-----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, PFR2cHEMKQiZ/Fu/yRtrMmXR4w6GP0DbIa22POMOLLO+jD7aH+jZy5xmg8Lyo6ye jlUJ840+UMOUzFYXNFejDw== 0000891618-96-001659.txt : 19960813 0000891618-96-001659.hdr.sgml : 19960813 ACCESSION NUMBER: 0000891618-96-001659 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960812 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INFORMATION STORAGE DEVICES INC /CA/ CENTRAL INDEX KEY: 0000932980 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 770197173 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25502 FILM NUMBER: 96607768 BUSINESS ADDRESS: STREET 1: 2045 HAMILTON AVE CITY: SAN JOSE STATE: CA ZIP: 95125 BUSINESS PHONE: 4083692400 MAIL ADDRESS: STREET 1: 2045 HAMILTON AVE CITY: SAN JOSE STATE: CA ZIP: 95125 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ____ to ____ COMMISSION FILE NO. 0-25502 INFORMATION STORAGE DEVICES, INC. (Exact name of registrant as specified in its charter) CALIFORNIA 77-0197173 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 2045 HAMILTON AVENUE SAN JOSE, CA 95125 (Address of principal executive offices, including zip code) (408) 369-2400 (Registrant's telephone number, including area code) 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 . --- --- As of August 2, 1996, there were outstanding 9,667,450 shares of the Registrant's Common Stock. 2 INFORMATION STORAGE DEVICES, INC. INDEX PART I - FINANCIAL INFORMATION Page ---- Item 1. Financial Statements Condensed Balance Sheets at December 31, 1995 and June 30, 1996 .........................................1 Condensed Statements of Operations for the Three Months and Six Months Ended June 30, 1995 and 1996................2 Condensed Statements of Cash Flows for the Six Months Ended June 30, 1995 and 1996....................3 Notes to Condensed Financial Statements....................4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..............5 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security-Holders......10 Item 6. Exhibits and Reports on Form 8-K...........................12 Signatures.................................................12 3 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONDENSED BALANCE SHEETS (In thousands)
JUNE 30, DECEMBER 31, 1996 1995 ---------------- ---------------- ASSETS Current Assets: Cash and cash equivalents $ 33,956 $ 29,202 Short-term investments 19,042 45,892 Accounts receivable, net 4,138 7,554 Inventories 14,497 9,809 Other current assets 2,919 1,841 ---------------- ---------------- Total current assets 74,552 94,298 Net property and equipment 5,661 5,244 Patents and other assets, net 1,762 1,355 Long-term investments 7,639 4,533 ---------------- ---------------- Total Assets $ 89,614 $ 105,430 ================ ================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 4,571 $ 9,784 Current portion of capitalized lease obligations 1,170 1,089 Accrued liabilities 1,324 2,312 Deferred revenue 2,103 1,834 ---------------- ---------------- Total current liabilities 9,168 15,019 Long-term Liabilities: Capitalized lease obligations, net of current portion 2,361 2,630 Deferred rent 169 183 Other non-current liabilities 145 145 ---------------- ---------------- Total long-term liabilities 2,675 2,958 Shareholders' Equity: Common stock 79,306 86,256 Deferred compensation (1,058) (116) Retained earnings (deficit) (472) 1,313 Unrealized gain on investments (5) -- ---------------- ---------------- Total shareholders' equity 77,771 87,453 ---------------- ---------------- Total Liabilities and Shareholders' Equity $ 89,614 $ 105,430 ---------------------------------------------------------------------------- ---------------- ---- ----------------
1 4 CONDENSED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, -------------------------------- ------------------------------ 1996 1995 1996 1995 -------------- -------------- ------------- ------------ Net revenues $ 11,183 $ 14,234 $ 23,518 $ 27,239 Cost of goods sold 7,154 8,873 16,581 17,161 -------------- -------------- ------------- ------------ Gross margin 4,029 5,361 6,937 10,078 Operating Expenses: Research and development 1,868 1,476 5,988 2,883 Selling, general and administrative 2,419 2,239 5,029 4,007 -------------- -------------- ------------- ------------ Total operating expenses 4,287 3,715 11,017 6,890 -------------- -------------- ------------- ------------ Income (loss) from operations (258) 1,646 (4,080) 3,188 Interest and other income, net 552 390 1,334 523 -------------- -------------- ------------- ------------ Income (loss) before income taxes 294 2,036 (2,746) 3,711 Provision (benefit) for income taxes 103 712 (961) 1,298 -------------- -------------- ------------- ------------ Net income (loss) $ 191 $ 1,324 $ (1,785) $ 2,413 ============== ============== ============= ============ Earnings (loss) per share $ 0.02 $ 0.15 $ (0.18) $ 0.29 ============== ============== ============= ============ Shares used in computing amounts per share 9,886 8,688 9,955 8,181
2 5 CONDENSED STATEMENTS OF CASH FLOWS (In thousands)
SIX MONTHS ENDED JUNE 30, ---------------------------- 1996 1995 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (1,785) $ 2,413 Adjustments to reconcile net income (loss) to net cash provided by operating activities----- Depreciation and amortization 1,198 920 Amortization of investment discount 72 -- Compensation costs related to stock and stock option grant 185 22 Provision for allowance for doubtful accounts and returns 20 180 Changes in assets and liabilities----- Accounts receivable 3,397 (1,442) Inventories (4,688) (1,054) Prepaid expenses and other assets (991) (932) Accounts payable (5,213) 765 Accrued liabilities and bonuses (989) 25 Deferred revenue 269 1,009 Deferred rent (14) 123 ------------ ------------ Net cash provided by (used for) operating activities (8,539) 2,029 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (1,172) (246) Change in other assets (483) (12) Purchase of short-term investments (21,897) (20,982) Proceeds from maturities of short-term investments 49,186 4,924 Purchase of long-term investments (3,709) (2,529) ------------ ------------ Net cash provided by (used for) investing activities 21,925 (18,845) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of common stock, net of issuance costs 306 23,697 Repurchase of common stock (8,382) -- Payments on capitalized lease obligations (556) (574) ------------ ------------ Net cash provided by (used for) financing activities (8,632) 23,123 ------------ ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 4,754 6,307 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 29,202 7,604 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 33,956 $ 13,911 =============== ============
3 6 NOTES TO CONDENSED FINANCIAL STATEMENTS 1. Basis of Presentation: The condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These condensed financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 1995. The unaudited condensed financial statements included herein reflect all adjustments (which include only normal, recurring adjustments) that are, in the opinion of management, necessary to state fairly the results for the periods presented. The results for such periods are not necessarily indicative of the results to be expected for the full fiscal year. 2. Inventories: Inventories consist of material, labor and manufacturing overhead and are stated at the lower of cost (first-in, first-out basis) or market. The components of inventory are as follows (in thousands):
June 30, 1996 December 31, 1995 ------------- ----------------- Work-in-process.................... $ 9,247 $ 5,706 Finished goods..................... 5,250 4,103 -------- ------- $ 14,497 $ 9,809 ======== =======
3. Earnings (Loss) Per Share: Earnings (loss) per share has been computed using the weighted average number of shares of common stock, and, when dilutive, common equivalent shares from convertible preferred stock and common equivalent shares from stock options outstanding (using the treasury stock method). Pursuant to the Securities and Exchange Commissions Staff Accounting Bulletins, common and common equivalent shares issued during the twelve-month period prior to the Company's initial public offering in 1995 have been included in the 1995 calculation as if they were outstanding for all periods prior to the public offering (using the treasury stock method and the initial offering price). 4. Repurchase of Common Stock: In January 1996, the Company's Board of Directors approved a stock repurchase plan of up to one million shares of common stock. During the quarters ended March 31, 1996, and June 30, 1996 the Company repurchased 835,000 and 50,000 shares respectively, on the open market at prices ranging from $8.125 to $12.000 for a total of $8.4 million. 