<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 14, 1998
Registration No. 333-_______
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________
REALNETWORKS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
WASHINGTON 91-1628146
(State or other jurisdiction of incorporation or organization) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
1111 Third Avenue, Suite 2900
SEATTLE, WASHINGTON 98101
(206) 674-2700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
REALNETWORKS, INC. 1995 STOCK OPTION PLAN
REALNETWORKS, INC. AMENDED AND RESTATED 1996 STOCK OPTION PLAN
(FULL TITLE OF THE PLANS)
ROBERT GLASER
CHIEF EXECUTIVE OFFICER
1111 THIRD AVENUE, SUITE 2900
SEATTLE, WASHINGTON 98101
(206) 674-2700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
______________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED(1) AGGREGATE OFFERING PRICE(2) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, $.001 per
share:
1995 Stock Option Plan 1,021,848 $18,423,919 $5,435
___________ _____________ _____________
Amended and Restated 11,528,810 $207,864,444 $61,320
1996 Stock Option Plan ___________ ______________ _____________
================================================================================================
</TABLE>
(1) Plus (i) an indeterminate number of shares of Common Stock that may become
issuable under the RealNetworks, Inc. 1995 Stock Option Plan (the "1995
Plan") and the RealNetworks, Inc. Amended and Restated 1996 Stock Option
Plan (the "1996 Plan"), as a result of the adjustment provisions therein,
and (ii) if any interests in the Plan constitute separate securities
required to be registered under the Securities Act of 1933, as amended,
then, pursuant to Rule 416(c), an indeterminate amount of such interests to
be offered or sold pursuant to the 1995 Plan and the 1996 Plan.
(2) Computed pursuant to Rule 457(c) and (h) based on the average of the high
and low sale prices for the Common Stock reported by the Nasdaq National
Market on September 11, 1998, which was $18.03.
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents are hereby incorporated in this Registration
Statement by reference:
(a) The Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997, filed by the Registrant with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act");
(b) All reports filed by the Registrant pursuant to Section 13(a) or
15(d) of the Exchange Act since December 31, 1997; and
(c) The description of the Registrant's Common Stock set forth in the
Registration Statement on Form 8-A filed by the Registrant with the Securities
and Exchange Commission on September 26, 1997, under Section 12(g) of the
Exchange Act.
All documents filed by the Registrant with the Securities and Exchange
Commission pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act
after the date hereof and prior to the filing of a post-effective amendment
which indicates that all of the securities offered hereby have been sold or
which deregisters all of the securities covered hereby then remaining unsold,
shall also be deemed to be incorporated by reference into this Registration
Statement and to be a part hereof commencing on the respective dates on which
such documents are filed.
Any statement 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 other subsequently filed document
that also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any 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 required.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL
The legality of the Shares is being passed upon for the Registrant by
Graham & James LLP/Riddell Williams, P.S., 1001 Fourth Avenue Plaza, Suite 4500,
Seattle, Washington 98154, which serves as the Registrant's outside general
counsel. Members of, lawyers of counsel to, and associates performing services
for the Registrant in connection with their employment by, Graham & James
LLP/Riddell Williams P.S. directly or indirectly beneficially own 1,820 shares
of the Registrant's Common Stock.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Amended and Restated Articles of Incorporation (the
"Articles") contain provisions entitling directors and executive officers to be
indemnified by the Registrant against claims arising out of their actions in
such capacities to the fullest extent permitted by law, and the Registrant has
entered into Indemnification Agreements with each of its directors and executive
officers that contractually entitle such persons to similar protection. In
addition, the Articles contain provisions limiting the personal liability of
directors to the Registrant or its shareholders to the fullest extent permitted
by law. The Registrant has also secured insurance on behalf of its executive
officers and directors for certain liabilities arising out of their actions in
such capacities.
Item 7. EXEMPTION FROM REGISTRATION CLAIMED
Not applicable.
<PAGE>
ITEM 8. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- --------------- -------------------------------------------------------------------------
<S> <C>
5.1 Opinion of Graham & James LLP/Riddell Williams P.S.
23.1 Consent of Graham & James LLP/Riddell Williams P.S. (included in opinion
filed as Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney (included on signature page)
99.1 RealNetworks, Inc. 1995 Stock Option Plan
99.2 RealNetworks, Inc. Amended and Restated 1996 Stock Option Plan
</TABLE>
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
Securities Act;
(ii) 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 paragraphs (1)(i) and (1)(ii) above do 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 Exchange Act that are incorporated by
reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, 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.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered that remain unsold at the termination of the
offering.
B. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefits
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in 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 Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 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,
<PAGE>
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 Securities Act of 1933 and will be governed by the
final adjudication of such issue.
<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 the City of Seattle, State of Washington, on September 11, 1998.
REALNETWORKS, INC.
By: /s/ Robert Glaser
------------------------------------------
Robert Glaser
Chairman of the Board and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Robert Glaser and Bruce Jacobsen, and each of them severally, as such person's
attorneys-in-fact, with full power of substitution and resubstitution, to
execute in the name and on behalf of such person, individually and in each
capacity stated below, and to file, any and all amendments to this Registration
Statement, including any and all post-effective amendments.
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 indicated on September 11, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert Glaser Chairman of the Board and Chief Executive Officer September 11, 1998
- -------------------------------- (Principal Executive Officer)
Robert Glaser
/s/ Paul Bialek Senior Vice President, Finance & Operations and Chief September 11, 1998
- -------------------------------- Financial Officer
Paul Bialek (Principal Financial Officer)
/s/ Keith Adams Controller (Principal Accounting Officer) September 11, 1998
- --------------------------------
Keith Adams
- -------------------------------- President, Chief Operating Officer and Director
Bruce Jacobsen
/s/ James W. Breyer Director September 11, 1998
- --------------------------------
James W. Breyer
/s/ Mitchell Kapor Director September 11, 1998
- --------------------------------
Mitchell Kapor
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ---------------------- ------------------------------------------------------------------------------------------------
<S> <C>
5.1 Opinion of Graham & James LLP/Riddell Williams P.S.
23.1 Consent of Graham & James LLP/Riddell Williams P.S. (included in opinion filed as Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney (included on signature page)
99.1 RealNetworks, Inc. 1995 Stock Option Plan
99.2 RealNetworks, Inc. Amended and Restated 1996 Stock Option Plan
</TABLE>
<PAGE>
Exhibit 5.1
September 14, 1998
RealNetworks, Inc.
1111 Third Avenue, Suite 2900
Seattle, WA 98101
RE: FORM S-8 REGISTRATION STATEMENT
Ladies and Gentlemen:
We have acted as counsel to RealNetworks, Inc., a Washington corporation (the
"Company"), in connection with the preparation of its Registration Statement on
Form S-8 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Act"), which the Company will file with the Securities and
Exchange Commission with respect to (i) an aggregate of One Million Twenty-One
Thousand Eight Hundred Forty-Eight (1,021,848) shares of Common Stock of the
Company (the "1995 Shares") issuable on exercise of options granted under the
Company's 1995 Stock Option Plan (the "1995 Plan"), and (ii) an aggregate of
Eleven Million Five Hundred Twenty-Eight Thousand Eight Hundred Ten (11,528,810)
Shares of Common Stock of the Company (the "1996 Shares") issuable upon exercise
of options granted under the Company's Amended and Restated 1996 Stock Option
Plan (the "1996 Plan").
We have examined the Registration Statement and such other documents and records
as we have deemed relevant and necessary for the purpose of this opinion.
Based upon and subject to the foregoing, we are of the opinion that the 1995
Shares and the 1996 Shares, respectively, issuable under the 1995 Plan and the
1996 Plan, respectively, will, upon due execution by the Company and the
registration by its registrar of the certificates for the 1995 Shares and the
1996 Shares, respectively, and issuance thereof by the Company and receipt by
the Company of the consideration therefor in accordance with the terms of the
1995 Plan and the 1996 Plan, respectively, be validly issued, fully paid and
nonassessable.
We note that members of, lawyers of counsel to, and associates performing
services for the Company in connection with their employment by, our firm
beneficially own in the aggregate One Thousand Eight Hundred Twenty (1,820)
shares of Common Stock of the Company.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving such consent, we do not admit that we are in
the category of persons whose consent is required under Section 7 of the Act.
Very truly yours,
Laura T. Puckett
of
GRAHAM & JAMES LLP/RIDDELL WILLIAMS P.S.
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
RealNetworks, Inc.:
We consent to incorporation herein by reference of our reports dated January 21,
1998, except for note 9(b), which is as of March 24, 1998, relating to the
consolidated balance sheets of RealNetworks, Inc. and subsidiaries as of
December 31, 1996 and 1997, and the related consolidated statements of
operations, shareholders' equity (deficit), and cash flows for each of the years
in the three-year period ended December 31, 1997, and related financial
statement schedule, which reports appear in the December 31, 1997 annual report
on Form 10-K of RealNetworks, Inc.
KPMG Peat Marwick LLP
Seattle, Washington
September 10, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF PRICEWATERHOUSECOOPERS LLP
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 of RealNetworks, Inc. and subsidiaries of our report dated
March 20, 1998 relating to the financial statements of Vivo Software, Inc.,
which appears in Amendment No. 1 to the Current Report on Form 8-K/A of
RealNetworks, Inc. and subsidiaries dated March 24, 1998.
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 10, 1998
<PAGE>
Exhibit 99.1
REALNETWORKS, INC.
1995 STOCK OPTION PLAN
ARTICLE 1
PURPOSE AND EFFECTIVENESS
1.1 PURPOSE. The purpose of the 1995 Stock Option Plan (the "Plan") is to
provide a method by which selected individuals rendering services to
RealNetworks, Inc., a Washington corporation (the "Company"), may be offered an
opportunity to invest in capital stock of the Company, thereby increasing their
personal interest in the growth and success of the Company. The Plan is also
intended to aid in attracting persons of exceptional ability to become officers
and employees of the Company.
1.2 EFFECTIVE DATE; SHAREHOLDER APPROVAL. The Plan shall be effective at
the time specified in the resolutions of the Board adopting the Plan (the
"Effective Date"). The Plan shall be subject to the requirement of RCW
21.20.310(10) that the Administrator of Securities of the Department of
Financial Institutions of the State of Washington be provided with notification
of the adoption of the Plan. No Option shall be granted hereunder until this
notification requirement has been satisfied. The issuance of Incentive Stock
Options shall be subject to approval of the Plan by holders of shares of Common
Stock constituting at least a majority of the shares of Common Stock represented
in person or by proxy at the meeting at which the approval is sought. If this
shareholder approval requirement is not satisfied within twelve (12) months
after the Effective Date, all Incentive Stock Options issued under the Plan
shall automatically become Nonqualified Stock Options.
ARTICLE 2
DEFINITIONS
2.1 CERTAIN DEFINED TERMS. Capitalized terms not defined elsewhere in the
Plan shall have the following meanings (whether used in the singular or plural):
"Administrative Committee" is defined in Section 3.1.
"Affiliate" of the Company means any corporation, partnership, or other
business association that, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with the
Company.
