-----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, AVqDyYhXRmZ0pAeRbEKFLB/q+ARr5hWCzl3ersMrF9BuVxt+u3gWNFZNEqdfcax4 x3lfO81nreUFzamf8GW1rQ== 0000930661-99-001649.txt : 19990716 0000930661-99-001649.hdr.sgml : 19990716 ACCESSION NUMBER: 0000930661-99-001649 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990531 FILED AS OF DATE: 19990715 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RF MONOLITHICS INC /DE/ CENTRAL INDEX KEY: 0000922204 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 751638027 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24414 FILM NUMBER: 99664695 BUSINESS ADDRESS: STREET 1: 4441 SIGMA RD CITY: DALLAS STATE: TX ZIP: 75244 BUSINESS PHONE: 9722332903 10-Q 1 FORM 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________________ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended May 31, 1999 Commission File No. 0-24414 RF Monolithics, Inc. (Exact name of registrant as specified in its charter) _________________ Delaware 75-1638027 (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification) 4441 Sigma Road, Dallas, Texas 75244 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (972) 233-2903 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. [X] Yes [ ] No As of June 30, 1999, 5,867,512 shares of the Registrant's Common Stock, $.001 par value, were outstanding. RF MONOLITHICS, INC. FORM 10-Q QUARTER ENDED MAY 31, 1999 TABLE OF CONTENTS Item Number Page ------ ---- PART I. CONDENSED FINANCIAL INFORMATION 1. Condensed Financial Statements: Condensed Balance Sheets May 31, 1999 (Unaudited), and August 31, 1998 1 Condensed Statements of Income - Unaudited Three Months Ended May 31, 1999 and 1998, and Nine Months Ended May 31, 1999 and 1998 2 Condensed Statements of Cash Flows - Unaudited Nine Months Ended May 31, 1999 and 1998 3 Notes to Condensed Financial Statements 4 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6
PART II. OTHER INFORMATION 1. Legal Proceedings 14 2. Changes in Securities 14 3. Defaults Upon Senior Securities 14 4. Submission of Matters to a Vote of Security Holders 14 5. Other Information 14 6. Exhibits and Reports on Form 8-K 14
SIGNATURES
PART I. CONDENSED FINANCIAL INFORMATION ITEM 1. CONDENSED FINANCIAL STATEMENTS RF MONOLITHICS, INC. CONDENSED BALANCE SHEETS (In Thousands) ___________________________________________________________________________________________________________________________________ May 31, August 31, ASSETS 1999 1998 CURRENT ASSETS (Unaudited) Cash and cash equivalents $ 667 $ 199 Short-term investments 4,789 5,414 Trade receivables - net 11,419 11,357 Inventories 13,003 8,514 Prepaid expenses and other 943 976 Deferred income tax benefits 328 635 ------- ------- Total current assets 31,149 27,095 PROPERTY AND EQUIPMENT - Net 18,335 17,129 OTHER ASSETS - Net 519 566 ------- ------- TOTAL $50,003 $44,790 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt and line of credit $ 5,520 $ 2,699 Accounts payable - trade 4,128 3,400 Accounts payable - construction and equipment 999 866 Accrued expenses and other liabilities 1,970 2,405 Income taxes payable 270 439 ------- ------- Total current liabilities 12,887 9,809 LONG-TERM DEBT 193 815 STOCKHOLDERS' EQUITY: Common stock: 5,842 and 5,696 shares issued and outstanding 6 6 Additional paid -in capital 27,774 26,862 Treasury Stock (227) -- Retained earnings 9,781 7,353 Unearned compensation (455) (75) Accumulated other comprehensive income 44 20 ------- ------- Total stockholders' equity 36,923 34,166 ------- ------- TOTAL $50,003 $44,790 ======= ======= See notes to condensed financial statements.
- 1 - RF MONOLITHICS, INC. CONDENSED STATEMENTS OF INCOME - UNAUDITED (In Thousands, Except Per-Share Amounts) ______________________________________________________________________________________________________________________
Three Months Ended Nine Months Ended May 31, May 31, 1999 1998 1999 1998 SALES $12,967 $14,595 $38,949 $40,691 COST OF SALES 8,263 8,708 25,117 24,231 ------- ------- ------- ------- GROSS PROFIT 4,704 5,887 13,832 16,460 OPERATING EXPENSES: Research and development 1,155 1,276 3,808 4,056 Sales and marketing 1,378 1,557 3,996 4,427 General and administrative 785 774 2,175 2,260 Litigation -- -- -- 641 ------- ------- ------- ------- Total operating expenses 3,318 3,607 9,979 11,384 ------- ------- ------- ------- INCOME FROM OPERATIONS 1,386 2,280 3,853 5,076 OTHER INCOME (EXPENSE): Interest income 55 74 176 225 Interest expense (101) (107) (269) (245) Other income (expense) (3) (10) 7 (1) ------- ------- ------- ------- Total (49) (43) (86) (21) ------- ------- ------- ------- INCOME BEFORE INCOME TAXES 1,337 2,237 3,767 5,055 INCOME TAX EXPENSE 475 778 1,337 1,823 ------- ------- ------- ------- NET INCOME $ 862 $ 1,459 $ 2,430 $ 3,232 ======= ======= ======= ======= EARNINGS PER SHARE: Basic $0.15 $0.26 $0.42 $0.58 ======= ======= ======= ======= Diluted $0.15 $0.24 $0.41 $0.54 ======= ======= ======= ======= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic 5,818 5,628 5,757 5,578 ======= ======= ======= ======= Diluted 5,894 5,979 5,907 6,011 ======= ======= ======= ======= See notes to condensed financial statements.
- 2 - RF MONOLITHICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS - UNAUDITED (In Thousands, Except Per-Share Amounts) ______________________________________________________________________________________________________________ Nine Months Ended May 31, 1999 1998 OPERATING ACTIVITIES: Net income $ 2,430 $ 3,232 Noncash items included in net income: Deferred taxes 307 629 Depreciation and amortization 3,114 2,749 Provision for doubtful accounts 95 83 Other 53 49 Cash from (used in) operating working capital: Trade receivables (157) (923) Inventories (4,489) (2,217) Prepaid expenses and other 33 (64) Accounts payable - trade 728 1,204 Accrued expenses and other liabilities (435) 89 Income taxes payable (169) (94) ------- ------- Net cash from operations 1,510 4,737 INVESTING ACTIVITIES: Increase in short-term investments (4,458) (4,069) Decrease in short-term investments 5,107 3,889 Acquisition of property and equipment (4,208) (5,650) Decrease (increase) in other assets (12) 41 ------- ------- Net cash used in investing activities (3,571) (5,789) FINANCING ACTIVITIES: Borrowings on notes payable and line of credit 3,000 1,500 Repayments of notes payable and line of credit (375) (375) Repayments of capital leases (479) (453) Borrowings of accounts payable - construction and equipment 133 724 Common stock issued for options exercised 204 232 Common stock issued under the Purchase Plan 273 500 Common stock acquired under the Repurchase Program (227) -- ------- ------- Net cash from financing activities 2,529 2,128 ------- ------- INCREASE IN CASH AND CASH EQUIVALENTS 468 1,076 CASH AND CASH EQUIVALENTS: Beginning of period 199 482 ------- ------- End of period $ 667 $ 1,558 ======= ======= SUPPLEMENTAL INFORMATION: Interest paid $ 284 $ 229 ======= ======= Income taxes paid $ 1,178 $ 1,168 ======= ======= Property and equipment acquisitions by debt $ 53 $ 37 ======= ======= See notes to condensed financial statements.
