<PAGE>
As filed with the Securities and Exchange Commission on June 6, 1997
Registration No. 333-___________
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
PSW TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2796054
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
6300 BRIDGEPOINT PARKWAY, BUILDING 3, SUITE 200
AUSTIN, TEXAS 78730
(Address of principal executive offices) (Zip Code)
----------------------
PSW Technologies, Inc.
1996 STOCK OPTION/STOCK ISSUANCE PLAN
EMPLOYEE STOCK PURCHASE PLAN
(Full title of the Plans)
----------------------
DR. W. FRANK KING
CHIEF EXECUTIVE OFFICER
6300 BRIDGEPOINT PARKWAY, BUILDING 3, SUITE 200
AUSTIN, TEXAS 78730
(Name and address of agent for service)
(512) 343-6666
(Telephone number, including area code, of agent for service)
----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Offering Registration
Registered Registered(1) per Share(2) Price(2) Fee
---------- ------------- ------------ ----- ---
<S> <C> <C> <C> <C>
1996 STOCK OPTION/STOCK ISSUANCE PLAN:
Options to purchase
Common Stock 1,715,000 N/A N/A N/A
Common Stock 1,715,000 shares 9.00 15,435,000 4,677.27
$ 0.01 par value
EMPLOYEE STOCK PURCHASE PLAN:
Common Stock, $0.01 par value 400,000 shares 9.00 3,600,000 1,090.90
Aggregate filing fee $5,769
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
(1) This Registration Statement shall also cover any additional shares of
Common Stock which become issuable under the PSW Technologies, Inc. 1996
Stock Option/Stock Issuance Plan and Employee Stock Purchase Plan, by
reason of any stock dividend, stock split, recapitalization or other
similar transaction effected without the receipt of consideration which
results in an increase in the number of the outstanding shares of Common
Stock of PSW Technologies, Inc.
(2) Calculated solely for purposes of this offering under Rule 457(h) of the
Securities Act of 1933, as amended, on the basis of the initial public
offering price per share of Common Stock of PSW Technologies, Inc.
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. INCORPORATION OF DOCUMENTS BY REFERENCE
PSW Technologies, Inc. (the "Registrant") hereby incorporates by reference
into this Registration Statement the following documents previously filed with
the Securities and Exchange Commission ("SEC"):
(a) The Registrant's Prospectus filed with the SEC pursuant to Rule 424(b)
of the Securities Act of 1933, as amended (the "1933 Act"), in
connection with Registration Statement No. 333-21565, filed with the
SEC on February 11, 1997, and the amendments thereto, in which there
is set forth audited financial statements for the Registrant's fiscal
year ended December 31, 1994, 1995 and 1996;
(b) The Registrant's Registration Statement No. 00-22327 on Form 8-A filed
with the SEC on May 29, 1997, pursuant to Section 12(g) of the
Securities Exchange Act of 1934 (the "1934 Act"), in which there is
described the terms, rights and provisions applicable to the
Registrant's outstanding Common Stock.
All reports and definitive proxy or information statements filed pursuant
to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act after the date of this
Registration Statement and prior to the filing of a post-effective amendment
which indicates that all securities offered hereby have been sold or which
deregisters all securities then remaining unsold shall be deemed to be
incorporated by reference into this Registration Statement and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Registration Statement
to the extent that a statement contained herein or in any subsequently filed
document which also is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Registration Statement.
Item 4. DESCRIPTION OF SECURITIES
Not Applicable.
Item 5. INTERESTS OF NAMED EXPERTS AND COUNSEL
Not Applicable.
Item 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation provides that, except to the
extent prohibited by the Delaware General Corporation Law ("DGCL"), its
directors shall not be personally liable to the Company or its stockholders
for monetary damages for any breach of fiduciary duty as directors of the
Company. Under Delaware law, the directors have a fiduciary duty to the
Company that is not eliminated by this provision of the Certificate of
Incorporation and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of non-monetary relief will remain available. In
addition, each director will continue to be subject to liability under
Delaware law for breach of the director's duty of loyalty to the Company, for
acts or omissions which are found by a court of competent jurisdiction to be
not in good faith or involving intentional misconduct, for knowing violations
of law, for actions leading to improper personal benefit to the director, and
for payment of dividends or approval of stock repurchases or redemptions that
are prohibited by Delaware law. This provision also does not affect the
directors' responsibilities under any other laws, such as the Federal
securities laws or state or Federal environmental laws. If commercially
feasible, the Company intends to obtain liability insurance for its officers
and directors.
<PAGE>
The Certificate of Incorporation also provides that the Company shall
indemnify, to the fullest extent permitted by Section 145 of the DGCL, all of
its present and former officers and directors, and any party agreeing to serve
as an officer, director or trustee of any entity at the Company's request, in
connection with any civil or criminal proceeding threatened or instituted
against such party by reason of actions or omissions while serving in such
capacity. Indemnification by the Company includes payment of expenses in
defense of the indemnified party in advance of any proceeding or final
disposition thereof. The rights to indemnification provided in this provision
do not preclude the exercise of any other indemnification rights by any party
pursuant to any law, agreement or vote of the stockholders or the disinterested
directors of the Company.
Section 145 of the DGCL generally allows the Company to indemnify the
parties described in the preceding paragraph for all expenses, judgments, fines
and amounts in settlement actually paid and reasonably incurred in connection
with any proceedings so long as such party acted in good faith and in a manner
reasonably believed to be in or not opposed to the Company's best interests and,
with respect to any criminal proceedings, if such party had no reasonable cause
to believe his or her conduct to be unlawful. Indemnification may only be made
by the Company if the applicable standard of conduct set forth in Section 145
has been met by the indemnified party upon a determination made (i) by the Board
of Directors by a majority vote of the directors who are not parties to such
proceedings (even though less than a quorum), or (ii) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (iii) by the stockholders.
Item 7. EXEMPTION FROM REGISTRATION CLAIMED
Not Applicable.
Item 8. EXHIBITS
Exhibit
Number Exhibit
- ------- -------
4 Instruments Defining the Rights of Stockholders. Reference is made to
the Registrant's Registration No.00-22327 on Form 8-A which is
incorporated herein by reference pursuant to Item 3(b) to this
Registration Statement.
5 Opinion and Consent of Brobeck, Phleger & Harrison LLP.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Margolin, Winer & Evens LLP, Independent Accountants.
23.3 Consent of Brobeck, Phleger & Harrison LLP is contained in Exhibit 5.
24 Power of Attorney. Reference is made to page II-4 of this
Registration Statement.
99.1 1996 Stock Option/Stock Issuance Plan.
99.2 Notice of Grant.
99.3 Stock Option Agreement.
99.4 Addendum to Stock Option Agreement re: Involuntary Termination
Following Corporate Transaction/Change in Control.
99.5 Addendum to Stock Option Agreement (Limited Stock Appreciation
Rights).
99.6 Employee Stock Purchase Plan.
99.7 Stock Purchase Agreement.
99.8 Enrollment/Change Form.
II-2
<PAGE>
Item 9. UNDERTAKINGS
A. The undersigned Registrant hereby undertakes: (1) to file, during any
period in which offers or sales are being made, a post-effective amendment to
this Registration Statement (i) to include any prospectus required by
Section 10(a)(3) of the 1933 Act to reflect in the prospectus any facts or
events arising after the effective date of this Registration Statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in this
Registration Statement and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in this
Registration Statement or any material change to such information in this
Registration Statement; PROVIDED, however, that clauses (1)(i) and (1)(ii) shall
not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the 1934 Act that are
incorporated by reference into this Registration Statement; (2) that for the
purpose of determining any liability under the 1933 Act each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof and (3) to remove
from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the Registrant's 1996
Stock Option/Stock Issuance Plan and/or Employee Stock Purchase Plan.
B. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the 1933 Act, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the 1934 Act that is
incorporated by reference into this Registration Statement shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
C. Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers or controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that, in the opinion of the SEC, such indemnification is against public
policy as expressed in the 1933 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 1933 Act
and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-8, and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in City of Austin, State of Texas, on this 6th day
of June, 1997.
PSW TECHNOLOGIES, INC.
By: /s/ W. Frank King
------------------------------------------
Dr. W. Frank King
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned officers and directors of PSW Technologies, Inc.,
a Delaware corporation, do hereby constitute and appoint Dr. W. Frank King and
Jonathan D. Wallace, the lawful attorneys-in-fact and agents with full power and
authority to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, determine may be necessary or
advisable or required to enable said corporation to comply with the Securities
Act of 1933, as amended, and any rules or regulations or requirements of the
Securities and Exchange Commission in connection with this Registration
Statement. Without limiting the generality of the foregoing power and
authority, the powers granted include the power and authority to sign the names
of the undersigned officers and directors in the capacities indicated below to
this Registration Statement, to any and all amendments, both pre-effective and
post-effective, and supplements to this Registration Statement, and to any and
all instruments or documents filed as part of or in conjunction with this
Registration Statement or amendments or supplements thereof, and each of the
undersigned hereby ratifies and confirms that said attorneys and agents, shall
do or cause to be done by virtue hereof. This Power of Attorney may be signed
in several counterparts.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ W. Frank King President and Chief Executive Officer June 6, 1997
- ------------------------- (Principal Executive Officer)
Dr. W. Frank King
Patrick D. Motola Senior Vice President, Chief Financial June 6, 1997
- ------------------------- Officer and Secretary
Patrick D. Motola (Principal Financial Officer)
Keith D. Thatcher Vice President of Finance and Treasurer June 6, 1997
- ------------------------- (Principal Accounting Officer)
Keith D. Thatcher
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Wade E. Saadi Chairman of the Board of Directors June 6, 1997
- -------------------------
Wade E. Saadi
/s/ Edward C. Ateyeh, Jr. Director June 6, 1997
- -------------------------
Edward C. Ateyeh, Jr.
/s/ Jonathan D. Wallace Director June 6, 1997
- -------------------------
Jonathan D. Wallace, Esq.
/s/ Kevin B. Kurtzman Director June 6, 1997
- -------------------------
Kevin B. Kurtzman
/s/ Michael J. Maples Director June 6, 1997
- -------------------------
Michael J. Maples
/s/ Thomas A. Herring Director June 6, 1997
- -----------------------
Thomas A. Herring
</TABLE>
II-5
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
EXHIBITS
TO
FORM S-8
UNDER
SECURITIES ACT OF 1933
PSW TECHNOLOGIES, INC.
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit
- ------- -------
4 Instruments Defining the Rights of Stockholders. Reference is made to
the Registrant's Registration No.00-22327 on Form 8-A which is
incorporated herein by reference pursuant to Item 3(b) to this
Registration Statement.
5 Opinion and Consent of Brobeck, Phleger & Harrison LLP.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Margolin, Winer & Evens LLP, Independent Accountants.
23.3 Consent of Brobeck, Phleger & Harrison LLP is contained in Exhibit 5.
24 Power of Attorney. Reference is made to page II-4 of this
Registration Statement.
99.1 1996 Stock Option/Stock Issuance Plan.
99.2 Notice of Grant.
99.3 Stock Option Agreement.
99.4 Addendum to Stock Option Agreement re: Involuntary Termination
Following Corporate Transaction/Change in Control.
99.5 Addendum to Stock Option Agreement (Limited Stock Appreciation
Rights).
99.6 Employee Stock Purchase Plan.
99.7 Stock Purchase Agreement.
99.8 Enrollment/Change Form.
<PAGE>
EXHIBIT 5
Opinion and Consent of Brobeck, Phleger & Harrison LLP
June 6, 1997
PSW Technologies, Inc.
