option. The second case involves a former employee, Tarsaim L. Batra, who has sued the company and three of our former officers, Mr. Desaigoudar, Steve Henke and Surendra Gupta, likewise for wrongful termination of his employment and for deprivation of his stock options. The U.S. government in the past has prosecuted Messrs. Desaigoudar, Henke, and Gupta for criminal securities law violations. Mr. Gupta plead guilty before trial while Messrs. Desaigoudar and Henke were convicted; however, their convictions were overturned and a retrial was imminent when in May 2002, they each entered a guilty plea as to one or more of the counts.

We believe that we have meritorious defenses to the claims of the opposing parties in both of these cases. Currently, we intend to vigorously pursue our defenses and/or our claims against the opposing parties in these matters. Should we unexpectedly learn facts during discovery which lead us to reasonably estimate a negative outcome to these cases, or should one or both of these cases result in a verdict for the other parties, then we will provide for such liability, as appropriate.

5. Net Loss Per Share

The following table sets forth the computation of basic and diluted loss per share:

	Three Months Ended September 30,						Six Months Ended September 30,
	2002			2001			2002			2001
	(in thousands, except per share amounts)
Net loss	$	(1,341	)	$	(8,261	)	$	(3,904	)	$	(12,552	)

Weighted average shares—basic and diluted		14,209			11,575			14,069			11,525

Net loss per share—basic and diluted	$	(0.09	)	$	(0.71	)	$	(0.28	)	$	(1.09	)

Options to purchase 2,963,222 and 1,672,716 shares of common stock were outstanding during the three and six-month periods ended September 30, 2002 and 2001, respectively, but were not included in the computation of diluted earnings per share because the Company incurred a loss. Warrants to purchase 59,250 shares of common stock outstanding at September 30, 2002 were not included in the diluted earnings per share computation, as the effect of including such shares would be antidilutive.

6. Comprehensive Income/(Loss)

Comprehensive loss for the three and six-month periods ended September 30, 2002 was $(1,341,000) and $(3,904,000), respectively, and the comprehensive loss for the three and six month periods ended September 30, 2001 was $(8,267,000) and $(12,563,000), respectively.

7. Income Taxes

For the three and six-month periods ended September 30, 2002 and 2001, there was no provision for income taxes, due to the net loss for the periods.

8. Restructuring & Impairment Charges

In the second quarter of fiscal 2002, our Board of Directors approved and we began to implement a program to streamline our manufacturing operations and focus our business on product and markets in which we have, or believe we can achieve, a leadership position while leveraging our core technology strengths. Key parts of this strategy include the

plan to outsource a significant portion of our wafer manufacturing to an independent foundry and to discontinue certain older products.

In connection with outsourcing a significant portion of our wafer manufacturing, we are completing the consolidation of all of our internal wafer fabrication activities into our Tempe, AZ facility with selected high-value back-end manufacturing activities continuing at our Milpitas, CA headquarters. In connection with these actions we recorded restructuring and asset impairment charges of $4.2 million in the year ended March 31, 2002, of which $4.1 million had been recorded in the second quarter of fiscal 2002. The restructuring charges included $438,000 related to workforce reduction, $322,000 related to facility and other costs, and $3.4 million of asset impairment charges.

The following table summarizes the activity related to the restructuring liability during the six months ended September 30, 2002:

	Restructuring Liability at March 31, 2002		Cash Payments		Restructuring Liability at September 30, 2002
	(in thousands)
Workforce reduction	$	438	$	163	$	275
Facilities and other		273		—		273

	$	711	$	163	$	548

Workforce reduction

In connection with the restructuring program, we reduced our headcount by 61 employees, primarily in the manufacturing functions and primarily at our Milpitas, CA facility. Essentially all of the workforce reductions were accomplished by September 30, 2002; however, the related employee severance, benefits and resulting employer taxes will be paid in our third fiscal quarter.

Facilities and other

The restructuring plan calls for us to vacate our Milpitas facility once all internal wafer fabrication activities have been consolidated into our Tempe, AZ facility. As required by the lease for the Milpitas facility, we are obligated to restore the Milpitas facility to its pre-lease condition. Accordingly, we recorded $251,000 in estimated renovation costs related to the Milpitas facility. Fabrication operations at the Milpitas facility ceased as of the end of September 2002 with renovation to be completed by the end of December 2002. We expect that the remaining cash expenditures relating to the facilities and other will be paid in the third quarter of fiscal 2003. The restructuring liability is included in accrued liabilities in the balance sheet.

9. Short and Long-Term Debt

In June 2002, we entered into a Loan and Security Agreement (“Agreement”) that allows us to borrow up to a total of $5.0 million under an equipment line of credit and a revolving line of credit. The amount available under the Agreement is based on the amount of eligible equipment and accounts receivable. Under the Agreement, which includes a subjective acceleration clause, we are subject to certain financial covenants and restrictions and must maintain a compensating balance of $2.75 million in order to maintain the Agreement. Borrowings under the equipment line and the revolving line bear interest at an annual rate of prime plus 3.0% and prime plus 0.75%, respectively. Principal, in equal installments, and interest are due monthly for the term of 36 months for all borrowings made under the equipment line. Borrowings under the revolving credit line have a term of 12 months, with principal due at maturity and interest due in monthly installments. Borrowings under both lines are collateralized by substantially all of our assets. During the six months ending September 30, 2002, we have borrowed $4.6 million under the equipment line and revolving line of credit, of which $1.5 million was used to pay off other capital equipment financing facilities in full. Additionally, as of September 30, 2002, $406,000 was available under the revolving line of credit. As of September 30, 2002, we were

not in compliance with a tangible net worth financial covenant under our Agreement and were therefore in default. A waiver of this default was granted by the lending institution. We believe we will be in compliance within the period allowed and therefore, we have continued to classify the long-term debt as long-term debt rather than short-term debt.

As of March 31, 2002 and continuing through September 30, 2002, we were not in compliance with the financial covenants related to our industrial revenue bonds. In accordance with the terms of the bonds, our non-compliance would need to continue through June 30, 2004 in order for the industrial revenue bonds to become callable and accordingly, there is no impact on our short-term liquidity due to our present non-compliance. We believe we will be in compliance within the period allowed and therefore, we have continued to classify the bonds as long-term debt rather than short-term debt.

10. Lease Commitments

In May 2002, we signed an operating sublease for approximately 26,000 square feet of office and light manufacturing space in Milpitas, CA to be used as our headquarters and for selected back-end manufacturing. The sublease term is 38 months. Future non-cancelable minimum lease payments under this sublease at September 30, 2002 are $151,000 in the remainder of fiscal 2003, $409,000 in fiscal 2004, $472,000 in fiscal 2005 and $214,000 in fiscal 2006. No major lease commitments were entered into between July 2002 through September 2002.

11. Recent Accounting Pronouncements

In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”). SFAS 146 nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” (“EITF 94-3”). The principal difference between SFAS 146 and EITF 94-3 relates to its requirement for recognition of a liability for a cost associated with an exit or disposal activity. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability for an exit cost as defined in EITF 94-3 was recognized at the date of an entity’s commitment to an exit plan. This statement also establishes that fair value is the objective for initial measurement of the liability. SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002. We do not expect adoption of SFAS 146 will have a material impact on our financial statements.

12. Major Customers

Due to our business focus on key customers in select markets, four end-customers (Motorola, Hewlett-Packard, Guidant and Lumileds) each comprise approximately 10% or more of our revenues during the three and six-month periods ended September 30, 2002, and collectively comprise approximately 50% of such revenues. During the comparable time periods last year, these customers represented approximately 25% of our revenues in aggregate.

ITEM 2. Management’s Discussion And Analysis of Financial Condition and Results of Operations.

Overview

California Micro Devices Corporation is a leading supplier of application specific analog semiconductor products for the mobile, computing, and LED lighting, medical, and other markets. Our key products include application specific integrated passive (ASIP^TM) devices, including silicon submounts for high brightness LEDs, and power management IC’s. Our products provide critical signal integrity, electromagnetic interference (EMI) filtering, electrostatic discharge (ESD) protection, and power management solutions that enable high growth applications including PCs, wireless communication devices and consumer electronic products. Through proprietary manufacturing processes, we integrate multiple passive components onto single chips and often enhance their functionality with the integration of discrete semiconductor functions to provide single chip solutions for densely populated, high performance electronic systems. Our ASIPs are significantly smaller and provide more functionality than competitive solutions using discrete products. ASIPs replace functional clusters of discrete passive components that are used for signal filtering and termination at buses and I/O ports, wave shaping, clock signal filtering, biasing, and other traditional discrete component functions.

In the second quarter of fiscal 2002, our board of directors approved and we began to implement a program to streamline our manufacturing operations and focus our business on high volume products and in markets where we have, or believe we can achieve, a leadership position while leveraging our core technology strengths. Key parts of this strategy include the plan to outsource a significant portion of our wafer manufacturing to independent foundries and to discontinue certain older products.

Results of Operations

Net sales. Net sales for the three and six-month periods ended September 30, 2002 were $10.8 million and $20.1 million, respectively, indicating an increase of $2.2 million or 26% and $5.4 million or 37% from the three and six-month periods ended September 30, 2001. Net sales in the mobile, computing, medical and lighting markets increased in the three and six-month periods ended September 30, 2002 as compared to the same periods in 2001, while net sales in the communication infrastructure, legacy and other markets decreased. The table below shows relevant data (in millions of dollars):

									Change
	Net Sales Fiscal 03				Net Sales Fiscal 02				2nd Qtr					1st 6 Months
Market	2nd Qtr		1st 6 Months		2nd Qtr		1st 6 Months		$			%		$			%
Mobile	$	3.0	$	4.3	$	0.4	$	0.5	$	2.6		650	%	$	3.8		760	%
Computing		3.7		7.1		3.7		6.3		0.0		0	%		0.8		13	%
Lighting		1.0		2.1		0.7		1.0		0.3		43	%		1.1		110	%
Medical		1.2		2.2		0.8		1.5		0.4		50	%		0.7		47	%
Other*		1.9		4.4		3.0		5.4		(1.1	)	(37	%)		(1.0	)	(19	%)

Total	$	10.8	$	20.1	$	8.6	$	14.7	$	2.2		26	%	$	5.4		37	%

*Communication infrastructure, legacy, and other

Units shipped during the three and six-month periods ended September 30, 2002 compared to the same periods in 2001, increased 133% to 47 million units, and 98% to 79 million units respectively. Average selling prices for our products based on units shipped decreased approximately 33% and 29%, respectively, for the three and six-month periods ended September 30, 2002 from the same periods in 2001, primarily as a result of a change in product mix, especially the increase of mobile product sales with an average selling price of $0.12. Due to our business focus on key customers in select markets, four customers (Motorola, Hewlett-Packard, Guidant and Lumileds) each comprise approximately 10%

or more of our revenues during the three and six-month periods ended September 30, 2002, and collectively comprise approximately 50% of such revenues. During the comparable time periods last year, these customers represented approximately 25% of our revenues in aggregate.