4 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report includes forward looking statements that involve a number of risks and uncertainties. The following includes a discussion of factors that, among other factors, could cause actual results to differ materially. For reference and discussion, see also "Other Factors That May Affect Operating Results" on page 16 of the ISD 1995 Annual Report and the factors discussed in ISD's Annual Report on Form 10-K and Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission. OVERVIEW ISD designs, develops, and markets single-chip integrated circuit products for voice recording and playback, using its proprietary ChipCorder high-density multilevel storage technology and its mixed signal expertise. The Company directs its marketing and product development efforts toward the consumer, communications and industrial markets. The Company distributes its products through a direct sales organization and a worldwide network of sales representatives and distributors. The Company was incorporated in California in December 1987 and introduced its first product in February 1991. ISD subcontracts with independent foundries to fabricate the wafers for all of its products. This approach enables the Company to concentrate its resources on the design and test areas, where the Company believes it has the greatest competitive advantage, and eliminates the high cost of owning and operating a semiconductor wafer fabrication facility. The Company depends on these foundries to allocate to the Company a portion of their foundry capacity sufficient to meet the Company's needs, to produce products of acceptable quality and with acceptable manufacturing yields and to deliver those products to the Company on time. Because of the demand for the Company's products and because of long lead times necessary to secure additional foundry capacity, the Company is on schedule to complete qualification of another foundry supplier by the end of 1996. Although the Company believes that current capacity is adequate to meet the Company's current anticipated needs, there can be no assurance that the Company will be able to qualify additional foundry capacity or otherwise obtain needed quantities within expected time frames or at all. Moreover, in order to reduce future manufacturing costs, the Company is designing smaller die sizes with smaller geometry processes to increase the number of die produced on each wafer. The Company's ability to remain competitive depends on migrating its manufacturing to smaller geometries, in particular certain of its products to the 0.8 micron geometry. A problem was encountered with such a transition in the first quarter of 1996, resulting in a write-off of in-line product and of a write-down of certain finished goods inventory, as well as a delay in the conversion. Although management believes the problems that delayed the 0.8 micron conversion have been identified and solutions have been implemented, expected cost reductions from this conversion have not yet been realized, and there can be no assurance that the Company's foundries will achieve or maintain acceptable cost reductions, manufacturing yields, and process control in the future or that sudden declines in yields will not occur. Failures to improve, or fluctuations in, manufacturing yields and process 5 8 controls, particularly at times when the Company is experiencing severe pricing pressures from its customers or its competitors, would have a material adverse effect on the Company's results of RESULTS OF OPERATIONS The following table sets forth, as a percentage of net revenues, each line item in the Company's statements of operations for the periods indicated.
- ------------------------------------------------------------------------------------------------------------- Three Months Ended Six Months Ended June 30, June 30, - ------------------------------------------------------------------------------------------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- Net revenues 100.0% 100.0% 100.0% 100.0% Cost of goods sold 64.0 62.3 70.5 63.0 ----- ----- ----- ----- Gross margin 36.0 37.7 29.5 37.0 ----- ----- ----- ----- Operating expenses: Research and development 16.7 10.4 25.5 10.6 Sales, general and administrative 21.6 15.7 21.4 14.7 ----- ----- ----- ----- Total operating expenses 38.3 26.1 46.9 25.3 ----- ----- ----- ----- Income (loss) from operations (2.3) 11.6 (17.4) 11.7 ----- ----- ----- ----- Other income (expense), net 4.9 2.7 5.7 1.9 ----- ----- ----- ----- Income (loss) before income taxes 2.6 14.3 (11.7) 13.6 Provision (benefit) for income taxes .9 5.0 (4.1) 4.7 ----- ----- ----- ----- Net income (loss) 1.7% 9.3% (7.6%) 8.9% - -------------------------------------------------------------------------------------------------------------
NET REVENUES During the six months ended June 30, 1996, the Company's net revenues were principally derived from the sale of integrated circuits for voice recording and playback. Net revenues for the second quarter of 1996 were $11.2 million or 21% lower than the $14.2 million of net revenues for the second quarter of 1995. Revenues for the six months ended June 30, 1996 were $23.5 million. This was a 14% decrease from the revenues of $27.2 million in the first half of 1995. 6 9 During the second quarter, sales to the Company's top ten customers accounted for 88% of net revenues compared to 67% in the second quarter of 1995. During the second quarter of 1996, the top customers were Marubun (the Company's Japanese distributor) at 30%, Motorola at 28% and Sanyo at 15% compared to Marubun at 17%, Sanyo at 13% and Voice It at 12% for the same period of 1995. The loss of, or significant reduction in purchases by, a current major customer would have a material adverse effect on the Company's financial condition and results of operations if the Company is unable to obtain the orders from new or other customers to offset such losses or reductions. The Company experienced a continuing softness in the consumer market resulting in an overall decrease in net revenues for both the three and six months ending June 30, 1996 in comparison to the same periods in the prior year. The breakdown of net revenues by market segment for the second quarter of 1996 was 12% consumer, 81% communications, and 7% industrial. During the second quarter of 1995, the breakdown was approximately 53% consumer, 42% communications and 5% industrial. The Company's consumer customers in the current quarter continued purchasing the Company's products primarily for use in personal memo recorders, cameras, photo frames, books, educational toys and novelties. The Company's communications customers represented products consisting primarily of telephone answering machines, cellular phones, pagers and personal handy phones. The company anticipates that the consumer market may continue to be soft throughout the remained of 1996. The failure of new applications or markets to develop or the failure of existing markets, particularly the communications market, to continue to be receptive to the Company's products or to offset reduced revenues from the consumer market could have a material adverse effect on the Company's business, financial condition, and results of operations. International sales for the second quarter of 1996 were 72%, the same as the second quarter of 1995. Sales to Asia were 62% in the second quarter of 1996, down from 68% in 1995, and sales to Europe were 10% in the second quarter of 1996, up from 4% in the second quarter of 1995. Sales to Japan accounted for 45% of total sales in the second quarter of 1996, up from 31% in the previous year. North American sales were 28% in the second quarter of 1996, down from 30% for the same period last year. The decrease in sales to Asia in 1996 is primarily a result of the softening in the consumer market, as mentioned above. Due to its reliance on export sales and its dependence on foundries outside the United States, the Company is subject to the risks of conducting business internationally, including foreign government regulation and general geopolitical risk such as political and economic instability, potential hostilities, changes in diplomatic and trade relationships, and currency fluctuation, any of which could have a material effect on the Company's financial conditions or results of operations. GROSS MARGIN The Company's gross margin for the second quarter of 1996 was $4.0 million. This was a 25% decrease from the $5.4 million gross margin for the second quarter of 1995. Gross margin as a percentage of sales for the second quarter of 1996 decreased to 36% from 37% for the second quarter of 1995. The reduction in gross margin is primarily the result of three factors: the value of certain inventory items were written down for obsolescence, certain prices have been reduced (as announced in the first quarter of 1996) however, the lower cost expected from the conversion to the 0.8 micron line has not yet been realized, and lower net revenues in the second quarter of 1996. 