"Approved Transaction" means (a) any merger, consolidation or binding share
exchange pursuant to which shares of Common Stock are changed or converted into
or exchanged for cash, securities or other property, other than any such
transaction in which the persons who hold Common Stock immediately prior to the
transaction have immediately following the transaction the same proportionate
ownership of the common stock of, and the same voting power with respect to, the
surviving corporation; (b) any merger, consolidation or binding share exchange
in which the persons who hold Common Stock immediately prior to the transaction
have immediately following
<PAGE>
the transaction less than a majority of the combined voting power of the
outstanding capital stock of the Company ordinarily (and apart from rights
accruing under special circumstances) having the right to vote in the election
of directors; (c) any liquidation or dissolution of the Company; and (d) any
sale, lease, exchange or other transfer not in the ordinary course of business
(in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute or statutes thereto. Reference to any specific
section of the Code shall include any successor section.
"Common Stock" means the Series B Common Stock or the Series C Common Stock
of the Company.
"Company" means RealNetworks, Inc., a Washington corporation.
"Control Purchase" means any transaction (or series of related
transactions), consummated without the approval or recommendation of the Board,
in which (a) any person, corporation or other entity (including any "person" as
defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act, but excluding the
Company and any employee benefit plan sponsored by the Company) purchases any
Common Stock (or securities convertible into Common Stock) for cash, securities
or any other consideration pursuant to a tender offer or exchange offer; or (b)
any person, corporation or other entity (including any "person" as defined in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act, but excluding the Company
and any employee benefit plan sponsored by the Company) becomes the "beneficial
owner" (as that term is defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing fifty percent (50%) or
more of the combined voting power of the then outstanding securities of the
Company ordinarily (and apart from rights accruing under special circumstances)
having the right to vote in the election of directors (calculated as provided in
Rule 13d-3(d) under the Exchange Act in the case of rights to acquire the
Company's securities).
"Disability" means the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
that can be expected to result in death or that has lasted or can be expected to
last for a continuous period of not less than twelve (12) months.
"Disinterested Person" is defined in Section 3.2(b).
"Effective Date" is defined in Section 1.2.
"Eligible Person" is defined in Section 5.1.
"Equity Securities" has the meaning given that term in Rule 16a-1
promulgated under the Exchange Act, or any successor rule.
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor statute or statutes thereto. Reference to any
specific section of the Exchange Act shall include any successor section.
"Fair Market Value" on any day means, if the Common Stock is publicly
traded, the last sales price (or, if no last sales price is reported, the
average of the high bid and low asked prices) for a share of Common Stock on
that day (or, if that day is not a trading day, on the next preceding trading
day), as reported by the principal exchange on which the Common Stock is listed,
or, if the Common Stock is publicly traded but not listed on an exchange, as
reported by The Nasdaq Stock Market, or, if such prices or quotations are not
reported by The Nasdaq Stock Market, as reported by any other available source
of prices or quotations selected by the Administrative Committee. If the Common
Stock is not publicly traded, or if the Fair Market Value is not determinable by
any of the foregoing means, the Fair Market Value on any day shall be determined
in good faith by the Administrative Committee on the basis of such
considerations as the Administrative Committee deems appropriate.
"Holder" means an Eligible Person who has received an Option under this
Plan or, if rights continue under the Option following the death of the Eligible
Person, the person who succeeds to those rights by will or by the laws of
descent and distribution.
"Incentive Stock Option" means an Option that is an incentive stock option
within the meaning of Section 422 of the Code.
"NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotation System.
"Nonqualified Stock Option" means an Option that is designated as a
nonqualified stock option.
"Option" means an Incentive Stock Option or Nonqualified Stock Option.
"Option Agreement" is defined in Section 6.5.
"Plan" is defined in Section 1.1.
"Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, as
amended from time to time, or any successor rule thereto.
"10% Shareholder" means a person who owns (or is considered as owning
within the meaning of Section 424 of the Code) stock possessing more than 10% of
the total combined voting power of all classes of capital stock of the Company.
<PAGE>
ARTICLE 3
ADMINISTRATION
3.1 ADMINISTRATIVE COMMITTEE. The Plan shall be administered by the Board
unless the Board, either voluntarily or as required by Section 3.2 below,
appoints a separate committee of the Board to administer the Plan (the Board, or
such committee, if it is administering the Plan, will be referred to in the Plan
as the "Administrative Committee"). The Administrative Committee shall select
one of its members as its chairman and shall hold its meetings at such times and
places as it shall deem advisable. A majority of its members shall constitute a
quorum and all determinations shall be made by a majority of that quorum. Any
determination reduced to writing and signed by all of the members of the
Administrative Committee shall be fully as effective as if it had been made by a
majority vote at a meeting duly called and held.
3.2 ADMINISTRATION FOLLOWING EXCHANGE ACT REGISTRATION. Notwithstanding
the foregoing provisions of this Article 3, if the Company registers any class
of any Equity Security pursuant to Section 12 of the Exchange Act, the Plan
shall, from the effective date of the registration until six (6) months after
the termination of the registration, be administered as follows:
(a) If at any time a member of the Board is not a Disinterested
Person, then the Board shall appoint a committee, consisting of two or more of
its members each of whom is a Disinterested Person, to administer the Plan in
accordance with such terms and conditions not inconsistent with this Plan as the
Board my prescribe. Once appointed, the committee shall continue to serve until
otherwise directed by the Board. From time to time the Board may increase the
size of the committee and appoint additional members, remove members (with or
without cause) and appoint new members in their place, fill vacancies however
caused, and/or remove all members of the committee and thereafter directly
administer the Plan at any later time when all members of the Board are
Disinterested Persons. At no time shall a person who is not a Disinterested
Person serve on the committee appointed under this Section 3.2(a), nor shall the
committee at any time have fewer than two members.
(b) The term "Disinterested Person" shall mean a member of the Board
who is not, during the period of one (1) year prior to service as a member of
the Administrative Committee, or during such service, granted or awarded Equity
Securities pursuant to the Plan or any other plan of the Company or any of its
Affiliates, other than grants or awards that would not prevent the member from
being a "disinterested person" with respect to the plan for purposes of Rule
16b-3.
3.3 POWERS; REGULATIONS. The Administrative Committee shall have full
power and authority, subject only to the express provisions of the Plan (a) to
designate the Eligible Persons to whom Options are to be granted under the Plan;
(b) to determine the number of shares subject to, and all of the other terms and
conditions (which need not be identical) of, all Options so granted; (c) to
interpret the provisions of the Plan and the Option Agreements evidencing the
Options so granted; (d) to correct any defect, supply any information and
reconcile any inconsistency in such manner and to such extent as shall be deemed
necessary or advisable to carry out the purpose of the Plan; (e) to supervise
the administration of the Plan; and (f) to take such other actions in connection
with or in relation to the Plan as it deems necessary or advisable. The
Administrative Committee is authorized to establish, amend and rescind such
rules and regulations not inconsistent with the
<PAGE>
terms and conditions of the Plan as it deems necessary or advisable for the
proper administration of the Plan. In making determinations hereunder, the
Administrative Committee may give such consideration to the recommendations of
management of the Company as the Administrative Committee deems desirable.
3.4 LIMITS ON AUTHORITY. Exercise by the Administrative Committee of its
authority under the Plan shall be consistent (a) with the intent that all
Incentive Stock Options issued under the Plan be qualified under the terms of
Section 422 of the Code (including any amendments thereto and any similar
successor provision), and (b) if the Company registers any class of Equity
Security pursuant to Section 12 of the Exchange Act, with the intent that the
Plan be administered in a manner that satisfies the conditions of Rule 16b-
3(c)(2)(I) under the Exchange Act (including amendments thereto and any similar
successor provision) so that the grant of Options under this Plan, as well as
all other transactions with respect to the Plan, to Options granted thereunder
and to any Common Stock acquired upon exercise of Options, shall, to the extent
possible, be exempt from the operation of Section 16(b) of the Exchange Act.
3.5 EXERCISE OF AUTHORITY. Each action and determination made or taken
pursuant to the Plan by the Administrative Committee, including but not limited
to any interpretation or construction of the Plan and the Option Agreements,
shall be final and conclusive for all purposes and upon all persons. No member
of the Administrative Committee shall be liable for any action or determination
made or taken by the member or the Administrative Committee in good faith with
respect to the Plan.
ARTICLE 4
SHARES SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. Subject to the provisions of this Article 4, the
maximum number of shares of Common Stock with respect to which Options may be
granted during the term of the Plan shall be Three Million Six Hundred Thousand
(3,600,000). Shares of Common Stock will be made available from the authorized
but unissued shares of the Company or from shares reacquired by the Company. If
any Option terminates for any reason without having been exercised in full, the
shares of Common Stock subject to the Option for which it has not been exercised
shall again be available for purposes of the Plan.
4.2 ADJUSTMENTS. If the Company subdivides its outstanding shares of
Common Stock into a greater number of shares of Common Stock (by stock dividend,
stock split, reclassification or otherwise) or combines its outstanding shares
of Common Stock into a smaller number of shares of Common Stock (by reverse
stock split, reclassification or otherwise), or if the Administrative Committee
determines, in its sole discretion, that any stock dividend, extraordinary cash
dividend, reclassification, recapitalization, reorganization, split-up, spin-
off, combination, exchange of shares, warrants or rights offering to purchase
Common Stock, or other similar corporate event (including a merger or
consolidation other than one that constitutes an Approved Transaction) affects
the Common Stock such that an adjustment is required in order to preserve the
benefits or potential benefits intended to be made available under this Plan,
then the Administrative Committee shall, in its sole discretion and in such
manner as the Administrative Committee may deem equitable and appropriate, make
adjustments to any or all of (a) the number and kind of shares with respect to
which Options may thereafter be granted under this Plan; (b) the number and kind
of shares subject to outstanding Options, and (c) the purchase price under
outstanding Options;
<PAGE>
PROVIDED, HOWEVER, that the number of shares subject to an Option shall always
be a whole number. The Administrative Committee may, if deemed appropriate,
provide for a cash payment to any Holder of an Option in connection with any
adjustment made pursuant to this Section 4.2.
ARTICLE 5
ELIGIBILITY
5.1 GENERAL. The persons eligible to participate in the Plan and to
receive Options under the Plan ("Eligible Persons") shall, subject to Section
5.2, be (a) employees (including officers and directors who are also employees)
of the Company or any of its Affiliates, and (b) consultants (other than
directors) rendering services to the Company or any of its Affiliates in the
capacity of independent contractors. Options may be granted to Eligible Persons
even if they hold or have held Options under this Plan or options or similar
awards under any other plan of the Company or any of its Affiliates.
5.2 INELIGIBILITY. If the Company registers any class of any Equity
Security pursuant to Section 12 of the Exchange Act, then, from the effective
date of the registration until six (6) months after the termination of the
registration, no member of the Administrative Committee, while serving as such,
shall be eligible to receive an Option.