6300 Bridgepoint Parkway, Building 3
Suite 200
Austin, TX 78730
Re: PSW TECHNOLOGIES, INC. (THE "COMPANY")
REGISTRATION STATEMENT FOR AN AGGREGATE OF 2,115,000 SHARES OF
COMMON STOCK
Ladies and Gentlemen:
We refer to your registration on Form S-8 (the "Registration Statement")
under the Securities Act of 1933, as amended, of (i) 1,715,000 shares of
Common Stock available for issuance under the Company's 1996 Stock
Option/Stock Issuance Plan and (ii) 400,000 shares of Common Stock under the
Company's Employee Stock Purchase Plan. We advise you that, in our opinion,
when such shares have been issued and sold pursuant to the applicable
provisions of the Company's 1996 Stock Option/Stock Issuance Plan and
Employee Stock Purchase Plan and in accordance with the Registration
Statement, such shares will be validly issued, fully paid and nonassessable
shares of the Company's Common Stock.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Brobeck, Phleger & Harrison LLP
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8) pertaining to the 1996 Stock Option/Stock Issuance Plan and
Employee Stock Purchase Plan of PSW Technologies, Inc. of our report dated
February 3, 1997 (except for paragraph 2 of Note 3, as to which the date is
May 12, 1997), with respect to the financial statements of PSW Technologies,
Inc. for the years ended December 31, 1995 and 1996 included in the
Registration Statement (Form S-1 No. 333-21565) of PSW Technologies, Inc.,
filed with the Securities and Exchange Commission.
We also consent to the incorporation by reference therein of our report dated
February 3, 1997 with respect to the financial statement schedule of PSW
Technologies, Inc. for the years ended December 31, 1995 and 1996 included in
the Registration Statement (Form S-1 No. 333-21565) of PSW Technologies,
Inc., filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
June 3, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement of PSW Technologies, Inc. on Form S-8 of our report dated May 31,
1995, relating to the financial statements of PSW Technologies, Inc. for the
year ended December 31, 1994 and to the reference to our firm under the
caption "Experts" appearing in the Registration Statement on Form S-1 (File
No. 333-21565) of PSW Technologies, Inc. filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended.
/s/ Margolin, Winer & Evens LLP
Margolin, Winer & Evens LLP
Garden City, New York
June 4, 1997
<PAGE>
PSW TECHNOLOGIES, INC.
1996 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1996 Stock Option/Stock Issuance Plan is intended to promote
the interests of PSW Technologies, Inc., a Delaware corporation, by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into four separate equity programs:
(i) the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock,
(ii) the Stock Issuance Program under which eligible
persons may, at the discretion of the Plan Administrator, be issued
shares of Common Stock directly, either through the immediate purchase
of such shares or as a bonus for services rendered the Corporation (or
any Parent or Subsidiary),
(iii) the Automatic Option Grant Program under which
Eligible Directors shall automatically receive option grants at
periodic intervals to purchase shares of Common Stock, and
(iv) the Director Fee Option Grant Program under which
non-employee Board members may elect to have all or any portion of their
annual retainer fee otherwise payable in cash applied to a special option
grant.
<PAGE>
B. The provisions of Articles One and Six shall apply to all
equity programs under the Plan and shall accordingly govern the interests of
all persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. Prior to the Section 12(g) Registration Date, the Discretionary
Option Grant and Stock Issuance Programs shall be administered by the Board.
B. Beginning with the Section 12(g) Registration Date, the Primary
Committee shall have sole and exclusive authority to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to
Section 16 Insiders. Administration of the Discretionary Option Grant and
Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in
the Primary Committee or a Secondary Committee, or the Board may retain the
power to administer those programs with respect to all such persons.
C. Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and may be
removed by the Board at any time. The Board may also at any time terminate
the functions of any Secondary Committee and reassume all powers and
authority previously delegated to such committee.
D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority to
establish such rules and regulations as it may deem appropriate for proper
administration of the Discretionary Option Grant and Stock Issuance Programs
and to make such determinations under, and issue such interpretations of, the
provisions of such programs and any outstanding options or stock issuances
thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator within the scope of its administrative functions under the Plan
shall be final and binding on all parties who have an interest in the
Discretionary Option Grant or Stock Issuance Program under its jurisdiction
or any option or stock issuance thereunder.
E. Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such
committee shall accordingly be entitled to full indemnification and
reimbursement as Board members for their service on such committee. No
member of the Primary Committee or the Secondary Committee shall be liable
for any act or omission made in good faith with respect to the Plan or any
option grants or stock issuances under the Plan.
F. Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
those programs, and no Plan Administrator shall exercise any discretionary
functions with respect to option grants made under those programs.
2.
<PAGE>
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who
provide services to the Corporation (or any Parent or Subsidiary).
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority (subject to
the provisions of the Plan) to determine, (i) with respect to the option
grants under the Discretionary Option Grant Program, which eligible persons
are to receive option grants, the time or times when such option grants are
to be made, the number of shares to be covered by each such grant, the status
of the granted option as either an Incentive Option or a Non-Statutory
Option, the time or times at which each option is to become exercisable, the
vesting schedule (if any) applicable to the option shares and the maximum
term for which the option is to remain outstanding and (ii) with respect to
stock issuances under the Stock Issuance Program, which eligible persons are
to receive stock issuances, the time or times when such issuances are to be
made, the number of shares to be issued to each Participant, the vesting
schedule (if any) applicable to the issued shares and the consideration to be
paid for such shares.
C. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
D. The individuals eligible to participate in the Automatic Option
Grant Program shall be limited to (i) those individuals who are serving as
non-employee Board members on the Underwriting Date, (ii) those individuals
who first become non-employee Board members on or after the Underwriting
Date, whether through appointment by the Board or election by the
Corporation's stockholders, and (iii) those individuals who are to continue
to serve as non-employee Board members after one or more Annual Stockholders
Meetings held after the Underwriting Date. A non-employee Board member who
has previously been in the employ of the Corporation (or any Parent or
Subsidiary) shall not be eligible to receive an initial option grant under
the Automatic Option Grant Program on the Underwriting Date or (if later) at
the time he or she first becomes a non-employee Board member, but such
individual shall be eligible to receive periodic option grants under the
Automatic Option Grant Program upon his or her continued service as a
non-employee Board member after one or more Annual Stockholders Meetings.
3.
<PAGE>
E. All non-employee Board members shall be eligible to participate
in the Director Fee Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed 1,715,000
shares. This maximum share reserve reflects the 11,250 for 1 stock split
expected to be effected by the Corporation prior to December 31, 1996.
B. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances
for more than 750,000 shares of Common Stock per calendar year beginning with
the 1997 calendar year. This limit reflects the 11,250 for 1 stock split
expected to be effected by the Corporation prior to December 31, 1996.
C. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the
options expire or terminate for any reason prior to exercise in full or (ii)
the options are cancelled in accordance with the cancellation-regrant
provisions of Article Two. Unvested shares issued under the Plan and
subsequently repurchased by the Corporation at the original issue price paid
per share pursuant to the Corporation's repurchase rights under the Plan
shall be added back to the number of shares of Common Stock reserved for
issuance under the Plan and shall accordingly be available for reissuance
through one or more subsequent option grants or direct stock issuances under
the Plan. However, should the exercise price of an option under the Plan be
paid with shares of Common Stock or should shares of Common Stock otherwise
issuable under the Plan be withheld by the Corporation in satisfaction of the
withholding taxes incurred in connection with the exercise of an option or
the vesting of a stock issuance under the Plan, then the number of shares of
Common Stock available for issuance under the Plan shall be reduced by the
gross number of shares for which the option is exercised or which vest under
the stock issuance, and not by the net number of shares of Common Stock
issued to the holder of such option or stock issuance.
D. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as
a class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the number and/or class of
securities for which any one person may be granted options, separately
exercisable stock appreciation rights and direct stock issuances per calendar
year, (iii) the number and/or class of securities for which automatic option
grants are to be made subsequently per Eligible Director under the Automatic
Option Grant Program and (iv) the number and/or class of
4.
<PAGE>
securities and the exercise price per share in effect under each outstanding
option in order to prevent the dilution or enlargement of benefits
thereunder. The adjustments determined by the Plan Administrator shall be
final, binding and conclusive.
5.
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; PROVIDED, however, that each such
document shall comply with the terms specified below. Each document
evidencing an Incentive Option shall, in addition, be subject to the
provisions of the Plan applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall not be less than one
hundred percent (100%) of the Fair Market Value per share of Common Stock on
the option grant date unless otherwise determined by the Plan Administrator.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Six and the documents evidencing the option, be payable in cash or
check made payable to the Corporation. Should the Common Stock be registered
under Section 12(g) of the 1934 Act at the time the option is exercised, then
the exercise price may also be paid as follows:
(i) in shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
(ii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable written
instructions to (a) a Corporation-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate exercise price payable
for the purchased shares plus all applicable Federal, state and local
income and employment taxes required to be withheld by the Corporation
by reason of such exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
6.
<PAGE>
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
at such time or times, during such period and for such number of shares as
shall be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the
Optionee's cessation of Service for any reason shall remain
exercisable for such period of time thereafter as shall be determined
by the Plan Administrator and set forth in the documents evidencing
the option, but no such option shall be exercisable after the
expiration of the option term. If such period is not specified in the
documents evidencing the option, then the option shall remain
exercisable for a period of ninety (90) days following the Optionee's
cessation of Service.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be exercised subsequently by the
personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution.
(iii) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more than
the number of vested shares for which the option is exercisable on the
date of the Optionee's cessation of Service. Upon the expiration of
the applicable exercise period or (if earlier) upon the expiration of
the option term, the option shall terminate and cease to be
outstanding for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the Optionee's
cessation of Service, terminate and cease to be outstanding to the
extent the option is not otherwise at that time exercisable for vested
shares.
(iv) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
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(i) extend the period of time for which the option is
to remain exercisable following the Optionee's cessation of Service
from the period otherwise in effect for that option to such greater
period of time as the Plan Administrator shall deem appropriate, but
in no event beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but
also with respect to one or more additional installments in which the
Optionee would have vested under the option had the Optionee continued
in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until
such person shall have exercised the option, paid the exercise price and
become a holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of
Common Stock. Should the Optionee cease Service while holding such unvested
shares, the Corporation shall have the right to repurchase, at the exercise
price paid per share, any or all of those unvested shares. The terms upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right.
F. FIRST REFUSAL RIGHTS. Until such time as the Common Stock is
first registered under Section 12(g) of the 1934 Act, the Corporation shall
have the right of first refusal with respect to any proposed disposition by
the Optionee (or any successor in interest) of any shares of Common Stock
issued under the Plan. Such right of first refusal shall be exercisable in
accordance with the terms established by the Plan Administrator set forth in
the document evidencing such right.
G. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and
shall not be assignable or transferable other than by will or by the laws of
descent and distribution following the Optionee's death. However, a
Non-Statutory Option may, in connection with the Optionee's estate plan, be
assigned in whole or in part during the Optionee's lifetime to one or more
members of the Optionee's immediate family or to a trust established
exclusively for the benefit of one or more such family members. The assigned
portion may only be exercised by the person or persons who acquire a
proprietary interest in the option pursuant to the assignment. The terms
applicable to the assigned portion shall be the same as those in effect for
the option immediately prior to such assignment and shall be set forth in
such documents issued to the assignee as the Plan Administrator may deem
appropriate.
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H. MARKET LOCK-UP. In connection with any underwritten public
offering by the Corporation of its equity securities pursuant to an effective
registration statement filed under the Securities Act of 1933, including the
Corporation's initial public offering, the Optionee may not sell, make any
short sale of, loan, hypothecate, pledge, grant any option for the purchase
of, or otherwise dispose or transfer for value or otherwise agree to engage
in any of the foregoing transactions with respect to, any shares of Common
Stock acquired upon exercise of an option granted under the Plan without the
prior written consent of the Corporation or its underwriters. Such
restriction (the "Market Stand-Off") shall be in effect for such period of
time from and after the effective date of the final prospectus for the
offering as may be requested by the Corporation or such underwriters. The
Optionee shall be required to execute such agreements as the Corporation or
the underwriters request in connection with the Market Stand-Off.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Five shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall NOT be subject to the terms of this Section
II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of
grant) for which one or more options granted to any Employee under the Plan
(or any other option plan of the Corporation or any Parent or Subsidiary) may
for the first time become exercisable as Incentive Options during any one (1)
calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds two (2) or more such options
which become exercisable for the first time in the same calendar year, the
foregoing limitation on the exercisability of such options as Incentive
Options shall be applied on the basis of the order in which such options are
granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option
is granted is a 10% Stockholder, then the exercise price per share shall not
be less than one hundred ten percent (110%) of the Fair Market Value per
share of Common Stock on the option grant date, and the option term shall not
exceed five (5) years measured from the option grant date.