7 10 The Company is subject to a number of factors which may have an adverse impact on gross margin, including the availability and cost of product from the Company's suppliers, changes in the mix of products sold, and the timing of new product introductions and volume shipments. In addition, the markets for the Company's products are characterized by intense price competition. To the extent that the Company fails to facilitate its customers' opening of new markets, or loses revenue to competition, or experiences yield or other production problems or shortages in supply that increase its manufacturing costs, or fails to reduce its manufacturing costs, it would have a material adverse effect on the Company's financial condition and results of operations. RESEARCH AND DEVELOPMENT Research and development expenses were $1.9 million or 17% of net revenues in the second quarter of 1996, compared to $1.5 million or 10% of net revenues in the same period of 1995. The increase in research and development expense was primarily due to an increase in personnel for new product development and enhancement of existing products. In addition, the Company increased its expenditures for materials, including wafers and masks, related to such development activities. The Company has also made a significant investment to continue to strengthen its technology capability by creating a technology department and hiring related personnel. Research and development expenses are expected to increase; however, there can be no assurance that new products will be successfully developed or achieve market acceptance, that yield problems will not arise in the future, or that the need to improve product yields might not recur with existing or new products or fabrication processes. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses were $2.4 million or 22% of net revenues in the second quarter of 1996, compared to $2.2 million or 16% of net revenues in the second quarter of 1995. The increase in selling expenses for the second quarter of 1996 continues to be a result of the Company's commitment to expanding its marketing efforts with participation in public relations, tradeshows, advertising, web site development, as well as the addition of more sales and marketing personnel including a Japanese Sales Manager and a Pacific Area Sales Manager. Selling expenses are expected to increase to the extent revenue increases as a result of additional personnel and increased commissions. The increases in general and administrative costs come from additional professional fees, including legal and accounting, and office rent and insurance. OTHER INCOME, NET Net other income was $0.6 million for the second quarter of 1996 compared to net other income of approximately $0.4 million for the same period of 1995. Net other income for 1996 primarily represents interest income earned on the proceeds of the Company's initial and secondary public offerings of common stock. PROVISION FOR INCOME TAXES The Company recorded an income tax provision for the second quarter of 1996, using an effective income tax rate of 35%. There is, however, a tax benefit recorded for the six months ending June 30, 1996. The benefit, which is at a rate of 35% of the year to date loss, is included 8 11 in other assets in the accompanying balance sheet. The effective tax rate of 35% for both of 1995 and 1996 represents applicable statutory rates, partially offset by research and development tax credits and net operating loss carry forwards. LIQUIDITY AND CAPITAL RESOURCES The Company has a line of credit with a commercial bank under which the Company may borrow up to $9 million, based on eligible accounts receivable and $15 million based on eligible investments, with a term through June 30, 1997. At June 30, 1996, the Company's borrowing base was approximately $8.7 million and there were no borrowings outstanding under this line of credit, but it is being used to guarantee letters of credit. The line of credit does not restrict the Company from paying cash dividends on its capital stock but does require that the Company maintain a ratio of total indebtedness to tangible net worth of not more than 1 to 1 and a ratio of current assets to current liabilities of not less than 2 to 1. The Company is currently in compliance with all financial covenants in the line of credit agreement. As of June 30, 1996, the amount of unrestricted equity available for distribution as a result of these covenants was $56.2 million. The Company's operating activities used net cash of $8.5 million in the first six months of 1996, primarily due to an increase in inventory and a decrease in accounts payable. The Company's repurchase of common stock, discussed in Note 4 to Condensed Financial Statements, used $8.4 million of cash, and the Company has announced the intent to repurchase up to 100,000 additional shares in the third quarter of 1996. Capital purchases were $1.2 million in the first six months of 1996. The Company's capital equipment needs, including wafer sort and final test equipment, computer hardware and software and other office related items, are currently budgeted at approximately $2.0 million through the end of 1996. The Company has agreements with two capital equipment leasing companies providing aggregate lease lines of $2.5 million of which $1.6 million was available on June 30, 1996. At June 30, 1996, the Company had cash, cash equivalents and short-term investments of $53 million, long-term investments (tax free bonds maturing in more than one year) of $7.6 million, and working capital of $65.4 million. The Company believes its existing cash, cash equivalents and short-term investments and its available line of credit and current equipment lease lines, will satisfy the Company's projected working capital and capital expenditure requirements through at least the next twelve months. 9 12 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Registrant held its Annual Meeting of Shareholders on May 22, 1996 (the "Meeting"). (c) The following matters were voted upon at the Meeting: 1. Election of four (4) directors of the Company. The four (4) nominees were, and the voting tabulation with respect to each nominee was, as follows: VOTES CAST FOR EACH DIRECTOR
Total Votes For Total Votes Withheld Each Director From Each Director --------------- --------------------- Eugene J. Flath 9,236,666 71,927 David L. Angel 9,217,034 91,559 Frederick B. Bamber 9,236,666 71,927 Frederick L. Zieber 9,231,666 76,927
2. Proposal to approve an amendment for the Company's 1994 Equity Incentive Plan (the "Incentive Plan") that increases the number of shares of the Company's Common Stock reserved for issuance thereunder by 1,000,000 shares. The voting tabulation with respect to this proposal was as follows:
For Against Abstain Broker Non-Votes ---------- --------- -------- ---------------- 4,519,284 1,649,586 21,104 3,118,619
3. Proposal to approve amendments to each of the Incentive Plan and the Company's 1987 Stock Option Plan (the "1987 Plan") to automatically accelerate, in the event of: (i) a merger or acquisition in which the Company is not the surviving entity (except for a transaction the principal purpose of which is to change the State in which the Company is incorporated), (ii) the sale, transfer or other disposition of all or substantially all of the assets for the Company or (iii) any other corporate reorganization or business combination that is not approved by the Board and in which the beneficial ownership of 50% or more of the Company's outstanding voting stock is transferred, the exercisability of all outstanding options granted under the Incentive Plan and 1987 Plan if such options are not assumed or replaced with similar options of such successor corporation. The voting tabulation with respect to this proposal was as follows: 10 13
For Against Abstain Broker Non-Votes ---------- --------- -------- ---------------- 8,503,719 335,147 21,450 448,227
4. Proposal to approve an amendment to the Company's 1994 Directors Stock Option Plan (the "1994 Directors Plan"): (i) to reduce the period during which options granted pursuant to the 1994 Directors Plan become exercisable from four (4) years to one (1) year, other than the 1996 grant which will fully vest on December 31, 1996, with options vesting monthly following the date of grant; and (ii) to change the date of grant of the automatic "succeeding" option grants to directors from each such director's anniversary date of joining the Board to, in 1996, March 21, 1996, the date of approval of this amendment by the Compensation Committee of the Company's Board of Directors, and in 1997 and in all succeeding years, January 1 of each such year. The voting tabulation with respect to this proposal was as follows:
For Against Abstain Broker Non-Votes ---------- --------- -------- ---------------- 8,398,184 417,922 44,210 448,277
5. Proposal to select Arthur Andersen LLP as the Company's independent auditors to perform the audit of the Company's financial statements for the year ending December 31, 1996. The voting tabulation with respect to this proposal was as follows:
For Against Abstain Broker Non-Votes ---------- --------- -------- ---------------- 9,242,697 60,216 5,680 0