ARTICLE 6
STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the limitations of the Plan, the
Administrative Committee shall designate from time to time each Eligible Person
who is to be granted an Option, the time when the Option shall be granted, the
number of shares subject to the Option, whether the Option is to be an Incentive
Stock Option or a Nonqualified Stock Option and, subject to Section 6.2, the
purchase price of the shares of Common Stock subject to the Option; PROVIDED,
HOWEVER, that Incentive Stock Options may only be granted to Eligible Persons
who are employees of the Company or an Affiliate that constitutes a "parent
corporation" or a "subsidiary corporation" within the meaning of Section 424 of
the Code. Each Option granted under this Plan shall also be subject to such
other terms and conditions not inconsistent with this Plan as the Administrative
Committee, in its sole discretion, determines. Subject to the limitations of the
Plan, the same Eligible Person may receive Incentive Stock Options and
Nonqualified Stock Options at the same time and pursuant to the same Option
Agreement, provided that Incentive Stock Options and Nonqualified Stock Options
are clearly designated as such.
6.2 PURCHASE PRICE. The price at which shares may be purchased upon
exercise of an Option shall be fixed by the Administrative Committee and may be
more than, less than or equal to the Fair Market Value of the Common Stock as of
the date the Option is granted; PROVIDED, HOWEVER, that the purchase price of an
Incentive Stock Option shall be (a) at least 110% of the Fair Market Value as of
the date of grant of the Common Stock subject thereto, if the Incentive Stock
Option is being granted to a 10% Shareholder, and (b) at least 100% of the Fair
Market Value as of the date of grant of the Common Stock subject thereto, if the
Incentive Stock Option is being granted to any other Eligible Person.
<PAGE>
6.3 LIMITATIONS ON GRANTS. The aggregate Fair Market Value of the
shares of Common Stock with respect to which, during any calendar year, one or
more Incentive Stock Options under this Plan (and/or one or more options under
any other plan maintained by the Company or any of its Affiliates for the
granting of options intended to qualify under Section 422 of the Code) become
exercisable for the first time by a Holder shall not exceed $100,000 (said value
to be determined as of the respective dates on which the options are granted to
the Holder). If an Option that would otherwise qualify as an Incentive Stock
Option becomes exercisable for the first time in any calendar year for shares of
Common Stock that would cause such aggregate Fair Market Value to exceed
$100,000, then the portion of the Option in respect of such shares shall be
deemed to be a Nonqualified Stock Option.
6.4 TERM OF OPTIONS. Subject to the provisions of the Plan with respect
to termination of Options upon death, Disability or termination of services, the
term of each Option shall be for such period as the Administrative Committee
shall determine, but not more than (a) five (5) years from the date of grant in
the case of Incentive Stock Options held by 10% Shareholders; (b) ten (10) years
from the date of grant in the case of Incentive Stock Options held by persons
other than 10% Shareholders; and (c) twenty (20) years from the date of grant in
the case of all other Options, provided, however, that the term for a
-------- -------
Nonqualified Stock Option granted more than one (1) year following the Effective
Date shall be ten (10) years unless otherwise determined by the Administrative
Committee.
6.5 OPTION AGREEMENT. Each Option granted under the Plan shall be
evidenced by an agreement (the "Option Agreement") which shall designate the
Option as an Incentive Stock Option or a Nonqualified Stock Option and contain
such terms and provisions not inconsistent with the provisions of the Plan as
the Administrative Committee from time to time approves. Each grantee of an
Option shall be notified promptly of the grant, an Option Agreement shall be
executed and delivered by the Company to the grantee within sixty (60) days
after the date the Administrative Committee approves the grant, and, in the
discretion of the Administrative Committee, the grant shall terminate if the
Option Agreement is not signed by the grantee (or his or her attorney) and
delivered to the Company within sixty (60) days after it is delivered to the
grantee. An Option Agreement may contain (but shall not be required to contain)
such provisions as the Administrative Committee deems appropriate to insure that
the penalty provisions of Section 4999 of the Code will not apply to any stock
received by the Holder from the Company. An Option Agreement may be modified
from time to time pursuant to Section 7.6(b).
6.6 EXERCISE OF OPTIONS. An Option granted under the Plan shall become
and remain exercisable during the term of the Option to the extent provided in
the Option Agreement evidencing the Option and in this Plan and, unless the
Option Agreement otherwise provides, may be exercised to the extent exercisable,
in whole or in part, at any time and from time to time during such term;
PROVIDED, HOWEVER, that subsequent to the grant of an Option, the Administrative
Committee, at any time before complete termination of the Option, may accelerate
the time or times at which the Option may be exercised in whole or in part
(without reducing the term of the Option).
<PAGE>
6.7 MANNER OF EXERCISE.
(a) FORM OF PAYMENT. An Option shall be exercised by written notice
to the Company upon such terms and conditions as the Option Agreement evidencing
the Option may provide and in accordance with such other procedures for the
exercise of Options as the Administrative Committee may establish from time to
time. The method or methods of payment of the purchase price for the shares to
be purchased upon exercise of an Option and of any amounts required by Section
7.8 shall be determined by the Administrative Committee and may consist of (i)
cash, (ii) check, (iii) promissory note, (iv) whole shares of Common Stock
already owned by the Holder, (v) the withholding of shares of Common Stock
issuable upon exercise of the Option, (vi) the delivery, together with a
properly executed exercise notice, of irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds required to
pay the purchase price, (vii) any combination of the foregoing methods of
payment, or (viii) such other consideration and method of payment as may be
permitted for the issuance of shares under applicable securities and other laws.
The permitted methods or methods of payment of the amounts payable upon exercise
of an Option, if other than in cash, shall be set forth in the Option Agreement
evidencing the Option and may be subject to such conditions as the
Administrative Committee deems appropriate. Without limiting the generality of
the foregoing, if a Holder is permitted to elect to have shares of Common Stock
issuable upon exercise of an Option withheld to pay all or any part of the
amounts payable in connection with the exercise, then the Administrative
Committee shall have the sole discretion to approve or disapprove the election,
which approval or disapproval shall be given after the election is made, and the
making of the election (including the related exercise of the Option) shall
comply with the requirements for exemptive relief under Rule 16b-3, including
but not limited to paragraphs (e)(3) and (e)(4)thereof (to the extent Rule 16b-3
applies to the election or exercise).
(b) VALUE OF SHARES. Shares of Common Stock delivered in payment of
all or any part of the amounts payable in connection with the exercise of an
Option, and shares of Common Stock withheld for the payment, shall be valued for
such purpose at their Fair Market Value as of the exercise date.
(c) ISSUANCE OF SHARES. The Company shall effect the issuance of the
shares of Common Stock purchased under the Option as soon as practicable after
the exercise thereof and payment in full of the purchase price therefor and of
any amounts required by Section 7.8, and within a reasonable time thereafter the
issuance shall be evidenced on the books of the Company.
6.8 LEGENDS. Each certificate representing shares of Common Stock issued
under the Plan upon exercise of an Option shall, unless the Administrative
Committee otherwise determines, contain on its face the notice "SEE TRANSFER
RESTRICTIONS ON REVERSE" and on its reverse a legend in form substantially as
follows, together with any other legends that are required by the terms and
conditions of the Plan or that the Administrative Committee in its discretion
deems necessary or appropriate:
NOTICE: TRANSFER AND OTHER RESTRICTIONS
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, OR ANY STATE SECURITIES LAWS,
AND MAY NOT BE OFFERED, SOLD, TRANSFERRED,
<PAGE>
ENCUMBERED, OR OTHERWISE DISPOSED OF EXCEPT UPON SATISFACTION OF CERTAIN
CONDITIONS. INFORMATION CONCERNING THESE RESTRICTIONS MAY BE OBTAINED FROM
THE CORPORATION. ANY OFFER OR DISPOSITION OF THESE SECURITIES WITHOUT
SATISFACTION OF SAID CONDITIONS WILL BE WRONGFUL AND WILL NOT ENTITLE THE
TRANSFEREE TO REGISTER OWNERSHIP OF THE SECURITIES WITH THE CORPORATION.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
RESTRICTIONS ON TRANSFER, AND MAY BE SUBJECT TO REPURCHASE BY THE
CORPORATION OR ONE OR MORE OF ITS SHAREHOLDERS PURSUANT TO THE PROVISIONS
OF THE CORPORATION'S 1995 STOCK OPTION PLAN AND/OR AN AGREEMENT BETWEEN THE
HOLDER AND THE CORPORATION AND/OR AN AGREEMENT AMONG THE CORPORATION AND
ITS SHAREHOLDERS. INFORMATION CONCERNING THESE RESTRICTIONS MAY BE OBTAINED
FROM THE CORPORATION.
The Company may cause the transfer agent for the Common Stock to place a stop
transfer order with respect to such shares.
6.9 NONTRANSFERABILITY. Options shall not be transferable other than by
will or the laws of descent and distribution, and Options may be exercised
during the lifetime of the Holder thereof only by the Holder (or his or her
court appointed legal representative).
6.10 REPURCHASE OF SHARES.
(a) RIGHT OF REPURCHASE. The Company shall have the right, but
shall not be required, to repurchase from a Holder who is an employee of the
Company or any of its Affiliates or a party to a written consulting agreement
with the Company or any of its Affiliates, all or part of the shares of Common
Stock that the Holder has acquired upon the exercise of the Option. Such right
shall be exercisable at any time and from time to time during the period of
ninety (90) days commencing on the date of termination of the Holder's
employment or consulting agreement with the Company or any of its Affiliates for
"cause," as defined in Section 7.2(b).
(b) EXERCISE OF REPURCHASE RIGHT. The Company's right of repurchase
under this Section 6.10 shall be exercised by delivery written notice to the
Holder specifying the number of shares or other securities to be repurchased and
the effective date of the repurchase, which date shall not be earlier than the
date of the notice nor later than the date of termination of the Company's right
of repurchase.
(c) REPURCHASE PRICE. With respect to each share to be repurchased
by the Company upon its exercise of its right of repurchase under this Section
6.10, the repurchase price shall be the Fair Market Value of the share as of the
effective date of the repurchase. The Company may elect to pay the amount owed
to the Holder either (i) in cash, in which case the amount shall be paid,
without interest, within thirty (30) days following the effective date of the
repurchase, or (ii) in three equal installments, with the first installment
payable on the first anniversary of the effective date of the repurchase, and
the remaining installments payable on the corresponding date in each of the next
two years, with each installment to include interest on the unpaid principal
computed at the
<PAGE>
prime rate in effect at the effective date of the repurchase, for the period
from the effective date of the repurchase or the date of the most recent
installment, as the case may be, to the due date of the installment being paid.
(d) TERMINATION OF RIGHT OF REPURCHASE. Any right of repurchase
of the Company under this Section 6.10 shall terminate upon the occurrence of a
Control Purchase or an Approved Transaction (other than an Approved Transaction
in connection with which the Administrative Committee determines, in accordance
with the last sentence of Section 7.1, that Options otherwise subject to such
right of repurchase will not vest or become exercisable on an accelerated basis
and/or will not terminate if not exercised prior to consummation of the Approved
Transaction). Any right of repurchase of the Company under this Section 6.10
shall also terminate upon the effective date of the registration by the Company
of any class of any Equity Security pursuant to Section 12 of the Exchange Act.