- 3 - RF MONOLITHICS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. INTERIM FINANCIAL STATEMENTS The accompanying condensed financial statements include all adjustments, consisting only of normal recurring adjustments and accruals, that in the opinion of the management of RF Monolithics, Inc. (the "Company" or "RFM") are necessary for a fair presentation of the Company's financial position as of May 31, 1999, the results of operations for the three and nine months ended May 31, 1999 and 1998, and cash flows for the nine months ended May 31, 1999 and 1998. These unaudited interim condensed financial statements should be read in conjunction with the audited financial statements of the Company and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended August 31, 1998, filed with the Securities and Exchange Commission. Operating results for the nine months ended May 31, 1999, are not necessarily indicative of the results to be achieved for the full fiscal year ending August 31, 1999. 2. INVENTORIES Inventories consist of the following (in thousands):
May 31, August 31, 1999 1998 Raw materials and supplies $ 5,988 $4,677 Work in process 4,685 2,139 Finished goods 2,330 1,698 ------- ------ Total $13,003 $8,514 ======= ======
3. PROPERTY AND EQUIPMENT Property and equipment includes construction in progress of $5,557,000 at May 31, 1999, and $3,941,000 at August 31, 1998, which is composed of equipment and other assets not yet placed in service primarily related to increasing the capacity of the Company's manufacturing facilities. 4. CREDIT FACILITIES In July 1999, the Company utilized approximately $1.0 million of an equipment- collateralized lease facility. This initial utilization will be recorded as an operating lease and leaves approximately $2.0 million available under this facility with a commercial bank, to be advanced in stages prior to October 22, 1999. Additionally, in July 1999, the Company obtained an extension of the Line of Credit until December 2001 and an increase of credit to $7.5 million. Currently, there is $4.5 million outstanding on this line. - 4 - 5. EARNINGS PER SHARE Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE, requires a reconciliation of both the numerator and denominator of the earnings per share calculations. There are no adjustments to net earnings to arrive at income for either per share calculation. Reconciliation of share amounts is as follows (in thousands):
Three months ended Nine months ended May 31, May 31, ---------------------------- ----------------------------
1999 1998 1999 1998 Shares outstanding for basic earnings per share 5,818 5,628 5,757 5,578 Effect of dilutive stock options 76 351 150 433 ----- ----- ----- ----- Shares outstanding for diluted earnings per share 5,894 5,979 5,907 6,011 ===== ===== ===== =====
6. CAPITAL STOCK In March 1999, the Company began a program to repurchase stock on the open market. A total of 36,000 shares of common stock have been purchased at an average cost of $6.31. The shares are accounted for using the treasury stock method. In April 1999, the Board of Directors of the Company (the Board) approved and established the 1999 Equity Incentive Plan. The plan allows the granting of non- qualified options to purchase 200,000 shares of stock in the Company to non- officer employees and consultants at the fair market value. Under this plan, the Board approved options to purchase 127,000 shares to be granted to non-officer employees at an exercise price of $6.0625, which was the market value on the date of grant. These options will vest over a four-year period. In April 1999, the Board approved the grant of 73,700 shares of restricted stock in accordance with the 1997 Equity Incentive Plan, which vest over a 4 year period and resulted in $447,000 in deferred compensation. The Board approved the grant of incentive stock options to purchase 107,500 shares of stock in accordance with the 1997 Equity Incentive Plan at an exercise price of $6.0625, which was the market value on the date of grant. The options granted vest over a 4 year period and leave approximately 120,000 shares available for future grants under this plan. 7. LITIGATION EXPENSE Litigation expense, which amounted to $641,000 in the prior year-to-date period, consists of expenses related to the resolution of the legal matter with TimeKeeping Systems, Inc. Expenses include legal expenses, settlement costs and related travel. There were no legal expenses related to the matter in the current year. 8. COMPREHENSIVE INCOME Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," requires companies to report and display comprehensive income and its components (revenues, expenses, gains and losses). Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income consists of the following (in thousands):
Nine Months Ended Nine Months Ended MAY 31, 1999 May 31, 1999 ------------ ------------- Net income, as reported $862 $1,530 Current period change in unrealized gain on short-term investments -- 24 ---- ------ Comprehensive Income $862 $2,454 ==== ======
- 5 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion may be understood more fully by reference to the financial statements, notes to the financial statements, and management's discussion and analysis of financial condition and results of operations contained in the Company's Annual Report on Form 10-K for the year ended August 31, 1998, filed with the Securities and Exchange Commission. General RFM offers products in four product areas: Low-power components, low power Virtual Wire(R) radio systems, frequency control modules and filters. The Company sells to original equipment manufacturers in automotive, computer, consumer, industrial and telecommunications market segments worldwide. The Company received certification of ISO9001 and QS9000 registration in the second quarter of this fiscal year. ISO9001 and QS9000 registration has been adopted worldwide as the standard for quality and assures a fundamental quality system is in place. The Company believes the registration is recognized around the world as a key element to do business in a global marketplace. Achieving ISO9001 certification and QS9000 registration is integral to the Company's strategy for continuous improvement and excellence, and reflects our commitment to customer satisfaction. Except for the historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section and in the Company's Form 10-K for the year ended August 31, 1998. Results of Operations The following discussion relates to the financial statements of the Company for the three and nine month periods ended May 31, 1999 (current quarter and current year-to-date period), of the fiscal year ending August 31, 1999, in comparison to the three and nine month periods ended May 31, 1998 (comparable quarter of the prior year and comparable year-to-date period). In addition, certain comparisons with the three month period ended February 28, 1999 (previous quarter), are provided where management believes it is useful to the understanding of trends. The selected financial data for the periods presented may not be indicative of the Company's future financial condition or results of operations. -6- The following table sets forth, for the three and nine month periods ended May 31, 1999 and 1998, (i) the percentage relationship of certain items from the Company's statements of income to sales and (ii) the percentage change in these items between the current periods and the comparable periods of the prior year:
Percentage of Total Sales Percentage Change From ------------------------- ---------------------- Three Months Nine Months Three Months Nine Months Ended May 31, Ended May 31, Ended May 31, Ended May 31, ------------------------ ----------------------- ------------------ ------------------ 1999 1998 1999 1998 1998 to 1999 1998 to 1999 ----------- ----------- ----------- ---------- ------------------ ------------------ Sales 100 % 100 % 100 % 100 % (11) % (4) % Cost of sales 64 60 64 60 (5) 4 ---- ---- ---- ---- ----- ----- Gross profit 36 40 36 40 (20) (16) ---- ---- ---- ---- ----- ----- Research and development 9 9 10 10 (10) (6) Sales and marketing 11 11 10 11 (12) (10) General and administrative 6 5 6 5 1 (4) Litigation -- -- -- 2 -- (100) ---- ---- ---- ---- ----- ----- Total operating expenses 26 25 26 28 (8) (12) ---- ---- ---- ---- ----- ----- Income from operations 10 15 10 12 (39) (24) Other income (expense), net -- -- -- -- 14 310 ---- ---- ---- ---- ----- ----- Income before income taxes 10 15 10 12 (40) (26) Income tax expense 3 5 4 4 (39) (27) ---- ---- ---- ---- ----- ----- Net income 7 % 10 % 6 % 8 % (41) % (25) % ==== ==== ==== ==== ===== =====
Sales The following table sets forth the components of the Company's sales and the percentage relationship of the components to sales by product area for the periods ended as indicated (in thousands, except percentage data):
Amounts % of Total ------- ---------- Three Months Nine Months Three Months Nine Months Ended May 31, Ended May 31, Ended May 31, Ended May 31, ------------------ ------------------ --------------- --------------- 1999 1998 1999 1998 1999 1998 1999 1998 -------- -------- -------- -------- -------- ----- ------- ------ Low power components $ 9,116 $10,702 $27,470 $29,164 70 % 73 % 71 % 72 % Low power Virtual Wire (R) radio systems 2,129 791 4,688 2,169 16 6 12 5 Frequency control modules 875 1,238 3,047 2,951 7 8 8 7 Filters 791 1,766 3,624 6,113 6 12 9 15 Technology development 56 98 120 294 1 1 -- 1 ------- ------- ------- ------- ---- ---- ---- ---- Sales $12,967 $14,595 $38,949 $40,691 100 % 100 % 100 % 100 % ======= ======= ======= ======= ==== ==== ==== ====
Sales were down 11% from the current quarter over the comparable quarter of the prior year and 1% from the previous quarter. Current year-to-date period sales decreased 4% from the comparable year-to-date period. The change in sales in the current quarter over comparable quarter of the prior year was primarily the result of a decrease in prices in low-power components while the number of units shipped remained constant. Due to pricing pressure in the low-power component line, as well as delay in receipt of raw material components from suppliers for the new transceiver product, the Company anticipates flat to modest sales growth for the final quarter of fiscal 1999. Sales of low-power component product units decreased 2% and average unit selling prices decreased 14%, resulting in a 15% decline in sales when compared to the comparable quarter of the prior year. The low-power component product line experienced a decline in the average per unit selling price of -7- approximately 4% in the current quarter compared to the previous quarter's sales. The low-power component market is very competitive and has in recent years experienced severe product price erosion. The Company expects this price erosion may continue for some time. This trend may result in decreased sales for low-power components in future periods, despite increases in the number of units sold. In response to this ongoing trend, the Company is continuing efforts to drive costs of manufacturing down. The Company is also developing new technology products and product families in order to expand and diversify sales applications and our customer base. However, the Company cannot make assurances that these cost reduction efforts and new product development activities will be effective on a timely basis and offset the impact further declines in average selling prices on gross margins and operating results. Virtual Wire(R) short-range