11 14 PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed herewith. Exhibit Number Exhibit Title - ------- ------------- 10.01- 1987 Stock Option Plan, as amended, and related documents. 10.24- Form of Amended and Restated Employment Agreement dated May 14, 1996 between Registrant and certain of the Company Executive Officers. 11.01- Statement regarding computation of per share earnings. 27.01- Financial Data Schedule SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INFORMATION STORAGE DEVICES, INC. (Registrant) Date: August 9, 1996 ---------------------------------------------------- Felix J. Rosengarten Vice President, Finance and Administration and Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Officer) 12 EX-10.01 2 AMENDED 1987 STOCK OPTION PLAN 1 EXHIBIT 10.01 INFORMATION STORAGE DEVICES, INC. 1987 STOCK OPTION PLAN ADOPTED DECEMBER 31, 1987 AS AMENDED THROUGH JANUARY 25, 1996 1. PURPOSE. This Stock Option Plan ("Plan") is established to provide incentives for selected persons to promote the financial success and progress of Information Storage Devices, Inc. (the "Company") by granting such persons options to purchase shares of stock of the Company. 2. ADOPTION AND SHAREHOLDER APPROVAL. This Plan shall become effective on the date that it is adopted by the Board of Directors (the "Board") of the Company. This Plan shall be approved by the unanimous written consent of the shareholders or the affirmative vote at a meeting of the holders of a majority of the outstanding shares of the Company within twelve months before or after the date this Plan is adopted by the Board. 3. TYPES OF OPTIONS AND SHARES. Options granted under this Plan (the "Options") may be either (a) incentive stock options ("ISOs") within the meaning of Section 422A of the Internal Revenue Code of 1986 (the "Code"), or (b) nonqualified stock options ("NQSOs"), as designated at the time of grant. The shares of stock that may be purchased upon exercise of Options granted under this Plan (the "Shares") are shares of the common stock of the Company. 4. NUMBER OF SHARES. The maximum number of Shares that may be issued pursuant to Options granted under this Plan is 1,156,666 Shares, subject to adjustment as provided in this Plan. If any Option is terminated in whole or in part for any reason without being exercised in whole or in part, the Shares thereby released from such Option shall be available for purchase under other Options subsequently granted under this Plan. At all times during the term of this Plan, the Company shall reserve and keep available such number of Shares as shall be required to satisfy the requirements of outstanding Options under this Plan. 5. ADMINISTRATION. This Plan shall be administered by the Board or by a committee of the Board appointed to administer this Plan (the "Committee"). As used in this Plan, references to the Committee shall mean either such Committee or the Board if no committee has been established. The interpretation by the Committee of any of the provisions of this Plan or any Option granted under this Plan shall be final and binding upon the Company and all persons having an interest in any Option or any Shares purchased pursuant to an Option. 6. ELIGIBILITY. Options may be granted only to such employees, officers, directors, consultants and independent contractors of the Company or any Parent, Subsidiary or Affiliate of the Company (as defined below) as the Committee shall select from time to time 2 in its sole discretion ("Optionees"), provided that only employees of the Company or a Parent or Subsidiary of the Company shall be eligible to receive ISOs. An Optionee may be granted more than one Option under this Plan. (a) Grants to Directors. With respect to the grant of Options to persons who are directors, the selection of any director to whom one Option is granted and the determination of the number of Shares which may be purchased shall be made only (i) by the board where a majority of the directors active in the matter are Disinterested Persons (as defined below), or (ii) by, or only in accordance with the recommendation of, a committee of three or more persons having full authority to act in the matter, all of the members of which committee are Disinterested Persons. (b) Definitions. As used in this Plan, the following terms shall have the following meanings: (i) "Parent" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if, at the time of the granting of the Option, each of such corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (ii) "Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of granting of the Option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (iii) "Affiliate" means any corporation that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with another corporation, where "control" (including the terms "controlled by" and "under common control with") means the possession, direct or indirect, of the power to cause the direction of the management and policies of the corporation, whether through the ownership of voting securities, by contract or otherwise. (iv) "Disinterested Person" means an administrator of this Plan who is not at the time he exercises discretion in administering this Plan, and has not at any time within one year prior thereto been eligible for selection as a person to whom an Option may be granted under this Plan or to whom stock may be allocated or stock options or stock appreciation rights may be granted pursuant to any other plan of the Company or its Affiliates entitling the participants therein to acquire stock, stock options or stock appreciation rights of the Company or any of its Affiliates. 7. TERMS AND CONDITIONS OF OPTIONS. The Committee shall determine whether each Option is to be an ISO or an NQSO, the number of Shares for which the Option shall be granted, the exercise price of the Option, the periods during which the Option may be 3 exercised, and all other terms and conditions of the Option, subject to the following terms and conditions: (a) Form of Option Grant. Each Option granted under this Plan shall be evidenced by a written Stock Option Grant ("Grant") in such form (which need not be the same for each Optionee) as the Committee shall from time to time approve, which Grant shall comply with and be subject to the terms and conditions of this Plan. (b) Exercise Price. The exercise price of an Option shall be not less than the fair market value of the Shares, at the time that the Option is granted, as determined by the Committee in good faith. The exercise price of any Option granted to a person owning more than 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company ("Ten Percent Shareholder") shall not be less than 110% of the fair market value of the Shares at the time of the grant, as determined by the Committee in good faith. (c) Exercise Period. Options shall be exercisable within the times or upon the events determined by the Committee as set forth in the Grant, provided, however, that no Option shall be exercisable after the expiration of ten years from the date the Option is granted, and provided further that no Option granted to a Ten Percent Shareholder shall be exercisable after the expiration of five years from the date the Option is granted. (d) Limitations on ISOs. The aggregate fair market value (determined as of the time an Option is granted) of stock with respect to which ISOs are exercisable for the first time by an optionee during any calendar year (under this Plan or under any other incentive stock option plan of the Company or any Parent or Subsidiary of the Company) shall not exceed $100,000. (e) Date of Grant. The date of grant of an Option shall be the date on which the Committee makes the determination to grant such Option unless otherwise specified by the Committee. The Grant representing the Option shall be delivered to the Optionee within a reasonable time after the granting of the Option. 8. EXERCISE OF OPTIONS. (a) Notice. Options may be exercised only by delivery to the Company of a written notice and exercise agreement in a form approved by the Committee, stating the number of Shares being purchased, the restrictions imposed on the Shares and such representations and agreements regarding the Optionee's investment intent and access to information as may be required by the Company to comply with applicable securities laws, together with payment in full of the exercise price for the number of Shares being purchased. (b) Payment. Payment for the Shares may be made (i) in cash (by check), (ii) by surrender of shares of common stock of the Company having a fair market value equal to the exercise price of the Option; (iii) where permitted by applicable law and approved by the Committee in its sole discretion, by tender of a full recourse promissory note having such terms as may be approved by the Committee; or (iv) by any combination of the foregoing 4 where approved by the Committee in its sole discretion. Optionees who are not employees or directors of the Company shall not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares. (c) Withholding Taxes. Prior to issuance of the Shares upon exercise of an Option, the Optionee shall pay or make adequate provision for any federal or state withholding obligations of the Company, if applicable. (d) Limitations on Exercise. Notwithstanding the exercise periods set forth in the Grant, exercise of an Option shall always be subject to the following limitations: (i) An Option shall not be exercisable unless such exercise is in compliance with the Securities Act of 1933, as amended, and all applicable state securities laws, as they are in effect on the date of exercise. (ii) The Committee may specify a reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent the Optionee from exercising the full number of Shares as to which the Option is then exercisable. 9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, an Option shall be exercisable only by the Optionee. No Option may be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent and distribution. 10. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the rights of a shareholder with respect to any Shares subject to an Option until the Option has been validly exercised. No adjustment shall be made for dividends or distributions or other rights for which the record date is prior to the date of exercise, except as provided in this Plan. The Company shall provide to each Optionee a copy of the annual financial statements of the Company, at such time after the close of each fiscal year of the Company as they are released by the Company to its shareholders. 11. ADJUSTMENT OF OPTION SHARES. In the event that the number of outstanding shares of common stock of the Company is changed by a stock dividend, stock split, reverse stock split, combination, reclassification or similar change in the capital structure of the Company without consideration, the number of Shares available under this Plan and the number of Shares subject to outstanding Options and the exercise price per share of such Options shall be proportionately adjusted, subject to any required action by the Board or shareholders of the Company and compliance with applicable securities laws; provided, however, that no certificate or scrip representing fractional shares shall be issued upon exercise of any Option and any resulting fractions of a Share shall be ignored. 12. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option granted under this Plan shall confer on any Optionee any right to continue in the employ of the Company or any Parent, Subsidiary or Affiliate of the Company or limit in any way the right 5 of the Company or any Parent, Subsidiary or Affiliate of the Company to terminate the Optionee's employment at any time, with or without cause. 13. COMPLIANCE WITH LAWS. The grant of Options and the issuance of Shares upon exercise of any Options shall be subject to and conditioned upon compliance with all applicable requirements of law, including without limitation compliance with the Securities Act of 1933, as amended, any required approval by the Commissioner of Corporations of the State of California, compliance with all other applicable state securities laws and compliance with the requirements of any stock exchange on which the Shares may be listed. The Company shall be under no obligation to register the Shares with the Securities and Exchange Commission or to effect compliance with the registration or qualification requirement of any state securities laws or stock exchange. 14. RESTRICTIONS ON SHARES. At the discretion of the Committee, the Company may reserve to itself or its assignee(s) in the Grant (a) a right of first refusal to purchase all Shares that an Optionee (or a subsequent transferee) may propose to transfer to a third party and (b) a right to repurchase all Shares held by an Optionee upon the Optionee's termination of employment or service with the Company or its Parent, Subsidiary or Affiliate of the Company for any reason within a specified time as determined by the Committee at the time of grant at (i) the Optionee's original purchase price (provided that the right to repurchase at such price shall lapse at the rate of at least 20% per year from the date of grant), (ii) the fair market value of such Shares as determined by the Committee in good faith or (iii) a price determined by a formula or other provision set forth in the Grant. 15. CORPORATE TRANSACTIONS. (a) Corporate Transactions. In the event of a Corporate Transaction (as defined in this Section 15(a)), the exercisability of each Option shall be automatically accelerated so that each Option shall, immediately before the specified effective date for the Corporate Transaction, become fully exercisable with respect to the total number of Shares and may be exercised for all or any portion of such Shares; provided, that an Option shall not be accelerated if and to the extent that such Option is, in connection with the Corporate Transaction, either to be assumed by the successor corporation or parent thereof or to be replaced with a comparable option to purchase shares of the capital stock of the successor corporation or parent thereof. The determination of comparability shall be made by the Board or the Committee, and the Board or the Committee's determination shall be final, binding and conclusive. Upon the consummation of a Corporate Transaction, all outstanding Options shall, to the extent not previously exercised or assumed by the successor corporation or its parent, terminate and cease to be exercisable. "Corporate Transaction" means (i) a merger or acquisition in which the Company is not the surviving entity (except for a transaction the principal purpose of which is to change the State in which the Company is incorporated), (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company or (iii) any other corporate reorganization or business combination that is not approved by the Board and in which the 6 beneficial ownership of 50% or more of the Company's outstanding voting stock is transferred. (b) Dissolution. In the event of the proposed dissolution or liquidation of the Company, the Board shall notify the Optionee at least fifteen (15) days prior to such proposed action. To the extent that Options have not been previously exercised, such Options will terminate immediately prior to the consummation of such proposed action. (c) Assumption of Awards by the Company. The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either (a) granting an Option under this Plan in substitution of such other company's Option, or (b) assuming such Option as if it had been granted under this Plan if the terms of such assumed Option could be applied to an Option granted under this Plan. Such substitution or assumption shall be permissible if the holder of the substituted or assumed Option would have been eligible to be granted an Option under the Plan if the other company had applied the rules of the Plan to such grant. In the event the Company assumes an Option granted by another company, the terms and conditions of such Option shall remain unchanged (except that the exercise price and the number and nature of Shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted exercise price. 16. AMENDMENT OR TERMINATION OF PLAN. The Committee may at any time terminate or amend this Plan in any respect (including, but not limited to, any form of Grant, agreement or instrument to be executed pursuant to this Plan); provided, however, that the Committee shall not, without the approval of the shareholders of the Company, increase the total number of Shares available under this Plan (except by operation of the provisions of this Plan) or change the class of persons eligible to receive Options. In any case, no amendment of this Plan may adversely affect any then outstanding Options or any unexercised portions thereof without the written consent of the Optionee. 17. TERM OF PLAN. Options may be granted pursuant to this Plan from time to time within a period of ten years from the date this Plan is adopted by the Board of Directors. 18. DELIVERY OF CERTAIN INFORMATION. In accordance with (beta)260.140.46 of the California Commissioner's Rules, the Company shall deliver to Optionees, on at least an annual basis, financial statements of the Company consisting of an income statement and balance sheet. Financial statements need not be audited. This Section 18 does not apply to Optionees who are key employees whose duties in connection with the issuer assure them access to equivalent information. 7 INFORMATION STORAGE DEVICES, INC. STOCK OPTION GRANT Optionee:______________________________________________________________________ Address:_______________________________________________________________________ Total Options Granted:_________________________________________________________ Exercise Price Per Share:______________________________________________________ Date of Grant:_________________________________________________________________ Start Date:____________________________________________________________________ Expiration Date:_______________________________________________________________ OTC Grant Number:______________________________________________________________ Type of Stock Option (check one): ___ Incentive ___ Nonqualified 1. Grant of Option. Information Storage Devices, Inc., (the "Company"), a California corporation, hereby grants to the optionee named above ("Optionee") an option (this "Option") to purchase the total number of shares of common stock of the Company set forth above (the "Shares") at the exercise price per share set forth above (the "Exercise Price"), subject to all of the terms and conditions of this Grant and the Company's 1987 Stock Option Plan as adopted as of December 31, 1987 (the "Plan"). If designated as an Incentive Stock Option above, this Option is intended to qualify as an "incentive stock option" ("ISO") within the meaning of Section 422A of the Internal Revenue Code of 1986 (the "Code"). 2. Exercise Period of Option. Subject to the terms and conditions of the Plan and this Grant, this Option shall become exercisable as to 25% of the Shares one year after the Start Date, provided that Optionee has remained continually employed by the Company during such one year period, and as to 2.083% of the total number of Shares for each full month, over the 3 year period commencing on the date that is one year after the Start Date, that the Optionee remains continually employed by the Company; provided, however, that this Option shall expire on the Expiration Date set forth above and must be exercised, if at all, on or before the Expiration Date. 3. Restrictions on Exercise. Exercise of this Option is subject to the following limitations: (a) This Option may not be exercised unless such exercise is in compliance with the Securities Act of 1933, as amended, and all applicable state securities laws, as they are in effect on the date of exercise 8 (b) This Option may not be exercised more often than quarterly, as to then exercisable portions of this Option. 