6.11 CLASS OF COMMON STOCK. The class of shares subject to each Option
and the class of shares to be received upon exercise of each Option shall depend
upon the employment status of the Eligible Person at the date the Option is
granted and at the date the Option is exercised. If the Eligible Person is an
employee (including officers and directors who are also employees) of the
Company or one of its Affiliates as of the date the Option is granted, the
shares subject to the Option shall be shares of Series B Common Stock, which are
automatically convertible into the shares of Series C Common Stock upon the
occurrence of certain events (a "Conversion Event") as described in the
Company's Articles of Incorporation, as amended from time to time (the
"Articles"), provided, that if a Conversion Event occurs prior to the exercise
--------
of an Option, the shares subject to the Option shall be shares of Series C
Common Stock, with the rights defined in the Articles. If the Eligible Person
is a consultant (other than a director) rendering services to the Company or any
of its Affiliates in the capacity of an independent contractor as of the date
the Option is granted, the shares subject to the Option shall be shares of
Series C Common Stock, with the rights defined in the Articles, regardless of
the Eligible Person's employment status with the Company at the date the Option
is exercised.
6.12 DELEGATION TO EXECUTIVE OFFICER OF AUTHORITY TO GRANT OPTIONS. The
Board may delegate to an Executive Officer the authority to determine from time
to time (a) the Eligible Persons to whom Options are to be granted; (b) the
number of shares of Common Stock for which the Options are exercisable and the
purchase price of such shares; (c) whether the Options are Incentive Stock
Options or Nonqualified Stock Options; and (d) all of the other terms and
conditions (which need not be identical) of the Options; PROVIDED, HOWEVER, that
(i) the authority delegated to the Executive Officer under this Section 6.12
shall not exceed that of the Administrative Committee under the foregoing
provisions of this Article 6 and shall be subject to such limitations, in
addition to those specified in this Section 6.12, as may be specified by the
Board at the time of delegation; (ii) the Executive Officer may not be delegated
authority under this Section 6.12 to grant any Option to any person who is an
Executive Officer or a director of the Company at the time of the grant; (iii)
the purchase price of each share of Common Stock under an Option granted under
this Section 6.12 shall not be less than the Fair Market Value of such share on
the date of grant of the Option; and (iv) the Executive Officer shall promptly
provide a report to the Administrative Committee of each person to whom an
Option has been granted under this Section 6.12 and the material terms and
conditions of the Option.
<PAGE>
ARTICLE 7
GENERAL PROVISIONS
7.1 ACCELERATION OF OPTIONS--APPROVED TRANSACTIONS; CONTROL PURCHASE.
In the event of any Approved Transaction or Control Purchase, each outstanding
Option under the Plan shall become exercisable in full in respect of the
aggregate number of shares covered thereby, notwithstanding any contrary vesting
schedule in the Option Agreement evidencing the Option (except to the extent the
Option Agreement expressly provides otherwise), effective upon the Control
Purchase or immediately prior to consummation of the Approved Transaction. In
the case of an Approved Transaction, the Company shall provide notice of the
pendency of the Approved Transaction, at least fifteen (15) days prior to the
expected date of consummation thereof, to each Holder of an outstanding Option.
Each Holder shall thereupon be entitled to exercise the Option at any time prior
to consummation of the Approved Transaction. Any such exercise as to any portion
of the Option that will only become vested immediately prior to the consummation
of the Approved Transaction in accordance with the foregoing acceleration
provision shall be contingent on such consummation. Any such exercise as to any
other portion of the Option will not be contingent on such consummation unless
so elected by the Holder in a notice delivered to the Company simultaneously
with the exercise. Upon consummation of the Approved Transaction, all Options
shall expire to the extent such exercise has not occurred. Notwithstanding the
foregoing, except to the extent otherwise provided in one or more Option
Agreements evidencing Options, the Administrative Committee may, in its
discretion, determine that any or all outstanding Options will not vest or
become exercisable on an accelerated basis in connection with an Approved
Transaction and/or will not terminate if not exercised prior to consummation of
the Approved Transaction, if the Board or the surviving or acquiring
corporation, as the case may be, shall take, or made effective provision for the
taking of, such action as in the opinion of the Administrative Committee is
equitable and appropriate in order to substitute new Options for such Options,
or to assume such Options (which assumption may be effected by any means
determined by the Administrative Committee, in its discretion, including, but
not limited to, by a cash payment to each Holder, in cancellation of the Options
held by him or her, of such amount as the Administrative Committee determines,
in its sole discretion, represents the then value of the Options) and in order
to make such new or assumed Options, as nearly as practicable, equivalent to the
old Options (before giving effect to any acceleration of the vesting or
exercisability thereof), taking into account, to the extent applicable, the kind
and amount of securities, cash or other assets into or for which the Common
Stock may be changed, converted or exchanged in connection with the Approved
Transaction.
7.2 TERMINATION OF SERVICES. The provisions of this Section 7.2
shall apply to any Holder who is an employee of the Company or any of its
Affiliates or a party to a written consulting agreement with the Company or any
of its Affiliates .
(a) GENERAL. If such a Holder's employment or consulting agreement
terminates prior to the complete exercise of an Option, then the Option shall,
except to the extent the Option Agreement evidencing the Option expressly
provides otherwise, thereafter be exercisable, to the extent that the Holder was
entitled to exercise the Option on the date of such termination, for a period of
three (3) months following such termination (but not later than the scheduled
expiration date of the Option); PROVIDED, HOWEVER, that (i) if the Holder's
employment or consulting agreement terminates by reason of death or Disability,
then, except to the extent the Option Agreement evidencing the Option expressly
provides otherwise, the Option shall be exercisable, to the extent that the
Holder was entitled to exercise the Option on the date of such
<PAGE>
termination, for a period of one (1) year following such termination (but not
later than the scheduled expiration of the Option), and (ii) any termination by
the Company or any of its Affiliates for cause will be treated in accordance
with the provisions of Section 7.2(b) (except to the extent the Option Agreement
expressly provides otherwise).
(b) TERMINATION BY COMPANY FOR CAUSE. If a Holder's employment or
consulting agreement with the Company or any of its Affiliates is terminated for
cause, then all Options held by the Holder shall immediately terminate and,
accordingly, may not be exercised, except to the extent one or more of the
Option Agreements evidencing the Options expressly provides otherwise. For
purposes of this Plan, "cause" shall have the meaning given that term in any
employment agreement or consulting agreement to which the Holder is a party or,
in the absence thereof, the conduct that shall constitute "cause" for purposes
of this Plan shall be insubordination, dishonesty, incompetence, moral
turpitude, the refusal to perform the Holder's duties and responsibilities for
any reason other than illness or incapacity, and any other misconduct of any
kind that the Administrative Committee determines constitutes "cause" for
purposes of this Plan; PROVIDED, HOWEVER, that if a termination occurs within
twelve (12) months after an Approved Transaction or Control Purchase,
termination for cause shall mean only a felony conviction for fraud,
misappropriation or embezzlement.
(c) MISCELLANEOUS. The Administrative Committee may determine whether
any given leave of absence of a Holder constitutes a termination of the Holder's
employment or consulting agreement; PROVIDED, HOWEVER, that for purposes of the
Plan--
(i) a leave of absence, duly authorized in writing by the Company or
any of its Affiliates for military service or sickness, or for any other purpose
approved by the Company or any of its Affiliates, if the period of the leave
does not exceed ninety (90) days, and
(ii) a leave of absence in excess of ninety (90) days, duly authorized
in writing by the Company or any of its Affiliates, provided the Holder's right
to return to service with the Company or the Affiliate is guaranteed either by
statute or by contract--
shall not be deemed a termination of the Holder's employment or consulting
agreement. Options granted under the Plan shall not be affected by any change of
a Holder's employment or consulting agreement so long as the Holder continues to
be an employee of or consultant to the Company or any of its Affiliates. Except
to the extent an Option Agreement evidencing an Option expressly provides
otherwise, if a Holder has an employment or consulting agreement with an
Affiliate of the Company that ceases to be an Affiliate, such event shall be
deemed to constitute a termination of the Holder's employment or consulting
agreement for a reason other than death or Disability.
7.3 RIGHT TO TERMINATE SERVICES. Nothing contained in the Plan or in any
Option Agreement, and no action of the Company or the Administrative Committee
with respect thereto, shall confer or be construed to confer on any Holder any
right to continue in the service of the Company or any of its Affiliates or
interfere in any way with the right of the Company or any of its Affiliates,
subject to the provisions of any agreement between the Holder and the Company or
any of its Affiliates, to terminate at any time, with or without cause, the
employment or consulting agreement with the Holder.
7.4 NONALIENATION OF BENEFITS. Except as provided in Section 6.9, no
right or benefit under the Plan shall be subject to anticipation, alienation,
sale, assignment, hypothecation, pledge,
<PAGE>
exchange, transfer, encumbrance or charge, and any attempt to anticipate,
alienate, sell, assign, hypothecate, pledge, exchange, transfer, encumber or
charge the same shall be void. No right or benefit hereunder shall in any manner
be liable for or subject to the debts, contracts, liabilities or torts of the
person entitled to the right or benefit.
7.5 SHAREHOLDERS AGREEMENT. Unless the Option Agreement evidencing an
Option expressly provides otherwise, the Holder of the Option shall be required,
as a condition to the issuance of any shares of Common Stock that the Holder
acquires upon the exercise of the Option, to execute and deliver to the Company
a shareholders agreement in such form as may be in use by the Company at the
time of such exercise, or a counterpart thereof, together with, unless the
Holder is unmarried, a spousal consent in the form required thereby, unless the
Holder has previously executed and delivered such documents and they are in
effect at the time the shares are to be issued.
7.6 TERMINATION AND AMENDMENT.
(a) GENERAL. Unless the Plan shall previously have been terminated
as hereinafter provided, no Options may be granted under the Plan on or after
the tenth (10th) anniversary of the Effective Date. The Board or the
Administrative Committee may at any time prior to the tenth (10th) anniversary
of the Effective Date terminate the Plan, and may, from time to time, suspend or
discontinue the Plan or modify or amend the Plan in such respects as it shall
deem advisable; PROVIDED, HOWEVER, that any such modification or amendment shall
comply with all applicable laws, applicable stock exchange listing requirements,
and applicable requirements for exemption (to the extent necessary) under Rule
16b-3. Notwithstanding the foregoing, if shareholder approval is obtained
pursuant to Section 1.2, without further shareholder approval no modification or
amendment to this Plan shall increase the number of shares of Common Stock
subject to the Plan (except as authorized by Article 4), change the class of
persons eligible to receive Options under the Plan, or otherwise materially
increase the benefits accruing to participants under the Plan.
(b) MODIFICATION. No termination, modification or amendment of the
Plan may adversely affect the rights of the Holder of an outstanding Option in
any material way unless the Holder consents thereto. No modification, extension,
renewal or other change in any Option granted under the Plan shall be made after
the grant of the Option, unless the same is consistent with the provisions of
the Plan. With the consent of the Holder and subject to the terms and conditions
of the Plan (including Section 7.6(a)), the Administrative Committee may amend
outstanding Option Agreements with any Holder, including, without limitation,
any amendment that would (i) accelerate the time or times at which the Option
may be exercised, and/or (ii) extend the scheduled expiration date of the
Option. Without limiting the generality of the foregoing, the Administrative
Committee may, but solely with the Holder's consent unless otherwise provided in
the Option Agreement, agree to cancel any Option under the Plan and issue a new
Option in substitution therefor, provided that the Option so substituted shall
satisfy all of the requirements of the Plan as of the date the new Option is
granted. Nothing contained in the foregoing provisions of this Section 7.6(b)
shall be construed to prevent the Administrative Committee from providing in any
Option Agreement that the rights of the Holder with respect to the Option are
subject to such rules and regulations as the Administrative Committee may,
subject to the express provisions of the Plan, adopt from time to time, or
impair the enforceability of any such provision.
