Creative 1999 Annual Report Download - page 31

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NOTE 8 – STOCK OPTION PLANS
Employee stock option plans
In 1992, Creative adopted two Flexible Share Incentive Plans (“Old Plans”), under which a total of 16 million Ordinary Shares were reserved
for issuance. Pursuant to the registration of Creative’s Ordinary Shares on the Stock Exchange of Singapore on June 15, 1994, Creative
restricted further grants under these plans. At June 30, 1999, all options under the Old Plans were expired.
In December 1994, Creative adopted the new Creative Technology Employees’ Share Option Scheme (the “New Plan”). Options granted
under this plan were in accordance with Section 422(a) of the US Internal Revenue Code of 1986, as amended. The New Plan was
substantially more restrictive than the Old Plans. On November 13, 1996, at a special meeting (Extraordinary General Meeting), shareholders
approved certain changes to the New Plan to make it less restrictive. Under the amended New Plan, the total number of shares that could
be granted was increased to an overall maximum of 15% of the issued share capital of Creative. The amended New Plan also provided
for incentive stock options (ISO’s) to be granted to employees of Creative on a quarterly basis, at the average market price established on
the five days closing immediately prior to the date of grant. The options vested at the rate of 25% at the end of each anniversary of the
grant date and were exercisable over a period not exceeding five years from the date of grant.
On November 18, 1996, the Board of Directors offered all employees with stock options (from both the Old and New Plans), the opportunity
to cancel four existing options in exchange for a grant of three new options at an exercise price of $5.90 (or S$8.52), the fair market value
of Creative’s Ordinary Shares on the date of the offer. The resulting new options have a vesting schedule equal to that of the old options
plus one year. As of November 18, 1996, approximately 4.8 million options were eligible for exchange, of which 2.6 million options were
actually exchanged for 1.9 million new options.
As of October 6, 1998, Creative is no longer subject to the listing rules of the stock exchange of Singapore but is required only to comply
with the listing rules of NASDAQ, including rules governing stock option plans. Since many of Creative employees and shareholders are
located in the United States of America, Creative has obtained shareholders’ approval on December 30, 1998 to replace the New Plan with
the Creative Technology (1999) Share Option Scheme (“1999 Scheme”), which is more in accordance with US practice. The 1999 Scheme
allows options to be granted to full-time employees as well as consultants and non-executive directors. The total number of shares that
may be granted as options is 7.5 million provided that such amount shall be automatically increased on the first day (July 1) of each of
the five financial years ending June 30, 2001, 2002, 2003, 2004 and 2005 by three percent of the issued share capital of Creative as at the
last day of the immediate preceding financial year. The exercise price of options granted under the 1999 Scheme may be less than the fair
market value of the shares as of the date of grant and the options expire after the tenth anniversary of the date of grant.
In fiscal 1999, Creative granted 2.9 million options at weighted average exercise price of $10.10 which is below fair market value, resulting
in a deferred compensation charge of $5.1 million which is being amortized to expense over the vesting period of the underlying options.
Amortization of deferred compensation expense for fiscal 1999 was not material.
Notes to Consolidated Financial Statements