4. Termination of Option. Except as provided below in this Section, this Option shall terminate and may not be exercised if Optionee ceases to be employed by the Company or any Parent or Subsidiary of the Company (or in the case of a nonqualified stock option, an Affiliate of the Company). Optionee shall be considered to be employed by the Company if Optionee is an officer, director or full-time employee of the Company, or any Parent, Subsidiary or Affiliate of the Company or if the Board of Director determines that Optionee is rendering substantial services as a part-time employee, consultant or independent contractor to the Company or any Parent, Subsidiary or Affiliate of the Company. The Board of Directors of the Company shall have discretion to determine whether Optionee has ceased to be employed by the Company or any Parent, Subsidiary or Affiliate of the Company and the effective date on which such employment terminated (the "Termination Date"). (a) If Optionee ceases to be employed by the Company or any Parent, Subsidiary or Affiliate of the Company for any reason except death or disability, this Option, to the extent (and only to the extent) that it would have been exercisable by Optionee on the Termination Date, may be exercised by Optionee within three months after the Termination Date, but in any event no later than the Expiration Date. (b) If Optionee's employment with the Company or any Parent, Subsidiary or Affiliate of the Company is terminated because of the death of Optionee or disability of Optionee within the meaning of Section 22(e)(3) of the Code, this Option, to the extent that it is exercisable by Optionee on the Termination Date, may be exercised by Optionee (or Optionee's legal representative) within twelve months after the Termination Date, but in any event no later than the Expiration Date. (c) Nothing in the Plan or this Grant shall confer on Optionee any right to continue in the employ of the Company or any Parent, Subsidiary or Affiliate of the Company or limit in any way the right of the Company or any Parent, Subsidiary or Affiliate of the Company to terminate Optionee's employment at any time, with or without cause. 5. Manner of Exercise. (a) This Option shall be exercisable by delivery to the Company of an executed written Notice and Agreement in the form attached hereto as Exhibit A, or in such other form as may be approved by the Company, which shall set forth Optionee's election to exercise this Option, the number of Shares being purchased, any restrictions imposed on the Shares and such other representations and agreements regarding Optionee's investment intent and access to information as may be required by the Company to comply with applicable securities laws. (b) Such Notice and Agreement shall be accompanied by full payment of the Exercise Price for the Shares being purchased (i) in cash (by check); (ii) by surrender of Shares of Common Stock of the Company having a fair market value equal to the Exercise 9 Price; (iii) where permitted by applicable law, by tender of a full recourse promissory note having such terms as the Board of Directors or the committee thereof that administers the Plan may approve; or (iv) by any combination thereof. (c) Prior to the issuance of the Shares upon exercise of this Option, Optionee must pay or make adequate provision for any applicable federal or state withholding obligations of the Company. (d) Provided that such notice and payment are in form and substance satisfactory to counsel for the Company, the Company shall issue the Shares registered in the name of Optionee or Optionee's legal representative. 6. Notice of Disqualifying Disposition of ISO Shares. If the Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (1) the date two years after the date of this grant, and (2) the date one year after transfer of such Shares to the Optionee upon exercise of the ISO, the Optionee shall immediately notify the Company in writing of such disposition. Optionee agrees that Optionee may be subject to income tax withholding by the Company on the compensation income recognized by the Optionee from the early disposition by payment in cash or out of the current earnings paid to the Optionee. 7. Compliance with Laws and Regulations. The issuance and transfer of Shares shall be subject to compliance by the Company and the Optionee with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Company's common stock may be listed at the time of such issuance or transfer. Optionee understands that the Company is under no obligation to register or qualify the Shares with the Securities and Exchange Commission, any state securities commission or any stock exchange to effect such compliance. 8. Nontransferability of Option. This Option may not be transferred in any manner other than by will or by the laws of descent and distribution and may be exercised during the lifetime of the Optionee only by the Optionee. The terms of this Option shall be binding upon the executors, administrators, successors and assigns of the Optionee. 9. Tax Consequences. Set forth below is a brief summary as of the date of this Option of some of the federal and California tax consequences of exercise of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (a) Exercise of ISO. If this Option qualifies as an ISO, there will be no regular federal income tax liability or California income tax liability upon the exercise of the Option, although the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price will be treated as a tax preference item for federal income tax purposes and may subject the Optionee to the alternative minimum tax in the year of exercise. 10 (b) Exercise of Nonqualified Stock Option. If this Option does not qualify as an ISO, there may be a regular federal income tax liability and a California income tax liability upon the exercise of the Option. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price. The Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. (c) Disposition of Shares. If the Shares are held for at least six months in the case of a nonqualified option and twelve months in the case of an ISO after the date of the transfer of the Shares pursuant to the exercise of this Option (and, in the case of an ISO, are disposed of at least two years after the Date of Grant), any gain realized on disposition of the Shares will be treated as long term capital gain for federal and California income tax purposes. If Shares pur chased under an ISO are disposed of within such one year period or within two years after the Date of Grant, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price. 10. Interpretation. Any dispute regarding the interpretation of this agreement shall be submitted by Optionee or the Company forthwith to the Company's Board of Directors or the committee thereof that administers the Plan, which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Board or committee shall be final and binding on the Company and on Optionee. 11. Entire Agreement. The Plan and the Notice and Agreement attached as Exhibit A are incorporated herein by reference. This Grant, the Plan and the Notice and Agreement constitute the entire agreement of the parties and supersede all prior undertakings and agreements with respect to the subject matter hereof. INFORMATION STORAGE DEVICES, INC. By: _____________________________________________________ Name: ___________________________________________________ Title: __________________________________________________ Date signed: ____________________________________________ 11 ACCEPTANCE Optionee hereby acknowledges receipt of a copy of the Plan, represents that Optionee has read and understands the terms and provisions thereof, and accepts this Option subject to all the terms and conditions of the Plan and this Grant. Optionee acknowledges that there may be adverse tax consequences upon exercise of this Option or disposition of the Shares and that Optionee should consult a tax adviser prior to such exercise or disposition. _____________________________________________________Optionee 12 Exhibit A INFORMATION STORAGE DEVICES, INC. STOCK OPTION EXERCISE NOTICE AND AGREEMENT I, an Optionee under the Company's 1987 Stock Option Plan, hereby elect to purchase the number of shares of Common Stock as set forth below: Optionee___________________________________________________ Number of Shares Purchased:_________________________________________ Social Security Number:____________________________________ Purchase Price per Share:___________________________________________ Address:___________________________________________________ Aggregate Purchase Price:___________________________________________ ___________________________________________________ Date of Stock Option Grant:_________________________________________ Type of Option: [ ] Incentive Stock Option Exact Name of Title to Shares:______________________________________ [ ] Nonqualified Stock Option ____________________________________________________________________ ____________________________________________________________________