7.7 GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company
with respect to Options shall be subject to all applicable laws, rules and
regulations and such approvals
<PAGE>
by any governmental agencies as may be required, including, without limitation,
the effectiveness of any registration statement required under the Securities
Act of 1933, and the rules and regulations of any securities exchange or
association on which the Common Stock may be listed or quoted. As long as the
Common Stock is registered under the Exchange Act, the Company shall use its
reasonable efforts to comply with any legal requirements (a) to maintain a
registration statement in effect under the Securities Act of 1933 with respect
to all shares of Common Stock that may be issued to Holders under the Plan, and
(b) to file in a timely manner all reports required to be filed by it under the
Exchange Act.
7.8 WITHHOLDING. The Company's obligation to deliver shares of Common
Stock upon exercise of an Option shall be subject to applicable federal, state
and local tax withholding requirements. Federal, state and local withholding tax
due at the time an Option is exercised may, in the discretion of the
Administrative Committee, be paid in shares of Common Stock already owned by the
Holder or through the withholding of shares otherwise issuable to the Holder,
upon such terms and conditions as the Administrative Committee shall determine.
If the Holder shall fail to pay, or make arrangements satisfactory to the
Administrative Committee for the payment of, all such federal, state and local
taxes, then the Company or any of its Affiliates shall, to the extent not
prohibited by law, have the right to deduct from any payment of any kind
otherwise due to the Holder an amount equal to any federal, state or local taxes
of any kind required to be withheld by the Company or any of its Affiliates with
respect to the Option.
7.9 SEPARABILITY. With respect to Incentive Stock Options, if this Plan
does not contain any provision required to be included herein under Section 422
of the Code, such provision shall be deemed to be incorporated herein with the
same force and effect as if such provision had been set out at length herein;
PROVIDED, HOWEVER, that to the extent any Option that is intended to qualify as
an Incentive Stock Option cannot so qualify, the Option, to that extent, shall
be deemed to be a Nonqualified Stock Option for all purposes of the Plan.
7.10 NON-EXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the
Board nor the submission of the Plan to the shareholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock options and the awarding of
stock and cash otherwise than under the Plan, and such arrangements may be
either generally applicable or applicable only in specific cases.
7.11 EXCLUSION FROM PENSION AND PROFIT-SHARING COMPUTATION. By acceptance
of an Option, unless otherwise provided in the Option Agreement evidencing the
Option, the Holder shall be deemed to have agreed that the Option is special
incentive compensation that will not be taken into account, in any manner, as
salary, compensation or bonus in determining the amount of any payment under any
pension, retirement or other employee benefit plan, program or policy of the
Company or any of its Affiliates.
7.12 NO SHAREHOLDER RIGHTS. No Holder or other person shall have any
voting or other shareholder rights with respect to shares of Common Stock
subject to an Option until the Option has been duly exercised, full payment of
the purchase price has been made, all conditions under the Option and this Plan
to issuance of the shares have been satisfied, and a certificate for the shares
has been issued. No adjustment shall be made for cash or other dividends or
distributions to shareholders for which the record date is prior to the date of
such issuance.
<PAGE>
7.13 GOVERNING LAW. The Plan shall be governed by, and construed in
accordance with, the laws of the State of Washington.
7.14 COMPANY'S RIGHTS . The grant of Options pursuant to the Plan not
shall affect in any way the right or power of the Company to make
reclassifications, reorganizations or other changes of or to its capital or
business structure or to merge, consolidate, liquidate, sell or otherwise
dispose of all or any part of its business or assets.
<PAGE>
Exhibit 99.2
REALNETWORKS, INC.
AMENDED AND RESTATED 1996 STOCK OPTION PLAN
1
PURPOSE AND EFFECTIVENESS
1.1 PURPOSE. The purpose of the 1996 Stock Option Plan (the "Plan") is to
provide a method by which selected individuals rendering services to
RealNetworks, Inc., a Washington corporation (the "Company"), may be offered an
opportunity to invest in capital stock of the Company, thereby increasing their
personal interest in the growth and success of the Company. The Plan is also
intended to aid in attracting persons of exceptional ability to become officers
and employees of the Company.
1.2 EFFECTIVE DATE; SHAREHOLDER APPROVAL. The Plan shall be effective at the
time specified in the resolutions of the Board adopting the Plan (the "Effective
Date"). The Plan shall be subject to the requirement of RCW 21.20.310(10) that
the Administrator of Securities of the Department of Financial Institutions of
the State of Washington be provided with notification of the adoption of the
Plan. No Option shall be granted hereunder until this notification requirement
has been satisfied. The issuance of Incentive Stock Options shall be subject to
approval of the Plan by holders of shares of Common Stock constituting at least
a majority of the shares of Common Stock represented in person or by proxy at
the meeting at which the approval is sought. If this shareholder approval
requirement is not satisfied within twelve (12) months after the Effective Date,
all Incentive Stock Options issued under the Plan shall automatically become
Nonqualified Stock Options.
2
DEFINITIONS
2.1 CERTAIN DEFINED TERMS. Capitalized terms not defined elsewhere in the
Plan shall have the following meanings (whether used in the singular or plural):
"Administrative Committee" is defined in Section 3.1.
"Affiliate" of the Company means any corporation, partnership, or other
business association that, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with the
Company.
"Approved Transaction" means (a) any merger, consolidation or binding share
exchange pursuant to which shares of Common Stock are changed or converted into
or exchanged for cash, securities or other property, other than any such
transaction in which the persons who hold Common Stock immediately prior to the
transaction have immediately following the transaction the same proportionate
ownership of the common stock of, and the same voting power with respect to, the
surviving corporation; (b) any merger, consolidation or binding share exchange
in which the persons who hold Common Stock immediately prior to the transaction
have immediately following the transaction less than a majority of the combined
voting power of the outstanding capital stock of
<PAGE>
the Company ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors; (c) any
liquidation or dissolution of the Company; and (d) any sale, lease, exchange or
other transfer not in the ordinary course of business (in one transaction or a
series of related transactions) of all, or substantially all, of the assets of
the Company.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to time,
or any successor statute or statutes thereto. Reference to any specific section
of the Code shall include any successor section.
"Common Stock" means the Common Stock, par value $.001 per share, of the
Company.
"Company" means RealNetworks, Inc., a Washington corporation.
"Control Purchase" means any transaction (or series of related transactions),
consummated without the approval or recommendation of the Board, in which (a)
any person, corporation or other entity (including any "person" as defined in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act, but excluding the Company
and any employee benefit plan sponsored by the Company) purchases any Common
Stock (or securities convertible into Common Stock) for cash, securities or any
other consideration pursuant to a tender offer or exchange offer; or (b) any
person, corporation or other entity (including any "person" as defined in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act, but excluding the Company
and any employee benefit plan sponsored by the Company) becomes the "beneficial
owner" (as that term is defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing fifty percent (50%) or
more of the combined voting power of the then outstanding securities of the
Company ordinarily (and apart from rights accruing under special circumstances)
having the right to vote in the election of directors (calculated as provided in
Rule 13d-3(d) under the Exchange Act in the case of rights to acquire the
Company's securities).
"Disability" means the inability to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment that can
be expected to result in death or that has lasted or can be expected to last for
a continuous period of not less than twelve (12) months.
"Disinterested Person" is defined in Section 3.2(b).
"Effective Date" is defined in Section 1.2.
"Eligible Person" is defined in Section 5.
"Equity Securities" has the meaning given that term in Rule 3a11-1 promulgated
under the Exchange Act, as amended from time to time, or any successor rule
thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from time
to time, or any successor statute or statutes thereto. Reference to any specific
section of the Exchange Act shall include any successor section.
<PAGE>
"Executive Officer" means any employee of the company who is an "officer"
within the meaning of Rule 16a-1(f) of the Exchange Act, as amended from time to
time, or any successor rule thereto.
"Fair Market Value" on any day means, if the Common Stock is publicly traded,
the last sales price (or, if no last sales price is reported, the average of the
high bid and low asked prices) for a share of Common Stock on that day (or, if
that day is not a trading day, on the next preceding trading day), as reported
by the principal exchange on which the Common Stock is listed, or, if the Common
Stock is publicly traded but not listed on an exchange, as reported by The
Nasdaq Stock Market, or, if such prices or quotations are not reported by The
Nasdaq Stock Market, as reported by any other available source of prices or
quotations selected by the Administrative Committee. If the Common Stock is not
publicly traded, or if the Fair Market Value is not determinable by any of the
foregoing means, the Fair Market Value on any day shall be determined in good
faith by the Administrative Committee on the basis of such considerations as the
Administrative Committee deems appropriate.
"Holder" means an Eligible Person who has received an Option under this Plan
or, if rights continue under the Option following the death of the Eligible
Person, the person who succeeds to those rights by will or by the laws of
descent and distribution.
"Incentive Stock Option" means an Option that is an incentive stock option
within the meaning of Section 422 of the Code.
"Nonqualified Stock Option" means an Option that is designated as a
nonqualified stock option.
"Option" means an option with respect to shares of Common Stock awarded
pursuant to Article 6.
"Option Agreement" is defined in Section 6.5.
"Plan" is defined in Section 1.1.
"Securities Act" means the Securities Act of 1933, as amended from time to
time, or any successor statute or statutes thereto. Reference to any specific
section of the Securities Act shall include any successor section.
"10% Shareholder" means a person who owns (or is considered as owning within
the meaning of Section 424 of the Code) stock possessing more than 10% of the
total combined voting power of all classes of capital stock of the Company.
3
ADMINISTRATION
3.1 ADMINISTRATIVE COMMITTEE. The Plan shall be administered by the Board
unless the Board, either voluntarily or as required by Section 3.2 below,
appoints a separate committee of the Board to administer the Plan (the Board, or
such committee, if it is administering the Plan, will be referred to in the Plan
as the "Administrative Committee"). The Administrative Committee shall
<PAGE>
select one of its members as its chairman and shall hold its meetings at such
times and places as it shall deem advisable. A majority of its members shall
constitute a quorum and all determinations shall be made by a majority of that
quorum. Any determination reduced to writing and signed by all of the members of
the Administrative Committee shall be fully as effective as if it had been made
by a majority vote at a meeting duly called and held.
3.2 APPOINTMENT OF ADMINISTRATIVE COMMITTEE. The Board may appoint a
committee consisting of two or more of its members to administer the Plan. Once
appointed, the committee shall continue to serve until otherwise directed by the
Board. From time to time the Board may increase the size of the committee and
appoint additional members, remove members (with or without cause) and appoint
new members in their place, fill vacancies however caused, and/or remove all
members of the committee and thereafter directly administer the Plan.