radio device systems sales increased 169% in comparison to the comparable quarter of the prior year. This was primarily attributable to an increased number of units sold for those products, offset by a decrease in average selling price as the Company has started to sell these products in higher volume applications that require lower selling prices. The Company has devoted significant capital and technical, sales and marketing resources to the Virtual Wire(R) short-range radio device systems products. The latest product offering in this product family is the transceiver module, which is a fully integrated short-range radio device module. The transceiver module offers robust operation, small size, low-power consumption and low costs for short-range wireless data applications. The transceiver was introduced in the fiscal second quarter. The Company believes these types of products provide an opportunity to exploit its proprietary technology and pursue its strategy of focusing on value-added products. The Company is assisting a number of customers in incorporating these products into a wide variety of new applications. The timing of when any sales resulting from such new applications reach the production phase is dependent upon the timing of both the customers' product development cycles and their product introduction cycles. It is uncertain if the Company's vendors for these products will be able to deliver enough components to meet potential customer requirements for the fourth quarter of fiscal 1999. If these vendors fail to satisfy the Company's requirements on a timely basis and at competitive prices the Company could suffer manufacturing delays, a possible loss in sales or higher than anticipated costs of manufacturing, which would affect operating results adversely. As a result, it is difficult to predict when, or if, these new products will make a significant contribution to the Company's sales. Sales of filter products decreased 55% in the current quarter and 41% in the current year-to-date period when compared to the comparable periods of the prior year, respectively. The decrease in the current quarter in comparison to the comparable quarter of the prior year is due to a reduction in shipments to a European customer which reduced its requirements while realigning its manufacturing operations. The decrease in year-to-date filter sales in comparison to last year results from the elimination of sales to a single wireless LAN customer of approximately $1.8 million. The Company believes this customer was impacted by economic conditions in Asia and ceased production at the end of the second quarter of the Company's 1998 fiscal year. The Company has devoted significant resources to developing and supporting the growth of its filter products. The product development and introduction cycle for filter products takes between six to eighteen months to complete. As a result, it is difficult to predict when, or if, this strategy to focus on filter products will make a significant contribution to the Company's sales. International sales (primarily in Europe and Asia) were approximately 53% of the Company's sales during the current quarter and 58% in the comparable quarter of the prior year. International sales were approximately 54% and 56% of sales during the current year-to-date period and the comparable year-to-date period, respectively. Sales to customers in Asia were 16% of total sales in the current quarter, compared to 13% in the comparable quarter of the prior year and 11% in the previous quarter. There can be no assurance that economic conditions in Asia will not result in reductions in sales either directly to customers in Asia or to customers in North American or Europe who may have end customers in Asia. -8- The Company considers all product sales with a billing address and a delivery destination in North America to be domestic sales. All other sales are considered international. These sales are denominated primarily in U.S. currency. The Company intends to continue its focus on international sales in the future and expects that international sales will continue to represent a significant portion of its business. This focus on international sales may not be achieved. Even if achieved, the Company's international sales are highly sensitive to fluctuations in such markets. There can be no assurance that these sales will continue as there are inherent risks in the Company's international business activities, which include unexpected changes in regulatory requirements, tariffs and other trade barriers, additional costs associated with marketing and delivering products into foreign countries, the impact of fluctuations in foreign exchange rates and longer accounts receivable cycles. The Company's top five customers accounted for approximately 28% of the Company's sales in the current quarter, 28% in the comparable quarter of the prior year and 29% in the previous quarter. The relative portion of the revenues to the Company's top five customers from the comparable quarter of the prior year to the current quarter was consistent in total, but included a change in customers from a European filter customer, discussed above, to a domestic distribution customer. The remaining customers are similar in nature to those represented in the prior year. While the Company has achieved sales increases in prior periods, there can be no assurance that such sales increases can be achieved in future periods. The Company's success is highly dependent on achieving technological advantages in its product design and manufacturing capabilities, as well as its ability to sell its products in a competitive marketplace that can be influenced by external factors such as economic and regulatory conditions. Competition includes alternative technologies and duplication of the Company's technologies and could adversely affect the Company's selling prices and market share. Sales in any specific quarter are also dependent on the Company being able to respond to customer demand with increasingly shorter lead times. The Company attempts to anticipate customer requirements with its planning and sales forecasting systems, but there can be no assurances that demand occurring late in a quarter can be delivered in that same quarter. Gross Profit The current quarter gross margin and year-to-date gross margin were 36.3% and 35.5% respectively, down from 40.3% and 40.5% in the comparable periods of the prior year, respectively. The decrease was primarily due to decreased gross margins for the Company's low-power component products. Margins for these products decreased because the per-unit selling prices decreased, amid competitive pressures, more rapidly than per-unit manufacturing costs. Per-unit manufacturing costs continued to decrease due to improved production processes that increased yields and productivity. However, the trend toward lower per-unit manufacturing costs, which occurred in recent years, may not continue. Moreover, if average selling prices decrease faster than per-unit manufacturing costs decrease, then the Company's gross profit margins would be adversely impacted. Gross margins for the Company's other products were relatively stable in comparison to the prior year in both the current quarter and current year-to- date periods, with improvements in the low-power Virtual Wire(R) radio systems margins resulting from increased volumes and lower manufacturing costs per unit. The Company has experienced a requirement by its customers for shorter lead times resulting in less accessibility to future customer order information. These events put pressure on the Company's manufacturing facilities to improve delivery lead-time and the need to stock more inventory. Costs in the current quarter and year-to-date period included a significant amount of overtime and other costs needed to meet customer demand that occurred late in the quarter. The Company is attempting to improve its planning and sales forecasting systems with the implementation of a new software system. However, there can be no assurance that in future periods the Company will be able to avoid significant overtime and other costs related to responding to customer requirements with greatly reduced lead times. -9- The Company has in the past experienced sudden increases in demand, which have put pressure on its manufacturing facilities to increase capacity to meet this demand. In addition, new products sometimes require different manufacturing processes than the Company currently possesses. The Company has devoted the majority of its capital expenditures to increasing capacity and improving its manufacturing processes. The Company may not be able to continue to increase its manufacturing capacity and improve its manufacturing processes in a timely manner in order to take advantage of increased market demand. Failure to do this would result in a loss of potential sales in the periods impacted. Research and Development Research and development expenses in the current quarter decreased approximately $121,000, or 10%, over the comparable quarter of the prior year. Current year-to-date research and development expenses decreased 6% in comparison to the comparable year-to-date period. Decreases in the current quarter reflect cost control activities conducted to reduce the profit impact of lower overall sales. The year-to-date period fluctuation in research and development expenses reflects prior year activity that included unusually large amounts of material usage expense incurred on several development projects, as well as outside testing costs incurred while developing a low cost sealing process. The Company expects that research and development expenses will increase in absolute dollars in future periods, although spending related to the introduction of the new packaging process is expected to decrease. Since research and development expenses decreased at a similar rate as sales, such expenses remained at 9% of sales in the current quarter, when compared to the comparable quarter of the prior year. Sales and Marketing Current quarter sales and marketing expenses decreased approximately $179,000, or 12%, from the comparable quarter of the prior year and 10% on a year-to-date basis. This decrease reflects reduced commissions on flat sales and an effort to control costs and to lower program costs in relation to flat sales. As a result, sales and marketing expenses were 11% of sales in the current quarter and in the comparable quarter of the prior year. The Company expects to incur higher sales and marketing expenses in absolute dollars in future periods as it continues to increase its contacts with customers. General and Administrative General and administrative expenses for the current quarter increased approximately $11,000, or 1%, from the comparable quarter of the prior year and 4% in comparison to the comparable year-to-date period. The Company expects general and administrative expenses will increase in absolute dollars in future periods. Litigation There was no litigation expense for the current quarter or current year to date period, compared to litigation expense of $641,000 in the comparable year-to-date period, which consisted of expenses related to the resolution of the legal matter with TimeKeeping Systems, Inc. Expenses included legal expenses, settlement costs and related travel. There were no legal expenses related to the matter in the current year. The Company does not expect expenses with regard to this matter in future periods. Income from Operations Income from operations was