Optionee hereby delivers to the Company the Aggregate Purchase Price, to the extent permitted in the Option as follows (check as applicable and complete): [ ] in cash (by check) in the amount of $__________________, receipt of which is acknowledged by the Company; [ ] by delivery of ___________ fully-paid, nonassessable and vested shares of the Common Stock of the Company owned by Optionee for at least six (6) months prior to the date hereof (and which have been paid for within the meaning of SEC Rule 144), or obtained by Optionee in the open public market, and owned free and clear of all liens, claims, encumbrances or security interests, valued at the current fair market value of $_________ per share; or [ ] by tender of a full recourse promissory note in the principal amount of $_____________________. Market Standoff Agreement. Optionee, if requested by the Company and an underwriter of Common Stock (or other securities) of the Company, agrees not to sell or otherwise transfer or dispose of any Common Stock (or other securities) of the Company held by Optionee during the period requested by the managing underwriter following the effective date of a registration statement of the Company filed under the 1933 Act or the Securities Exchange Act of 1934, provided that all officers and directors of the Company are required to enter into similar agreements. Such agreement shall be in writing in a form satisfactory to the Company and such underwriter. The Company may impose stop-transfer instructions with respect to the shares (or other securities) subject to the foregoing restriction until the end of such period. Tax Consequences. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF THE SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE. 13 Entire Agreement. The Plan and Option are incorporated herein by reference. This Exercise Notice and Agreement, the Plan and the Option constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and is governed by California law except for that body of law pertaining to conflict of laws. Date:________________________________ ____________________________________ Signature of Optionee 14 SPOUSE'S CONSENT I acknowledge that I have read the Stock Option Exercise Notice and Agreement (the "Agreement") and that I know its contents. I am aware that by the Agreement's provisions my spouse (the "Optionee") agrees to sell the Number of Shares Purchased (as provided for in the Agreement and hereinafter referred to as "Shares"), including any community property interest I may have, on the occurrence of certain events. I hereby consent to the sale, approve the provisions of the Agreement and agree that these Shares and any interest I may have in them are subject to the provisions of the Agreement. I will take no action at any time to hinder operation of the Agreement on these Shares or any interest I may have on them. ______________________________ Date:__________________ Spouse of Optionee ______________________________ Date:__________________ Optionee's Name EX-10.24 3 AMENDED AND RESTATED EMPLOYMENT AGREEMENT 1 EXHIBIT 10.24 [ISD LETTERHEAD] [Date] [Employee Name] [Employee Address] Re: Your Employment With Information Storage Devices, Inc. Dear [Name]: This letter will set forth the binding agreement of employment (the "Agreement"), effective as of ______________ (the "Effective Date"), between you and Information Storage Devices, Inc., a California corporation ("ISD"). 1. EMPLOYMENT AND DUTIES. During the Employment Term, as defined in Section 3 below, you will serve as ______________________ of ISD. You will have such duties and authority as are customary for, and commensurate with such position, including _______________________________________, and such other reasonable duties and authority as the Board of Directors of ISD (the "Board") prescribes from time to time, and you will comply with all reasonable and good faith policies and directives of the Board in connection therewith. 2. COMPENSATION. (a) Salary. For your services hereunder, ISD will pay as salary to you the amount of $__________ per month during the Employment Term, as defined in Section 3 below, prorated for any partial month. Such salary will be paid in conformity with ISD's normal payroll period. Your salary will be reviewed by the Board from time to time at its discretion, and you will receive such salary increases, if any, as the Board in its sole discretion determines. (b) Bonus. In addition to the salary set forth in Section 2(a) hereof, you will be eligible starting in fiscal 1996, for an annual bonus pursuant to a formula, and determined in accordance with criteria, in each case to be established by the Board and/or its Compensation Committee, which formula and criteria will be communicated to you in writing reasonably in advance of the commencement of the performance period to which such bonus will relate. (c) Other Benefits. You will be entitled to participate in and receive benefits under ISD's standard benefits plans as in effect from time to time, including medical insurance, sick leave, and vacation time, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and ISD policies. (d) Expenses. During the term of your employment hereunder, you will be entitled to receive prompt reimbursement from ISD for all reasonable business-related expenses incurred by you, in accordance with ISD's policies and procedures as in effect from time to time, provided that you will properly account for such business expenses in accordance with ISD's policy. 2 (e) Deductions and Withholding. All amounts payable or which become payable under any provision of this Agreement will be subject to any deductions authorized in writing by you and any deductions and withholdings required by law. 3. TERM OF EMPLOYMENT. (a) Term. This Agreement will continue in full force and effect from and including the Effective Date through and including ____________, 199__, and thereafter will continue for successive one-year periods unless sooner terminated or extended as hereinafter provided (the period from the Effective Date through the end of the then-current one-year period referred to herein as the "Employment Term"). (b) Termination At End Of Then-Current One Year Period. This Agreement, and the Employment Term, may be terminated at the end of any then-current one year period as described in Section 3(a) hereof, whether the initial one-year period or subsequent one-year periods, by written notice by either party to the other given no later than three (3) months prior to the end of such then-current one-year period. (c) Termination By You. You may terminate this Agreement at any time by giving ISD written notice of your resignation at least thirty (30) days in advance, provided that no such advance notice will be required if you voluntarily terminate this Agreement as a result of occurrence of a Constructive Termination Event, as described in Section 4(b) hereof. (d) Termination for Cause. This Agreement may be terminated by ISD prior to the expiration of the Employment Term solely for Cause immediately upon delivery of written notice to you of such termination. For purposes of this Agreement, "Cause" means, in each case as determined in good faith by the Board, your (i) personal dishonesty, willful misconduct, or breach of fiduciary duty involving personal profit, and/or (ii) willful violation of any felony law, and/or (iii) willful breach of a material provision of this Agreement after written notice, in reasonable detail as the alleged breach, has been given to you by the Board and you have had a reasonable opportunity to cure such breach. (e) Termination Due to Death or Disability. Your employment hereunder will terminate immediately upon your death. In the event that by reason of injury, illness or other physical or mental impairment you are (i) completely unable to perform your services hereunder for more than three consecutive months, or (ii) unable in the good faith judgment of the Board to perform your services hereunder for 50% or more of the normal working day throughout six consecutive months, then ISD may terminate your employment hereunder at the end of such three-month or six-month period, as applicable, by delivery to you of written notice of such termination, specifying the effective date of such termination. (f) Termination Upon Closing of Corporate Transaction. This Agreement will terminate automatically upon the closing of a Corporate Transaction (as defined in Section 4(c) hereof) that occurs during the Employment Term. 3 4. PAYMENTS AND BENEFITS AFTER TERMINATION OF EMPLOYMENT. (a) Termination For Death or Disability, or Voluntary Termination. Upon termination of your employment by ISD under Section 3(e) hereof for death or disability, or upon your voluntary termination of employment pursuant to Section 3(c) hereof (unless such voluntary termination is as a result of occurrence of a Constructive Termination Event, as described in Section 4(b) hereof), all salary and benefits hereunder will cease immediately upon the date of such termination, and