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III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject
to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. However, an outstanding option shall
NOT so accelerate if and to the extent: (i) such option is, in connection
with the Corporate Transaction, either to be assumed by the successor
corporation (or parent thereof) or to be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation (or parent
thereof), (ii) such option is to be replaced with a cash incentive program of
the successor corporation which preserves the spread existing on the unvested
option shares at the time of the Corporate Transaction and provides for
subsequent payout in accordance with the same vesting schedule applicable to
such option or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option
grant. The determination of option comparability under clause (i) above
shall be made by the Plan Administrator, and its determination shall be
final, binding and conclusive.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated
rights shall immediately vest in full, in the event of any Corporate
Transaction, except to the extent: (i) those repurchase rights are to be
assigned to the successor corporation (or parent thereof) in connection with
such Corporate Transaction or (ii) such accelerated vesting is precluded by
other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.
C. Notwithstanding Section III.A. and Section III.B. of this
Article Two, the Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option
remains outstanding, to provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Corporate Transaction,
whether or not those options are to be assumed or replaced (or those
repurchase rights are to be assigned) in the Corporate Transaction. The Plan
Administrator shall also have the discretion to grant options which do not
accelerate whether or not such options are assumed (and to provide for
repurchase rights that do not terminate whether or not such rights are
assigned) in connection with a Corporate Transaction.
D. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction,
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to apply to the number and class of securities which would have been issuable
to the Optionee in consummation of such Corporate Transaction had the option
been exercised immediately prior to such Corporate Transaction. Appropriate
adjustments shall also be made to (i) the number and class of securities
available for issuance under the Plan following the consummation of such
Corporate Transaction, (ii) the exercise price payable per share under each
outstanding option, PROVIDED the aggregate exercise price payable for such
securities shall remain the same and (iii) the maximum number of securities
and/or class of securities for which any one person may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances under the Plan.
F. The Plan Administrator shall have the discretion, exercisable
at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of any options which
are assumed or replaced in a Corporate Transaction and do not otherwise
accelerate at that time (and the termination of any of the Corporation's
outstanding repurchase rights which do not otherwise terminate at the time of
the Corporate Transaction) in the event the Optionee's Service should
subsequently terminate by reason of an Involuntary Termination within
eighteen (18) months following the effective date of such Corporate
Transaction. Any options so accelerated shall remain exercisable for
fully-vested shares until the EARLIER of (i) the expiration of the option
term or (ii) the expiration of the one (1)-year period measured from the
effective date of the Involuntary Termination.
G. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option
remains outstanding, to (i) provide for the automatic acceleration of one or
more outstanding options (and the automatic termination of one or more
outstanding repurchase rights with the immediate vesting of the shares of
Common Stock subject to those rights) upon the occurrence of a Change in
Control or (ii) condition any such option acceleration (and the termination
of any outstanding repurchase rights) upon the subsequent Involuntary
Termination of the Optionee's Service within a specified period (not to
exceed eighteen (18) months) following the effective date of such Change in
Control. Any options accelerated in connection with a Change in Control
shall remain fully exercisable until the expiration or sooner termination of
the option term.
H. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as
an Incentive Option only to the extent the applicable One Hundred Thousand
Dollar ($100,000) limitation is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated portion of such option shall be
exercisable as a Non-Statutory Option under the Federal tax laws.
I. The grant of options under the Discretionary Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure
or to merge, consolidate, dissolve, liquidate or sell or transfer all or any
part of its business or assets.
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IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders,
the cancellation of any or all outstanding options under the Discretionary
Option Grant Program and to grant in substitution new options covering the
same or different number of shares of Common Stock but with an exercise price
per share based on the Fair Market Value per share of Common Stock on the new
grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of
tandem stock appreciation rights:
(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish,
to elect between the exercise of the underlying option for shares of
Common Stock and the surrender of that option in exchange for a
distribution from the Corporation in an amount equal to the excess of
(a) the Fair Market Value (on the option surrender date) of the number
of shares in which the Optionee is at the time vested under the
surrendered option (or surrendered portion thereof) over (b) the
aggregate exercise price payable for such shares.
(ii) No such option surrender shall be effective unless
it is approved by the Plan Administrator. If the surrender is so
approved, then the distribution to which the Optionee shall be
entitled may be made in shares of Common Stock valued at Fair Market
Value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator shall in its sole discretion
deem appropriate.
(iii) If the surrender of an option is rejected by the
Plan Administrator, then the Optionee shall retain whatever rights the
Optionee had under the surrendered option (or surrendered portion
thereof) on the option surrender date and may exercise such rights at
any time prior to the LATER of (a) five (5) business days after the
receipt of the rejection notice or (b) the last day on which the
option is otherwise exercisable in accordance with the terms of the
documents evidencing such option, but in no event may such rights be
exercised more than ten (10) years after the option grant date.
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C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted
limited stock appreciation rights with respect to their outstanding
options.
(ii) Upon the occurrence of a Hostile Take-Over, each
such individual holding one or more options with such a limited stock
appreciation right shall have the unconditional right (exercisable for
a thirty (30)-day period following such Hostile Take-Over) to
surrender each such option to the Corporation, to the extent the
option is at the time exercisable for vested shares of Common Stock.
In return for the surrendered option, the Optionee shall receive a
cash distribution from the Corporation in an amount equal to the
excess of (a) the Take-Over Price of the shares of Common Stock which
are at the time vested under each surrendered option (or surrendered
portion thereof) over (b) the aggregate exercise price payable for
such shares. Such cash distribution shall be paid within five (5)
days following the option surrender date.
(iii) Neither the approval of the Plan Administrator
nor the consent of the Board shall be required in connection with such
option surrender and cash distribution.
(iv) The balance of the option (if any) shall
continue in full force and effect in accordance with the documents
evidencing such option.
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ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share shall not be less than one
hundred percent (100%) of the Fair Market Value per share of Common Stock on
the issuance date unless otherwise determined by the Plan Administrator.
2. Subject to the provisions of Section I of Article Six,
shares of Common Stock may be issued under the Stock Issuance Program for any
of the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation,
or
(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified
performance objectives.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which
the Participant may have the right to receive with respect to the
Participant's unvested shares of Common Stock by reason of any stock
dividend, stock split, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration shall be issued subject to
(i) the same vesting
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requirements applicable to the Participant's unvested shares of Common Stock
and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the
Stock Issuance Program, whether or not the Participant's interest in those
shares is vested. Accordingly, the Participant shall have the right to vote
such shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those
shares shall be immediately surrendered to the Corporation for cancellation,
and the Participant shall have no further stockholder rights with respect to
those shares. To the extent the surrendered shares were previously issued to
the Participant for consideration paid in cash or cash equivalent (including
the Participant's purchase-money indebtedness), the Corporation shall repay
to the Participant the cash consideration paid for the surrendered shares and
shall cancel the unpaid principal balance of any outstanding purchase-money
note of the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the
cessation of the Participant's Service or the non-attainment of the
performance objectives applicable to those shares. Such waiver shall result
in the immediate vesting of the Participant's interest in the shares of
Common Stock as to which the waiver applies. Such waiver may be effected at
any time, whether before or after the Participant's cessation of Service or
the attainment or non-attainment of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under
the Stock Issuance Program shall terminate automatically, and all the shares
of Common Stock subject to those terminated rights shall immediately vest in
full, in the event of any Corporate Transaction, except to the extent (i)
those repurchase rights are assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such
accelerated vesting is precluded by other limitations imposed in the Stock
Issuance Agreement.
B. Notwithstanding Section II.A. of this Article Three, the Plan
Administrator shall have the discretionary authority, exercisable either at
the time the unvested shares are issued or any time while the Corporation's
repurchase rights remain outstanding under the Stock Issuance Program, to
provide that those rights shall
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automatically terminate in whole or in part, and the shares of Common Stock
subject to those terminated rights shall immediately vest, in the event of a
Corporate Transaction, whether or not those repurchase rights are to be
assigned to the successor corporation (or its parent) in connection with such
Corporate Transaction. The Plan Administrator shall also have the discretion
to provide for repurchase rights with terms different from those in effect
under this Section II in connection with a Corporate Transaction.
C. The Plan Administrator shall have the discretion, exercisable
either at the time the unvested shares are issued or at any time while the
Corporation's repurchase rights remain outstanding, to provide that any
repurchase rights that are assigned in the Corporate Transaction shall
automatically terminate, and the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event the
Participant's Service should subsequently terminate by reason of an
Involuntary Termination within eighteen (18) months following the effective
date of such Corporate Transaction.
D. The Plan Administrator shall have the discretion, exercisable
either at the time the unvested shares are issued or at any time while the
Corporation's repurchase right remains outstanding, to (i) provide for the
automatic termination of one or more outstanding repurchase rights and the
immediate vesting of the shares of Common Stock subject to those rights upon
the occurrence of a Change in Control or (ii) condition any such accelerated
vesting upon the subsequent Involuntary Termination of the Participant's
Service within a specified period (not to exceed eighteen (18) months)
following the effective date of such Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
IV. MARKET LOCK-UP
In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the Securities Act of 1933, including the Corporation's
initial public offering, the Optionee may not sell, make any short sale of,
loan, hypothecate, pledge, grant any option for the purchase of, or otherwise
dispose or transfer for value or otherwise agree to engage in any of the
foregoing transactions with respect to, any shares of Common Stock acquired
under the Plan without the prior written consent of the Corporation or its
underwriters. Such restriction (the "Market Stand-Off") shall be in effect
for such period of time from and after the effective date of the final
prospectus for the offering as may be requested by the Corporation or such
underwriters. The Optionee shall be required to execute such agreements as
the Corporation or the underwriters request in connection with the Market
Stand-Off.
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ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the dates specified
below:
1. Each individual serving as a non-employee Board member on
the Underwriting Date shall automatically be granted at that time a
Non-Statutory Option to purchase 16,250*/ shares of Common Stock, provided
that individual has not previously been in the prior employ of the
Corporation or any Parent or Subsidiary.
2. Each individual who is first elected or appointed as a
non-employee Board member on or after the Underwriting Date shall
automatically be granted, on the date of such initial election or
appointment, a Non-Statutory Option to purchase 16,250*/ shares of Common
Stock, provided such individual has not previously been in the employ of the
corporation (or any Parent or Subsidiary).
3. On the date of each Annual Stockholders Meeting held after
the Underwriting Date, each individual who is to continue to serve as an
Eligible Director, shall automatically be granted a Non-Statutory Option to
purchase an additional 6,500*/ shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 6,500*/-share option
grants any one Eligible Director may receive over his or her period of Board
service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder
is utilized, payment of the exercise price for the purchased shares must be
made on the Exercise Date.
________________________
*/ The share numbers have been adjusted to reflect the 11,250 for 1 stock
split expected to be effected by the Corporation prior to December 31, 1996.
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C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be
immediately exercisable for any or all of the option shares. However, any
shares purchased under the option shall be subject to repurchase by the
Corporation, at the exercise price paid per share, upon the Optionee's
cessation of Board service prior to vesting in those shares. Each initial
grant shall vest, and the Corporation's repurchase right shall lapse, in a
series of four (4) successive equal annual installments over the Optionee's
period of continued service as a Board member, with the first such
installment to vest upon the Optionee's completion of one (1) year of Board
service measured from the option grant date. Each annual grant shall vest,
and the Corporation's repurchase right shall lapse, upon the Optionee's
completion of one (1) year of Board service measured from the option grant
date.