approximately $1,386,000, or 11% of sales in the current quarter, compared to approximately $2,280,000 or 15% of sales in the comparable quarter of the prior year. On a year-to-date basis, current year income from operations was 10% of sales, compared to 12% of sales for the comparable year-to-date period. The decrease in income from operations as a percent of sales is due to the previously discussed decrease in gross margin offset partially by overall decreases in operating expenses. -10- Income Tax Expense The Company's income tax expense in the current quarter and current year- to-date period decreased slightly compared to the comparable periods of the prior year, reflecting a decrease in income before taxes. Net Income Net income decreased 41% to approximately $862,000 ($.15 per diluted common share) in the current quarter, compared to approximately $1,459,000 ($.24 per diluted common share) for the comparable quarter of the prior year. On a year-to-date basis, net income decreased 25% from the comparable year-to-date period. Liquidity and Capital Resources The principal sources of liquidity at May 31, 1999, consisted of $5.5 million of cash and short-term investments and $3.5 million of unused credit facilities. These credit facilities include $500,000 unused under a line of credit agreement with a commercial bank which expires December 31, 1999, and $3.0 million in an equipment-collateralized term lease facility with a commercial bank, available until October 22, 1999. The credit facilities contain restrictions and financial covenants relating to various financial ratios, including net worth, interest coverage and levels of debt compared to tangible net worth. As of May 31, 1999, the Company was in compliance with such restrictions and covenants. Subsequent to May 31, 1999, the Company obtained an extension of the Line of Credit until December 2001 and an increase of credit to $7.5 million. Currently, there is $4.5 million outstanding on this line. Net cash provided by operating activities was approximately $1.5 million and $4.7 million for the year-to-date periods of fiscal 1999 and 1998, respectively. The decrease in cash generated from operations was primarily due to an increase in cash used for inventory. Inventories increased to support shorter lead times and an increase in demand late in the quarter for short-range Virtual Wire(R) radio products. The largest area of increase was in work-in- process inventory, as the Company's factories began to respond to this demand. Cash used in investing activities was approximately $3.6 million and $5.8 million for the year-to-date periods of fiscal 1999 and 1998, respectively, primarily as a result of capital expenditures. The Company expects to acquire a total of approximately $9 million to $11 million of capital equipment by the end of fiscal 1999, consisting primarily of equipment needed for its manufacturing facilities. Some of this equipment may be acquired under the equipment- collateralized operating lease facility with a commercial bank. Net cash generated from financing activities was $2.5 million and $2.1 million for the current year-to-date periods of fiscal 1999 and 1998, respectively, primarily related to cash from borrowings on the line of credit and borrowings for capital equipment acquisitions. The Company believes that cash generated from operations, if any, banking facilities and the $5.5 million balance in cash and short-term investments will be sufficient to meet the Company's operating cash requirements through the rest of the calendar year. To the extent that these sources of funds are insufficient to meet the Company's capital requirements, the Company may be required to raise additional funds. No assurance can be given that additional financing will be available or, if available, that it will be available on acceptable terms. Year 2000 Readiness Disclosure The Year 2000 issue involves potential inability of information or other data dependent systems to properly distinguish year references as of the turn of the century. The Company believes the Year 2000 issue represents a material risk to the Company. -11- The Company itself is heavily dependent upon the proper functioning of its own computer systems, including (1) computers and related software for its financial and manufacturing information systems, (2) computers, programmable logic controllers and other data dependent equipment in its manufacturing processes, and (3) computers, scientific equipment and related software for its engineering, research and development activities. Any failure or malfunctioning on the part of these or other systems could cause disruptions of operations, including a temporary inability to process financial transactions, manufacture products or engage in ordinary business activities in ways that are not currently known, discernible, quantifiable or otherwise anticipated by the Company. The Company has formed a team to evaluate and deal with the impact of the Year 2000 issue. It has developed a plan (the "Plan") for the Company to become Year 2000 compliant in a timely manner. The Plan covers both systems such as networked computers and software that are commonly called information technology ("IT") systems and those such as embedded technology in manufacturing equipment ("non-IT") systems. The Plan also covers Year 2000 readiness of customers and vendors. The Company's Plan consists of five phases. The first phase is Year 2000 awareness and project planning. The second is the inventory of systems and prioritization of potential problems. The third phase is initial contingency planning and testing of prioritized material items for assessment of Year 2000 compliance. The fourth phase is the remediation of any noted problems. The fifth phase is the refinement of contingency plans. For IT systems, the Company's core business information systems were replaced on September 1, 1998 by Glovia(TM) and Oracle(R) software, which are represented by providers and tested by RFM to be Year 2000 compliant. Other material IT systems were remediated as of June 30, 1999. For non-IT systems, remediation was also completed as of June 30, 1999. The Company's suppliers (particularly sole-source and long lead-time suppliers) and key customers may be adversely affected by their respective failures to address the Year 2000 issue. If the Company's suppliers are unable to provide goods or services, the Company's operations could be materially adversely effected. Key customers which encounter Year 2000 difficulties could fail to order or take delivery of the Company's products, or could fail to make or delay payments to the Company. Such failure or delay could have a material adverse effect on the Company's business and results of operations. While some of these risks are outside the control of the Company, the Company's Plan includes communications with suppliers and customers to ascertain the state of their Year 2000 compliance program. The questionnaire phase of this activity has been completed, and phone and on-site interviews of critical suppliers has also been completed. Remediation through second source identification of suppliers and business forecasting for customers is complete. Preparation and refinement of contingency plans related to suppliers and customers will continue through the second half of calendar 1999. As of June 30, 1999, phases one through four of the Company's Year 2000 Project have been completed as planned; Phase I-Awareness Project Planning, Phase II-Inventory and Prioritization, Phase III-Initial Contingency Planning and Testing and Phase IV-Remediation. The Company currently has completed initial contingency plans to deal with some of the most likely worst case scenarios. The Company currently anticipates that it will refine and complete Phase V-Contingency Planning during the second half of calendar 1999. The total cost of the purchase and implementation of Year 2000 Remediation solutions is approximately $2 million, which has already been incurred. Time spent by implementation team members is included in the Company's normal operating budget. The Year 2000 implementation program has not caused material delays in non-Year 2000 related IT projects. The Company has determined that its products are not affected by calendar dating. Therefore, there is no known or anticipated Year 2000 impact on its product offering. -12- The Company believes its Year 2000 Plan will reduce the probability of significant interruptions of normal operations resulting from Year 2000 issues. However, the Company may not have properly identified and assessed all Year 2000 issues. In addition, its key suppliers or customers could experience Year 2000 problems. If any of these potential situations occur, the Company's contingency plans may not be adequate to protect the Company from the adverse effects of such problems. The worst case scenario resulting from Year 2000 issues would be a material adverse impact on the Company's results of operations, caused by an interruption in normal business operations, or an adverse impact on the Company's relationships with customers, suppliers or others. -13- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION Not applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The Company hereby incorporates by reference all exhibits filed in connection with Form 10-K for the year ended August 31, 1998 and the Forms 10-Q for the quarters ended November 30, 1998 and February 28, 1999. (b) The Company did not file any reports on Form 8-K during the quarter ended May 31, 1999. (c) Exhibit Number Description -------------- ----------- 10.25 Form of Restricted Stock Bonus Agreement 10.26 1999 Equity Incentive Plan 10.27 Form of Notice of Grant of Stock Options and Grant Agreement Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Act"), may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. -14- 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. RF MONOLITHICS, INC. Dated: July 14, 1999 By: /s/ Sam L. Densmore ------------------------------ Sam L. Densmore CEO, President and Director /s/ James P. Farley ------------------------------ James P. Farley VP and Controller -15- EX-10.25 2 FORM OF RESTRICTED STOCK BONUS AGREEMENT EXHIBIT 10.25 FORM OF RESTRICTED STOCK BONUS AGREEMENT This Agreement is made as of *Grant_Date*, by and between RF MONOLITHICS, INC., a Delaware corporation (the "Company"), and *Recipient_Name* (the "Recipient"). Witnesseth: Whereas, the Company desires to issue Common Stock of the Company as herein described, on the terms and conditions hereinafter set forth, as a stock bonus to the Recipient for services performed as an Employee, Director or Consultant in connection with and in furtherance of the Company's compensatory benefit plan for participation of Employees, Directors or consultants and is subject to the terms and conditions contained in the Company's 1997 Equity Incentive Plan (the "Plan"). Defined terms not defined in this agreement shall have the meaning given such terms in the Plan. Now, Therefore, It Is Agreed between the parties as follows: 1. The Company hereby awards to Recipient *Share_Words* (*Share*_) shares of the Company's common stock (the "Shares"), in consideration for Recipient's prior services to the Company. No payment of cash or property by Recipient shall be required as consideration for the issuance of the Shares. Notwithstanding the foregoing, the award and issuance of the Shares are subject to the terms and conditions set forth in this Agreement and the Plan. 2. Provided Recipient's Continuous Service as an Employee, Director or Consultant has not terminated prior to such date, twenty-five percent (25%) of the Shares shall vest on each May 1, commencing with May 1, 2000 (each such date a "Vesting Date"). 