Gross Margin. Gross margin is composed of net sales less cost of sales. Gross margin, as a percentage of net sales, increased to a positive 22% and 18% in the three and six-month periods ended September 30, 2002, respectively from a negative 4% and a negative 6% in the three and six-month periods ended September 30, 2001, respectively. Gross margin for the three and six-month periods ended September 30, 2002, includes a benefit of $533,000 and $1.0 million related to the sale of inventory that was fully reserved in prior periods. For the six-month period ended September 30, 2001, gross margin included a charge of $511,000 for restructuring charges related to discontinued products, and for the six-month period ended September 30, 2002 gross margin included a charge of $440,000 for the manufacturing transition. Idle capacity charges for the three and six-month periods ended September 30, 2002, which were expensed as incurred, were approximately $2.0 million and $5.5 million, respectively, and during the comparable periods last year, the idle capacity charges were $1.8 million and $3.2 million, respectively. The gross margin improvement is the result of improved manufacturing efficiencies on increased production volumes, decreased fixed manufacturing costs, and the impact of our wafer fabrication outsourcing strategy that was implemented in fiscal 2002. Excluding these items, gross margin as a percentage of net sales for the six- month period ended September 30, 2002 increases to 42% and for the six-month period ended September 30, 2001 increases to 19%.

Research and Development. Research and development expenses consist primarily of compensation and related costs for employees, prototypes, masks, and other expenses for the development of process technology, new packages and products. Research and development expenses for the three and six-month periods ended September 30, 2002 were $894,000 and $1.8 million, respectively, and for the same periods ended September 30, 2001, research and development expenses were $1.0 million and $1.9 million, respectively. These reduced expense levels are due to a reduction in internal manufacturing support required for the development of new products partially offset by increased foundry support.

Selling, General and Administrative. Selling, general and administrative expenses consist primarily of compensation and related costs for employees, sales commissions, marketing and promotional expenses, and legal and other professional fees. Selling, general, and administrative expenses remained flat at $2.5 million and $5.2 million for the three and six-month periods ended September 30, 2002 and 2001, respectively. Lower compensation and related costs for employees resulting from lower headcount in the three and six-month periods ended September 30, 2002 were offset by higher legal costs.

Special Charges. During fiscal 2002, we recorded restructuring and asset impairment charges of $4.2 million related to our decision to outsource a significant portion of our wafer manufacturing. In connection with this decision, we are completing the consolidation of all of our internal wafer fabrication activities into our Tempe, AZ facility, with selected high-value back-end manufacturing activities continuing at our Milpitas, CA headquarters. The $4.2 million of restructuring and impairment charges consisted of expenses related to a workforce reduction of $438,000, write-down of certain manufacturing equipment $3.4 million and lease termination costs $322,000.

The following table summarizes the activity related to the restructuring liability during the six months ended September 30, 2002:

	Restructuring Liability at March 31, 2002		Cash Payments		Restructuring Liability at September 30, 2002
	(in thousands)
Workforce reduction	$	438	$	163	$	275
Facilities and other		273		—		273

	$	711	$	163	$	548

Workforce reduction

Facilities and other

The restructuring plan calls for us to relocate from our Milpitas facility once all internal wafer fabrication activities have been consolidated into our Tempe, AZ facility. As required by the lease for the Milpitas facility, we are obligated to restore the Milpitas facility to its pre-lease condition. Accordingly, we recorded $251,000 in estimated renovation costs related to the Milpitas facility. Fabrication operations at the Milpitas facility ceased as of the end of September 2002 with renovation to be completed by the end of December 2002. The restructuring liability is included in accrued liabilities in the balance sheet.

Other Expense, Net. Other expense, net, for the three and six-month periods ending September 30, 2002, were $265,000 and $506,000, respectively, and for the three and six-month periods ended September 30, 2001, $313,000 and $439,000, respectively. For the three month period ended September 30, lower interest income stemming from lower interest rates on lower average investment balances was partially offset by reduced losses in the market value of investments related to our executive deferred compensation plan. For the six month period ended September 30, lower interest income on lower average investment balances was more than offset by reduced losses in the market value of investments related to our executive deferred compensation plan.

Income Taxes. For the three and six-month periods ended September 30, 2002 and 2001, there was no provision for income taxes due to the net losses for the periods.

Recent Accounting Pronouncements.

In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”). SFAS 146 nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” (“EITF 94-3”). The principle difference between SFAS 146 and EITF 94-3 relates to its requirement for recognition of a liability for a cost associated with an exit or disposal activity. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability for an exit cost as defined in EITF 94-3 was recognized at the date of an entity’s commitment to an exit plan. This statement also establishes that fair value is the objective for initial measurement of the liability. SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002. We do not expect adoption of SFAS 146 will have a material impact on our financial statements.

Critical Accounting Policies and Estimates

We described our critical accounting policies and estimates in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the year ended March 31, 2002.

Our critical accounting policies and estimates are those that relate to financial line items that are key indicators of our financial performance and/or that require significant management judgment. Our critical accounting policies include those regarding (1) revenue recognition, (2) inventory and related reserves, (3) impairment of long-lived assets, and (4) litigation. We believe that we have consistently applied judgments and estimates and such consistent application fairly depicts our financial condition and results of operations for all periods presented. During the six months ended September 30, 2002, there were no significant changes in the assumptions underlying the judgments and estimates made by management.

Liquidity and Capital Resources

We have historically financed our operations through a combination of debt and equity financing and cash generated from operations. Total cash, cash equivalents and short-term investments as of September 30, 2002, was $4.1 million compared to $7.2 million at March 31, 2002. Short-term debt increased to $1.1 million at September 30, 2002 compared to zero short-term debt as of March 31, 2002. Receivables increased $1.0 million to $5.6 million at September 30, 2002 compared to $4.6 million at March 31, 2002, primarily as a result of increased sales. Receivables days sales outstanding were 48 and 55 days as of September 30, 2002 and March 31, 2002, respectively. Inventories increased $1.6 million from March 31, 2002 to $4.4 million at September 30, 2002, as a result of increased levels of production in response to both expected and actual customer demand and to bridge the transition of our production from our Milpitas facility to our Tempe facility. Capital expenditures for the six months ended September 30, 2002, totaled $1.9 million, reflecting primarily our investment in new equipment to support our production of chip scale products, which are expected to ramp up throughout this fiscal year. Accounts payable and other accrued liabilities decreased by $482,000, along with the transfer of equipment of $298,000 to a vendor, to $8.6 million in the six-month period ending September 30, 2002, compared to $9.4 million at March 31, 2002.

Operating activities used $5.1 million of cash in the six-month period ended September 30, 2002. The most significant usage of our cash was our net loss of $3.9 million. Increases in accounts receivable, inventories, prepaids and other current assets and decreases in accounts payable, and other long-term liabilities used an additional $3.5 million of cash. These uses of cash were partially offset by depreciation and other non-cash charges of $1.5 million and a decrease in other long-term assets and an increase in deferred margin on shipments to distributors of $765,000.

We used $1.7 million of cash in investing activities during the six months ended September 30, 2002, which was the result of capital expenditures of $1.9 million and an increase in restricted cash related to our long-term debt. The sale of short term investments for $300,000 partially offset this cash usage.

Net cash provided by financing activities of $4.0 million for the six months ended September 30, 2002 is the result of short and long-term borrowings in excess of debt repayment of $2.5 million and proceeds from the issuance of common stock related to employee stock compensation plans of $1.5 million.

In June 2002, we entered into a Loan and Security Agreement that allows us to borrow up to a total of $5.0 million under an equipment line of credit and a revolving line of credit, each of which cannot individually exceed $3.5 million. The amount available under the agreement is based on the amount of eligible equipment and accounts receivable. Under this agreement, which includes a subjective acceleration clause, we are subject to certain financial covenants and restrictions and must maintain a compensating balance of $2.75 million. Borrowings under the equipment line and the revolving line bear interest at an annual rate of prime plus 3.0% and prime plus 0.75%, respectively. Principal, in equal installments, and interest are due monthly for a term of 36 months for all borrowings made under the equipment line. Borrowings under the revolving credit line have a term of 12 months, with principal due at maturity and interest due in monthly installments. Borrowings under both lines are collateralized by substantially all of our assets. In the six–month period ending September 30, 2002, we borrowed $3.5 million under the equipment line, of which $1.5 million was used to pay off in full borrowings outstanding under our four existing capital equipment financing agreements described below. Future maturities of this debt at September 30, 2002 are $583,000 in the remainder of fiscal 2003, $1.2 million in fiscal 2004, $1.2 million in fiscal 2005 and $442,000 in fiscal 2006. Additionally, we have borrowed $1.1 million on the revolving line of credit. This balance can be repaid at any time, but is due by June 17, 2004. As of September 30, 2002, we were not in compliance with the tangible net worth financial covenant under our Loan and Security Agreement and were therefore in default. A waiver of this default was granted by the lending institution.

During fiscal 2000 through fiscal 2002, we entered into four capital equipment financing facilities for a total of $4.0 million. During fiscal 2000 through fiscal 2002, we borrowed $3.0 million under these facilities. Borrowings under three of these facilities bore interest at an annual rate of prime plus 0.75% and borrowings under the remaining facility bore interest at an annual rate of prime plus 0.5%. Principal, in equal installments, and interest were due in monthly installments through February 2004. In June 2002, we terminated these facilities and paid off the related debt in full with the proceeds received from the Loan and Security Agreement described above.

there is no impact on our short-term liquidity due to our present non-compliance. We believe we will be in compliance within the period allowed and therefore, we have continued to classify the bonds as long-term debt rather than short-term debt.

Future maturities of long-term debt and sinking fund payments associated with the industrial revenue bonds, as of September 30, 2002 are $185,000 in the remainder of fiscal 2003, $205,000 in fiscal 2004, $225,000 in fiscal 2005, $250,000 in fiscal 2006, and $5.9 million thereafter.

In May 2002, we signed an operating sublease for approximately 26,000 square feet of office and light manufacturing space in Milpitas, CA to be used as our headquarters and for selected back-end manufacturing. The sublease term is 38 months. As of September 30, 2002, future non-cancelable minimum lease payments under this sublease are $151,000 in fiscal 2003, $409,000 in fiscal 2004, $472,000 in fiscal 2005 and $214,000 in fiscal 2006. In July 2002, we entered into a lease amendment for our wafer fabrication facility in Milpitas, CA, extending the term of the lease to October 31, 2002. As of September 30, 2002, the total amount due under the wafer fabrication facility lease extension has been paid in full and there are no lease amounts due.