E. EFFECT OF TERMINATION OF BOARD SERVICE. The following
provisions shall govern the exercise of any options held by the Optionee at
the time the Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution) shall
have a twelve (12)-month period following the date of such cessation
of Board service in which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the
option may not be exercised in the aggregate for more than the number
of vested shares of Common Stock for which the option is exercisable
at the time of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board
member by reason of death or Permanent Disability, then all shares at
the time subject to the option shall immediately vest so that such
option may, during the twelve (12)-month exercise period following
such cessation of Board service, be exercised for all or any portion
of those shares as fully-vested shares of Common Stock.
(iv) In no event shall the option remain exercisable after
the expiration of the option term. Upon the expiration of the twelve
(12)-month exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding
for any vested shares for which the option has not been exercised.
However, the option shall, immediately upon the Optionee's cessation
of Board service for any reason
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other than death or Permanent Disability, terminate and cease to be
outstanding to the extent the option is not otherwise at that time
exercisable for vested shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Immediately following the consummation
of the Corporate Transaction, each automatic option grant shall terminate and
cease to be outstanding, except to the extent assumed by the successor
corporation (or parent thereof).
B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Each such option shall remain
exercisable for such fully-vested option shares until the expiration or
sooner termination of the option term or the surrender of the option in
connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
of his or her outstanding automatic option grants. The Optionee shall in
return be entitled to a cash distribution from the Corporation in an amount
equal to the excess of (i) the Take-Over Price of the shares of Common Stock
at the time subject to each surrendered option (whether or not the Optionee
is otherwise at the time vested in those shares) over (ii) the aggregate
exercise price payable for such shares. Such cash distribution shall be paid
within five (5) days following the surrender of the option to the
Corporation. No approval or consent of the Board or any Plan Administrator
shall be required in connection with such option surrender and cash
distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction
had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the exercise price
payable per share under each outstanding option, provided the aggregate
exercise price payable for such securities shall remain the same.
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E. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option
grants made under the Discretionary Option Grant Program.
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ARTICLE FIVE
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
Each non-employee Board member may elect to apply all or any portion
of the annual retainer fee otherwise payable in cash for his or her service
on the Board to the acquisition of a special option grant under this Director
Fee Option Grant Program. Such election must be filed with the Corporation's
Chief Financial Officer prior to the first day of the calendar year for which
the annual retainer fee which is the subject of that election is otherwise
payable. Each non-employee Board member who files such a timely election
shall automatically be granted an option under this Director Fee Option Grant
Program on the first trading day in January in the calendar year for which
the annual retainer fee which is the subject of that election would otherwise
be payable.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms
and conditions specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the
option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be such that the value of the option (as
determined on the date of the option grant using the Black-Scholes valuation
model) shall be equal to the amount of the retainer fee subject to the
election.
C. EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable for fifty percent (50%) of the option shares upon the Optionee's
completion of six (6) months of Board service in the calendar year for which
his or her election under this Director Fee Option Grant Program is in
effect, and the balance of the option shares shall become exercisable in a
series of six (6) successive equal monthly installments upon the Optionee's
completion of each additional month of Board service during that calendar
year.
21.
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Each option shall have a maximum term of ten (10) years measured from the
option grant date.
D. TERMINATION OF BOARD SERVICE. Should the Optionee cease Board
service for any reason (other than death or Permanent Disability) while
holding one or more options under this Director Fee Option Grant Program,
then each such option shall remain exercisable, for any or all of the shares
for which the option is exercisable at the time of such cessation of Board
service, until the EARLIER of (i) the expiration of the ten (10)-year option
term or (ii) the expiration of the three (3)-year period measured from the
date of such cessation of Board service. However, each option held by the
Optionee under this Director Fee Option Grant Program at the time of his or
her cessation of Board service shall immediately terminate and cease to
remain outstanding with respect to any and all shares of Common Stock for
which the option is not otherwise at that time exercisable.
E. DEATH OR PERMANENT DISABILITY. Should the Optionee's service
as a Board member cease by reason of death or Permanent Disability, then each
option held by such Optionee under this Director Fee Option Grant Program
shall immediately become exercisable for all the shares of Common Stock at
the time subject to that option, and the option may be exercised for any or
all of those shares as fully-vested shares until the EARLIER of (i) the
expiration of the ten (10)-year option term or (ii) the expiration of the
three (3)-year period measured from the date of such cessation of Board
service.
Should the Optionee die after cessation of Board service but while
holding one or more options under this Director Fee Option Grant Program,
then each such option may be exercised, for any or all of the shares for
which the option is exercisable at the time of the Optionee's cessation of
Board service (less any shares subsequently purchased by Optionee prior to
death), by the personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and distribution.
Such right of exercise shall lapse, and the option shall terminate, upon the
EARLIER of (i) the expiration of the ten (10)-year option term or (ii) the
three (3)-year period measured from the date of the Optionee's cessation of
Board service.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction while the Optionee
remains a Board member, each outstanding option held by such Optionee under
this Director Fee Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the
Corporate Transaction, become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to such option and may
be exercised for any or all of those shares as fully-vested shares of Common
Stock. Each such outstanding option shall be assumed by the successor
corporation (or parent thereof) in the Corporate Transaction and shall remain
exercisable for the fully-vested shares until the EARLIER of (i) the
expiration of the ten (10)-year option
22.
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term or (ii) the expiration of the three (3)-year period measured from the
date of the Optionee's cessation of Board service.
B. In the event of a Change in Control while the Optionee remains
in Service, each outstanding option held by such Optionee under this Director
Fee Option Grant Program shall automatically accelerate so that each such
option shall immediately become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to such option and may
be exercised for any or all of those shares as fully-vested shares of Common
Stock. The option shall remain so exercisable until the EARLIER or (i) the
expiration of the ten (10)-year option term or (ii) the expiration of the
three (3)-year period measured from the date of the Optionee's cessation of
Service.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
of his or her outstanding option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to
the excess of (i) the Take-Over Price of the shares of Common Stock at the
time subject to each surrendered option (whether or not the Optionee is
otherwise at the time vested in those shares) over (ii) the aggregate
exercise price payable for such shares. Such cash distribution shall be paid
within five (5) days following the surrender of the option to the
Corporation. No approval or consent of the Board or any Plan Administrator
shall be required in connection with such option surrender and cash
distribution.
D. The grant of options under the Director Fee Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure
or to merge, consolidate, dissolve, liquidate or sell or transfer all or any
part of its business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director Fee
Option Grant Program shall be the same as the terms in effect for option
grants made under the Discretionary Option Grant Program.
23.
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ARTICLE SIX
MISCELLANEOUS
I. FINANCING
A. The Plan Administrator may permit any Optionee or Participant
to pay the option exercise price under the Discretionary Option Grant Program
or the purchase price for shares issued under the Stock Issuance Program by
delivering a full-recourse, interest bearing promissory note payable in one
or more installments. The terms of any such promissory note (including the
interest rate and the terms of repayment) shall be established by the Plan
Administrator in its sole discretion. In all events, the maximum credit
available to the Optionee or Participant may not exceed the sum of (i) the
aggregate option exercise price or purchase price payable for the purchased
shares plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.
B. The Plan Administrator may, in its discretion, determine that
one or more such promissory notes shall be subject to forgiveness by the
Corporation in whole or in part upon such terms as the Plan Administrator may
deem appropriate.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or upon the issuance or vesting of such shares
under the Plan shall be subject to the satisfaction of all applicable
Federal, state and local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or
all holders of Non-Statutory Options or unvested shares of Common Stock under
the Plan (other than the options granted or the shares issued under the
Automatic Option Grant or Director Fee Option Grant Program) with the right
to use shares of Common Stock in satisfaction of all or part of the Taxes
incurred by such holders in connection with the exercise of their options or
the vesting of their shares. Such right may be provided to any such holder
in either or both of the following formats:
(i) STOCK WITHHOLDING: The election to have the
Corporation withhold, from the shares of Common Stock otherwise
issuable upon the exercise of such Non-Statutory Option or the vesting
of such shares, a portion of those shares with an aggregate Fair
Market Value equal to the percentage of the Taxes (not to exceed one
hundred percent (100%)) designated by the holder.
24.
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(ii) STOCK DELIVERY: The election to deliver to the
Corporation, at the time the Non-Statutory Option is exercised or the
shares vest, one or more shares of Common Stock previously acquired by
such holder (other than in connection with the option exercise or
share vesting triggering the Taxes) with an aggregate Fair Market
Value equal to the percentage of the Taxes (not to exceed one hundred
percent (100%)) designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective on the Plan Effective Date.
Options may be granted under the Discretionary Option Grant and Automatic
Option Grant Programs at any time on or after the Plan Effective Date.
However, no options granted under the Plan may be exercised, and no shares
shall be issued under the Plan, until the Plan is approved by the
Corporation's stockholders. If such stockholder approval is not obtained
within twelve (12) months after the Plan Effective Date, then all options
previously granted under this Plan shall terminate and cease to be
outstanding, and no further options shall be granted and no shares shall be
issued under the Plan.
B. The Plan shall terminate upon the EARLIEST of (i) October 1,
2006, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Upon such
Plan termination, all outstanding options and unvested stock issuances shall
continue to have force and effect in accordance with the provisions of the
documents evidencing such options or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect any rights and obligations
with respect to options, stock appreciation rights or unvested stock
issuances at the time outstanding under the Plan unless the Optionee or the
Participant consents to such amendment or modification. In addition,
amendments to the Plan shall be subject to approval of the Corporation's
stockholders to the extent required by applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant Program and shares of Common Stock may be
issued under the Stock Issuance Program that are in each instance in excess
of the number of shares then available for issuance under the Plan, provided
any excess shares actually issued under those programs are held in escrow
until there is obtained stockholder approval of an amendment sufficiently
increasing the number of shares of Common Stock available for issuance under
the Plan. If such stockholder approval is not obtained within twelve (12)
months after the date the first such excess grants or issuances are made,
then (i) any unexercised options
25.
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granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees
and the Participants the exercise or purchase price paid for any excess
shares issued under the Plan and held in escrow, together with interest (at
the applicable Short Term Federal Rate) for the period the shares were held
in escrow, and such shares shall thereupon be automatically cancelled and
cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option or
stock appreciation right under the Plan and the issuance of any shares of
Common Stock (i) upon the exercise of any option or stock appreciation right
or (ii) under the Stock Issuance Program shall be subject to the
Corporation's procurement of all approvals and permits required by regulatory
authorities having jurisdiction over the Plan, the options and stock
appreciation rights granted under it and the shares of Common Stock issued
pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance
with all applicable requirements of Federal and state securities laws and all
applicable listing requirements of any stock exchange (or the Nasdaq National
Market, if applicable) on which Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Corporation (or any Parent or Subsidiary employing or retaining such person)
or of the Optionee or the Participant, which rights are hereby expressly
reserved by each, to terminate such person's Service at any time for any
reason, with or without cause.
26.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option grant
program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person
or related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation), of beneficial ownership (within
the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation's stockholders, which
the Board does not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over a period
of thirty-six (36) consecutive months or less such that a majority of
the Board members ceases, by reason of one or more contested elections
for Board membership, to be comprised of individuals who either (A)
have been Board members continuously since the beginning of such
period or (B) have been elected or nominated for election as Board
members during such period by at least a majority of the Board members
described in clause (A) who were still in office at the time the Board
approved such election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction; or
A-1.
<PAGE>
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
G. CORPORATION shall mean PSW Technologies, Inc., a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of PSW Technologies, Inc. which shall by appropriate
action adopt the Plan.
H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
option grant program in effect under the Plan.
I. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special stock
option grant in effect for non-employee Board members under Article Five of
the Plan.
J. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible to
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.
K. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed and the
manner and method of performance.
L. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
M. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported by the National Association of Securities
Dealers on the Nasdaq National Market or any successor system. If
there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be
A-2.
<PAGE>
the closing selling price on the last preceding date for which such
quotation exists.
(iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal
to the price per share at which the Common Stock is sold in the
initial public offering pursuant to the Underwriting Agreement.
(iv) For purposes of any option grants made prior to the
Underwriting Date, the Fair Market Value shall be determined by the
Plan Administrator after taking into account such factors as the Plan
Administrator shall deem appropriate.
N. HOSTILE TAKE-OVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled
by, or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange offer
made directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept.
O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
P. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in his or
her level of compensation (including base salary, fringe benefits and
participation in corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of
such individual's place of employment by more than fifty (50) miles,
provided and only if such change, reduction or relocation is effected
by the Corporation without the individual's consent.
Q. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or
A-3.
<PAGE>
Subsidiary), or any other intentional misconduct by such person adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be
deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or
discharge of any Optionee, Participant or other person in the Service of the
Corporation (or any Parent or Subsidiary).
R. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
S. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
T. OPTIONEE shall mean any person to whom an option is granted under
the Discretionary Option Grant, Automatic Option Grant or Director Fee Option
Grant Program.
U. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
V. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
W. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of
twelve (12) months or more. However, solely for the purposes of the
Automatic Option Grant and Director Fee Option Grant Programs, Permanent
Disability or Permanently Disabled shall mean the inability of the
non-employee Board member to perform his or her usual duties as a Board
member by reason of any medically determinable physical or mental impairment
expected to result in death or to be of continuous duration of twelve (12)
months or more.
X. PLAN shall mean the Corporation's 1996 Stock Option/Stock Issuance
Plan, as set forth in this document.
Y. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized
to administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity
is carrying out its administrative functions under those programs with
respect to the persons under its jurisdiction.
A-4.
<PAGE>
Z. PLAN EFFECTIVE DATE shall mean October 2, 1996, the date on which the
Plan was adopted by the Board.
AA. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to
Section 16 Insiders.
AB. SECONDARY COMMITTEE shall mean a committee of two (2) or more Board
members appointed by the Board to administer the Discretionary Option Grant
and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
AC. SECTION 12(g) REGISTRATION DATE shall mean the date on which the
Common Stock is first registered under Section 12(g) of the 1934 Act.
AD. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of
the 1934 Act.
AE. SERVICE shall mean the performance of services to the Corporation
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.
AF. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
AG. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by
the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
AH. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under the Plan.
AI. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain
owns, at the time of the determination, stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
AJ. TAKE-OVER PRICE shall mean the GREATER of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest
reported price per share of Common Stock paid by the tender offeror in
effecting such Hostile Take-Over. However, if the surrendered
A-5.
<PAGE>
option is an Incentive Option, the Take-Over Price shall not exceed the
clause (i) price per share.
AK. TAXES shall mean the Federal, state and local income and employment
tax liabilities incurred by the holder of Non-Statutory Options or unvested
shares of Common Stock in connection with the exercise of those options or
the vesting of those shares.
AL. 10% STOCKHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any
Parent or Subsidiary).
AM. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
AN. UNDERWRITING DATE shall mean the date on which the Underwriting
Agreement is executed and the initial public offering price of the Common
Stock is established.
A-6.
<PAGE>
PSW TECHNOLOGIES, INC.
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following option grant (the "Option")
to purchase shares of the Common Stock of PSW Technologies, Inc. (the
"Corporation"):
OPTIONEE: ___________________________________________________________
GRANT DATE: _________________________________________________________
VESTING COMMENCEMENT DATE: __________________________________________
EXERCISE PRICE: $__________________________ per share
NUMBER OF OPTION SHARES: ___________________ shares
EXPIRATION DATE: ____________________________________________________
TYPE OF OPTION: _______ Incentive Stock Option
_______ Non-Statutory Stock Option
EXERCISE SCHEDULE: The Option shall become exercisable with respect
to the Option Shares in four (4) successive equal annual installments
upon Optionee's completion of each year of Service from the Vesting
Commencement Date. In no event shall the Option become exercisable
for any additional Option Shares after Optionee's cessation of
Service.
Optionee understands and agrees that the Option is granted subject to
and in accordance with the terms of the PSW Technologies, Inc. 1996 Stock
Option/Stock Issuance Plan (the "Plan"). Optionee further agrees to be bound by
the terms of the Plan and the terms of the Option as set forth in the Stock
Option Agreement attached hereto as Exhibit A.
Optionee hereby acknowledges receipt of a copy of the Plan in the form
attached hereto as Exhibit B.
RIGHTS OF FIRST REFUSAL AND RESTRICTION ON RESALE. OPTIONEE HEREBY
AGREES THAT ALL OPTION SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE
SUBJECT TO CERTAIN RIGHTS OF FIRST REFUSAL EXERCISABLE BY THE CORPORATION AND
ITS ASSIGNS AND CERTAIN RESTRICTIONS ON RESALE OF THE PURCHASED SHARES. THE
TERMS OF SUCH RIGHTS ARE SPECIFIED IN THE PLAN.
<PAGE>
NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Notice or in the
attached Stock Option Agreement or Plan shall confer upon Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining Optionee) or of Optionee, which rights are
hereby expressly reserved by each, to terminate Optionee's Service at any time
for any reason, with or without cause.
DEFINITIONS. All capitalized terms in this Notice shall have the
meaning assigned to them in this Notice or in the attached Stock Option
Agreement.
__________________, 199__
Date
PSW TECHNOLOGIES, INC.
By:
--------------------------------------
Title:
-----------------------------------
-------------------------------------------
OPTIONEE
Address:
----------------------------------
-------------------------------------------
ATTACHMENTS
Exhibit A - Stock Option Agreement
Exhibit B - 1996 Stock Option/Stock Issuance Plan
2.
<PAGE>
EXHIBIT A
STOCK OPTION AGREEMENT
<PAGE>
EXHIBIT B
1996 STOCK OPTION/STOCK ISSUANCE PLAN
<PAGE>
PSW TECHNOLOGIES, INC.
STOCK OPTION AGREEMENT
RECITALS
A. The Board has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or the
board of directors of any Parent or Subsidiary and consultants and other
independent advisors who provide services to the Corporation (or any Parent
or Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a
Parent or Subsidiary), and this Agreement is executed pursuant to, and is
intended to carry out the purposes of, the Plan in connection with the
Corporation's grant of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as
of the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.
2. OPTION TERM. This option shall have a term of ten (10) years
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY. During the lifetime of the Optionee,
Incentive Options shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option
may, in connection with the Optionee's estate plan, be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.
<PAGE>
4. DATES OF EXERCISE. This option shall become exercisable for the
Option Shares in one or more installments as specified in the Grant Notice. As
the option becomes exercisable for such installments, those installments shall
accumulate and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.
5. CESSATION OF SERVICE. The option term specified in Paragraph 2
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
(i) Should Optionee cease to remain in Service for any
reason (other than death, Permanent Disability or Misconduct) while
this option is outstanding, then Optionee shall have a period of three
(3) months (commencing with the date of such cessation of Service)
during which to exercise this option, but in no event shall this
option be exercisable at any time after the Expiration Date.
(ii) Should Optionee die while this option is
outstanding, then the personal representative of Optionee's estate or
the person or persons to whom the option is transferred pursuant to
Optionee's will or in accordance with the laws of descent and
distribution shall have the right to exercise this option. Such right
shall lapse and this option shall cease to be outstanding upon the
EARLIER of (A) the expiration of the twelve (12)- month period
measured from the date of Optionee's death or (B) the Expiration Date.
(iii) Should Optionee cease Service by reason of
Permanent Disability while this option is outstanding, then Optionee
shall have a period of twelve (12) months (commencing with the date of
such cessation of Service) during which to exercise this option. In
no event shall this option be exercisable at any time after the
Expiration Date.
(iv) During the limited period of post-Service
exercisability, this option may not be exercised in the aggregate for
more than the number of vested Option Shares for which the option is
exercisable at the time of Optionee's cessation of Service. Upon the
expiration of such limited exercise period or (if earlier) upon the
Expiration Date, this option shall terminate and cease to be
outstanding for any vested Option Shares for which the option has not
been exercised. To the extent Optionee is not vested in the Option
Shares at the time of Optionee's cessation of Service, this option
shall immediately terminate and cease to be outstanding with respect
to those shares.
2.
<PAGE>
(v) Should Optionee's Service be terminated for
Misconduct or should Optionee breach the Non-Compete Covenant, then
this option shall terminate immediately and cease to remain
outstanding.
6. SPECIAL ACCELERATION OF OPTION.
(a) In the event of a Corporate Transaction, the
exercisability of this option, to the extent outstanding at such time but not
otherwise fully exercisable, shall automatically accelerate so that this
option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for any or all of the Option Shares at the
time subject to this option as fully-vested shares of Common Stock. No such
acceleration of this option, however, shall occur if and to the extent: (i)
this option is, in connection with the Corporate Transaction, either to be
assumed by the successor corporation (or parent thereof) or to be replaced
with a comparable option to purchase shares of the capital stock of the
successor corporation (or parent thereof) or (ii) this option is to be
replaced with a cash incentive program of the successor corporation which
preserves the spread existing on the Option Shares for which this option is
not exercisable at the time of the Corporate Transaction (the excess of the
Fair Market Value of such Option Shares over the aggregate Exercise Price
payable for such shares) and provides for subsequent pay-out in accordance
with the same exercise schedule in effect for the option pursuant to the
option exercise schedule set forth in the Grant Notice. The determination of
option comparability under clause (i) shall be made by the Plan
Administrator, and such determination shall be final, binding and conclusive.
(b) Immediately following the Corporate Transaction, this
option, to the extent not previously exercised, shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof) in connection with the Corporate Transaction.
(c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, PROVIDED the aggregate Exercise Price shall remain the same.
(d) This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination
3.
<PAGE>
of shares, exchange of shares or other change affecting the outstanding
Common Stock as a class without the Corporation's receipt of consideration,
appropriate adjustments shall be made to (i) the total number and/or class of
securities subject to this option and (ii) the Exercise Price in order to
reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. STOCKHOLDER RIGHTS. The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(i) Execute and deliver to the Corporation a
Notice of Exercise (or, if this option is exercised prior to the time
the Common Stock is registered under Section 12(g) of the 1934 Act, a
Stock Purchase Agreement) for the Option Shares for which the option
is exercised.
(ii) Pay the aggregate Exercise Price for the
purchased shares in one or more of the following forms:
(A) cash or check made payable to the
Corporation;
(B) a promissory note payable to the Corporation,
but only to the extent authorized by the Plan Administrator in
accordance with Paragraph 13.
Should the Common Stock be registered under
Section 12(g) of the 1934 Act at the time the option is
exercised, then the Exercise Price may also be paid as
follows:
(C) shares of Common Stock held by Optionee (or
any other person or persons exercising the option) for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair
Market Value on the Exercise Date; or
(D) through a special sale and remittance
procedure pursuant to which Optionee (or any other person or
persons exercising the option) shall concurrently provide
irrevocable written
4.
<PAGE>
instructions (I) to a Corporation-designated brokerage firm
to effect the immediate sale of the purchased shares and remit
to the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate
Exercise Price payable for the purchased shares plus all
applicable Federal, state and local income and employment
taxes required to be withheld by the Corporation by reason of
such exercise and (II) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage
firm in order to complete the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Notice of Exercise (or Stock
Purchase Agreement) delivered to the Corporation in connection
with the option exercise.
(iii) Furnish to the Corporation appropriate
documentation that the person or persons exercising the option (if
other than Optionee) have the right to exercise this option.