3. If at any time prior to a Vesting Date, Recipient's Continuous Service as an Employee, Director or Consultant ceases, vesting of the Shares shall immediately cease, Thereafter, Recipient shall have no further right to vesting in the Shares, and the Shares shall automatically be reacquired by the Company upon the ninetieth (90th) day following such termination of Continuous Service as an Employee, Director or Consultant unless the Company agrees to waive the automatic reacquisition as to some or all of the Shares that have not then vested. Any such waiver shall only be effective by the Company giving written notice to the Recipient or the Recipient's representative (whose appointment is due to Recipient's death or disability) with a copy to also be delivered to the Escrow Agent (described below). If the Company does not timely or fully waive its automatic reacquisition, then the Escrow Agent shall transfer to the Company the Shares still subject to automatic reacquisition. 4. This award is contingent upon and will not be effective unless and until the date on which the Shares constituting the award have been registered under the Securities Act. 5. By accepting this award, Recipient agrees that the Company may require him or her, as a condition precedent to the release of Shares from the escrow described below, to enter into an arrangement providing for a cash payment to the Company of any tax withholding obligation of the Company or an Affiliate of the Company arising by reason of: (1) the receipt of these Shares; or (2) the lapse of any substantial risk of forfeiture to which the Shares are subject at the time of vesting. 6. To insure that unvested Shares will be available for delivery to the Company upon termination of Recipient's service, Recipient agrees to deliver to and deposit with the Secretary of the Company or other person selected by the Company (the "Escrow Agent"), as escrow agent in this transaction, two (2) Assignment Separate From Certificate forms duly endorsed (with date and number of shares blank) substantially in the form of Exhibit B attached hereto, together with the certificate or certificates evidencing the Shares. Such documents are to be held by the Escrow Agent and delivered by the Escrow Agent pursuant to the Joint Escrow Instructions of the Company and Recipient substantially in the form of Exhibit A attached hereto and incorporated by this reference, which instructions shall also be delivered to the Escrow Agent hereunder. 7. Recipient shall not sell or transfer unvested Shares. The Shares issued hereunder shall be endorsed with appropriate legends determined by the Company. 8. The Company shall not be required (i) to transfer on its books any Shares which shall have been sold or transferred in violation of any of the provisions set forth in this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such Shares shall have been so transferred. 9. Subject to the provisions of paragraph 7 above, Recipient shall, during the term of this Agreement, exercise all rights and privileges of a stockholder of the Company with respect to the Shares deposited in said escrow. 10. The acquisition and vesting of the Shares may have adverse tax consequences to the Recipient which may be avoided or mitigated by filing an election under Section 83(b) of the Code. Recipient has reviewed with Recipient's own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. Recipient acknowledges that he or she is relying solely on the advice of such advisors and not on any statements or representations of the Company or any of its agents. An election under Section 83(b) of the Code must be filed within thirty (30) days after the effective date of this Agreement. RECIPIENT ACKNOWLEDGES THAT IT IS HIS OR HER OWN RESPONSIBILITY, AND NOT THE COMPANY'S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(B), EVEN IF RECIPIENT REQUESTS THE COMPANY TO MAKE THE FILING ON HIS OR HER BEHALF. 11. The parties agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement. Either party's failure to enforce any provision or provisions of this Agreement shall not in any way be construed as a waiver of any such provision or provisions, nor prevent that party thereafter from 2 enforcing each and every other provision of this Agreement. The rights granted both parties herein are cumulative and shall not constitute a waiver of either party's right to assert all other legal remedies available to it under the circumstances. 12. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to the other party hereto at its address hereinafter shown below its signature or at such other address as such party may designate by ten (10) days' advance written notice to the other party hereto. 13. This Agreement shall inure to the benefit of the successors and assigns of the Company and, subject to the restrictions on transfer herein set forth, shall be binding upon Recipient, his or her heirs, executors, administrators, successors and assigns. 14. This Agreement does not constitute an employment contract nor shall be deemed to create in any way whatsoever any obligation on Recipient's part to continue in the employ of the Company or any Affiliate of the Company, or to limit the ability of the Company or any Affiliate of the Company to terminate Recipient's employment with the Company or Affiliate of the Company at any time, for any reason or for no reason. 15. Recipient acknowledges that he or she has reviewed this Agreement in its entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of this Agreement. 16. This Agreement, together with the Exhibits hereto, constitutes the entire, final and exclusive statement of the agreement of the parties with respect to the subject matter hereof. In Witness Whereof, the parties hereto have executed this Agreement as of the day and year first above written. Recipient: RF MONOLITHICS, INC. ______________________________ ______________________________ *Recipient_Name* *RFM_Name*, *RFM_Title* *Address* 4441 Sigma Road, *City*, *State* *ZIp* Dallas, Texas 75244 Exhibit A - Joint Escrow Instructions Exhibit B - Assignment Separate From Certificate 3 Exhibit A JOINT ESCROW INSTRUCTIONS Date:*Grant_Date* *RFM_Name* RF Monolithics, Inc. 4441 Sigma Road, Dallas, Texas 75244 Dear Sir/Madam: As Escrow Agent for both RF Monolithics, Inc., a Delaware corporation (the "Company"), and the undersigned recipient of stock of the Company ("Recipient"), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Bonus Agreement ("Agreement"), dated *Grant_Date* relating to shares of the Company's common stock issued under the Company's 1997 Equity Incentive Plan (the "Plan"), to which a copy of these Joint Escrow Instructions is attached as Exhibit A, in accordance with the following instructions: 1. In the event Recipient ceases to render services as an Employee, Director or Consultant (defined terms not defined herein shall have the meaning given such terms in the Plan.) during the vesting period set forth in paragraph 2 of the Agreement, then on the ninetieth (90th) day following the date of cessation of all such services, you shall transfer to the Company the shares of stock then being held by you, unless the Company or its assignee will give to Recipient and you a written notice specifying that some or all of such shares of stock shall be transferred to Recipient. Recipient and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such event or by such notice in accordance with the terms of this document or said notice. 2. At the closing you are directed (a) to date any stock assignments necessary for the transfer in question, (b) to fill in the number of shares being transferred, and (c) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company. 3. Recipient irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to said shares as specified in the Agreement. Recipient does hereby irrevocably constitute and appoint you as his or her attorney-in-fact and agent for the term of this escrow to execute with respect to such securities and other property all documents of assignment and/or transfer and all stock certificates necessary or appropriate to make all securities negotiable and complete any transaction herein contemplated. 1 4. This escrow shall terminate upon vesting of the shares or upon the earlier return of the shares to the Company or Recipient. 5. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Recipient, you shall deliver all of same to any pledgee entitled thereto or, if none, to Recipient and shall be discharged of all further obligations hereunder. 6. The duties of you, Recipient and the Company hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto. 7. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties or their assignees. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in- fact for Recipient while acting in good faith and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith. 8. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law, and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree of any court, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. 9. You shall not be liable in any respect on account of the identity, authority or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder. 10. You shall not be liable for the outlawing of any rights under any statute of limitations with respect to these Joint Escrow Instructions or any documents deposited with you. 11. You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. 12. Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be an officer or assistant officer of the Company or if you shall resign by written notice to each party. In the event of any such termination, the Company may appoint any officer or assistant officer of the Company as successor Escrow Agent and Recipient hereby confirms the appointment of such successor or successors as his or her attorney-in-fact and agent to the full extent of your appointment. 2 13. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. 14. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities, you may (but are not obligated to) retain in your possession without liability to anyone all or any part of said securities until such dispute shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings. 15. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in any United States Post Box, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties hereunto entitled at the following addresses, or at such other addresses as a party may designate by ten (10) days' written notice to each of the other parties hereto: Company: RF Monolithics, Inc. 4441 Sigma Road, Dallas, Texas 75244 Recipient: *Recipient_Name* *Address* *City*, *State* *ZIp* Escrow Agent: *RFM_Name* RF Monolithics, Inc. 4441 Sigma Road, Dallas, Texas 75244 16. By signing these Joint Escrow Instructions you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement. [THIS PORTION INTENTIONALLY LEFT BLANK] 3 17. This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns. It is understood and agreed that references to "you" or "your" herein refer to the original Escrow Agent and to any and all successor Escrow Agents. It is understood and agreed that the Company may at any time or from time to time assign its rights under the Agreement and these Joint Escrow Instructions in whole or in part. Very truly yours, RF Monolithics, Inc. _______________________________ *RFM_Name*, *RFM_Title* Recipient _______________________________ *Recipient_Name* Escrow Agent: __________________________________ *RFM_Name* [THIS PORTION INTENTIONALLY LEFT BLANK] 4 Exhibit B ASSIGNMENT SEPARATE FROM CERTIFICATE Pursuant to that certain Restricted Stock Bonus Agreement (the "Agreement") dated as of *Grant_Date*, *Recipient_Name* hereby assigns and transfers unto RF Monolithics, Inc., a Delaware corporation ("Assignee") ________________________ (__________) shares of the common stock of the Assignee, standing in the undersigned's name on the books of said corporation, represented by Certificate No.