3.3 POWERS; REGULATIONS. The Administrative Committee shall have full power
and authority, subject only to the express provisions of the Plan (a) to
designate the Eligible Persons to whom Options are to be granted under the Plan;
(b) to determine the number of shares subject to, and all of the other terms and
conditions (which need not be identical) of, all Options so granted; (c) to
interpret the provisions of the Plan and the Option Agreements evidencing the
Options so granted; (d) to correct any defect, supply any information and
reconcile any inconsistency in such manner and to such extent as shall be deemed
necessary or advisable to carry out the purpose of the Plan; (e) to supervise
the administration of the Plan; and (f) to take such other actions in connection
with or in relation to the Plan as it deems necessary or advisable. The
Administrative Committee is authorized to establish, amend and rescind such
rules and regulations not inconsistent with the terms and conditions of the Plan
as it deems necessary or advisable for the proper administration of the Plan. In
making determinations hereunder, the Administrative Committee may give such
consideration to the recommendations of management of the Company as the
Administrative Committee deems desirable.
3.4 LIMITS ON AUTHORITY. Exercise by the Administrative Committee of its
authority under the Plan shall be consistent (a) with the intent that all
Incentive Stock Options issued under the Plan be qualified under the terms of
Section 422 of the Code (including any amendments thereto and any similar
successor provision), and (b) if the Company registers any class of Equity
Security pursuant to Section 12 of the Exchange Act, with the intent that the
Plan be administered in a manner so that, to the extent possible, the grant of
Options and all other transactions with respect to the Plan, to Options and to
any Common Stock acquired upon exercise of Options, shall be exempt from the
operation of Section 16(b) of the Exchange Act.
3.5 EXERCISE OF AUTHORITY. Each action and determination made or taken
pursuant to the Plan by the Administrative Committee, including but not limited
to any interpretation or construction of the Plan and the Option Agreements,
shall be final and conclusive for all purposes and upon all persons. No member
of the Administrative Committee shall be liable for any action or determination
made or taken by the member or the Administrative Committee in good faith with
respect to the Plan.
<PAGE>
4
SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to the provisions of this Article 4, the
maximum number of shares of Common Stock with respect to which Options may be
granted during the term of the Plan shall be the sum of (a) 11,300,000, plus (b)
an additional 1,045,436 shares of Common Stock previously reserved for issuance
pursuant to Section 4.1 of the Company's 1995 Stock Option Plan (the "1995
Plan"), plus (c) any of the 1,269,123 shares of Common Stock subject to options
currently outstanding under the 1995 Plan to the extent the options terminate
without having been exercised in full. Shares of Common Stock will be made
available from the authorized but unissued shares of the Company or from shares
reacquired by the Company. If any Option terminates for any reason without
having been exercised in full, the shares of Common Stock subject to the Option
for which it has not been exercised shall again be available for purposes of the
Plan.
4.2 Adjustments. If the Company subdivides its outstanding shares of Common
Stock into a greater number of shares of Common Stock (by stock dividend, stock
split, reclassification or otherwise) or combines its outstanding shares of
Common Stock into a smaller number of shares of Common Stock (by reverse stock
split, reclassification or otherwise), or if the Administrative Committee
determines, in its sole discretion, that any stock dividend, extraordinary cash
dividend, reclassification, recapitalization, reorganization, split-up, spin-
off, combination, exchange of shares, warrants or rights offering to purchase
Common Stock, or other similar corporate event (including a merger or
consolidation other than one that constitutes an Approved Transaction) affects
the Common Stock such that an adjustment is required in order to preserve the
benefits or potential benefits intended to be made available under this Plan,
then the Administrative Committee shall, in its sole discretion and in such
manner as the Administrative Committee may deem equitable and appropriate, make
adjustments to any or all of (a) the number and kind of shares with respect to
which Options may thereafter be granted under this Plan; (b) the number and kind
of shares subject to outstanding Options, and (c) the purchase price under
outstanding Options; PROVIDED, HOWEVER, that the number of shares subject to an
Option shall always be a whole number. The Administrative Committee may, if
deemed appropriate, provide for a cash payment to any Holder of an Option in
connection with any adjustment made pursuant to this Section 4.2.
5
ELIGIBILITY
The persons eligible to participate in the Plan and to receive Options under
the Plan ("Eligible Persons") shall be (a) employees (including officers and
directors who are also employees) of the Company or any of its Affiliates, and
(b) consultants (and directors who are not employees) rendering services to the
Company or any of its Affiliates in the capacity of independent contractors.
Options may be granted to Eligible Persons even if they hold or have held
Options under this Plan or options or similar awards under any other plan of the
Company or any of its Affiliates.
<PAGE>
6
STOCK OPTIONS
6.1 Grant of Options. Subject to the limitations of the Plan, the
Administrative Committee shall designate from time to time each Eligible Person
who is to be granted an Option, the time when the Option shall be granted, the
number of shares subject to the Option, whether the Option is to be an Incentive
Stock Option or a Nonqualified Stock Option and, subject to Section 6.2, the
purchase price of the shares of Common Stock subject to the Option; PROVIDED,
HOWEVER, that Incentive Stock Options may only be granted to Eligible Persons
who are employees of the Company or an Affiliate that constitutes a "parent
corporation" or a "subsidiary corporation" within the meaning of Section 424 of
the Code. Each Option granted under this Plan shall also be subject to such
other terms and conditions not inconsistent with this Plan as the Administrative
Committee, in its sole discretion, determines. Subject to the limitations of the
Plan, the same Eligible Person may receive Incentive Stock Options and
Nonqualified Stock Options at the same time and pursuant to the same Option
Agreement, provided that Incentive Stock Options and Nonqualified Stock Options
are clearly designated as such.
6.2 Purchase Price. The price at which shares may be purchased upon exercise
of an Option shall be fixed by the Administrative Committee and may be more
than, less than or equal to the Fair Market Value of the Common Stock as of the
date the Option is granted; PROVIDED, HOWEVER, that the purchase price of an
Incentive Stock Option shall be (a) at least 110% of the Fair Market Value as of
the date of grant of the Common Stock subject thereto, if the Incentive Stock
Option is being granted to a 10% Shareholder, and (b) at least 100% of the Fair
Market Value as of the date of grant of the Common Stock subject thereto, if the
Incentive Stock Option is being granted to any other Eligible Person.
6.3 Limitations on Grants.
(a) Annual Limitation on Grants of Incentive Stock Options. The
aggregate Fair Market Value of the shares of Common Stock with respect to which,
during any calendar year, one or more Incentive Stock Options under this Plan
(and/or one or more options under any other plan maintained by the Company or
any of its Affiliates for the granting of options intended to qualify under
Section 422 of the Code) become exercisable for the first time by a Holder shall
not exceed $100,000 (said value to be determined as of the respective dates on
which the options are granted to the Holder). If (i) a Holder holds one or more
Incentive Stock Options under this Plan (and/or one or more options under any
other plan maintained by the Company or any of its Affiliates for the granting
of options intended to qualify under Section 422 of the Code), and (ii) the
aggregate Fair Market Value of the shares of Common Stock with respect to which,
during any calendar year, such options become exercisable for the first time
exceeds $100,000 (said value to be determined as provided above), then such
option or options are intended to qualify under Section 422 of the Code with
respect to the maximum number of such shares as can, in light of the foregoing
limitation, be so qualified, with the shares so qualified to be the shares
subject to the option or options earliest granted to the Holder. If an Option
that would otherwise qualify as an Incentive Stock Option becomes exercisable
for the first time in any calendar year for shares of Common Stock that would
cause such aggregate Fair Market Value to exceed $100,000, then the portion of
the Option in respect of such shares shall be deemed to be a Nonqualified Stock
Option.
<PAGE>
(b) Annual Limitation on Grants Following Exchange Act Registration. If
the Company registers any class of any Equity Security pursuant to Section 12 of
the Exchange Act, then, from the effective date of the registration until six
(6) months after the termination of the registration, the number of shares
subject to one or more Options granted during any calendar year to an Eligible
Person shall not exceed one million (1,000,000).
6.4 Term of Options. Subject to the provisions of the Plan with respect to
termination of Options upon death, Disability or termination of services, the
term of each Option shall be for such period as the Administrative Committee
shall determine, but not more than (a) five (5) years from the date of grant in
the case of Incentive Stock Options held by 10% Shareholders; (b) ten (10) years
from the date of grant in the case of Incentive Stock Options held by persons
other than 10% Shareholders; and (c) twenty (20) years from the date of grant in
the case of all other Options, provided, however, that the term for a
-------- -------
Nonqualified Stock Option granted more than one (1) year following the Effective
Date shall be ten (10) years unless otherwise determined by the Administrative
Committee.
6.5 Option Agreement. Each Option granted under the Plan shall be evidenced
by an agreement (the "Option Agreement") which shall designate the Option as an
Incentive Stock Option or a Nonqualified Stock Option and contain such terms and
provisions not inconsistent with the provisions of the Plan as the
Administrative Committee from time to time approves. Each grantee of an Option
shall be notified promptly of the grant, an Option Agreement shall be executed
and delivered by the Company to the grantee within sixty (60) days after the
date the Administrative Committee approves the grant, and, in the discretion of
the Administrative Committee, the grant shall terminate if the Option Agreement
is not signed by the grantee (or his or her attorney) and delivered to the
Company within sixty (60) days after it is delivered to the grantee. An Option
Agreement may contain (but shall not be required to contain) such provisions as
the Administrative Committee deems appropriate to insure that the penalty
provisions of Section 4999 of the Code will not apply to any stock received by
the Holder from the Company. An Option Agreement may be modified from time to
time pursuant to Section 7.6(b).
6.6 Exercise of Options. An Option granted under the Plan shall become and
remain exercisable during the term of the Option to the extent provided in the
Option Agreement evidencing the Option and in this Plan and, unless the Option
Agreement otherwise provides, may be exercised to the extent exercisable, in
whole or in part, at any time and from time to time during such term; PROVIDED,
HOWEVER, that subsequent to the grant of an Option, the Administrative
Committee, at any time before complete termination of the Option, may accelerate
the time or times at which the Option may be exercised in whole or in part
(without reducing the term of the Option). If an Option is scheduled to become
exercisable on one or more dates specified in its Option Agreement, and its
Holder has a leave of absence without pay, such date or dates shall be postponed
for a period equal to the duration of the leave unless the Administrative
Committee determines otherwise.
6.7 Manner of Exercise.
(a) Form of Payment. An Option shall be exercised by written notice to the
Company upon such terms and conditions as the Option Agreement evidencing the
Option may provide and in accordance with such other procedures for the exercise
of Options as the Administrative Committee may establish from time to time. The
method or methods of payment of the purchase price for the shares to be
purchased upon exercise of an Option and of any amounts
<PAGE>
required by Section 7.8 shall be determined by the Administrative Committee and
may consist of (i) cash, (ii) check, (iii) promissory note, (iv) whole shares of
Common Stock already owned by the Holder, (v) the withholding of shares of
Common Stock issuable upon exercise of the Option, (vi) the delivery, together
with a properly executed exercise notice, of irrevocable instructions to a
broker to deliver promptly to the Company the amount of sale or loan proceeds
required to pay the purchase price, (vii) any combination of the foregoing
methods of payment, or (viii) such other consideration and method of payment as
may be permitted for the issuance of shares under applicable securities and
other laws. The permitted methods or methods of payment of the amounts payable
upon exercise of an Option, if other than in cash, shall be set forth in the
Option Agreement evidencing the Option and may be subject to such conditions as
the Administrative Committee deems appropriate. Without limiting the generality
of the foregoing, if a Holder is permitted to elect to have shares of Common
Stock issuable upon exercise of an Option withheld to pay all or any part of the
amounts payable in connection with the exercise, then the Administrative
Committee shall have the sole discretion to approve or disapprove the election,
which approval or disapproval shall be given after the election is made.