(iv) Make appropriate arrangements with the
Corporation (or Parent or Subsidiary employing or retaining Optionee)
for the satisfaction of all Federal, state and local income and
employment tax withholding requirements applicable to the option
exercise.
(b) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares,
with the appropriate legends affixed thereto.
(c) In no event may this option be exercised for any fractional
shares.
10. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the
5.
<PAGE>
Corporation of any liability with respect to the non-issuance or sale of the
Common Stock as to which such approval shall not have been obtained. The
Corporation, however, shall use its best efforts to obtain all such approvals.
11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided
in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the Corporation and its successors and assigns
and Optionee, Optionee's assigns and the legal representatives, heirs and
legatees of Optionee's estate.
12. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to
be given or delivered to Optionee shall be in writing and addressed to Optionee
at the address indicated below Optionee's signature line on the Grant Notice.
All notices shall be deemed effective upon personal delivery or upon deposit in
the U.S. mail, postage prepaid and properly addressed to the party to be
notified.
13. FINANCING. The Plan Administrator may, in its absolute
discretion and without any obligation to do so, permit Optionee to pay the
Exercise Price for the purchased Option Shares by delivering a promissory note.
The terms of any such promissory note (including the interest rate, the
requirements for collateral and the terms of repayment) shall be established by
the Plan Administrator in its sole discretion.
14. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All decisions of the Plan Administrator with
respect to any question or issue arising under the Plan or this Agreement shall
be conclusive and binding on all persons having an interest in this option.
15. GOVERNING LAW. The interpretation, performance and enforcement
of this Agreement shall be governed by the laws of the State of Texas without
resort to that State's conflict-of-laws rules.
16. EXCESS SHARES. If the Option Shares covered by this Agreement
exceed, as of the Grant Date, the number of shares of Common Stock which may
without stockholder approval be issued under the Plan, then this option shall be
void with respect to such excess shares, unless stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock issuable
under the Plan is obtained in accordance with the provisions of the Plan.
17. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION. In the event
this option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:
6.
<PAGE>
(i) This option shall cease to qualify for
favorable tax treatment as an Incentive Option if (and to the extent)
this option is exercised for one or more Option Shares: (A) more than
three (3) months after the date Optionee ceases to be an Employee for
any reason other than death or Permanent Disability or (B) more than
twelve (12) months after the date Optionee ceases to be an Employee by
reason of Permanent Disability.
(ii) No installment under this option shall
qualify for favorable tax treatment as an Incentive Option if (and to
the extent) the aggregate Fair Market Value (determined at the Grant
Date) of the Common Stock for which such installment first becomes
exercisable hereunder would, when added to the aggregate value
(determined as of the respective date or dates of grant) of any
earlier installments of the Common Stock and any other securities for
which this option or any other Incentive Options granted to Optionee
prior to the Grant Date (whether under the Plan or any other option
plan of the Corporation or any Parent or Subsidiary) first become
exercisable during the same calendar year, exceed One Hundred Thousand
Dollars ($100,000) in the aggregate. Should such One Hundred Thousand
Dollar ($100,000) limitation be exceeded in any calendar year, this
option shall nevertheless become exercisable for the excess shares in
such calendar year as a Non-Statutory Option.
(iii) Should the exercisability of this option be
accelerated upon a Corporate Transaction, then this option shall
qualify for favorable tax treatment as an Incentive Option only to the
extent the aggregate Fair Market Value (determined at the Grant Date)
of the Common Stock for which this option first becomes exercisable in
the calendar year in which the Corporate Transaction occurs does not,
when added to the aggregate value (determined as of the respective
date or dates of grant) of the Common Stock or other securities for
which this option or one or more other Incentive Options granted to
Optionee prior to the Grant Date (whether under the Plan or any other
option plan of the Corporation or any Parent or Subsidiary) first
become exercisable during the same calendar year, exceed One Hundred
Thousand Dollars ($100,000) in the aggregate. Should the applicable
One Hundred Thousand Dollar ($100,000) limitation be exceeded in the
calendar year of such Corporate Transaction, the option may
nevertheless be exercised for the excess shares in such calendar year
as a Non-Statutory Option.
(iv) Should Optionee hold, in addition to this
option, one or more other options to purchase Common Stock which
become exercisable for the first time in the same calendar year as
this option, then the
7.
<PAGE>
foregoing limitations on the exercisability of such options as Incentive
Options shall be applied on the basis of the order in which such
options are granted.
8.
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify PSW Technologies, Inc. (the "Corporation") that I
elect to purchase _________ shares of the Corporation's Common Stock (the
"Purchased Shares") at the option exercise price of $________ per share (the
"Exercise Price") pursuant to that certain option (the "Option") granted to
me under the Corporation's 1996 Stock Option/Stock Issuance Plan on
__________________________, 199___.
Concurrently with the delivery of this Exercise Notice to the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a
condition for exercise. Alternatively, I may utilize the special
broker-dealer sale and remittance procedure specified in my agreement to
effect payment of the Exercise Price.
__________________, 199___
Date
----------------------------------------
Optionee
Address: -------------------------------
----------------------------------------
Print name in exact manner
it is to appear on the
stock certificate: ----------------------------------------
Address to which certificate
is to be sent, if different
from address above: ----------------------------------------
----------------------------------------
Social Security Number: ----------------------------------------
Employee Number: ----------------------------------------
<PAGE>
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities are transferred to a person
or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
F. CORPORATION shall mean PSW Technologies, Inc., a Delaware
corporation.
G. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed and the
manner and method of performance.
H. EXERCISE DATE shall mean the date on which the option shall have
been exercised in accordance with Paragraph 9 of the Agreement.
I. EXERCISE PRICE shall mean the exercise price per share as specified
in the Grant Notice.
J. EXPIRATION DATE shall mean the date on which the option expires as
specified in the Grant Notice.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
A-1.
<PAGE>
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
the price is reported by the National Association of Securities
Dealers on the Nasdaq National Market or any successor system. If
there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
L. GRANT DATE shall mean the date of grant of the option as specified
in the Grant Notice.
M. GRANT NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of
the basic terms of the option evidenced hereby.
N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
O. INVOLUNTARY TERMINATION shall mean the termination of Optionee's
Service which occurs by reason of:
(i) Optionee's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) Optionee's voluntary resignation following (A) a change in
Optionee's position with the Corporation (or Parent or Subsidiary
employing Optionee) which materially reduces Optionee's level of
responsibility, (B) a reduction in Optionee's level of compensation
(including base salary, fringe benefits and participation in
corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of Optionee's place of
employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected by the Corporation without
Optionee's consent.
A-2.
<PAGE>
P. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by
Optionee of confidential information or trade secrets of the Corporation (or
any Parent or Subsidiary), or any other intentional misconduct by Optionee
adversely affecting the business or affairs of the Corporation (or any Parent
or Subsidiary) in a material manner. The foregoing definition shall not be
deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or
discharge of Optionee or any other individual in the Service of the
Corporation (or any Parent or Subsidiary).
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
R. NON-COMPETE COVENANT shall mean Optionee's covenants during and
following employment with the Corporation with respect to solicitation of the
Corporation's employees or consultants or customers or accepting an
opportunity with the Corporation's client as set forth in the Employment
Agreement between Optionee and the Corporation.
S. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
T. NOTICE OF EXERCISE shall mean the notice of exercise in the form
attached hereto as Exhibit I.
U. OPTION SHARES shall mean the number of shares of Common Stock
subject to the option as specified in the Grant Notice.
V. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.
W. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
X. PERMANENT DISABILITY shall mean the inability of Optionee to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which is expected to result in death or has
lasted or can be expected to last for a continuous period of twelve (12)
months or more.
Y. PLAN shall mean the Corporation's 1996 Stock Option/Stock Issuance
Plan.
A-3.
<PAGE>
Z. PLAN ADMINISTRATOR shall mean either the Board or a committee of
Board members, to the extent the committee is at the time responsible for the
administration of the Plan.
AA. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor.
BB. STOCK EXCHANGE shall mean the American Stock Exchange or the New
York Stock Exchange.
CC. STOCK PURCHASE AGREEMENT shall mean a stock purchase agreement in
such form as deemed appropriate by the Plan Administrator.
DD. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain
owns, at the time of the determination, stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
A-4.
<PAGE>
ADDENDUM
TO
STOCK OPTION AGREEMENT
The following provisions are hereby incorporated into, and are
hereby made a part of, that certain Stock Option Agreement (the "Option
Agreement") by and between PSW Technologies, Inc. (the "Corporation") and
____________________________________________________________ ("Optionee")
evidencing the stock option (the "Option") granted on ___________________ to
Optionee under the terms of the Corporation's 1996 Stock Option/Stock
Issuance Plan, and such provisions shall be effective immediately. All
capitalized terms in this Addendum, to the extent not otherwise defined
herein, shall have the meanings assigned to them in the Option Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CORPORATE TRANSACTION/CHANGE IN CONTROL
1. To the extent the Option is, in connection with a Corporate
Transaction, to be assumed or replaced with a comparable option in accordance
with Paragraph 6 of the Option Agreement, the Option shall not accelerate
upon the occurrence of that Corporate Transaction, and the Option shall
accordingly continue, over Optionee's period of Service after the Corporate
Transaction, to become exercisable for the Option Shares in one or more
installments in accordance with the provisions of the Option Agreement.
However, immediately upon an Involuntary Termination of Optionee's Service
within eighteen (18) months following such Corporate Transaction, the Option
(or any replacement grant), to the extent outstanding at the time but not
otherwise fully exercisable, shall automatically accelerate so that the
Option shall become immediately exercisable for all the Option Shares at the
time subject to the Option and may be exercised for any or all of those
Option Shares as fully vested shares.
2. The Option shall not accelerate upon the occurrence of a Change
in Control, and the Option shall, over Optionee's period of Service following
such Change in Control, continue to become exercisable for the Option Shares
in one or more installments in accordance with the provisions of the Option
Agreement. However, immediately upon an Involuntary Termination of
Optionee's Service within eighteen (18) months following the Change in
Control, the Option, to the extent outstanding at the time but not otherwise
fully exercisable, shall automatically accelerate so that the Option shall
become immediately exercisable for all the Option Shares at the time subject
to the Option and may be exercised for any or all of those Option Shares as
fully vested shares.
3. The Option shall remain so exercisable until the EARLIER of (i)
the Expiration Date or (ii) the expiration of the one (1)-year period
measured from the date of such Involuntary Termination.
<PAGE>
4. For purposes of this Addendum the following definitions shall be
in effect:
(i) An INVOLUNTARY TERMINATION shall mean the termination
of Optionee's Service by reason of:
(A) Optionee's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(B) Optionee's voluntary resignation following (A) a
change in Optionee's position with the Corporation (or Parent or
Subsidiary employing Optionee) which materially reduces
Optionee's level of responsibility, (B) a reduction in Optionee's
level of compensation (including base salary, fringe benefits and
participation in any corporate-performance based bonus or
incentive programs) by more than fifteen percent (15%) or (C) a
relocation of Optionee's place of employment by more than
fifty (50) miles, provided and only if such change, reduction or
relocation is effected by the Corporation without Optionee's
consent, and
(ii) a CHANGE IN CONTROL shall be deemed to occur in the
event of a change in ownership or control of the Corporation effected
through either of the following transactions:
(A) the acquisition, directly or indirectly, by any
person or related group of persons (other than the Corporation or
a person that directly or indirectly controls, or is controlled
by, or is under common control with, the Corporation) of
beneficial ownership (within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended) of securities
possessing more than fifty percent (50%) of the total combined
voting power of the Corporation's outstanding securities pursuant
to a tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders
to accept, or
(B) a change in the composition of the Board over a
period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (i) have been Board members continuously
since the beginning of such period or (ii) have been elected or
nominated for election as Board members during such period by at
least a majority of the Board members described in clause (i) who
were still in office at the time such election or nomination was
approved by the Board.
2.