Operating and capital requirements depend on many factors, including the levels at which we maintain manufacturing capacity, revenue, margins, inventory, accounts receivable, accounts payable and operating expenses. Our operating plan for fiscal 2003 forecasts revenue growth and profit improvement, due in part to our focused marketing and sales efforts and in part to gross margin improvement resulting from outsourcing most of our wafer production while reducing fixed internal manufacturing costs. The increase in inventory and receivables associated with our revenue growth during the past several quarters has been financed from cash on hand, short term debt of $1.1 million under our $1.5 million working capital credit line, option exercises, and attention to management of accounts receivable and accounts payable. Consistent with our operating plan we have built substantial inventory in advance of firm orders and may continue to do so. If these orders do not materialize or are delayed, if we are not able to begin to operate profitably, if we cannot collect our receivables on a timely basis, or if our vendors demand shorter payment terms, we may need to further adjust our operations or else secure additional debt or equity financing to ensure adequate working capital, although such funds may not be available on favorable terms, if at all. Furthermore, unless we are able to increase our tangible net worth by at least $148,000 during the third fiscal quarter through a combination of profit, stock option exercises and stock purchases under our employee benefit plans, and equity investment, we will be in default under our Loan and Security Agreement and would require another waiver from the lending institution, which we may not be able to obtain. Should we not obtain such a waiver, the lending institution would be able to call our borrowings under the Loan and Security Agreement which would require us to locate another lender, which we may not be able to do, or otherwise face severe consequences. In the event that demand growth is more rapid than anticipated, in order to take advantage of that growth and increase our revenues, we would need to secure additional equipment and working capital financing or equity which may not be available on favorable terms, if at all. In the event we are unable to do so we would be forced to constrain our revenue growth, adversely affecting profitability improvement.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.

No material changes have occurred from our report on Form 10-K for the period ending March 31, 2002.

ITEM 4. Controls and Procedures.

The Company's principal executive officer and financial officer have evaluated the Company's disclosure controls and procedures (as defined in Securities Exchange Act of 1934 Rules 13a-14c and 15d-14c) within 90 days of the filing of this Form 10-Q and have determined that they are reasonably effective.

There were no significant changes in the Company's internal controls or in other factors that could significantly effect these controls subsequent to the date of their evaluation, which was shortly prior to the release of the Company's earnings statement for the period covered by this Form 10-Q.

Cautionary Statement

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward looking statements are not historical facts and are based on current expectations, estimates, and projections about our industry; our beliefs and assumptions; and our goals and objectives. Words such as “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, and “estimates”, and variations of these words and similar expressions are intended to identify forward-looking statements. Examples of the kinds of forward-looking statements in this report include statements regarding the following (1) our expectation that our production of chip scale products will ramp throughout this year, (2) our schedule for closing down our Milpitas plant and the timing of the balance of our remaining manufacturing transition charges, (3) plan for revenue growth and profit improvement due to focused sales and marketing effort and manufacturing outsourcing, (4) our expectation that we have meritous defenses to pending litigation claims,(5) our belief that we will be in compliance with the financial covenants related to our industrial revenue bonds within the one-year period allowed, (6) our expectation that our expenses will decrease and our gross margin will increase as we continue to outsource our wafer fabrication, and the corresponding expectation that cost of sales as a percent of revenue will decrease, (7) our plan to outsource a significant portion of our wafer manufacturing and to consolidate all of our internal wafer fabrication activities into our Tempe, AZ facility, with selected high-value backend manufacturing operations continuing at our Milpitas, CA headquarters, and (8) our requirements and plans for future equity financing . These statements are only predictions, are not guarantees of future performance, and are subject to risks, uncertainties, and other factors, some of which are beyond our control, are difficult to predict, and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. These risks and uncertainties include those set forth in this report and in our other SEC filings, in particular our annual report on Form 10-K for fiscal 2002 ended March 31, 2002. These risks and uncertainties also include whether our marketing and sales focus will enable us to penetrate our selected markets; whether those markets continue to exhibit demand for our productsand whether there is price erosion in such markets, in part due to whether there is competition in such markets; whether our market focus, which has lead to Motorola, Hewlett Packard, Guidant Corporation and Lumileds each comprising more than 10% of our sales, will increase our customer concentration and leave us vulnerable to problems involving or sourcing decisions of our larger customers; our ability to forecast our cash requirements and cash availability and our ability to stay in compliance with our bank credit line and bond covenants or else to obtain a waiver of non-compliance or default; and the ability of our third party wafer fab vendor to meet in a timely manner our demand for high yield, high quality wafers. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings.

ITEM 2. Submission of Matters to a Vote of Security Holders.

The Company’s annual meeting of shareholders was held on August 7, 2002. At the meeting the following matters were acted upon:

Matter Acted Upon

Election of Directors

	Votes For	Votes Withheld
Robert V. Dickinson	11,237,012	465,249
J. Daniel McCranie	11,235,324	466,937
Wade Meyercord	11,239,167	463,094
Dr. Edward Ross	11,215,475	489,786
Dr. John L. Sprague	11,234,839	467,422
Donald L. Waite	11,236,884	465,377

To ratify the selection of the firm of Ernst & Young LLP as the independent auditors for the fiscal year ending March 31, 2003.

Votes For		11,655,812		Abstain		13,758
Votes Against		32,691		Broker Non-Votes		0

To approve the amendment of the 1995 Employee Stock Option Plan, as subsequently amended, to increase from 3,655,000 to 4,115,000 the number of shares reserved for issuance thereunder (exhibit A).

Votes For		10,056,173		Abstain		792,058
Votes Against		854,030		Broker Non-Votes		0

To approve the amendment of the 1995 Non-Employee Directors’ Stock Option Plan, as subsequently amended, to increase from 390,000 to 450,000 the number of shares reserved for issuance thereunder (exhibit B).

Votes For		10,023,053		Abstain		785,958
Votes Against		893,250		Broker Non-Votes		0

To approve the amendment of the 1995 Employee Stock Purchase Plan, as subsequently amended, to increase from 960,000 to 1,130,000 the number of shares reserved for issuance thereunder (exhibit C).

Votes For		10,623,149		Abstain		795,516
Votes Against		283,596		Broker Non-Votes		0

ITEM 3. Other Information.

None.

ITEM 4. Exhibits and Reports on Form 8-K.

(a)		Exhibits.

		Exhibit A-1995 EMPLOYEE STOCK OPTION PLAN
		Exhibit B-1995 NON-EMPLOYEE DIRECTORS’ STOCK OPTION PLAN Exhibit C-1995 EMPLOYEE STOCK PURCHASE PLAN

(b	)	Reports on Form 8-K. No report on Form 8-K was filed during the quarter for which this report of Form 10-Q is filed.

SIGNATURE

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CALIFORNIA MICRO DEVICES CORPORATION

(Registrant)

CERTIFICATIONS

I, Robert V. Dickinson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of California Micro Devices Corporation, a California corporation (“registrant”);

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

By:		/s/ Robert V. Dickinson
		Robert V. Dickinson, President and CEO
		(Principal Executive Officer)

CERTIFICATIONS

I, Kenneth E. Thornbrugh, certify that:

1. I have reviewed this quarterly report on Form 10-Q of California Micro Devices Corporation, a California corporation (“registrant”);

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: November 14, 2002

By:		/s/ Kenneth E. Thornbrugh
		Kenneth E. Thornbrugh, Vice President Finance & Administration
		(Principal Financial Officer)

EX-99.(A) 3 dex99a.htm 1995 EMPLOYEE STOCK OPTION PLAN 1995 Employee Stock Option Plan

Exhibit A

CALIFORNIA MICRO DEVICES CORPORATION

1995 EMPLOYEE STOCK OPTION PLAN

AMENDED AS OF JULY 26, 1996, AMENDED AS OF JULY 18, 1997, AMENDED AS OF AUGUST 7, 1998, AMENDED AS OF AUGUST 1, 2000, AMENDED AS OF AUGUST 7, 2001, AND AMENDED AS OF AUGUST 7, 2002

1. PURPOSE.

The purpose of the CALIFORNIA MICRO DEVICES CORPORATION 1995 Employee Stock Option Plan (the “Plan”) is to advance the interests of the Corporation and its shareholders by providing a means by which the Corporation and its Subsidiaries shall be able to attract and retain qualified employees and consultants.

2. DEFINITIONS.

(a) “Affiliate” shall mean any corporation (other than the Corporation) in an unbroken chain of corporations that includes the Corporation if each of such corporations, other than the last corporation in the chain, owns at least 50% of the total voting power of one of the other corporations.

(b) “Affiliated Group” shall mean an affiliated group of corporations, as defined in Code Section 1504, which includes the Corporation.

(d) “Code” shall mean the Internal Revenue Code of 1986, as amended.

(e) “Committee” shall mean the committee appointed by the Board, in accordance with Section 3(a) hereof, to administer the Plan.

(f) “Common Stock” shall mean the voting common stock of the Corporation.

(g) “Consultant” shall mean any person who, or any employee of any firm which, is engaged by the Company or any Affiliate to render consulting services.

(h) “Corporation” shall mean CALIFORNIA MICRO DEVICES CORPORATION, a California corporation.

(i) “Effective Date” shall mean February 10, 1995.

(j) “Employee” shall mean any individual who is employed, within the meaning of Section 3401 of the Code and the regulations thereunder, by the Corporation or by any Affiliate. For purposes of the Plan and only for purposes of the Plan, and in regard to Nonstatutory Stock Options but not for Incentive Stock Options, a Consultant of the Corporation or any Affiliate shall be deemed to be an Employee, and service as a Consultant with the Corporation or any Affiliate shall be deemed to be employment, but no Incentive Stock Option shall be granted to a Consultant who is not an employee of the Corporation or any Affiliate within the meaning of Section 3401 of the Code and the regulations thereunder. In the case of a Consultant, the provisions governing when a termination of employment has occurred for purposes of the Plan shall be set forth in the written stock option agreement between the Optionee and the corporation, or, if not so set forth, the Committee shall have the discretion to determine when a termination of “employment” has occurred for purposes of the Plan.

(k) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(l) “Exercise Price” shall mean the price per Share at which an Option may be exercised, as

determined by the Committee and as specified in the Optionee’s stock option agreement.

(m) “Fair Market Value” shall mean the value of one Share of Common Stock, determined as follows: (i) if the Shares are traded on an exchange or on the NASDAQ National Market System, the reported “closing price” on the date of valuation or if no trading occurred on such date, the next preceding day on which trading occurred; (ii) if the Shares are traded over-the-counter on the NASDAQ System (other than on the NASDAQ National Market System), the mean between the bid and the ask prices on said System at the close of business on the date of valuation or if no trading occurred on such date, the next preceding day on which trading occurred; and (iii) if neither (i) nor (ii) applies, the fair market value as determined by the Committee in good faith. Such determination shall be conclusive and binding on all persons.

(n) “Incentive Stock Option” shall mean an Option of the type described in Section 422(b) of the Code.

(o) “Nonstatutory Stock Option” shall mean an Option of the type not described in Section 422(b) or 423(b) of the Code.