(s) ________ herewith and do hereby irrevocably constitute and appoint the Secretary of the Corporation as attorney to transfer the said stock on the books of the within named Company with full power of substitution in the premises. This Assignment may be used only in accordance with and subject to the terms and conditions of the Agreement, and only to the extent that such shares remain subject to reacquisition by the Company under the terms of the Agreement. Dated: *Grant_Date* _______________________________ *Recipient_Name* [THIS PORTION INTENTIONALLY LEFT BLANK] EX-10.26 3 1999 EQUITY INCENTIVE PLAN EXHIBIT 10.26 1999 EQUITY INCENTIVE PLAN Adopted by the Board on April 8, 1999 1. Purposes. (a) The purpose of the Plan is to provide a means by which selected Employees of and Consultants to the Company, and its Affiliates, may be given an opportunity to benefit from increases in value of the stock of the Company through the granting of (i) Nonstatutory Stock Options, (ii) stock bonuses, and (iii) rights to purchase restricted stock, all as defined below. (b) The Company, by means of the Plan, seeks to retain the services of persons who are now Employees of or Consultants to the Company or its Affiliates, to secure and retain the services of new Employees and Consultants, and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. (c) The Company intends that the Stock Awards issued under the Plan shall, in the discretion of the Board or any Committee to which responsibility for administration of the Plan has been delegated pursuant to subsection 3(c), be either (i) Nonstatutory Stock Options granted pursuant to Section 6 hereof, or (ii) stock bonuses or rights to purchase restricted stock granted pursuant to Section 7 hereof. 2. Definitions. (a) "Affiliate" means any parent corporation or subsidiary corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f) respectively, of the Code. (b) "Board" means the Board of Directors of the Company. (c) "Cause" shall mean (i) the willful breach of habitual neglect of assigned duties related to the Company, including compliance with Company policies; (ii) conviction (including any plea of nolo contendere) of Executive of any felony or crime involving dishonesty; (iii) any act of personal dishonesty knowingly taken by Executive in connection with his responsibilities as an employee and intended to result in personal enrichment of Executive or any other person; (iv) bad faith conduct that is materially detrimental to the Company; (v) inability of Executive to perform Employee's duties due to alcohol or illegal drug use; (vi) the Executive's failure to comply with any legal written directive of the Board of Directors of the Company; or (vii) any act or omission of the Executive which is of substantial detriment to the Company because of the Executive's intentional failure to comply with any statute, rule or regulation, except any act or omission believed by Executive in good faith to have been in or not opposed to the best interest of the Company (without intent of Executive to gain, directly or indirectly, a profit to which 1. Executive was not legally entitled) and except that Cause shall not mean bad judgment or negligence other than habitual neglect of duty. (d) "Change of Control" shall mean: (i) Any acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of 35% or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of the Board of Directors of the Company (the "Outstanding Voting Securities"); or (ii) in connection with or in anticipation of, any acquisition, merger or reorganization in which individuals who, as of the date hereof, constitute the Board (the "incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A of the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) the sale or other disposition of all or substantially all of the assets of the Company; but (iv) "Change of Control" shall not mean (A) any acquisition, merger, or reorganization by the Company in which the beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of 65% or more of the stockholders of the Company immediately prior to such acquisition, merger, or reorganization of either (1) the Outstanding Common Stock or (2) the Outstanding Voting Securities remains unchanged after such acquisition, merger or reorganization or (B) any acquisition, merger, or reorganization by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company. (e) "Code" means the Internal Revenue Code of 1986, as amended. (f) "Committee" means a Committee appointed by the Board in accordance with subsection 3(c) of the Plan. (g) "Company" means RF Monolithics, Inc., a Delaware corporation. (h) "Consultant" means any person, including an advisor, engaged by the Company or an Affiliate of the Company to render consulting services and who is compensated for such 2. services, provided that the term "Consultant" shall not include those persons who render services only as a Director. (i) "Continuous Service as an Employee, Director or Consultant" means that the service of an individual to the Company, whether as an Employee, Director or Consultant, is not interrupted or terminated. The Board or the chief executive officer of the Company may determine, in that party's sole discretion, whether Continuous Service as an Employee, Director or Consultant shall be considered interrupted in the case of: (i) any leave of absence approved by the Board or the chief executive officer of the Company, including sick leave, military leave, or any other personal leave; or (ii) transfers between the Company, its Affiliates or their successors. (j) "Covered Employee" means the chief executive officer and the four (4) other highest compensated officers of the Company for whom total compensation is required to be reported to stockholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code. (k) "Director" means a member of the Board. (l) "Employee" means any person employed by the Company or any Affiliate of the Company. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (m) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (n) "Fair Market Value" means, as of any date, the value of the common stock of the Company determined as follows: (i) If the common stock is listed on any established stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair Market Value of a share of common stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Company's common stock) on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable. (ii) In the absence of such markets for the common stock, the Fair Market Value shall be determined in good faith by the Board. (o) "Non-Employee Director" means a Director who either (i) is not a current Employee or Officer of the Company or its parent or subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or subsidiary for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act ("Regulation S-K")), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K, and is not engaged in a 3. business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-employee director" for purposes of Rule 16b-3. (p) "Nonstatutory Stock Option" means an Option not intended to qualify as an "incentive stock option" pursuant to Section 422 of the Code and the regulations promulgated thereunder. (q) "Officer" means a person who is an officer of the Company within the meaning of Rule 4460(i)(1)(A) of the Rules of the National Association of Securities Dealers, Inc. (r) "Option" means a stock option granted pursuant to the Plan. (s) "Option Agreement" means a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (t) "Optionee" means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option. (u) "Plan" means this 1999 Equity Incentive Plan. (v) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect with respect to the Company at the time discretion is being exercised regarding the Plan. (w) "Securities Act" means the Securities Act of 1933, as amended. (x) "Stock Award" means any right granted under the Plan, including any Option, any stock bonus, and any right to purchase restricted stock. (y) "Stock Award Agreement" means a written agreement between the Company and a holder of a Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan. (z) "Voluntary Resignation" shall mean any termination of Executive's employment with the Company upon such Executive's own initiative, including Executive's retirement, provided, however, that if such Executive's salary, title, duties, or benefits are materially reduced subsequent to or in anticipation of a Change of Control, such resignation by the Executive shall not be deemed a "Voluntary Resignation." 3. Administration. (a) The Plan shall be administered by the Board unless and until the Board delegates administration to a Committee, as provided in subsection 3(c). (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: 4. (i) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; whether a Stock Award will be a Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock, or a combination of the foregoing; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive stock pursuant to a Stock Award; and the number of shares with respect to which a Stock Award shall be granted to each such person. (ii) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (iii) To amend the Plan or a Stock Award as provided in Section 13. (iv) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan. (c) The Board may delegate administration of the Plan to a committee composed of one or more members of the Board (the "Committee"). If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power, for the purpose of granting a Stock Award to an eligible Officer, to delegate to a subcommittee of two or more Non-Employee Directors any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or such a subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. 4. Shares Subject to the Plan. (a) Subject to the provisions of Section 13 relating to adjustments upon changes in stock, the number of shares of stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate two hundred thousand (200,000) shares of the Company's common stock. If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the stock not acquired under such Stock Award shall revert to and again become available for issuance under the Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 5. Eligibility. 5. Stock Awards may be granted only to Employees or Consultants. Provided further, that Covered Employees shall not be eligible to receive Stock Awards under the Plan, and Officers other than Covered Employees are only eligible to receive grants that are an inducement essential to such individual entering into an employment agreement with the Company or an Affiliate of the Company. 6. Option Provisions. Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: (a) Term. No Option shall be exercisable after the expiration of ten (10) years from the date it was granted. (b) Price. The exercise price of each Nonstatutory Stock Option shall be not less than eighty-five percent (85%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption of or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. (c) Consideration. The purchase price of stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised, or (ii) at the discretion of the Board or the Committee, at the time of the grant of the Option, (A) by delivery to the Company of other common stock of the Company, (B) according to a deferred payment arrangement, except that payment of the common stock's "par value" (as defined in the Delaware General Corporation Law) shall not be made by deferred payment, or other arrangement (which may include, without limiting the generality of the foregoing, the use of other common stock of the Company) with the person to whom the Option is granted or to whom the Option is transferred pursuant to subsection 6(d), or (C) in any other form of legal consideration that may be acceptable to the Board. In the case of any deferred payment arrangement, interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. (d) Transferability. An Option shall not be transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the Option is granted only by such person unless the applicable Option Agreement expressly provides for other transferability. Notwithstanding the foregoing, the person to whom the Option is granted may, by delivering written notice to the Company, in a form satisfactory to 6. the Company, designate a third party who, in the event of the death of the Optionee, shall thereafter be entitled to exercise the Option. (e) Vesting. The total number of shares of stock subject to an Option may, but need not, be allotted in periodic installments (which may, but need not, be equal). The Option Agreement may provide that from time to time during each of such installment periods, the Option may become exercisable ("vest") with respect to some or all of the shares allotted to that period, and may be exercised with respect to some or all of the shares allotted to such period and/or any prior period as to which the Option became vested but was not fully exercised. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate.. The provisions of this subsection 6(e) are subject to any Option provisions governing the minimum number of shares as to which an Option may be exercised. (f) Termination of Employment or Consulting Relationship. In the event an Optionee's Continuous Service as an Employee, Director or Consultant terminates (other than upon the Optionee's death or disability), the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it as of the date of termination, unless the Option Agreement expressly provides that the Option may become exercisable for additional shares after the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Optionee's Continuous Service as an Employee, Director or Consultant (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. An Optionee's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionee's Continuous Service as an Employee, Director or Consultant (other than upon the Optionee's death or disability) would result in liability under Section 16(b) of the Exchange Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day after the last date on which such exercise would result in such liability under Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionee's Continuous Service as an Employee, Director or Consultant (other than upon the Optionee's death or disability) would be prohibited at any time solely because the issuance of shares would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the first paragraph of this subsection 6(f), or (ii) the expiration of a period of three (3) months after the termination of the Optionee's Continuous Service as an Employee, Director or Consultant during which the exercise of the Option would not be in violation of such registration requirements. 7. (g) Disability of Optionee. In the event an Optionee's Continuous Service as an Employee, Director or Consultant terminates as a result of the Optionee's disability, the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it as of the date of termination, unless the Option Agreement expressly provides that the Option may become exercisable for additional shares after the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (h) Death of Optionee. In the event of the death of an Optionee during, or within a period specified in the Option Agreement after the termination of, the Optionee's Continuous Service as an Employee, Director or Consultant, the Option may be exercised (to the extent the Optionee was entitled to exercise the Option as of the date of death) by the Optionee's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionee's death pursuant to subsection 6(d), but only within the period ending on the earlier of (i) the date eighteen (18) months following the date of death (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of such Option as set forth in the Option Agreement. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (i) Early Exercise. The Option may, but need not, include a provision whereby the Optionee may elect at any time during Continuous Service as an Employee, Director or Consultant to exercise the Option as to any part or all of the shares subject to the Option prior to the full vesting of the Option. Any unvested shares so purchased may be subject to a repurchase right in favor of the Company or to any other restriction the Board determines to be appropriate. 7. Terms of Stock Bonuses and Purchases of Restricted Stock. Each stock bonus or restricted stock purchase agreement shall be in such form and shall contain such terms and conditions as the Board or the Committee shall deem appropriate. The terms and conditions of stock bonus or restricted stock purchase agreements may change from time to time, and the terms and conditions of separate agreements need not be identical, but each stock bonus or restricted stock purchase agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions as appropriate: (a) Purchase Price. The purchase price under each restricted stock purchase agreement shall be such amount as the Board or Committee shall determine and designate in such Stock Award Agreement. Notwithstanding the foregoing, the Board or the Committee may 8. determine that eligible participants in the Plan may be awarded stock pursuant to a stock bonus agreement in consideration for past services actually rendered to the Company or for its benefit. (b) Transferability. Rights under a stock bonus or restricted stock purchase agreement shall be transferable by the grantee only upon such terms and conditions as are set forth in the applicable Stock Award Agreement, as the Board or the Committee shall determine in its discretion, so long as stock awarded under such Stock Award Agreement remains subject to the terms of the agreement. (c) Consideration. The purchase price of stock acquired pursuant to a stock purchase agreement shall be paid either: (i) in cash at the time of purchase; (ii) at the discretion of the Board or the Committee, according to a deferred payment or other arrangement, except that payment of the common stock's "par value" (as defined in the Delaware General Corporation Law) shall not be made by deferred payment, or other arrangement with the person to whom the stock is sold; or (iii) in any other form of legal consideration that may be acceptable to the Board or the Committee in its discretion. Notwithstanding the foregoing, the Board or the Committee to which administration of the Plan has been delegated may award stock pursuant to a stock bonus agreement in consideration for past services actually rendered to the Company or for its benefit. (d) Vesting. Shares of stock sold or awarded under the Plan may, but need not, be subject to a repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board or the Committee. (e) Termination of Continuous Service as an Employee, Director or Consultant. In the event a participant's Continuous Service as an Employee, Director or Consultant terminates, the Company may repurchase or otherwise reacquire any or all of the shares of stock held by that person which have not vested as of the date of termination under the terms of the stock bonus or restricted stock purchase agreement between the Company and such person. 8. Cancellation And Re-Grant Of Options. The Board or the Committee shall have the authority to effect, at any time and from time to time, (i) the repricing of any outstanding Options under the Plan and/or (ii) with the consent of the affected holders of Options, the cancellation of any outstanding Options under the Plan and the grant in substitution therefor of new Options under the Plan covering the same or different numbers of shares of stock, but having an exercise price per share per share of stock on the new grant date that results in a ratio between such exercise price and Fair Market Value on such date of grant that is not less than the ratio between the original exercise price and Fair Market Value on the original date of grant. Notwithstanding the foregoing, the Board or the Committee may grant an Option with an exercise price lower than that set forth above if such Option is granted as part of a transaction described in section 424(a) of the Code. 9. 9. Covenants of the Company. (a) During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of stock required to satisfy such Stock Awards. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the Stock Award; provided, however, that this undertaking shall not require the Company to register under the Securities Act, either the Plan, any Stock Award or any stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such Stock Awards unless and until such authority is obtained. 10. Use of Proceeds from Stock. Proceeds from the sale of stock pursuant to Stock Awards shall constitute general funds of the Company. 11. Miscellaneous. (a) The Board shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest pursuant to subsection 6(e) or 7(d), notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest. (b) Neither an Employee or Consultant nor any person to whom a Stock Award is transferred under subsection 6(d) or 7(b) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Stock Award unless and until such person has satisfied all requirements for exercise of the Stock Award pursuant to its terms. (c) Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Employee, Consultant or other holder of Stock Awards any right to continue in the employ of the Company or any Affiliate (or to continue acting as a Director or Consultant) or shall affect the right of the Company or any Affiliate to terminate the employment of any Employee with or without cause to terminate the relationship of any Consultant in accordance with the terms of that Consultant's agreement with the Company or Affiliate of the Company to which such Consultant is providing services. (d) The Company may require any person to whom a Stock Award is granted, or any person to whom a Stock Award is transferred pursuant to subsection 6(d) or 7(b), as a condition of exercising or acquiring stock under any Stock Award, (1) to give written assurances satisfactory to the Company as to such person's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and 10. risks of exercising the Stock Award; and (2) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the Stock Award for such person's own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise or acquisition of stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act, or (ii) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock. (e) To the extent provided by the terms of a Stock Award Agreement, the person to whom a Stock Award is granted may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of stock under a Stock Award by any of the following means or by a combination of such means: (1) tendering a cash payment; (2) authorizing the Company to withhold shares from the shares of the common stock otherwise issuable to the participant as a result of the exercise or acquisition of stock under the Stock Award; or (3) delivering to the Company owned and unencumbered shares of the common stock of the Company. 