<PAGE>
5. The provisions of Paragraph 1 of this Addendum shall govern the
period for which the Option is to remain exercisable following the Involuntary
Termination of Optionee's Service within twelve (12) months after the Corporate
Transaction or Change in Control and shall supersede any provisions to the
contrary in Paragraph 6 of the Option Agreement.
IN WITNESS WHEREOF, PSW Technologies, Inc. has caused this Addendum to
be executed by its duly-authorized officer, and Optionee has executed this
Addendum, all as of the Effective Date specified below.
PSW TECHNOLOGIES, INC.
By:
---------------------------------------
Title:
------------------------------------
1~, OPTIONEE
EFFECTIVE DATE: _________________, 199___
3.
<PAGE>
ADDENDUM
TO
STOCK OPTION AGREEMENT
The following provisions are hereby incorporated into, and are
hereby made a part of, that certain Stock Option Agreement dated 2~ (the
"Option Agreement") by and between PSW Technologies, Inc. (the "Corporation")
and 1~ ("Optionee") evidencing the stock option granted on such date to
Optionee under the terms of the Corporation's 1997 Stock Option/Stock
Issuance Plan, and such provisions shall be effective immediately. All
capitalized terms in this Addendum, to the extent not otherwise defined
herein, shall have the meanings assigned to them in the Option Agreement.
LIMITED STOCK APPRECIATION RIGHT
1. Optionee is hereby granted a limited stock appreciation right
in tandem with the option, exercisable upon the terms set forth below:
(i) Optionee shall have the unconditional right
(exercisable during the thirty (30)-day period following a Hostile
Take-Over) to surrender the option to the Corporation, to the extent
the option is at the time exercisable for vested shares of Common
Stock. In return for the surrendered option, Optionee shall receive a
cash distribution from the Corporation in an amount equal to the
excess of (A) the Take-Over Price of the shares of Common Stock which
are at the time vested under the surrendered option (or surrendered
portion) over (B) the aggregate Exercise Price payable for such
shares.
(ii) To exercise this limited stock appreciation right,
Optionee must, during the applicable thirty (30)-day exercise period,
provide the Corporation with written notice of the option surrender in
which there is specified the number of Option Shares as to which the
option is being surrendered. Such notice must be accompanied by the
return of Optionee's copy of the Option Agreement, together with any
written amendments to such Agreement. The cash distribution shall be
paid to Optionee within five (5) days following such delivery date,
and neither the approval of the Plan Administrator nor the consent of
the Board shall be required in connection with such option surrender
and cash distribution. Upon receipt of such cash distribution, the
option shall be cancelled with respect to the Option Shares for which
the option has been surrendered, and Optionee shall cease to have any
further right to acquire those Option Shares under the Option
Agreement. The option shall, however, remain outstanding and
exercisable for the balance of the Option Shares (if any) in
accordance with the terms of the Option Agreement, and the Corporation
shall issue a new stock option agreement
<PAGE>
(substantially in the same form of the surrendered Option Agreement)
for those remaining Option Shares.
(iii) In no event may this limited stock appreciation right
be exercised when there is not a positive spread between the Fair
Market Value of the Option Shares and the aggregate Exercise Price
payable for such shares. This limited stock appreciation right shall
in all events terminate upon the expiration or sooner termination of
the option term and may not be assigned or transferred by Optionee.
2. For purposes of this Addendum, the following definitions shall be
in effect:
(i) A HOSTILE TAKE-OVER shall be deemed to occur in the
event any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Corporation)
directly or indirectly acquires beneficial ownership (within the
meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as
amended) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding
securities pursuant to a tender or exchange offer made directly to the
Corporation's stockholders which the Board does not recommend such
stockholders to accept.
(ii) The TAKE-OVER PRICE per share shall be deemed to be
equal to the GREATER of (A) the Fair Market Value per Option Share on
the option surrender date or (B) the highest reported price per share
of Common Stock paid by the tender offeror in effecting the Hostile
Take-Over. However, if the surrendered option is designated as an
Incentive Option in the Grant Notice, then the Take-Over Price shall
not exceed the clause (A) price per share.
2.
<PAGE>
IN WITNESS WHEREOF, PSW Technologies, Inc. has caused this Addendum
to be executed by its duly-authorized officer, and Optionee has executed this
Addendum, all as of the Effective Date specified below.
PSW TECHNOLOGIES, INC.
By: __________________________________
Title: _______________________________
______________________________________
1~, OPTIONEE
EFFECTIVE DATE: ________________, 199_
3.
<PAGE>
PSW TECHNOLOGIES, INC.
EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests
of PSW Technologies, Inc. by providing eligible employees with the opportunity
to acquire a proprietary interest in the Corporation through participation in a
payroll-deduction based employee stock purchase plan designed to qualify under
Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of Common
Stock purchased on the open market. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall not exceed 400,000
shares.
B. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date and (iii) the number and class of
securities and the price per share in effect under each outstanding purchase
right in order to prevent the dilution or enlargement of benefits thereunder.
IV. PURCHASE PERIODS
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive purchase periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased
<PAGE>
or (ii) the Plan shall have been sooner terminated.
B. Each purchase period shall have a duration of six (6) months.
Purchase periods shall run from the first business day in May to the last
business day in October each year and from the first business day in November
each year to the last business day of April in the following year. However, the
first purchase period shall begin at the Effective Time and end on the last
business day in October 1997.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee at the Effective Time
shall be eligible to participate in the Plan on the start date of any purchase
period under the Plan.
B. Each individual who becomes an Eligible Employee after the
Effective Time shall be eligible to participate in the Plan on the start date of
any purchase period commencing on or after the individuals's completion of
ninety (90) days of continuous Service to the Corporation or any Corporate
Affiliate, provided such individual remains an Eligible Employee on such start
date.
C. To participate in the Plan for a particular purchase period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization form) and file such forms with the Plan Administrator (or its
designate) on or before the start date of the purchase period.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes
of acquiring shares of Common Stock under the Plan may be any multiple of one
percent (1%) of the Base Salary paid to the Participant during each purchase
period, up to a maximum of fifteen percent (15%). The deduction rate so
authorized shall continue in effect for the entire purchase period. The
Participant may not increase his or her rate of payroll deduction during a
purchase period. However, the Participant may, at any time during the purchase
period, reduce his or her rate of payroll deduction to become effective as soon
as possible after filing the appropriate form with the Plan Administrator. The
Participant may not, however, effect more than one (1) such reduction per
purchase period.
B. Payroll deductions shall begin on the first pay day following the
start date of the purchase period (except that payroll deductions for the
initial purchase period shall begin on the first pay day that is more than five
(5) days after the start date of that period) and shall (unless sooner
terminated by the Participant) continue through the pay day ending with or
immediately prior to the last day of the purchase period. The amounts so
collected shall be credited to the Participant's book account under the Plan,
but no interest
2.
<PAGE>
shall be paid on the balance from time to time outstanding in such account.
The amounts collected from the Participant shall not be held in any
segregated account or trust fund and may be commingled with the general
assets of the Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the termination
of the Participant's purchase right in accordance with the provisions of the
Plan.
D. The Participant's acquisition of Common Stock under the Plan on
any Purchase Date shall neither limit nor require the Participant's acquisition
of Common Stock on any subsequent Purchase Date.
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a
separate purchase right on the start date of each purchase period in which he or
she participates. The purchase right shall provide the Participant with the
right to purchase shares of Common Stock on the Purchase Date upon the terms set
forth below. The Participant shall execute a stock purchase agreement embodying
such terms and such other provisions (not inconsistent with the Plan) as the
Plan Administrator may deem advisable.
Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)) or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Corporation
or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be
automatically exercised on the Purchase Date, and shares of Common Stock shall
accordingly be purchased on behalf of each Participant (other than any
Participant whose payroll deductions have previously been refunded in accordance
with the Termination of Purchase Right provisions below) on such date. The
purchase shall be effected by applying the Participant's payroll deductions for
the purchase period ending on such Purchase Date to the purchase of shares of
Common Stock (subject to the limitation on the maximum number of shares
purchasable per Participant on any one Purchase Date) at the purchase price in
effect for that purchase period.
C. PURCHASE PRICE. The purchase price per share at which Common
Stock will be purchased on the Participant's behalf on each Purchase Date shall
be equal to eighty-five percent (85%) of the LOWER of (i) the Fair Market Value
per share of Common Stock on the start date of the purchase period or (ii) the
Fair Market Value per share of Common Stock on that Purchase Date.
3.
<PAGE>
D. NUMBER OF PURCHASABLE SHARES. The number of shares of Common
Stock purchasable by a Participant on each Purchase Date shall be the number of
shares obtained by dividing the amount collected from the Participant through
payroll deductions during the purchase period ending with that Purchase Date by
the purchase price in effect for that Purchase Date. However, the maximum
number of shares of Common Stock purchasable per Participant on any one Purchase
Date shall not exceed 500 shares, subject to periodic adjustments in the event
of certain changes in the Corporation's capitalization.
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied to
the purchase of shares of Common Stock on any Purchase Date because they are not
sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant on the
Purchase Date shall be promptly refunded.
F. TERMINATION OF PURCHASE RIGHT. The following provisions shall
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the last
day of the purchase period, terminate his or her outstanding purchase
right by filing the appropriate form with the Plan Administrator (or
its designate), and no further payroll deductions shall be collected
from the Participant with respect to the terminated purchase right.
Any payroll deductions collected during the purchase period in which
such termination occurs shall, at the Participant's election, be
promptly refunded or held for the purchase of shares on the next
Purchase Date. If no such election is made at the time such purchase
right is terminated, then the payroll deductions collected with
respect to the terminated right shall be refunded as soon as possible.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the
purchase period for which the terminated purchase right was granted.
In order to resume participation in any subsequent purchase period,
such individual must re-enroll in the Plan (by making a timely filing
of the prescribed enrollment forms) on or before the start date of the
new purchase period.
(iii) Should the Participant cease to remain an Eligible
Employee for any reason (including death, disability or change in
status) while his or her purchase right remains outstanding, then that
purchase right shall immediately terminate, and all of the
Participant's payroll deductions for the purchase period in which the
purchase right so terminates shall be promptly refunded. However,
should the Participant cease to remain in active service by reason of
an approved unpaid leave of absence, then the Participant shall have
the right, exercisable up until the last business day of the purchase
4.
<PAGE>
period in which such leave commences, to (a) withdraw the payroll
deductions collected during such purchase period or (b) have such
funds held for the purchase of shares at the next scheduled Purchase
Date. In no event, however, shall any further payroll deductions be
collected on the Participant's behalf during such leave. Upon the
Participant's return to active service, his or her payroll deductions
under the Plan shall automatically resume at the rate in effect at the
time the leave began.
G. CORPORATE TRANSACTION. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each Participant
for the purchase period in which such Corporate Transaction occurs to the
purchase of shares of Common Stock at a purchase price per share equal to
eighty-five percent (85%) of the LOWER of (i) the Fair Market Value per share of
Common Stock on the start date of the purchase period in which such Corporate
Transaction occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Corporate Transaction. However,
the applicable limitation on the number of shares of Common Stock purchasable
per Participant shall continue to apply to any such purchase.
The Corporation shall use reasonable efforts to provide prior written
notice of the occurrence of any Corporate Transaction, and Participants shall,
following the receipt of such notice, have the right to terminate their
outstanding purchase rights prior to the effective date of the Corporate
Transaction.
H. PRORATION OF PURCHASE RIGHTS. Should the total number of shares
of Common Stock which are to be purchased pursuant to outstanding purchase
rights on any particular date exceed the number of shares then available for
issuance under the Plan, the Plan Administrator shall make a pro-rata allocation
of the available shares on a uniform and nondiscriminatory basis, and the
payroll deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. ASSIGNABILITY. The purchase right shall be exercisable only by
the Participant and shall not be assignable or transferable by the Participant.