(b) Value of Shares. Shares of Common Stock delivered in payment of all
or any part of the amounts payable in connection with the exercise of an Option,
and shares of Common Stock withheld for the payment, shall be valued for such
purpose at their Fair Market Value as of the exercise date.
(c) Issuance of Shares. The Company shall effect the issuance of the
shares of Common Stock purchased under the Option as soon as practicable after
the exercise thereof and payment in full of the purchase price therefor and of
any amounts required by Section 7.8, and within a reasonable time thereafter the
issuance shall be evidenced on the books of the Company. Following the exercise
of an Incentive Stock Option, the Administrative Committee shall cause the
information statement required by Section 6039 of the Code to be furnished to
the Holder within the time and in the manner prescribed by law.
6.8 Legends. Each certificate representing shares of Common Stock issued
under the Plan upon exercise of an Option shall, unless the Administrative
Committee otherwise determines, contain on its face the notice "SEE TRANSFER
RESTRICTIONS ON REVERSE" and on its reverse a legend in form substantially as
follows, together with any other legends that are required by the terms and
conditions of the Plan or that the Administrative Committee in its discretion
deems necessary or appropriate:
NOTICE: TRANSFER AND OTHER RESTRICTIONS
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, OR ANY STATE SECURITIES LAWS,
AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, ENCUMBERED, OR OTHERWISE
DISPOSED OF EXCEPT UPON SATISFACTION OF CERTAIN CONDITIONS. INFORMATION
CONCERNING THESE RESTRICTIONS MAY BE OBTAINED FROM THE CORPORATION. ANY
OFFER OR DISPOSITION OF THESE SECURITIES WITHOUT SATISFACTION OF SAID
CONDITIONS WILL BE WRONGFUL AND WILL NOT ENTITLE THE TRANSFEREE TO REGISTER
OWNERSHIP OF THE SECURITIES WITH THE CORPORATION.
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
RESTRICTIONS ON TRANSFER, AND MAY BE SUBJECT TO REPURCHASE BY THE
CORPORATION OR ONE OR MORE OF ITS SHAREHOLDERS PURSUANT TO THE PROVISIONS
OF THE CORPORATION'S 1996 STOCK OPTION PLAN AND/OR AN AGREEMENT BETWEEN THE
HOLDER AND THE CORPORATION AND/OR AN AGREEMENT AMONG THE CORPORATION AND
ITS SHAREHOLDERS. INFORMATION CONCERNING THESE RESTRICTIONS MAY BE OBTAINED
FROM THE CORPORATION.
The Company may cause the transfer agent for the Common Stock to place a stop
transfer order with respect to such shares.
6.9 Nontransferability. Unless the Administrative Committee determines
otherwise at the time an Option is granted (or at any later time when the
Administrative Committee, by written notice to the Holder, releases in whole or
in part the restrictions under this Section 6.9), an Option shall not be
transferable other than by will or the laws of descent and distribution, and may
be exercised during the lifetime of the Holder thereof only by the Holder (or
his or her court appointed legal representative). Options shall not be
transferable other than by will or the laws of descent and distribution, and
Options may be exercised during the lifetime of the Holder thereof only by the
Holder (or his or her court appointed legal representative).
6.10 Repurchase of Shares.
(a) Right of Repurchase. If so specified by the Administrative
Committee at the time an Option is granted to a Holder who is an employee of the
Company or any of its Affiliates or a party to a consulting arrangement with the
Company or any of its Affiliates, the Company shall have the right, but shall
not be required, to repurchase from the Holder all or part of (i) the shares of
Common Stock that the Holder acquires upon the exercise of the Option, and (ii)
any other shares of Common Stock or other securities issued or acquired with
respect to the shares specified in the preceding clause (i) or this clause (ii)
in connection with any stock dividend, stock split, reclassification,
recapitalization, reorganization, split-up, spin-off, combination, exchange of
shares, warrants or rights offering to purchase Common Stock, or other similar
corporate event. Such right shall be exercisable at any time and from time to
time during the period of ninety (90) days commencing on the date of termination
of the Holder's employment or consulting agreement with the Company or any of
its Affiliates for "cause," as defined in Section 7.2(b).
(b) Exercise of Repurchase Right. The Company's right of repurchase
under this Section 6.10 shall be exercised by delivery written notice to the
Holder specifying the number of shares or other securities to be repurchased and
the effective date of the repurchase, which date shall not be earlier than the
date of the notice nor later than the date of termination of the Company's right
of repurchase. If a Holder transfers shares or other securities that are subject
to the Company's right of repurchase, the shares or other securities shall
remain subject to the Company's right of repurchase during the period specified
in the last sentence of Section 6.10(a) (exercise of the right of repurchase in
such even shall be effected by notice to the person or entity holding the shares
or other securities at the time of exercise).
(c) Repurchase Price. With respect to each share or other security to
be repurchased by the Company upon its exercise of its right of repurchase under
this Section 6.10, the
<PAGE>
repurchase price shall be the Fair Market Value of the share or security as of
the effective date of the repurchase. The Company may elect to pay the amount
owed to the Holder (or to the person or entity holding the share or other
security to be repurchased) either (i) in cash, in which case the amount shall
be paid, without interest, within thirty (30) days following the effective date
of the repurchase, or (ii) in three equal installments, with the first
installment payable on the first anniversary of the effective date of the
repurchase, and the remaining installments payable on the corresponding date in
each of the next two years, with each installment to include interest on the
unpaid principal computed at the prime rate published in the Wall Street Journal
for the first business day of the month in which the effective date of the
repurchase occurs, for the period from the effective date of the repurchase or
the date of the most recent installment, as the case may be, to the due date of
the installment being paid.
(d) Termination of Right of Repurchase. Any right of repurchase of the
Company under this Section 6.10 shall terminate upon the occurrence of a Control
Purchase or an Approved Transaction (other than an Approved Transaction in
connection with which the Administrative Committee determines, in accordance
with the last sentence of Section 7.1, that Options otherwise subject to such
right of repurchase will not vest or become exercisable on an accelerated basis
and/or will not terminate if not exercised prior to consummation of the Approved
Transaction). Any right of repurchase of the Company under this Section 6.10
shall also terminate upon the effective date of the registration by the Company
of any class of any Equity Security pursuant to Section 12 of the Exchange Act.
6.11 Class of Common Stock. The class of shares subject to each Option
and the class of shares to be received upon exercise of each Option shall depend
upon the employment status of the Eligible Person at the date the Option is
granted and at the date the Option is exercised. If the Eligible Person is an
employee (including officers and directors who are also employees) of the
Company or one of its Affiliates as of the date the Option is granted, the
shares subject to the Option shall be shares of Series B Common Stock, which are
automatically convertible into the shares of Series C Common Stock upon the
occurrence of certain events (a "Conversion Event") as described in the
Company's Articles of Incorporation, as amended from time to time (the
"Articles"), provided, that if a Conversion Event occurs prior to the exercise
--------
of an Option, the shares subject to the Option shall be shares of Series C
Common Stock, with the rights defined in the Articles. If the Eligible Person
is a consultant (other than a director) rendering services to the Company or any
of its Affiliates in the capacity of an independent contractor as of the date
the Option is granted, the shares subject to the Option shall be shares of
Series C Common Stock, with the rights defined in the Articles, regardless of
the Eligible Person's employment status with the Company at the date the Option
is exercised.
6.12 Delegation to Executive Officer of Authority to Grant Options. The
Board may delegate to an Executive Officer the authority to determine from time
to time (a) the Eligible Persons to whom Options are to be granted; (b) the
number of shares of Common Stock for which the Options are exercisable and the
purchase price of such shares; (c) whether the Options are Incentive Stock
Options or Nonqualified Stock Options; and (d) all of the other terms and
conditions (which need not be identical) of the Options; provided, however, that
(i) the authority delegated to the Executive Officer under this Section 6.12
shall not exceed that of the Administrative Committee under the foregoing
provisions of this Article 6 and shall be subject to such limitations, in
addition to those specified in this Section 6.12, as may be specified by the
Board at the time of delegation; (ii) the Executive Officer may not be delegated
authority under this Section 6.12 to grant any Option to any person who is an
Executive Officer or a director of the
<PAGE>
Company at the time of the grant; (iii) the purchase price of each share of
Common Stock under an Option granted under this Section 6.12 shall not be less
than the Fair Market Value of such share on the date of grant of the Option; and
(iv) the Executive Officer shall promptly provide a report to the Administrative
Committee of each person to whom an Option has been granted under this Section
6.12 and the material terms and conditions of the Option.
7
GENERAL PROVISIONS
7.1 Acceleration of Options--Approved Transactions; Control Purchase. In the
event of any Approved Transaction or Control Purchase, each outstanding Option
under the Plan shall become exercisable in full in respect of the aggregate
number of shares covered thereby, notwithstanding any contrary vesting schedule
in the Option Agreement evidencing the Option (except to the extent the Option
Agreement expressly provides otherwise), effective upon the Control Purchase or
immediately prior to consummation of the Approved Transaction. In the case of an
Approved Transaction, the Company shall provide notice of the pendency of the
Approved Transaction, at least fifteen (15) days prior to the expected date of
consummation thereof, to each Holder of an outstanding Option. Each Holder shall
thereupon be entitled to exercise the Option at any time prior to consummation
of the Approved Transaction. Any such exercise as to any portion of the Option
that will only become vested immediately prior to the consummation of the
Approved Transaction in accordance with the foregoing acceleration provision
shall be contingent on such consummation. Any such exercise as to any other
portion of the Option will not be contingent on such consummation unless so
elected by the Holder in a notice delivered to the Company simultaneously with
the exercise. Upon consummation of the Approved Transaction, all Options shall
expire to the extent such exercise has not occurred. Notwithstanding the
foregoing, except to the extent otherwise provided in one or more Option
Agreements evidencing Options, the Administrative Committee may, in its
discretion, determine that any or all outstanding Options will not vest or
become exercisable on an accelerated basis in connection with an Approved
Transaction and/or will not terminate if not exercised prior to consummation of
the Approved Transaction, if the Board or the surviving or acquiring
corporation, as the case may be, shall take, or made effective provision for the
taking of, such action as in the opinion of the Administrative Committee is
equitable and appropriate in order to substitute new Options for such Options,
or to assume such Options (which assumption may be effected by any means
determined by the Administrative Committee, in its discretion, including, but
not limited to, by a cash payment to each Holder, in cancellation of the Options
held by him or her, of such amount as the Administrative Committee determines,
in its sole discretion, represents the then value of the Options) and in order
to make such new or assumed Options, as nearly as practicable, equivalent to the
old Options (before giving effect to any acceleration of the vesting or
exercisability thereof), taking into account, to the extent applicable, the kind
and amount of securities, cash or other assets into or for which the Common
Stock may be changed, converted or exchanged in connection with the Approved
Transaction.