12. Adjustments Upon Changes In Stock. (a) If any change is made in the stock subject to the Plan, or subject to any Stock Award (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the type(s) and maximum number of securities subject to the Plan pursuant to subsection 4(a), and the outstanding Stock Awards will be appropriately adjusted in the type(s) and number of securities and price per share of stock subject to such outstanding Stock Awards. Such adjustments shall be made by the Board or the Committee, the determination of which shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a "transaction not involving the receipt of consideration by the Company".) (b) In the event of a Change of Control, then: (i) any surviving corporation or acquiring corporation shall assume any Stock Awards outstanding under the Plan or shall substitute similar stock awards (including an award to acquire the same consideration paid to the stockholders in the transaction described in this subsection 12(b)) for those outstanding under the Plan, or (ii) in the event any surviving corporation or acquiring corporation refuses to assume such Stock Awards or to substitute similar stock awards for those outstanding under the Plan, (A) with respect to Stock Awards held by persons then performing services as Employees, Directors or Consultants the vesting of such Stock Awards (and, if applicable, the time during which such Stock Awards may be exercised) shall be accelerated prior to such event and the Stock Awards terminated if not exercised (if applicable) after such acceleration and at or prior to such event, 11. and (B) with respect to any other Stock Awards outstanding under the Plan, such Stock Awards shall be terminated if not exercised (if applicable) prior to such event. If any acquiring or surviving corporation assumes Stock Awards outstanding under the Plan or substitutes similar stock awards for those outstanding under the Plan, then if the Continuous Service as an Employee, Director or Consultant of the holder of a Stock Award (or substitute stock award) is terminated for any reason other than (i) death, (ii) Cause, (iii) illness, accident, or other physical or mental incapacity which prevents the holder of such award from performing his or her duties for more than one hundred and eighty (180) days during any twelve (12) month period, or (iv) Voluntary Resignation, then the vesting of such award shall be accelerated in full and, if applicable, such award shall be exercisable in full for the post-termination exercise period provided in such award's agreement. 13. Amendment of the Plan and Stock Awards. (a) The Board at any time, and from time to time, may amend the Plan. (b) The Board, in its sole discretion, may submit the Plan and/or any amendment to the Plan for stockholder approval (c) It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder. (d) Rights and obligations under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing. (e) The Board at any time, and from time to time, may amend the terms of any one or more Stock Award; provided, however, that the rights and obligations under any Stock Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing. 14. Termination or Suspension of the Plan. (a) The Board may suspend or terminate the Plan at any time. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any Stock Award granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except with the written consent of the person to whom the Stock Award was granted. 15. Effective Date of Plan. The Plan shall become effective on adoption by the Board. 12. EX-10.27 4 FORM OF NOTICE OF GRANT OF STOCK OPTIONS & GRANT AGREEMENT EXHIBIT 10.27 FORM OF NOTICE OF GRANT OF STOCK OPTIONS AND GRANT AGREEMENT This grant is in connection with and in furtherance of the Company's compensatory benefit plan for participation of the Company's employees or consultants under the 1999 Equity Incentive Plan (the "Plan"). Defined terms not explicitly defined in this Agreement but defined in the Plan shall have the same definitions as in the Plan. The details of your option are as follows: 1. Vesting. Subject to the limitations contained herein, 1/48th of the shares will vest (become exercisable) each month beginning the first day of the month following the date of grant and monthly thereafter until either (i) you cease to provide services to the Company for any reason, or (ii) this option becomes fully vested. 2. Exercise Price and Method of Payment. (a) Exercise Price. The exercise price, per share, of this option is as stated on page one (1) of this Agreement and is not less than the fair market value of the Common Stock on the date of grant of this option. (b) Method of Payment. Payment of the exercise price per share is due in full upon exercise of all or any part of each installment which has accrued to you. You may elect, to the extent permitted by applicable statutes and regulations, to make payment of the exercise price under one of the following alternatives: (i) Payment of the exercise price per share in cash (including check) at the time of exercise; or (ii) Payment pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board which, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds. 3. Whole Shares. This option may not be exercised for any number of shares which would require the issuance of anything other than whole shares. 4. Securities Law Compliance. Notwithstanding anything to the contrary contained herein, this option may not be exercised unless the shares issuable upon exercise of this option are then registered under the Securities Act or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. 2 5. Term. The term of this option commences on the date of grant, and expires ten (10) years from the date this option is granted (the "Expiration Date"), unless this option expires sooner as set forth below or in the Plan. In no event may this option be exercised on or after the Expiration Date. This option shall terminate prior to the Expiration Date as follows: three (3) months after the termination of your Continuous Service as an Employee, Director or Consultant with the Company or an Affiliate of the Company unless one of the following circumstances exists: (a) Your termination of Continuous Service as an Employee, Director or Consultant is due to your permanent and total disability (within the meaning of Section 422(c)(6) of the Code). This option will then expire on the earlier of the Expiration Date set forth above or twelve (12) months following such termination of Continuous Service as an Employee, Director or Consultant. (b) Your termination of Continuous Service as an Employee, Director or Consultant is due to your death or your death occurs within three (3) months following your termination of Continuous Service as an Employee, Director or Consultant for any other reason. This option will then expire on the earlier of the Expiration Date set forth above or twelve (12) months after your death. (c) If during any part of such three (3) month period you may not exercise your option solely because of the condition set forth in paragraph 5 above, then your option will not expire until the earlier of the Expiration Date set forth above or until this option shall have been exercisable for an aggregate period of three (3) months after your termination of Continuous Service as an Employee, Director or Consultant. (d) If your exercise of the option within three (3) months after termination of your Continuous Service as an Employee, Director or Consultant with the Company or with an Affiliate of the Company would result in liability under section 16(b) of the Securities Exchange Act of 1934, then your option will expire on the earlier of (i) the Expiration Date set forth above, (ii) the tenth (10th) day after the last date upon which exercise would result in such liability or (iii) six (6) months and ten (10) days after the termination of your Continuous Service as an Employee, Director or Consultant with the Company or an Affiliate of the Company. However, this option may be exercised following termination of Continuous Service of an Employee, Director or Consultant only as to that number of shares as to which it was exercisable on the date of termination of Continuous Service of an Employee, Director or Consultant under the provisions of paragraph 2 of this option. 6. Exercise. (a) This option may be exercised, to the extent specified above, by delivering a notice of exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require pursuant to Section 6 of the Plan. 3 (b) By exercising this option you agree that: (i) as a precondition to the completion of any exercise of this option, the Company may require you to enter an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (A) the exercise of this option; (B) the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise; or (C) the disposition of shares acquired upon such exercise; and (ii) you will notify the Company in writing within fifteen (15) days after the date of any disposition of any of the shares of the Common Stock issued upon exercise of this option that occurs within two (2) years after the date of this option grant or within one (1) year after such shares of Common Stock are transferred upon exercise of this option. 7. Transferability. This option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. 8. Agreement Not a Service Contract. This Agreement is not an employment contract and nothing in this Agreement shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company, or of the Company to continue your employment with the Company. In addition, nothing in this Agreement shall obligate the Company or any Affiliate of the Company, or their respective stockholders, Board of Directors, officers or employees to continue any relationship which you might have as a Director or Consultant for the Company or Affiliate of the Company. 9. Notices. Any notices provided for in this Agreement or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the address specified below or at such other address as you hereafter designate by written notice to the Company. 10. Governing Plan Document. This Agreement is subject to all the provisions of the Plan, a copy of which is attached hereto and its provisions are hereby made a part of this option, including without limitation the provisions of Section 6 of the Plan relating to Agreement provisions, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of this Agreement and those of the Plan, the provisions of the Plan shall control. Attachments: 1999 Equity Incentive Plan 4 EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS AUG-31-1999 SEP-01-1998 MAY-31-1999 667 4,789 11,419 607 13,003 31,149 37,138 18,803 50,003 12,887 193 0 0 27,142 9,871 50,003 38,949 38,949 25,117 25,117 0 95 269 3,767 1,337 2,430 0 0 0 2,430 0.42 0.41
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