you will be paid, no later than the applicable time provided by law, all salary accrued and payable, and all benefits and bonus amount amounts accrued and payable under ISD policies relating thereto, as of the date of such termination. (b) Termination By You As A Result of A Constructive Termination Event. If you voluntarily terminative your employment by ISD as a result of the occurrence of a Constructive Termination Event, as hereinafter defined (in which case your written notice to ISD of such voluntary termination will state that it is as a result of the occurrence of such Constructive Termination Event), you will be entitled to be paid an amount, as severance, equal to your annual salary hereunder as in effect immediately prior to the occurrence of such Constructive Termination Event, to be paid in six equal installments each paid on the date you otherwise would have been paid your salary had your employment continued. For purposes of this Agreement, a "Constructive Termination Event" will be deemed to have occurred at ISD's close of business on the fourteenth (14th) day after, and including, the first day, that any of the following actions is taken by ISD and such action is not reversed in full by ISD within such fourteen-day period unless prior to the expiration of such fourteen-day period you have otherwise agreed to the specific relevant event in writing: (i) your aggregate ISD benefits are materially reduced (as such reduction and materiality are determined by customary practice within the semiconductor industry within the State of California) below those in effect immediately prior to the effective date of such Constructive Termination Event, and such reduction is not applied as part of an overall reduction in benefits in which you are treated proportionally given your position, length of service, income and other customary relevant factors, and/or (ii) your duties and/or authority within ISD are materially decreased or increased from those in effect immediately prior to such Constructive Termination Event, in a way that is adverse to you, as such materiality and adverse nature is determined by customary practice within the semiconductor industry within the State of California and/or (iii) your title is changed to a title that, under customary practice within the semiconductor industry within the State of California, would be considered to be a lower-level title than your prior title, and/or (iv) you are required to perform your employment obligations with ISD (other than routine travel in the ordinary course of the ISD's business) at a location more than twenty-five (25) miles away from your principal place of work for ISD as such place of work was in effect immediately prior to the effective date of such Constructive Termination Event. (c) Termination on Closing of Corporate Transaction. (i) "Corporate Transaction" Defined. For purposes of this Section 4(c), a "Corporate Transaction" is defined as (i) a merger or acquisition in which ISD is not the surviving entity (except for a merger of ISD into a wholly-owned subsidiary, and except for a transaction the purpose of which is to change the State in which ISD is incorporated), (ii) the 4 sale, transfer or other disposition of all or substantially all of the assets of ISD or (iii) any other corporate reorganization or business combination, and in which the beneficial ownership of 50% or more of ISD's outstanding voting stock is transferred. (ii) Severance Payment on Closing of Corporate Transaction. Upon the closing of a Corporate Transaction, provided you are employed hereunder at the date of such closing, then unless you and ISD have agreed otherwise in writing, ISD will pay you, as a one-time, lump sum severance payment, an amount equal to two and one-half (2(OMEGA)) times your annual salary hereunder as in effect immediately prior to such closing. 5. ACCELERATION OF OPTIONS. (a) Acceleration of Options. Subject to the provisions of Section 5(b) hereof, immediately prior to the closing of a Corporate Transaction, the exerciseability of each option granted to you to purchase shares of ISD's Common Stock that is outstanding immediately prior to the closing of such Corporate Transaction, will be automatically accelerated so that each such option will, immediately prior to the closing date for the Corporate Transaction, become fully exerciseable with respect to the total number of shares issuable upon exercise thereof and may be exercised prior to the closing of such Corporate Transaction for all or any portion of such shares. (b) Automatic Nullification of Acceleration Provisions Under Certain Conditions. Notwithstanding the provisions of Section 5(a) hereof, if ISD proposes to close a Corporate Transaction that requires, as a condition of such transaction, that such Corporate Transaction be accounted for as a pooling of interest, and if, solely as a result of the operation of the provisions of Section 5(a) hereof (together with the operation of any equivalent provision of any written agreement or agreements entered into between ISD and any other of ISD's executive officers), such Corporate Transaction is, or on its closing will be, in the good faith judgment of the independent accountants of ISD and/or of the independent accountants of the other party or parties to such Corporate Transaction, which determination will be communicated in writing to ISD, prohibited from being accounted for as a pooling of interest, and that the nullification of the provisions of Section 5(a) would allow such Corporate Transaction to be accounted as a pooling of interests, then the provisions of Section 5(a) hereof will be deemed to be nullified and void automatically upon delivery of such written determination to ISD, without any discretion on your part or on the part of ISD, and such options will not accelerate as provided in Section 5(a) and instead will be exerciseable to the extent provided therein. If such Corporate Transaction does not close, then the provisions of Section 5(a) hereof will revive and apply again thereafter, subject still to the provisions of this Section 5(b). 6. MISCELLANEOUS. This Agreement contains the entire understanding and agreement between the parties with respect to the subject matter hereof, and supersedes any and all prior agreements, negotiations and discussions between the parties hereto with respect to the subject matter covered hereby and may only be modified by an agreement in writing signed by ISD and you, and which states the intent of the parties to amend this Agreement. If any provision of this Agreement is held to be invalid or otherwise unenforceable, in whole or in part, the remainder of such provision and the remainder of this Agreement will be enforced 5 to the fullest extent permitted by law. Neither this Agreement nor the rights or obligations hereunder will be assignable by you. ISD may assign this Agreement to any successor of ISD, and upon such assignment any such successor will be deemed substituted for ISD upon the terms and subject to the conditions hereof. This Agreement will be binding upon the successors and assigns of the parties hereof and upon your heirs, executors and administrators. This Agreement has been negotiated and executed in, and will be governed by and construed with the laws of, the State of California. Any notice, request, demand or other communication required or permitted hereunder will be deemed to be properly given when personally served in writing, or when deposited in the United States mail, postage prepaid, addressed to ISD at the address shown at the beginning of this letter, or to you at the address shown below, or by facsimile upon confirmation of receipt. Each party hereto may change its address by written notice in accordance with this Section 6. Sincerely, -------------------------------------------- David L. Angel, President [EUGENE FLATH, CHAIRMAN OF THE BOARD] [SIGNS FOR DAVE ANGEL] ACCEPTED AND AGREED: - --------------------------------------- [Name] Date signed: , 199 -------------------------- -- Address: ------------------------------------- ------------------------------------- Facsimile: 6 Schedule of Employment Agreement Terms
Name Position Salary (Section 1) (Section 2(a)) ----------- -------------- David L. Angel President & CEO $ 14,584 Felix J. Rosengarten Vice President, Finance $ 10,834 and Administration, CFO
EX-11.01 4 STATEMENT OF COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.01 INFORMATION STORAGE DEVICES, INC. STATEMENT OF COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Six Months Ended June 30, ----------------------------------- 1996 1995 -------------- ---------------- Net income (loss) ($1,785) $ 2,413 ======== ======= Weighted average common stock outstanding 9,955 7,319 Common stock equivalents: Stock options -- 846 Warrants -- 16 -------------- ---------------- Total shares used in computing net income (loss) per share 9,955 8,181 -------------- ---------------- Net income (loss) per share ($ .18) $ .29 -------------- ----------------
EX-27.01 5 FINANCIAL DATA SCHEDULE
5 1000 3-MOS DEC-31-1996 APR-01-1996 JUN-30-1996 33,956 19,042 4,533 (395) 14,498 74,552 10,428 4,767 89,614 9,168 2,362 0 0 79,306 (1,535) 89,614 11,183 11,183 7,154 7,154 0 20 126 294 103 191 0 0 0 191 .02 .02
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