(p) “Option” shall mean an option to purchase Common Stock granted pursuant to the Plan.

(q) “Optionee” shall mean any person who holds an Option pursuant to the Plan.

(r) “Outside Director” shall mean a non-employee member of the Board who (1) is not a current employee of any member of the Affiliated Group; (2) does not receive compensation for prior services (other than benefits under a tax-qualified retirement plan) from any member of the Affiliated Group during a taxable year in which he or she serves on the Committee; (3) has never been an officer of any member of the Affiliated Group; and (4) does not receive remuneration from any member of the Affiliated Group, either directly or indirectly, in any capacity other than as a director.

(s) “Plan” shall mean this stock option plan as it may be amended from time to time.

(t) “Purchase Price” shall mean at any particular time the Exercise Price times the number of Shares for which an Option is being exercised.

(u) “Share” shall mean one share of authorized Common Stock.

3. ADMINISTRATION.

(a) The Committee.

The Plan shall be administered by a Committee of Outside Directors which shall consist of not less than two members, who during the one year prior to service as an administrator of the Plan, shall not have been granted or awarded equity securities pursuant to the Plan or any other plan of the Corporation or any of its Affiliates except as permitted under Rule 16b-3 under the Exchange Act. The Board may from time to time designate individuals as ineligible to participate in the Plan for a specified period in order to become eligible to be a member of the Committee.

(b) Powers of the Committee.

Subject to the provisions of the Plan, the Committee shall have the authority, in its discretion and on behalf of the Corporation:

(i) to grant Options;

(ii) to determine the Exercise Price per Share of Options to be granted;

(iii) to determine the Employees to whom, and the time or times at which, Options shall be granted and the number of Shares for which an Option will be exercisable;

(iv) to interpret the Plan;

(v) to prescribe, amend, and rescind rules and regulations relating to the Plan;

(vi) to determine the terms and provisions of each Option granted and, with the consent of the holder thereof, modify or amend each Option;

(vii) to accelerate or defer, with the consent of the Optionee, the exercise date of any Option;

(viii) to authorize any person to execute on behalf of the Corporation any instrument required to effectuate the grant of an Option previously granted by the Committee;

(ix) with the consent of the Optionee, to reprice, cancel and regrant, or otherwise adjust the Exercise Price of an Option previously granted by the Committee; and

(x) to make all other determinations deemed necessary or advisable for the administration of the Plan.

The Board shall have the authority to determine, upon review of relevant information, the Fair Market Value of the Common Stock, subject to the provisions of the Plan and irrespective of whether the Board has appointed a Committee to administer the Plan. The Board may delegate this authority to the Committee.

(d) Committee’s Interpretation of the Plan.

The interpretation and construction by the Committee of any provision of the Plan or of any Option granted hereunder shall be final and binding on all parties claiming an interest in an Option granted under the Plan. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option.

4. PARTICIPATION.

(a) Eligibility.

The Optionees shall be such persons as the Committee may select from among the Employees, provided that Consultants are not eligible to receive Incentive Stock Options. Non-employee members of the Board are not eligible for grants of Options.

(b) Ten Percent Shareholders.

Any Employee who owns Stock possessing more than 10% of the total combined voting power of all classes of outstanding stock of the Corporation or any Affiliate shall not be eligible to receive an Option unless:

(i) the Exercise Price of the Shares subject to such Option when granted is at least 110% of the Fair Market Value of such Shares, and

(ii) such Option by its terms is not exercisable after the expiration of five years from the date of grant.

For purposes of Paragraph 4(b), in determining stock ownership, an Employee shall be considered as owning the stock owned, directly or indirectly, by or for his or her brothers and sisters, spouse, ancestors, and lineal descendants. Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust shall be considered as being owned proportionately by or for its shareholders, partners, or beneficiaries, respectively. Stock with respect to which such Employee or any other person holds an option shall be disregarded.

(d) Outstanding Stock.

For purposes of Section 4(b), the term “outstanding stock” shall include all stock actually issued and outstanding immediately after the grant of the Option to the Optionee but shall not include any share for which an Option is exercisable by any person.

5. STOCK.

(a) Shares Subject to This Plan.

The aggregate number of Shares which may be issued upon exercise of Options under the Plan shall not exceed four million one hundred fifteen thousand (4,115,000), subject to adjustment pursuant to Section 9 hereof.

(b) Options Not to Exceed Shares Available.

The number of Shares for which an Option is exercisable at any time shall not exceed the number of Shares remaining available for issuance under the Plan. If any Option expires or is terminated, the number of Shares for which such Option was exercisable may be made exercisable pursuant to other Options under the Plan. The limitations established by this Section 5(b) shall be subject to adjustment in the manner provided in Section 9 hereof upon the occurrence of an event specified therein.

No person shall be granted in any one fiscal year options for more than 500,000 Shares.

6. TERMS AND CONDITIONS OF OPTIONS.

(a) Stock Option Agreements.

Options shall be evidenced by written stock option agreements between the Optionee and the Corporation in such form as the Committee shall from time to time determine. No Option or purported Option shall be a valid and binding obligation of the Corporation unless so evidenced in writing.

(b) Number of Shares.

Each stock option agreement shall state the number of Shares for which the Option is exercisable and shall provide for the adjustment thereof in accordance with Section 9 hereof.

An Optionee may not exercise his or her Option for any Shares until the Option, in regard to such Shares, has vested. Each stock option agreement shall include a vesting schedule which shall show when the Option becomes exercisable. The vesting schedule shall not impose upon the Corporation or any Affiliate any obligation to retain the Optionee in its employ or under contract for any period or otherwise change the employment-at-will status of an Optionee who is an employee of the Corporation or any Affiliate.

(d) Lapse of Options.

Each stock option agreement shall state the time or times when the Option covered thereby lapses and becomes unexercisable in part or in full. An Option shall lapse on the earliest of the following events (unless otherwise determined by the Committee and reflected in an option agreement):

(i) The tenth anniversary of the date of granting the Option;

(ii) The first anniversary of the Optionee’s death;

(iii) The first anniversary of the date the Optionee ceases to be an Employee due to total and permanent disability, within the meaning of Section 22(e)(3) of the Code;

(iv) On the date provided in Section 6(h)(i), unless with respect to a Nonstatutory Stock Option, the Committee otherwise extends such period before the applicable expiration date;

(v) On the date provided in Section 9 for a transaction described in such Section;

(vi) The date the Optionee files or has filed against him or her a petition in bankruptcy; or

(vii) The expiration date specified in an Optionee’s stock option agreement.

(e) Exercise Price.

Each stock option agreement shall state the Exercise Price for the Shares for which the Option is exercisable. Subject to Section 4(b), the Exercise Price of an Incentive Stock Option and a Nonstatutory Stock Option shall, when granted, be not less than 100% and 85% of the Fair Market Value of the Shares for which the Option is exercisable, respectively, and not less than the par value of the Shares.

(f) Medium and Time of Payment.

The Purchase Price shall be payable in full in cash upon the exercise of an Option but the Committee may allow the Optionee to pay the Purchase Price:

(i) by surrendering Shares in good form for transfer, owned by the Optionee and having a Fair Market Value on the date of exercise equal to the Purchase Price;

(ii) by delivery of a full recourse promissory note (“Note”) made by the Optionee in the amount of the Purchase Price, bearing interest, compounded semiannually, at a rate not less than the rate determined under Section 7872 of the Code to insure that no “foregone interest”, as defined in such section, will accrue, together with the delivery of a duly executed standard form security agreement securing the Note

by a pledge of the Shares purchased; or

(iii) in any combination of such consideration or such other consideration and method of payment for the issuance of Shares to the extent permitted under applicable law Code as long as the sum of the cash so paid, the Fair Market Value of the Shares so surrendered, and the amount of any Note equals the Purchase Price.

The Committee or a stock option agreement may prescribe requirements with respect to the exercise of Options, including the submission by the Optionee of such forms and documents as the Committee may require and, the delivery by the Optionee of cash sufficient to satisfy applicable withholding requirements. The Committee may vary the exercise requirements and procedures from time to time to facilitate, for example, the broker-assisted exercise of Options.

(g) Nontransferability of Options.

During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee or the Optionee’s conservator or legal representative and shall not be assignable or transferable except pursuant to a qualified domestic relations order as defined by the Code. In the event of the Optionee’s death, the Option shall not be transferable by the Optionee other than by will or the laws of descent and distribution.

(h) Termination of Employment Other than by Death or Disability.

(i) If an Optionee ceases to be an Employee for any reason other than his or her death or disability, the Optionee shall have the right, subject to the provisions of this Section 6, to exercise any Option held by the Optionee at any time within ninety (90) days after his or her termination of employment, but not beyond the otherwise applicable term of the Option and only to the extent that on such date of termination of employment the Optionee’s right to exercise such Option had vested.

(ii) For purposes of this Section 6(h), the employment relationship shall be treated as continuing intact while the Optionee is an active employee of the Corporation or any Affiliate, or is on military leave, sick leave, or other bona fide leave of absence to be determined in the sole discretion of the Committee. The preceding sentence notwithstanding, in the case of an Incentive Stock Option, employment shall be deemed to terminate on the date the Optionee ceases active employment with the Corporation or any Affiliate, unless the Optionee’s reemployment rights are guaranteed by statute or contract.

(i) Death of Optionee.

If an Optionee dies while an Employee, or after ceasing to be an Employee but during the period while he or she could have exercised an Option under Section 6(h), any Option granted to the Optionee may be exercised, to the extent it had vested at the time of death and subject to the Plan, at any time within 12 months after the Optionee’s death, by the executors or administrators of his or her estate or by any person or persons who acquire the Option by will or the laws of descent and distribution, but not beyond the otherwise applicable term of the Option.

(j) Disability of Optionee.

If an Optionee ceases to be an Employee due to becoming totally and permanently disabled within the meaning of Section 22(e)(3) of the Code, any Option granted to the Optionee may be exercised to the extent it had vested at the time of cessation and, subject to the Plan, at any time within 12 months after the Optionee’s termination of employment, but not beyond the otherwise applicable term of the Option.

(k) Rights as a Shareholder.

An Optionee, or a transferee of an Optionee, shall have no rights as a shareholder of the Corporation with respect to any Shares for which his or her Option is exercisable until the date of the issuance of a stock certificate for such Shares. No adjustment shall be made for dividends, ordinary or extraordinary or whether in currency, securities, or other property, distributions, or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 9 hereof.

(l) Modification, Extension, and Renewal of Options.

Within the limitations of the Plan, the Committee may modify, extend or renew outstanding Options or accept the cancellation of outstanding Options for the granting of new Options in substitution therefor. Notwithstanding the preceding sentence, no modification of an Option shall, without the consent of the Optionee, alter or impair any rights or obligations under any Option previously granted.

(m) Other Provisions.