7.2 Termination of Services. The provisions of this Section 7.2 shall apply
to any Holder who is an employee of the Company or any of its Affiliates or a
party to a written consulting agreement with the Company or any of its
Affiliates.
(a) General. If such a Holder's employment or consulting agreement
terminates prior to the complete exercise of an Option, then the Option shall,
except to the extent the Option Agreement evidencing the Option expressly
provides otherwise, thereafter be
<PAGE>
exercisable, to the extent that the Holder was entitled to exercise the Option
on the date of such termination, for a period of three (3) months following such
termination (but not later than the scheduled expiration date of the Option);
provided, however, that (i) if the Holder's employment or consulting agreement
terminates by reason of death or Disability, then, except to the extent the
Option Agreement evidencing the Option expressly provides otherwise, the Option
shall be exercisable, to the extent that the Holder was entitled to exercise the
Option on the date of such termination, for a period of one (1) year following
such termination (but not later than the scheduled expiration of the Option),
and (ii) any termination by the Company or any of its Affiliates for cause will
be treated in accordance with the provisions of Section 7.2(b) (except to the
extent the Option Agreement expressly provides otherwise).
(b) Termination by Company for Cause. If a Holder's employment or
consulting agreement with the Company or any of its Affiliates is terminated for
cause, then all Options held by the Holder shall immediately terminate and,
accordingly, may not be exercised, except to the extent one or more of the
Option Agreements evidencing the Options expressly provides otherwise. For
purposes of this Plan, "cause" shall have the meaning given that term in any
employment agreement or consulting agreement to which the Holder is a party or,
in the absence thereof, the conduct that shall constitute "cause" for purposes
of this Plan shall be insubordination, a knowing violation of a state or federal
law involving the commission of a crime against the Company or any of its
Affiliates or a felony, any misrepresentation, deception, fraud or dishonesty
that is materially injurious to the Company or any of its Affiliates,
incompetence, moral turpitude, the refusal to perform the Holder's duties and
responsibilities for any reason other than illness or incapacity, and any other
misconduct of any kind that the Administrative Committee determines constitutes
"cause" for purposes of this Plan; provided, however, that if a termination
occurs within twelve (12) months after an Approved Transaction or Control
Purchase, termination for cause shall mean only a felony conviction for fraud,
misappropriation or embezzlement. Following termination of a Holder's
employment or consulting agreement, if the Holder engages in any act that would
have constituted cause if the Holder had remained employed by or in a consulting
relationship with the Company or any of its Affiliates, then the Administrative
Committee shall be entitled to terminate any Options held by the Holder.
(c) Miscellaneous. The Administrative Committee may determine whether
any given leave of absence of a Holder constitutes a termination of the Holder's
employment or consulting agreement; provided, however, that for purposes of the
Plan--
(i) a leave of absence, duly authorized in writing by the Company
or any of its Affiliates for military service or sickness, or for any other
purpose approved by the Company or any of its Affiliates, if the period of the
leave does not exceed ninety (90) days, and
(ii) a leave of absence in excess of ninety (90) days, duly
authorized in writing by the Company or any of its Affiliates, provided the
Holder's right to return to service with the Company or the Affiliate is
guaranteed either by statute or by contract--
shall not be deemed a termination of the Holder's employment or consulting
agreement. Options granted under the Plan shall not be affected by any change of
a Holder's employment or consulting agreement so long as the Holder continues to
be an employee of or consultant to the Company or any of its Affiliates. Except
to the extent an Option Agreement evidencing an Option expressly provides
otherwise, if a Holder has an employment or consulting agreement with an
Affiliate of the
<PAGE>
Company that ceases to be an Affiliate, such event shall be deemed to constitute
a termination of the Holder's employment or consulting agreement for a reason
other than death or Disability.
7.3 Right to Terminate Services. Nothing contained in the Plan or in any
Option Agreement, and no action of the Company or the Administrative Committee
with respect thereto, shall confer or be construed to confer on any Holder any
right to continue in the service of the Company or any of its Affiliates or
interfere in any way with the right of the Company or any of its Affiliates,
subject to the provisions of any agreement between the Holder and the Company or
any of its Affiliates, to terminate at any time, with or without cause, the
employment or consulting agreement with the Holder.
7.4 Nonalienation of Benefits. Except as provided in Section 6.9, no right
or benefit under the Plan shall be subject to anticipation, alienation, sale,
assignment, hypothecation, pledge, exchange, transfer, encumbrance or charge,
and any attempt to anticipate, alienate, sell, assign, hypothecate, pledge,
exchange, transfer, encumber or charge the same shall be void. No right or
benefit hereunder shall in any manner be liable for or subject to the debts,
contracts, liabilities or torts of the person entitled to the right or benefit.
7.5 Shareholders Agreement. Unless the Option Agreement evidencing an Option
expressly provides otherwise, the Holder of the Option shall be required, as a
condition to the issuance of any shares of Common Stock that the Holder acquires
upon the exercise of the Option, to execute and deliver to the Company a
shareholders agreement in such form as may be in use by the Company at the time
of such exercise, or a counterpart thereof, together with, unless the Holder is
unmarried, a spousal consent in the form required thereby, unless the Holder has
previously executed and delivered such documents and they are in effect at the
time the shares are to be issued.
7.6 Termination and Amendment.
(a) General. Unless the Plan shall previously have been terminated as
hereinafter provided, no Options may be granted under the Plan on or after the
tenth (10th) anniversary of the Effective Date. The Board or the Administrative
Committee may at any time prior to the tenth (10th) anniversary of the Effective
Date terminate the Plan, and may, from time to time, suspend or discontinue the
Plan or modify or amend the Plan in such respects as it shall deem advisable;
provided, however, that any such modification or amendment shall comply with all
applicable laws and stock exchange listing requirements and, with respect to
Incentive Stock Options granted or to be granted under the Plan, shall be
subject to any approval by shareholders of the Company required under the Code.
(b) Modification. No termination, modification or amendment of the Plan
may adversely affect the rights of the Holder of an outstanding Option in any
material way unless the Holder consents thereto. No modification, extension,
renewal or other change in any Option granted under the Plan shall be made after
the grant of the Option, unless the same is consistent with the provisions of
the Plan. With the consent of the Holder and subject to the terms and conditions
of the Plan (including Section 7.6(a)), the Administrative Committee may amend
outstanding Option Agreements with any Holder, including, without limitation,
any amendment that would (i) accelerate the time or times at which the Option
may be exercised, and/or (ii) extend the scheduled expiration date of the
Option. Without limiting the generality of the foregoing, the Administrative
Committee may, but solely with the Holder's consent unless otherwise provided in
the Option Agreement, agree to cancel any Option under the Plan and issue a new
Option in
<PAGE>
substitution therefor, provided that the Option so substituted shall satisfy all
of the requirements of the Plan as of the date the new Option is granted.
Nothing contained in the foregoing provisions of this Section 7.6(b) shall be
construed to prevent the Administrative Committee from providing in any Option
Agreement that the rights of the Holder with respect to the Option are subject
to such rules and regulations as the Administrative Committee may, subject to
the express provisions of the Plan, adopt from time to time, or impair the
enforceability of any such provision.
7.7 Government and Other Regulations. The obligation of the Company with
respect to Options shall be subject to all applicable laws, rules and
regulations and such approvals by any governmental agencies as may be required,
including, without limitation, the effectiveness of any registration statement
required under the Securities Act, and the rules and regulations of any
securities exchange or association on which the Common Stock may be listed or
quoted. As long as the Common Stock is not registered under the Exchange Act,
the Company intends that all offers and sales of Options and shares of Common
Stock issuable upon exercise of Options shall be exempt from registration under
the provisions of Section 5 of the Securities Act, and the Plan shall be
administered in a manner so as to preserve such exemption. The Company also
intends that the Plan shall constitute a written compensatory benefit plan,
within the meaning of Rule 701(b) promulgated under the Securities Act, and that
each Option granted under the Plan at a time when the Common Stock is not
registered under the Exchange Act shall, unless otherwise provided by the
Administrative Committee at the time the Option is granted, be granted in
reliance on the exemption from the registration requirements of Section 5 of the
Securities Act provided by Rule 701. As long as the Common Stock is registered
under the Exchange Act, the Company shall use its reasonable efforts to comply
with any legal requirements to file in a timely manner all reports required to
be filed by it under the Exchange Act.
7.8 Withholding. The Company's obligation to deliver shares of Common Stock
upon exercise of an Option shall be subject to applicable federal, state and
local tax withholding requirements. Federal, state and local withholding tax due
at the time an Option is exercised may, in the discretion of the Administrative
Committee, be paid in shares of Common Stock already owned by the Holder or
through the withholding of shares otherwise issuable to the Holder, upon such
terms and conditions as the Administrative Committee shall determine. If the
Holder shall fail to pay, or make arrangements satisfactory to the
Administrative Committee for the payment of, all such federal, state and local
taxes, then the Company or any of its Affiliates shall, to the extent not
prohibited by law, have the right to deduct from any payment of any kind
otherwise due to the Holder an amount equal to any federal, state or local taxes
of any kind required to be withheld by the Company or any of its Affiliates with
respect to the Option.
7.9 Separability. With respect to Incentive Stock Options, if this Plan does
not contain any provision required to be included herein under Section 422 of
the Code, such provision shall be deemed to be incorporated herein with the same
force and effect as if such provision had been set out at length herein;
provided, however, that to the extent any Option that is intended to qualify as
an Incentive Stock Option cannot so qualify, the Option, to that extent, shall
be deemed to be a Nonqualified Stock Option for all purposes of the Plan.
7.10 Non-Exclusivity of the Plan. Neither the adoption of the Plan by the
Board nor the submission of the Plan to the shareholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock options and the awarding
<PAGE>
of stock and cash otherwise than under the Plan, and such arrangements may be
either generally applicable or applicable only in specific cases.
7.11 Exclusion from Pension and Profit-Sharing Computation. By acceptance
of an Option, unless otherwise provided in the Option Agreement evidencing the
Option, the Holder shall be deemed to have agreed that the Option is special
incentive compensation that will not be taken into account, in any manner, as
salary, compensation or bonus in determining the amount of any payment under any
pension, retirement or other employee benefit plan, program or policy of the
Company or any of its Affiliates.
7.12 No Shareholder Rights. No Holder or other person shall have any voting
or other shareholder rights with respect to shares of Common Stock subject to an
Option until the Option has been duly exercised, full payment of the purchase
price has been made, all conditions under the Option and this Plan to issuance
of the shares have been satisfied, and a certificate for the shares has been
issued. No adjustment shall be made for cash or other dividends or distributions
to shareholders for which the record date is prior to the date of such issuance.
7.13 Governing Law. The Plan shall be governed by, and construed in
accordance with, the laws of the State of Washington.
7.14 Company's Rights. The grant of Options pursuant to the Plan shall not
affect in any way the right or power of the Company to make reclassifications,
reorganizations or other changes of or to its capital or business structure or
to merge, consolidate, liquidate, sell or otherwise dispose of all or any part
of its business or assets.