J. STOCKHOLDER RIGHTS. A Participant shall have no stockholder
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such
5.
<PAGE>
accrual, when aggregated with (i) rights to purchase Common Stock accrued
under any other purchase right granted under this Plan and (ii) similar
rights accrued under other employee stock purchase plans (within the meaning
of Code Section 423) of the Corporation or any Corporate Affiliate, would
otherwise permit such Participant to purchase more than Twenty-Five Thousand
Dollars ($25,000) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value of such stock on
the date or dates such rights are granted) for each calendar year such rights
are at any time outstanding.
B. For purposes of applying such accrual limitations, the following
provisions shall be in effect:
(i) The right to acquire Common Stock under each
outstanding purchase right shall accrue on the Purchase Date in effect
for the purchase period for which such right is granted.
(ii) No right to acquire Common Stock under any
outstanding purchase right shall accrue to the extent the Participant
has already accrued in the same calendar year the right to acquire
Common Stock under one (1) or more other purchase rights at a rate
equal to Twenty-Five Thousand Dollars ($25,000) worth of Common Stock
(determined on the basis of the Fair Market Value per share on the
date or dates of grant) for each calendar year such rights were at any
time outstanding.
C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular purchase period, then the payroll
deductions which the Participant made during that purchase period with respect
to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE TIME AND TERM OF THE PLAN
A. The Plan was adopted by the Board on February 3, 1997 and shall
become effective at the Effective Time, PROVIDED no purchase rights granted
under the Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the stockholders of
the Corporation and (ii) the Corporation shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S-8 registration statement filed with
the Securities and Exchange Commission), all applicable listing requirements of
any stock exchange (or the Nasdaq National Market, if applicable) on which the
Common Stock is listed for trading and all other applicable requirements
established by law or regulation. In the event such stockholder approval is not
obtained,
6.
<PAGE>
or such compliance is not effected, within twelve (12) months after the date
on which the Plan is adopted by the Board, the Plan shall terminate and have
no further force or effect and all sums collected from Participants during
the initial purchase period hereunder shall be refunded.
B. Unless sooner terminated by the Board, the Plan shall terminate
upon the EARLIEST to occur of (i) the last business day in April 2007, (ii) the
date on which all shares available for issuance under the Plan shall have been
sold pursuant to purchase rights exercised under the Plan or (iii) the date on
which all purchase rights are exercised in connection with a Corporate
Transaction. No further purchase rights shall be granted or exercised, and no
further payroll deductions shall be collected, under the Plan following such
termination.
X. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the Plan at any
time to become effective immediately following the close of any purchase
period. However, the Board may not, without the approval of the Corporation's
stockholders, (i) materially increase the number of shares of Common Stock
issuable under the Plan or the maximum number of shares purchasable per
Participant on any one Purchase Date, except for permissible adjustments in
the event of certain changes in the Corporation's capitalization, (ii) alter
the purchase price formula so as to reduce the purchase price payable for the
shares of Common Stock purchasable under the Plan, or (iii) materially
increase the benefits accruing to Participants under the Plan or materially
modify the requirements for eligibility to participate in the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan
shall be paid by the Corporation.
B. Nothing in the Plan shall confer upon the Participant any right
to continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
7.
<PAGE>
SCHEDULE A
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
PSW Technologies, Inc.
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. BASE SALARY shall mean the regular base salary paid to a
Participant by one or more Participating Companies during such individual's
period of participation in the Plan, plus any pre-tax contributions made by
the Participant to any Code Section 401(k) salary deferral plan or any Code
Section 125 cafeteria benefit program now or hereafter established by the
Corporation or any Corporate Affiliate.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE AFFILIATE shall mean any parent or subsidiary
corporation of the Corporation (as determined in accordance with Code Section
424, whether now existing or subsequently established.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation.
G. CORPORATION shall mean PSW Technologies, Inc., a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of PSW Technologies, Inc. which shall by appropriate
action adopt the Plan.
H. EFFECTIVE TIME shall mean the time at which the Underwriting
Agreement is executed and finally priced. Any Corporate Affiliate which becomes
a Participating Corporation after such Effective Time shall designate a
subsequent Effective Time with respect to its employee-Participants.
A-1.
<PAGE>
I. ELIGIBLE EMPLOYEE shall mean any person who employed by a
Participating Corporation on a basis under which he or she is regularly expected
to render more than twenty (20) hours of service per week for more than five
(5) months per calendar year for earnings considered wages under Code Section
3401(a).
J. EMPLOYEE shall mean an individual who is in the employ of the
Corporation or any Corporate Affiliate subject to the control and direction of
the employer entity as to both the work to be performed and the manner and
method of performance.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported by the National Association of Securities
Dealers on the Nasdaq National Market or any successor system. If
there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(iii) For purposes of the initial purchase period which
begins at the Effective Time, the Fair Market Value shall be deemed to
be equal to the price per share at which the Common Stock is sold in
the initial public offering pursuant to the Underwriting Agreement.
L. 1933 ACT shall mean the Securities Act of 1933, as amended.
M. PARTICIPANT shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.
N. PARTICIPATING CORPORATION shall mean the Corporation and such
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations
A-2.
<PAGE>
in the Plan as of the Effective Time are listed in attached Schedule A.
O. PLAN shall mean the Corporation's Employee Stock Purchase Plan,
as set forth in this document.
P. PLAN ADMINISTRATOR shall mean the committee of two (2) or more
Board members appointed by the Board to administer the Plan.
Q. PURCHASE DATE shall mean the last business day of each purchase
period.
R. SERVICE shall mean the performance of services to the Corporation
or any Corporate Affiliate by a person in the capacity of an Employee.
S. STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.
T. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-3.
<PAGE>
PSW TECHNOLOGIES, INC.
STOCK PURCHASE AGREEMENT
I hereby elect to participate in the Employee Stock Purchase Plan (the
"ESPP") for the purchase period specified below, and I hereby subscribe to
purchase shares of Common Stock of PSW Technologies, Inc. (the "Corporation") in
accordance with the provisions of this Agreement and the ESPP. I hereby
authorize payroll deductions from each of my paychecks during the purchase
period in the 1% multiple of my earnings (not to exceed a maximum of 15%)
specified in my attached Enrollment Form.
Purchase periods under the ESPP will run from the first business day in May
to the last business day in October each year and from the first business day in
November each year to the last business day in April of the following year. The
initial purchase period under the ESPP will begin at the time of the initial
public offering of the Common Stock and end on the last business day in October
1997. My participation will automatically remain in effect from one purchase
period to the next in accordance with this Agreement and my payroll deduction
authorization, unless I withdraw from the ESPP or change the rate of my payroll
deduction or unless my employment status changes. I may reduce the rate of my
payroll deductions once per purchase period, and I may increase the rate of my
payroll deductions to become effective at the start of any subsequent purchase
period.
My payroll deductions will be accumulated for the purchase of shares of the
Corporation's Common Stock on the last business day of the purchase period. The
purchase price per share will be 85% of the LOWER of (i) the fair market value
per share of Common Stock on the start date of the purchase period or (ii) the
fair market value per share on the purchase date. I will also be subject to
ESPP restrictions (i) limiting the maximum number of shares which I may purchase
on any one purchase date to 500 shares and (ii) prohibiting me from purchasing
more than U.S.$25,000 worth of Common Stock for each calendar year my purchase
right remains outstanding.
I may withdraw from the ESPP at any time prior to the last business day of
the purchase period and elect either to have the Corporation refund all my
payroll deductions for that period or to have such payroll deductions applied to
the purchase of Common Stock at the end of such period. However, I may not
rejoin that particular purchase period at any later date. Upon the termination
of my employment for any reason, including death or disability, or my loss of
eligible employee status, my participation in the ESPP will immediately cease
and all my payroll deductions for the purchase period in which my employment
terminates or my loss of eligibility occurs will automatically be refunded.
If I take an unpaid leave of absence, my payroll deductions will
immediately cease, and any payroll deductions for the purchase period in which
my leave begins will, at my election, either be refunded or applied to the
purchase of shares of Common Stock at the end of that purchase period. Upon my
return to active service, my payroll deductions will automatically resume at the
rate in effect when my leave began.
A stock certificate for the shares purchased on my behalf at the end of
each purchase period will automatically be deposited into a brokerage account
designated by the Corporation. I will notify the Corporation of any disposition
of shares purchased under the ESPP and I will satisfy all applicable income and
employment tax withholding requirements at the time of such disposition.
The Corporation has the right, exercisable in its sole discretion, to amend
or terminate the ESPP at any time, with such amendment or termination to become
effective immediately following the exercise of outstanding purchase rights at
the end of any current purchase period. Should the Corporation elect to
terminate the ESPP, I will have no further rights to purchase shares of Common
Stock pursuant to this Agreement.
I have received a copy of the official Plan Summary and Prospectus (or
Question and Answer Summary) summarizing the major features of the ESPP. I have
read this Agreement and hereby agree to be bound by the terms of both this
Agreement and the ESPP. The effectiveness of this Agreement is dependent upon
my eligibility to participate in the ESPP.
Date: ________________, 199__ ___________________________________
Signature of Employee
Printed Name:______________________
Start Date of my Purchase Period: _____________, 199__
<PAGE>
PSW TECHNOLOGIES, INC.
EMPLOYEE STOCK PURCHASE PLAN ("ESPP")
ENROLLMENT/CHANGE FORM
<TABLE>
<S> <C>
Action Complete Sections:
------ ------------------
SECTION 1: / / New Enrollment 2, 3, 6, 7 AND sign attached
ACTIONS Stock Purchase Agreement
/ / Payroll Deduction Change 2, 4, 7
/ / Terminate Payroll
Deductions 2, 5, 7
/ / Beneficiary Change 2, 6, 7
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
SECTION 2: Name _____________________________________________________________________
PERSONNEL Last First MI Dept.
DATA
Home Address______________________________________________________________
Street
_____________________________________________________________________
City State Zip Code
Social Security #: / / / / - / / / - / / / / /
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
SECTION 3: Effective with the
NEW Purchase Period Beginning: Payroll Deduction Amount: _____% of
ENROLLMENT base salary*
/ / May 1, 199__
/ / November 1, 199__ * Must be a multiple of 1% up to a
maximum of 15% of base salary
/ / Initial Purchase Period --
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
SECTION 4: Effective with the I authorize the following new
PAYROLL Pay Period Beginning: ____________________ level of payroll deduction:
DEDUCTION Month, Day and Year ___% of base salary*
CHANGE
* Must be a multiple of 1% up
to a maximum of 15% of base
salary
NOTE: You may reduce your rate of payroll deductions once per purchase
period to become effective as soon as possible following the
filing of the change form.
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
SECTION 5: Effective with the Your election to terminate your
TERMINATE Pay Period Beginning: ___________________ payroll deductions for the balance
PAYROLL Month, Day and Year of the purchase period cannot be
DEDUCTIONS changed, and you may not rejoin
the purchase period at a later
date. You will not be able to
resume participation in the ESPP
prior to the commencement of the
next purchase period.
In connection with my voluntary termination of payroll deductions (or an
approved leave of absence), I elect the following action regarding my ESPP
payroll deductions to date in the current purchase period:
/ / Purchase shares of PSW Technologies, Inc. at end of the period
OR
/ / Refund ESPP payroll deductions collected
NOTE: If your employment terminates for any reason or your eligibility status
changes (< 20 hrs/wk or < 5 months/yr), you will immediately cease to
participate in the ESPP, and your ESPP payroll deductions collected
in that period will automatically be refunded to you.
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
SECTION 6: Beneficiary(ies) Relationship of Beneficiary(ies)
BENEFICIARY ---------------- --------------------------------
____________________________________ __________________________________
____________________________________ __________________________________
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
SECTION 7:
AUTHORIZATION
I hereby authorize the specific action or actions indicated above.
_________________________ ______________________________________
Date Signature of Employee BPHPA1\ZP\0209738.02
</TABLE>