The stock option agreements authorized under the Plan may contain such other provisions which are not inconsistent with the terms of the Plan, including, without limitation, restrictions upon the exercise of the Option, as the Committee shall deem advisable.

7. $100,000 PER YEAR LIMITATION ON VESTING OF ISOs.

To the extent that the Fair Market Value of Shares (determined for each Share as of the date of grant of the Option covering such Share) subject to Options granted under this Plan (or any other plan of the Corporation or any Affiliate) which are designated as Incentive Stock Options and which become exercisable by an Optionee for the first time during a single calendar year exceeds $100,000, the Option(s) (or portion thereof) covering such Shares shall be recharacterized (to the extent of such excess over $100,000) as a Nonstatutory Stock Option. In determining which Option(s) shall be treated as Nonstatutory Stock Options under the preceding sentence, the Options shall be taken into account in the order granted, with the result that a later granted Option shall be recharacterized as a Nonstatutory Stock Option prior to such recharacterization of a previously granted Option.

8. TERM OF PLAN.

Options may be granted pursuant to the Plan until ten years following the Effective Date, and all Options which are outstanding on such date shall remain in effect until they are exercised or expire by their terms. The Plan shall expire for all purposes on the date 20 years following the Effective Date.

9. RECAPITALIZATION, TAKEOVERS, AND LIQUIDATIONS.

(a) Reorganizations.

The number of Shares covered by the Plan, as provided in Section 5 hereof, and the number of Shares for which each Option is exercisable shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from the payment of a Common Stock dividend, a stock split, a reverse stock split or any other event which results in an increase or decrease in the number of issued Shares effected without receipt of consideration by the Corporation, and the Exercise Price shall be proportionately increased in the event the number of Shares subject to such Option are decreased and shall be proportionately decreased in the event the number of Shares subject to such Option are increased. For the purposes of this paragraph, conversion of any convertible securities of the Corporation shall not be deemed to have been “effected without receipt of consideration.” Adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Corporation 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.

(b) Liquidation.

In the event of the dissolution or liquidation of the Corporation, each Option shall terminate immediately prior to the consummation of such action. The Committee shall notify the Optionee not less than fifteen (15) days prior to the proposed consummation of a pending dissolution or liquidation, and the Option shall be exercisable as to all Shares which are vested prior to expiration until immediately prior to the consummation of such action.

successor corporation, then in such case each Option shall terminate immediately prior to the consummation of such transaction. The Committee shall notify the Optionee not less than fifteen (15) days prior to the proposed consummation of such transaction, and the Option shall be exercisable as to all Shares which are subject to the Option until immediately prior to the consummation of such transaction.

(d) Determination by Committee.

All adjustments described in this Section 9 shall be made by the Committee, whose determination shall be conclusive and binding on all persons.

(e) Limitation on Rights of Optionee.

Except as expressly provided in this Section 9, no Optionee shall have any rights by reason of any payment of any stock dividend, stock split or reverse stock split or any other increase or decrease in the number of shares of stock of any class, or by reason of any reorganization, consolidation, dissolution, liquidation, merger, exchange, split-up or reverse split-up, or spin-off of assets or stock of another corporation. Any issuance by the Corporation of Shares, Options or securities convertible into Shares or Options shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of the Shares for which an Option is exercisable. Notwithstanding the foregoing, if the Corporation shall enter into a transaction affecting the Corporation’s capital stock or distributions to the holders of its capital stock for which a revision in the terms of each Option is not required pursuant to this Section 9, the Committee shall have the right, but not the obligation, to revise the terms of each Option in a manner the Committee, in its sole discretion, deems fair and reasonable given the transaction involved. If necessary or appropriate in connection with such transaction, the Committee may declare that any Option shall terminate as of a date fixed by the Committee and give each Optionee the right to exercise his Option in whole or in part, including exercise as to Shares to which the Option would not otherwise be exercisable.

(f) No Restriction on Rights of Corporation.

The grant of an Option shall not affect or restrict in any way the right or power of the Corporation to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge or consolidate, or to dissolve, liquidate, sell, or transfer all or any part of its business or assets.

10. SECURITIES LAW REQUIREMENTS.

The Corporation shall not be under any obligation to issue any Shares upon the exercise of any Option unless and until the Corporation has determined that: (i) it and the Optionee have taken all actions required to register the Shares under the Securities Act of 1933, or to perfect an exemption from the registration requirements thereof; (ii) any applicable listing requirement of any stock exchange on which the Common Stock is listed has been satisfied; and (iii) all other applicable provisions of state and Federal law have been satisfied.

11. EXERCISE OF UNVESTED OPTIONS.

The Committee may grant any Optionee the right to exercise any Option prior to the complete vesting of such Option. Without limiting the generality of the foregoing, the Committee may provide that if an Option is exercised prior to having completely vested, the Shares issued upon such exercise shall remain subject to vesting at the same rate as under the Option so exercised and shall be subject to a right, but not an obligation, of repurchase by the Corporation with respect to all unvested Shares if the Optionee ceases to be an Employee for any reason. For the purposes of facilitating the enforcement of any such right of repurchase, at the request of the Committee, the Optionee shall enter into the Joint Escrow Instructions with the Corporation and deliver every certificate for his or her unvested Shares with a stock power executed in blank by the Optionee and by the Optionee’s spouse, if required for transfer.

12. AMENDMENT OF THE PLAN.

The Board or the Committee may, from time to time, terminate, suspend or discontinue the Plan, in whole or in part, or revise or amend it in any respect whatsoever including, but not limited to, the adoption of any amendment(s) deemed necessary or advisable to qualify the Options under rules and regulations promulgated by the Securities and Exchange Commission with respect to Employees who are subject to the

provisions of Section 16 of the Securities Exchange Act of 1934, as amended, or to correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Option granted thereunder, without approval of the shareholders of the Corporation, but without the approval of the Corporation’s shareholders, no such revision or amendment shall:

(i) Increase the number of Shares subject to the Plan, other than any increase pursuant to Section 9;

(ii) Materially modify the requirements as to eligibility for participation in the Plan;

(iii) Materially increase the benefits accruing to Optionees under the Plan;

(iv) Extend the term of the Plan; or

(v) Amend this Section to defeat its purpose.

No amendment, termination or modification of the Plan shall affect any Option theretofore granted in any material adverse way without the consent of the Optionee.

13. APPLICATION OF FUNDS.

The proceeds received by the Corporation from the sale of Common Stock pursuant to the exercise of an Option shall be used for general corporate purposes.

14. APPROVAL OF SHAREHOLDERS.

The Plan shall be subject to approval by the affirmative vote of the holders of a majority of all classes of the outstanding shares present and entitled to vote at the first meeting of shareholders of the Corporation following the adoption of the Plan or by written consent, and in no event later than one (1) year following the Effective Date. Prior to such approval, Options may be granted but shall not be exercisable. Any amendment described in Section 12 (i) to (iv) shall also be subject to approval by the Corporation’s shareholders.

15. WITHHOLDING OF TAXES.

In the event the Corporation or a Affiliate determines that it is required to withhold Federal, state, or local taxes in connection with the exercise of an Option or the disposition of Shares issued pursuant to the exercise of an Option, the Optionee or any person succeeding to the rights of the Optionee, as a condition to such exercise or disposition, may be required to make arrangements satisfactory to the Corporation or the Affiliate to enable it to satisfy such withholding requirements.

16. RIGHTS AS AN EMPLOYEE.

Neither the Plan nor any Option granted pursuant thereto shall be construed to give any person the right to remain in the employ of the Corporation or any Affiliate, or to affect the right of the Corporation or any Affiliate to terminate such individual’s employment at any time with or without cause. The grant of an Option shall not entitle the Optionee to, or disqualify the Optionee from, participation in the grant of any other Option under the Plan or participation in any other benefit plan maintained by the Corporation or any Affiliate.

17. DISAVOWAL OF REPRESENTATIONS, UNDERTAKINGS OR CREATION OF IMPLIED RIGHTS.

In adopting and maintaining this Plan and granting options hereunder, neither the Corporation nor any Affiliate makes any representations or undertakings with respect to the initial qualification or treatment of Options under federal or state tax or securities laws. The Corporation and each Affiliate expressly disavows the creation of any rights in Employees, Optionees, or beneficiaries of any obligations on the part of the Corporation, any Affiliate or the Committee, except as expressly provided herein.

18. INSPECTION OF RECORDS.

Copies of the Plan, records reflecting each Optionee’s Option, and any other documents and records

which an Optionee is entitled by law to inspect shall be open to inspection by the Optionee and his or her duly authorized representative at the office of the Committee at any reasonable business hour.

19. INFORMATION TO OPTIONEES.

Each Optionee shall be provided with such information regarding the Corporation as the Committee from time to time deems necessary or appropriate; provided however, that each Optionee shall at all times be provided with such information as is required to be provided from time to time pursuant to applicable regulatory requirements, including, but not limited to, any applicable requirements of the Securities and Exchange Commission, the California Department of Corporations and other state securities agencies.

20. SHAREHOLDER APPROVAL REQUIRED FOR OPTION RE-PRICING.

Notwithstanding any provision to the contrary in this Plan, absent the prior approval of the Company’s shareholders, outstanding options granted or issued under this Plan will not be re-priced either by (a) amending such options to lower the exercise price or (b) canceling such options and granting replacement options with a lower exercise price; provided, however, that such prohibition shall not apply to proportional adjustments in connection with a stock split, reverse stock split, stock dividend, or other like event or in the event of a corporate transaction such as a merger or other reorganization involving a substitution or assumption of options that complies with Section 424(a) of the Code.

EX-99.(B) 4 dex99b.htm 1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN 1995 Non-Employee Directors' Stock Option Plan

Exhibit B

CALIFORNIA MICRO DEVICES CORPORATION

1995 NON-EMPLOYEE DIRECTORS’ STOCK OPTION PLAN,

AMENDED AS OF JULY 26, 1996, AMENDED AS OF JULY 18, 1997, AMENDED AS OF AUGUST 7, 1998, AMENDED AS OF AUGUST 1, 2000, AMENDED AS OF AUGUST 7, 2001, AND AMENDED AS OF AUGUST 7, 2002

1. PURPOSE.

The purpose of the CALIFORNIA MICRO DEVICES CORPORATION Non-Employee Directors’ Stock Option Plan (the “Plan”) is to secure for the Corporation and its shareholders the benefits of the incentive inherent in increased common stock ownership by the members of the Board of Directors (the “Board”) of the Corporation who are not employees of the Corporation or any of its subsidiaries.

2. DEFINITIONS.

(a) “Board” shall mean the board of directors of the Corporation.

(b) “Code” shall mean the Internal Revenue Code of 1986, as amended.

(c) “Committee” shall mean the committee appointed by the Board to administer the Plan, or if no such committee is appointed, by the Board.

(d) “Common Stock” shall mean the voting common stock, of the Corporation.

(e) “Corporation” shall mean CALIFORNIA MICRO DEVICES CORPORATION, a California corporation.

(f) “Director” shall mean a member of the Board.

(g) “Effective Date” shall mean February 10, 1995.

(h) “Exercise Price” shall mean the price per Share at which an Option may be exercised, as determined by the Committee and as specified in the Optionee’s stock option agreement.

(i) “Fair Market Value” shall mean for any day the average of the closing bid and asked prices of the Stock in the over-the-counter market, as reported through the National Association of Securities Dealers (“NASD”) Automated Quotation System or, if the Stock is listed or admitted to trading on the Nasdaq National Market System or any national securities exchange or if the last reported sale price of such Stock is generally available, the last reported sale price on such system or exchange. The Fair Market Value for any day for which there is no such bid and asked or last reported sales price shall be the Fair Market Value of the next preceding day for which there is such a price.

(j) “Non-Employee Director” shall mean a Director who is not an employee of the Corporation or any of its subsidiaries.

(k) “Option” shall mean an option to purchase Common Stock granted pursuant to the Plan.

(l) “Optionee” shall mean any person who holds an Option pursuant to the Plan.

(m) “Plan” shall mean the CALIFORNIA MICRO DEVICES CORPORATION 1995 Non-Employee Directors’ Stock Option Plan, as it may be amended from time to time.

(n) “Purchase Price” shall mean at any particular time the Exercise Price times the number of Shares for which an Option is being exercised.

(o) “Share” shall mean one share of authorized Common Stock.

3. ADMINISTRATION.

(a) The Committee.

The Plan shall be administered by a Committee which shall consist of not less than three members of the Board.

(b) Powers of the Committee.

Subject to the provisions of the Plan, the Committee shall have the authority, in its discretion and on behalf of the Corporation shall, subject to the provisions of the Plan, grant Options and shall have the power to construe the Plan, to determine all questions arising thereunder and to adopt and amend such rules and regulations for the administration of the Plan as it may deem desirable. Any decision of the Committee in the administration of the Plan, as described herein, shall be final and conclusive. No member of the Committee shall be liable for anything done or omitted to be done by such member or by any other member of the Committee in connection with the Plan, except for such member’s own willful misconduct or as expressly provided by statute.

4. PARTICIPATION.

Each Non-Employee Director shall be eligible to receive Options in accordance with the Plan. The adoption of this Plan shall not be deemed to give any director any right to be granted an option to purchase Common Stock of the Corporation, except to the extent and upon such terms and conditions are provided herein.

5. STOCK.

(a) Shares Subject to This Plan.

The aggregate number of Shares which may be issued upon exercise of Options under the Plan shall not exceed four hundred and fifty thousand (450,000) subject to adjustment pursuant to Section 8 hereof.

(b) Options Not to Exceed Shares Available

The number of Shares for which an Option is exercisable at any time shall not exceed the number of Shares remaining available for issuance under the Plan. If any Option expires or is terminated, the number of Shares for which such Option was exercisable may be made exercisable pursuant to other Options under the Plan. The limitations established by this Section 5 shall be subject to adjustment in the manner provided in Section 8 hereof upon the occurrence of an event specified therein.

6. TERMS AND CONDITIONS OF OPTIONS.

(a) Stock Option Agreements.

(b) Number of Shares.

Each stock option agreement shall state the number of Shares for which the Option is exercisable in accordance with the following and shall provide for the adjustment thereof in accordance with Section 8 hereof.

(i) Upon adoption of this Plan by the Board, and subject to the approval of the Plan by the Shareholders of the Corporation in accordance with Section 14 hereof, each Non-Employee Director then in office shall, without further action required, be granted an Option for the purchase of Ten Thousand (10,000) Shares. Each other person appointed or elected to serve as a Non-Employee Director during the term of this Plan shall be granted an option for Fifteen Thousand (15,000) Shares upon his or her appointment or election.

(ii) Subject to the approval of the Plan by the Shareholders of the Corporation in accordance with Section 14 hereof, each year, as of the date of the Annual Meeting of Shareholders of the Corporation, each Non-Employee Director who has been elected or re-elected or who is continuing as a member of the Board as of the adjournment of the Annual Meeting (other than any Non-Employee Director eligible for a grant pursuant to paragraph (b)(i)) shall automatically receive an Option for Ten Thousand (10,000) shares of Common Stock; provided, however, that a Non-Employee Director who has been a member of the Board for less than six months on such date shall not receive such option grant.

An Optionee may not exercise his or her Option for any Shares until the Non-Employee Director has served one year as a member of the Board since the date the option was granted. An Optionee may exercise the Option as to one fourth of the Shares at the end of the 4th full calendar quarter following the date the Option was granted and as to an additional 1/16th of the Shares at the end of each subsequent full calendar quarter commencing with the 5th full calendar quarter following the date the Option was granted. The right to exercise the Option shall be cumulative. An Optionee may buy all, or from time to time any part, of the maximum number of shares which are exercisable under the Option, but in no case may Optionee exercise the Option with regard to a fraction of a share, or for any share for which the Stock Option is not exercisable.

(d) Lapse of Options.

(i) The tenth anniversary of the date of granting the Option;

(ii) The first anniversary of the Optionee’s death;

(iii) The first anniversary of the date the Optionee ceases to be a Director due to total and permanent disability, within the meaning of Section 22(e)(3) of the Code;

(iv) Ninety (90) days after the Optionee ceases to be a Director for any reason other than his or her death or total and permanent disability;

(v) The date the Optionee files or has filed against him or her a petition in bankruptcy; or

(vi) The expiration date specified in an Optionee’s stock option agreement.

(e) Exercise Price.

Each stock option agreement shall state the Exercise Price for the Shares for which the Option is exercisable. The Exercise Price of all Options shall be the Fair Market Value of the Shares for which the Option is exercisable, and not less than the par value of the Shares.

(f) Medium and Time of Payment.

The Purchase Price shall be payable in full in cash upon the exercise of an Option but the Committee may allow the Optionee to pay the Purchase Price:

(i) by surrendering Shares in good form for transfer, owned by the Optionee and having a Fair Market Value on the date of exercise equal to the Purchase Price;

(ii) by delivery of a full recourse promissory note (“Note”) made by the Optionee in the amount of the Purchase Price, bearing interest, compounded semiannually, at a rate not less than the rate determined under Section 7872 of the Code to insure that no “unstated interest”, as defined in such section will accrue, together with the delivery of a duly executed standard form security agreement securing the Note by a pledge of the Shares purchased; or

(iii) in any combination of such consideration or such other consideration and method of payment for the issuance of Shares to the extent permitted under applicable law as long as the sum of the cash so paid, the Fair Market Value of the Shares so surrendered, and the amount of any Note equals the Purchase Price.

The Committee or a stock option agreement may prescribe requirements with respect to the exercise of Options, including the submission by the Optionee of such forms and documents as the Committee may require and the delivery by the Optionee of cash sufficient to satisfy applicable withholding requirements. The Committee may vary the exercise requirements and procedures from time to time to facilitate, for example, the broker-assisted exercise of Options.

(g) Nontransferability of Options.

(h) Termination of Directorship Other than by Death or Disability.

If an Optionee ceases to be a Director for any reason other than his or her death or disability, the Optionee shall have the right, subject to the provisions of this Section 6, to exercise any Option held by the Optionee at any time within ninety (90) days after his or her termination as a Director, but not beyond the otherwise applicable term of the Option and only to the extent that on such date of termination as a Director the Optionee’s right to exercise such Option had vested.

(i) Death of Optionee.

If an Optionee dies while a Director, or after ceasing to be a Director but during the period while he or she could have exercised an Option under Section 6(h) hereof, any Option granted to the Optionee may be exercised, to the extent it had vested at the time of death and subject to the Plan, at any time within twelve (12) months after the Optionee’s death, by the executors or administrators of his or her estate or by any person or persons who acquire the Option by will or the laws of descent and distribution, but not beyond the otherwise applicable term of the Option.

(j) Disability of Optionee.

If an Optionee ceases to be a Director due to becoming totally and permanently disabled within the meaning of Section 22(e)(3) of the Code, any Option granted to the Optionee may be exercised to the extent it had vested at the time of cessation and, subject to the Plan, at any time within twelve (12) months after the termination of Optionee’s position as a Director, but not beyond the otherwise applicable term of the Option.

(k) Rights as a Shareholder.

(l) Other Provisions.

7. TERM OF PLAN.

Options may be granted pursuant to the Plan until ten (10) years following the Effective Date, and all Options which are outstanding on such date shall remain in effect until they are exercised or expire by their terms. The Plan shall expire for all purposes on the date twenty (20) years following the Effective Date.

8. REORGANIZATIONS.

(a) Reorganizations.

The number of Shares covered by the Plan, as provided in Section 5 hereof, and the number of Shares for which each Option is exercisable shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from the payment of a Common Stock dividend, a stock split, a reverse stock split or any other event which results in an increase or decrease in the number of issued Shares effected without receipt of consideration by the Corporation, and the Exercise Price shall be proportionately increased in the event the number of Shares subject to such Option are decreased and shall be proportionately decreased in the event the number of Shares subject to such Option are increased. Adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Corporation 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.

(b) Liquidation.

In the event of a merger or acquisition involving an acquisition of the Corporation or an acquisition by the Corporation of another company, the result of which is that the outstanding voting securities of the Corporation do not represent, or are not converted into, a majority of the outstanding voting securities of the surviving corporation, except as otherwise provided in any particular Option agreement, the vesting of all unvested Options shall be accelerated and all options shall be immediately exercisable. Without limiting the generality of the foregoing, in the event of (i) a proposed merger of the Corporation with or into another corporation, as a result of which the Corporation is not the surviving corporation and (ii) the Option is not assumed or an equivalent option substituted by the successor corporation or a parent or subsidiary of the successor corporation, then in such case each Option shall terminate immediately prior to the consummation of such transaction. The Committee shall notify the Optionee not less than fifteen (15) days prior to the proposed consummation of such transaction, and the Option shall be exercisable as to all Shares subject to such Option until immediately prior to the consummation of such transaction.

(d) Determination by Committee.

All adjustments described in this Section 8 shall be made by the Committee, whose determination shall be conclusive and binding on all persons.

(e) Limitation on Rights of Optionee.

Except as expressly provided in this Section 8, no Optionee shall have any rights by reason of any payment of any stock dividend, stock split or reverse stock split or any other increase or decrease in the number of shares of stock of any class, or by reason of any reorganization, consolidation, dissolution, liquidation, merger, exchange, split-up or reverse split-up, or spin-off of assets or stock of another corporation. Any issuance by the Corporation of Shares, Options or securities convertible into Shares or Options shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of the Shares for which an Option is exercisable.

(f) No Restriction on Rights of Corporation.

The grant of an Option shall not affect in any way the right or power of the Corporation to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge or consolidate, or to dissolve, liquidate, sell, or transfer all or any part of its business or assets.

9. SECURITIES LAW REQUIREMENTS.

(a) Legality of Issuance.

No Share shall be issued upon the exercise of any Option unless and until the Corporation has determined that:

(i) The Corporation and the Optionee have taken all actions required to exempt the issuance of the Shares from the registration requirements under the Securities Act of 1933, as amended (the “Act”), or the Corporation and the Optionee shall determine that the registration requirements of the Act do not apply to such exercise;

(ii) Any applicable listing requirement of any stock exchange on which the Common Stock is listed has been satisfied; and

(iii) Any other applicable provision of state or Federal law has been satisfied.

(b) Restrictions on Transfer; Representations of Optionee; Legends.

Regardless of whether the offering and sale of Shares has been registered under the Act or

has been registered or qualified under the securities laws of any state, the Corporation may impose restrictions upon the sale, pledge, or other transfer of such Shares, including the placement of appropriate legends on stock certificates, if, in the judgment of the Corporation and its counsel, such restrictions are necessary or desirable in order to achieve compliance with the provisions of the Act, the securities laws of any state, or any other law. If the sale of Shares is not registered under the Act and the Corporation shall determine that the registration requirements of the Act apply to such sale, but an exemption is available which requires an investment representation or other representation, the Optionee shall be required, as a condition to purchasing Shares by exercise of his or her Option, to represent that such Shares are being acquired for investment, and not with a view to the sale or distribution thereof, except in compliance with the Act, and to make such other representations as are deemed necessary or appropriate by the Corporation and its counsel. Stock certificates evidencing Shares acquired pursuant to an unregistered transaction to which the Act applies shall bear such restrictive legends as are required or deemed advisable under the Plan or the provisions of any applicable law. Any determination by the Corporation and its counsel in connection with any of the matters set forth in this section shall be conclusive and binding on all persons.

The Corporation may, but shall not be obligated to, register or qualify the sale of Shares under the Act or any other applicable law.

(d) Exchange of Certificates.

If, in the opinion of the Corporation and its counsel, any legend placed on a stock certificate representing Shares sold hereunder is no longer required, the Optionee or the holder of such certificate shall be entitled to exchange such certificate for a certificate representing the same number of Shares but lacking such legend.

10. AMENDMENT OF THE PLAN.

The Plan may be amended at any time and from time to time by the Board as the Board shall deem advisable including, but not limited to amendments necessary to qualify for any exemption or to comply with applicable law or regulations, provided, however, that except as provided in Section 8, the Board may not, without further approval by the shareholders of the Corporation, materially increase the number of shares of Common Stock as to which Options may be granted under the Plan, materially increase the benefits accruing to Participants under the Plan or materially modify the requirements as to eligibility for Participants in the Plan. No amendment of the Plan shall materially and adversely affect any right of any Optionee with respect to any Option theretofore granted without such Optionee’s written consent. The Plan may not be amended more frequently than once every six months with respect to the number of shares subject to Options granted to members of the Board of Directors, the timing of such Option grants and the determination of the exercise price of such Options other than to comport with changes in the Code, the Employee Retirement Security Act, or the rules thereunder. Notwithstanding anything to the contrary contained herein, this Plan shall not be amended except in accordance with the provisions of Rule 16b-3(c) under the Securities Exchange Act of 1934, as amended, or any successor rule thereto.

11. APPLICATION OF FUNDS.

The proceeds received by the Corporation from the sale of Common Stock pursuant to the exercise of an Option shall be used for general corporate purposes.

12. APPROVAL OF SHAREHOLDERS.

The Plan shall be subject to approval by the affirmative vote of the holders of a majority of all classes of the outstanding shares present and entitled to vote at the first meeting of shareholders of the Corporation following the adoption of the Plan, and in no event later than one (1) year following the Effective Date. Prior to such approval, Options may be granted but shall not be exercisable.

13. WITHHOLDING OF TAXES.

In the event the Corporation or a Subsidiary determines that it is required to withhold Federal, state, or local taxes in connection with the exercise of an Option or the disposition of Shares issued pursuant to the exercise of an Option, the Optionee or any person succeeding to the rights of the Optionee, as a condition to such exercise or disposition, may be required to make arrangements satisfactory to the Corporation or the Subsidiary to enable it to satisfy such withholding requirements.

14. RIGHTS AS A DIRECTOR.

Neither the Plan nor any Option granted pursuant thereto shall be construed to give any person the right to remain as a Director of the Corporation or any Subsidiary.

15. SHAREHOLDER APPROVAL REQUIRED FOR OPTION RE-PRICING.

EX-99.(C) 5 dex99c.htm 1995 EMPLOYEE STOCK PURCHASE PLAN 1995 Employee Stock Purchase Plan

Exhibit C

CALIFORNIA MICRO DEVICES CORPORATION

1995 EMPLOYEE STOCK PURCHASE PLAN

AMENDED AS OF JULY 18, 1997, AUGUST 7, 1998,

AUGUST 5, 1999, AND AUGUST 7, 2002

1. PURPOSE.

The purpose of this Plan is to provide an opportunity for Employees of California Micro Devices Corporation (the “Corporation”) and its Designated Subsidiaries, to purchase Common Stock of the Corporation and thereby to have an additional incentive to contribute to the prosperity of the Corporation. It is the intention of the Corporation that the Plan qualify as an “Employee Stock Purchase Plan” under Section 423 of the Internal Revenue Code of 1986, as amended, and the Plan shall be construed in accordance with this intention.

2. DEFINITIONS.

(a) “Board” shall mean the Board of Directors of the Corporation.

(b) “Code” shall mean the Internal Revenue Code of 1986, as amended.

(d) “Common Stock” shall mean the Common Stock of the Corporation, or any stock into which such Common Stock may be converted.

(e) “Compensation” shall mean an Employee’s wages or salary and other amounts payable to an Employee on account of personal services rendered by the Employee to the Corporation or a Designated Subsidiary and which are reportable as wages or other compensation on the Employee’s Form W-2, plus pre-tax contributions of the Employee under a cash or deferred arrangement (401(k) plan) or cafeteria plan maintained by the Corporation or a Designated Subsidiary, but excluding, however, (1) non-cash fringe benefits, (2) special payments as determined by the Committee (e.g., moving expenses, unused vacation, severance pay), (3) income from the exercise of stock options or other stock purchases and (4) any other items of Compensation as determined by the Committee.

(f) “Corporation” shall mean California Micro Devices Corporation, a California corporation.

(g) “Designated Subsidiary” shall mean a Subsidiary which has been designated by the Board as eligible to participate in the Plan.

(h) “Employee” shall mean an individual employed (within the meaning of Code section 3401(c) and the regulations thereunder) by the Corporation or a Designated Subsidiary.

(i) “Entry Date” shall mean the first day of each Option Period. The first Entry Date shall be such date as is determined by the Committee.

(j) “Exercise Date” shall mean the last business day of each Exercise Period.

(k) “Exercise Period” shall mean a six-month or other period as determined by the Committee. The first Exercise Period during an Option Period shall commence on the first day of such Option Period. Subsequent Exercise Periods, if any, shall run consecutively after the termination of the preceding Exercise Period. The last Exercise Period in an Option Period shall terminate on the last day of such Option Period.

(l) “Fair Market Value” shall mean the value of one (1) share of Common Stock on the relevant

date, determined as follows:

(1) If the shares are traded on an exchange or on the Nasdaq Stock Market, the reported “closing price” on the next preceding trading day (provided that in the case of the first Entry Date, the Fair Market Value shall be the initial price to the public in the Company’s initial public offering);

(2) If the shares are traded over-the-counter on the NASDAQ System (other than on the Nasdaq Stock Market), the mean between the bid and the ask prices on said System at the close of business on the next preceding trading day (provided that in the case of the first Entry Date, the Fair Market Value shall be the initial price to the public in the Company’s initial public offering); and

(3) If neither (1) nor (2) applies, the fair market value as determined by the Committee in good faith. Such determination shall be conclusive and binding on all persons.

(m) “Option Period” shall mean a period of up to twenty-seven (27) months as determined by the Committee.

(n) “Participant” shall mean a participant in the Plan as described in Section 4 of the Plan.

(o) “Plan” shall mean this employee stock purchase plan.

(p) “Subsidiary” shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, as described in Code section 424(f).

3. ELIGIBILITY.

Any Employee regularly employed on a full-time basis by the Corporation or by any Designated Subsidiary on an Entry Date shall be eligible to participate in the Plan with respect to the Option Period commencing on such Entry Date, provided that the Committee may establish administrative rules requiring that employment commence some minimum period (e.g., one pay period) prior to an Entry Date to be eligible to participate with respect to that Entry Date. An Employee shall be considered employed on a full-time basis unless his or her customary employment is less than 20 hours per week or five months per year. No Employee may participate in the Plan if immediately after an option is granted the Employee owns or is considered to own (within the meaning of section 424(d) of the Code), shares of stock, including stock which the Employee may purchase by conversion of convertible securities or under outstanding options granted by the Corporation, possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Corporation or of any of its Subsidiaries. All Employees who participate in the Plan shall have the same rights and privileges under the Plan except for differences which may be mandated by local law and which are consistent with Code section 423(b)(5). The Committee may impose restrictions on eligibility and participation of Employees who are officers and directors to facilitate compliance with federal or state securities laws.

4. PARTICIPATION.

4.1 An Employee who is eligible to participate in the Plan in accordance with Section 3 may become a Participant by filing, on a date prescribed by the Committee prior to an applicable Entry Date, a completed payroll deduction authorization and Plan enrollment form provided by the Corporation. An eligible Employee may authorize payroll deductions at the rate of any whole percentage of the Employee’s Compensation, not to exceed fifteen percent (15%) of the Employee’s Compensation, or such lesser percentage as specified by the Committee as applied to an Entry Date or Option Period. All payroll deductions may be held by the Corporation and commingled with its other corporate funds. No interest shall be paid or credited to the Participant with respect to such payroll deductions except where required by local law as determined by the Committee. A separate bookkeeping account for each Participant shall be maintained by the Corporation under the Plan and the amount of each Participant’s payroll deductions shall be credited to such account. A Participant may not make any additional payments into such account.

4.2 Under procedures established by the Committee, a Participant may suspend or discontinue participation in the Plan or may reduce the rate of his or her payroll deductions at any time during an Offering Period by completing and filing a new payroll deduction authorization and Plan enrollment form with the Corporation, provided that the Committee may, in its discretion, impose restrictions on a Participant’s ability to change the rate of payroll deductions. A Participant may increase his or her rate of payroll deductions only effective on an Entry Date by filing a new payroll deduction authorization and Plan enrollment form. If a new payroll deduction authorization and Plan enrollment form is not filed with the Corporation, the rate of payroll deductions shall continue at the originally elected rate throughout the Option Period unless the Committee determines to change the permissible rate.

If a Participant suspends participation during an Exercise Period, his or her accumulated payroll deductions will remain in the Plan for purchase of shares as specified in Section 6 on the following Exercise Date, but the Participant will not again participate until he or she completes a new payroll deduction authorization and Plan enrollment form. The Committee may establish rules limiting the frequency with which Participants may suspend and resume payroll deductions under the Plan and may impose a waiting period on Participants wishing to resume suspended payroll deductions. If a Participant discontinues participation in the Plan, the amount credited to the Participant’s individual account shall be paid to the Participant without interest (except where required by local law). In the event any Participant terminates employment with the Corporation or any Subsidiary for any reason (including death) prior to the expiration of an Option Period, the Participant’s participation in the Plan shall terminate and all amounts credited to the Participant’s account shall be paid to the Participant or the Participant’s estate without interest (except where required by local law). Whether a termination of employment has occurred shall be determined by the Committee. The Committee may also establish rules regarding when leaves of absence or change of employment status (e.g., from full-time to part-time) will be considered to be a termination of employment, and the Committee may establish termination of employment procedures for this Plan which are independent of similar rules established under other benefit plans of the Corporation and its Subsidiaries.

In the event of a Participant’s death, any accumulated payroll deductions will be paid, without interest, to the estate of the Participant.

5. OFFERING.

5.1 The maximum number of shares of Common Stock which may be issued pursuant to the Plan shall be one million one hundred thirty thousand (1,130,000) shares. The Committee may designate any amount of available shares for offering for any Option Period determined pursuant to Section 5.2.

5.2 Each Option Period, Entry Date and Exercise Period shall be determined by the Committee. The Committee shall have the power to change the duration of future Option Periods or future Exercise Periods, and to determine whether or not to have overlapping Option Periods, with respect to any prospective offering, without shareholder or Board approval.

5.3 With respect to each Option Period, each eligible Employee who has elected to participate as provided in Section 4.1 shall be granted an option to purchase that number of shares of Common Stock which may be purchased with the payroll deductions accumulated on behalf of such Employee (assuming payroll deductions at a rate of 15% of Compensation) during each Exercise Period within such Option Period at the purchase price specified in Section 5.4 below; provided, however, (1) in no event shall the Employee be entitled to accrue rights to purchase shares under the Plan (and all other employee stock purchase plans, as defined in Code section 423, of the Corporation and its subsidiaries) at a rate which exceeds $25,000 of the Fair Market Value of such stock (determined at the time the option is granted) for any calendar year in which such option is outstanding at any time, and (2) the maximum shares subject to any option shall in no event exceed 10,000.

5.4 The option price under each option shall be the lower of: (i) eighty-five percent (85%) of the Fair Market Value of the Common Stock on the Entry Date on which an option is granted, or (ii) eighty-five percent (85%) of the Fair Market Value on the Exercise Date on which the Common Stock is purchased.

5.5 If the total number of shares of Common Stock for which options granted under the Plan are exercisable exceeds the maximum number of shares offered on any Entry Date, the number of shares which

may be purchased under options granted on the Entry Date shall be reduced on a pro rata basis in as nearly a uniform manner as shall be practicable and equitable. In this event, payroll deductions shall also be reduced or refunded accordingly. If an Employee’s payroll deductions during any Exercise Period exceeds the purchase price for the maximum number of shares permitted to be purchased under Section 5.3, the excess shall be refunded to the Participant without interest (except where otherwise required by local law).

5.6 In the event that the Fair Market Value of the Corporation’s Common Stock is lower on the first day of an Exercise Period within an Option Period (subsequent “Reassessment Date”) than it was on Entry Date for such Option Period, all Employees participating in the Plan on the Reassessment Date shall be deemed to have relinquished the unexercised portion of the option granted on the Entry Date and to have enrolled in and received a new option commencing on such Reassessment Date, unless the Committee has determined not to permit overlapping Option Periods or to restrict such transfers to lower price Option Periods.

6. PURCHASE OF STOCK.

Upon the expiration of each Exercise Period, a Participant’s option shall be exercised automatically for the purchase of that number of full shares of Common Stock which the accumulated payroll deductions credited to the Participant’s account at that time shall purchase at the applicable price specified in Section 5.4.

7. PAYMENT AND DELIVERY.

Upon the exercise of an option, the Corporation shall deliver to the Participant the Common Stock purchased and the balance of any amount of payroll deductions credited to the Participant’s account not used for the purchase. The Committee may permit or require that shares be deposited directly with a broker designated by the Participant (or a broker selected by the Committee), and the Committee may utilize electronic or automated methods of share transfer. To the extent the unused cash balance represents a fractional share, the unused cash balance credited to the Participant’s account shall be carried over to the next Exercise Period, if the Participant is also a Participant in the Plan at that time or refunded to the Participant, as determined by the Committee. The Corporation shall retain the amount of payroll deductions used to purchase Common Stock as full payment for the Common Stock and the Common Stock shall then be fully paid and non-assessable. No Participant shall have any voting, dividend, or other stockholder rights with respect to shares subject to any option granted under the Plan until the option has been exercised and shares issued.

8. RECAPITALIZATION.

If after the grant of an option, but prior to the purchase of Common Stock under the option, there is any increase or decrease in the number of outstanding shares of Common Stock because of a stock split, stock dividend, combination or recapitalization of shares subject to options, the number of shares to be purchased pursuant to an option, the share limit of Section 5.3 and the maximum number of shares specified in Section 5.1 shall be proportionately increased or decreased, the terms relating to the purchase price with respect to the option shall be appropriately adjusted by the Committee, and the Committee shall take any further actions which, in the exercise of its discretion, may be necessary or appropriate under the circumstances.

The Committee, if it so determines in the exercise of its sole discretion, also may adjust the number of shares specified in Section 5.1, as well as the price per share of Common Stock covered by each outstanding option and the maximum number of shares subject to any individual option, in the event the Corporation effects one or more reorganizations, recapitalizations, spin-offs, split-ups, rights offerings or reductions of shares of its outstanding Common Stock.

The Committee’s determinations under this Section 8 shall be conclusive and binding on all parties.

9. MERGER, LIQUIDATION, OTHER CORPORATION TRANSACTIONS.

In the event of the proposed liquidation or dissolution of the Corporation, the Option Period will terminate immediately prior to the consummation of such proposed transaction, unless otherwise provided by the Committee in its sole discretion, and all outstanding options shall automatically terminate and the amounts of all payroll deductions will be refunded without interest to the Participants.

In the event of a proposed sale of all or substantially all of the assets of the Corporation, or the merger or consolidation of the Corporation with or into another corporation, then in the sole discretion of the Committee, (1) each option shall be assumed or an equivalent option shall be substituted by the successor corporation or parent or subsidiary of such successor corporation, (2) a date established by the Committee on or before the date of consummation of such merger, consolidation or sale shall be treated as an Exercise Date, and all outstanding options shall be deemed exercisable on such date or (3) all outstanding options shall terminate and the accumulated payroll deductions shall be returned to the Participants.

10. TRANSFERABILITY.

Options granted to Participants may not be voluntarily or involuntarily assigned, transferred, pledged, or otherwise disposed of in any way, and any attempted assignment, transfer, pledge, or other disposition shall be null and void and without effect. If a Participant in any manner attempts to transfer, assign or otherwise encumber his or her rights or interest under the Plan, other than as permitted by the Code, such act shall be treated as an election by the participant to discontinue participation in the Plan pursuant to Section 4.2.

11. AMENDMENT OR TERMINATION OF THE PLAN.

11.1 The Plan shall continue until February 9, 2005, unless previously terminated in accordance with Section 11.2.

11.2 The Board may, in its sole discretion, insofar as permitted by law, terminate or suspend the Plan, or revise or amend it in any respect whatsoever, except that, without approval of the stockholders, no such revision or amendment shall:

(a) materially increase the number of shares subject to the Plan other than an adjustment under Section 8 of the Plan;

(b) materially modify the requirements as to eligibility for participation in the Plan;

(d) reduce the purchase price specified in Section 5.4, except as specified in Section 8;

(e) extend the term of the Plan beyond the date specified in Section 11.1; or

(f) amend this Section 11.2 to defeat its purpose.

12. ADMINISTRATION.

The Plan shall be administered by a Committee which shall consist of at least three members appointed by the Board. The Committee shall have full power and authority to promulgate any rules and regulations which it deems necessary for the proper administration of the Plan, to interpret the provisions and supervise the administration of the Plan, and to take all action in connection with administration of the Plan as it deems necessary or advisable. Decisions of the Committee shall be made by a majority of its members and shall be final and binding upon all participants. Any decision reduced to writing and signed by a majority of the members of the Committee shall be fully effective as if it had been made at a meeting of the Committee duly held. The Corporation shall pay all expenses incurred in the administration of the Plan. No Committee member shall be liable for any action or determination made in good faith with respect to the Plan or any option granted thereunder.

13. COMMITTEE RULES FOR FOREIGN JURISDICTIONS.

The Committee may adopt rules or procedures relating to the operation and administration of the Plan in non-United States jurisdictions to accommodate the specific requirements of local laws and procedures. Without limiting the generality of the foregoing, the Committee is specifically authorized to adopt rules and procedures regarding handling of payroll deductions, conversion of local currency, withholding procedures and handling of stock certificates which vary with local requirements.

14. SECURITIES LAWS REQUIREMENTS.

The Corporation shall not be under any obligation to issue Common Stock upon the exercise of any option unless and until the Corporation has determined that: (i) it and the Participant have taken all actions required to register the Common Stock under the Securities Act of 1933, or to perfect an exemption from the registration requirements thereof; (ii) any applicable listing requirement of any stock exchange on which the Common Stock is listed has been satisfied; and (iii) all other applicable provisions of state and federal law have been satisfied.

15. GOVERNMENTAL REGULATIONS.

This Plan and the Corporation’s obligation to sell and deliver shares of its stock under the Plan shall be subject to the approval of any governmental authority required in connection with the Plan or the authorization, issuance, sale, or delivery of stock hereunder.

16. NO ENLARGEMENT OF EMPLOYEE RIGHTS.

Nothing contained in this Plan shall be deemed to give any Employee the right to be retained in the employ of the Corporation or any Designated Subsidiary or to interfere with the right of the Corporation or Designated Subsidiary to discharge any Employee at any time.

17. GOVERNING LAW.

This Plan shall be governed by California law, but shall be interpreted to be consistent with the requirements of any employee stock purchase plan under Code section 423.

18. EFFECTIVE DATE.

This Plan shall be effective February 10, 1995, subject to approval of the shareholders of the Corporation within 12 months of its adoption by the Board of Directors.

-----END PRIVACY-ENHANCED MESSAGE-----

Date: November 14, 2002

/s/ Robert V. Dickinson

Robert V. Dickinson, President and CEO

/s/ Kenneth E. Thornbrugh

Kenneth E. Thornbrugh

Vice President Finance & Administration

(Principal Financial Officer)