<PAGE>
As filed with the Securities and Exchange Commission on June 28, 1999
Registration No. 333-_________
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM S-8
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-----------------------
DIGITAL ISLAND, INC.
(Exact name of registrant as specified in its charter)
Delaware 68-0322824
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
353 Sacramento Street, Suite 1520
San Francisco, CA 94111
(Address of principal executive offices) (Zip Code)
------------------------
1999 STOCK INCENTIVE PLAN
1999 EMPLOYEE STOCK PURCHASE PLAN
(Full title of the Plan)
-----------------------
T.L. Thompson
Chief Financial Officer
Digital Island, Inc.
353 Sacramento Street, Suite 1520
San Francisco, CA 94111
(Name and address of agent for service)
(415) 228-4100
(Telephone number, including area code, of agent for service)
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================
Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Offering Registration
Registered Registered(1) per Share(2) Price(2) Fee
- -------------------------------- --------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
1999 Stock Incentive Plan
Common Stock, $0.001 par value 7,544,000 shares $12.00 $90,528,000 $25,167.00
1999 Employee Stock Purchase Plan
Common Stock, $0.001 par value 300,000 shares $12.00 $ 3,600,000 $ 1,001.00
==========
Aggregate Registration Fee $26,168.00
===================================================================================================
</TABLE>
(1) This Registration Statement shall also cover any additional shares of
Common Stock which become issuable under the 1999 Stock Incentive Plan or
1999 Employee Stock Purchase Plan by reason of any stock dividend, stock
split, recapitalization or other similar transaction effected without the
Registrant's receipt of consideration which results in an increase in the
number of the outstanding shares of Registrant's Common Stock.
(2) Calculated solely for purposes of this offering under Rule 457(h) of the
Securities Act of 1933, as amended, on the basis of the highest proposed
selling price per share of Registrant's Common Stock in the initial public
offering of such Common Stock.
<PAGE>
PART II
Information Required in the Registration Statement
Item 3. Incorporation of Documents by Reference
---------------------------------------
Digital Island, Inc. (the "Registrant") hereby incorporates by
reference into this Registration Statement the following documents previously
filed with the Securities and Exchange Commission (the "Commission"):
(a) The Registrant's Registration Statement No. 333-72039 on Form S-1
filed with the Commission on April 26, 1999, as amended on Forms
S-1/A filed with the Commission on June 7, 1999, June 9, 1999, and
June 24, 1999, respectively;
(b) The Registrant's prospectus filed with the Commission pursuant to
Rule 424(a) promulgated under the Securities Act of 1933, as
amended (the "1933 Act"), in connection with the Registrant's
Registration Statement No. 333-72039, in which there is set forth
the audited financial statements for the Registrant's fiscal year
ended September 30, 1999; and
(c) The Registrant's Registration Statement No. 000-26283 on Form 8-A
filed with the Commission on June 7, 1999 pursuant to Section
12(b) of the Securities Exchange Act of 1934 (the "Exchange Act"),
in which there is described the terms, rights and provisions
applicable to the Registrant's outstanding Common Stock.
All reports and definitive proxy or information statements filed
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended (the "1934 Act") after the date of this Registration Statement
and prior to the filing of a post-effective amendment which indicates that all
securities offered hereby have been sold or which de-registers all securities
then remaining unsold shall be deemed to be incorporated by reference into this
Registration Statement and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Registration Statement to the extent that a statement
contained herein or in any subsequently filed document which also is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Registration Statement.
Item 4. Description of Securities
--------------------------
Not Applicable.
Item 5. Interests of Named Experts and Counsel
--------------------------------------
Not Applicable.
Item 6. Indemnification of Directors and Officers
-----------------------------------------
Section 145 of the Delaware General Corporation Law authorizes a court
to award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, 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 and is, therefore, unenforceable. Article VII, Section 6, of the
Registrant's Bylaws provides for mandatory indemnification of its directors and
officers and permissible indemnification of employees and other agents to the
maximum extent
II-1
<PAGE>
permitted by the Delaware General Corporation Law. The Registrant's Amended and
Restated Certificate of Incorporation (the "Certificate of Incorporation")
provides that, pursuant to Delaware law, its directors shall not be liable for
monetary damages for breach of their fiduciary duty as directors to the Company
or its stockholders. This provision in the Certificate of Incorporation does not
eliminate the fiduciary duty of the directors, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Company for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
The Registrant has entered into Indemnity Agreements with its officers and
directors, a form of which was previously filed with the Securities and Exchange
Commission as an exhibit to the Registrant's Registration Statement on Form S-1
(N.o. 333-77039). The Indemnification Agreements provide the Registrant's
officers and directors with further indemnification to the maximum extent
permitted by the Delaware General Corporation Law. The Registrant also maintains
directors and officers liabilities insurance.
Item 7. Exemption from Registration Claimed
-----------------------------------
Not Applicable.
Item 8. Exhibits
--------
Exhibit
Number Exhibit
- ------- -------
4 Instruments Defining the Rights of Stockholders. Reference is made to
Registrant's Registration Statement No. 000-26283 on Form 8-A,
together with any exhibits thereto, which are incorporated herein by
reference pursuant to Item 3(c) to this Registration Statement.
5 Opinion and consent of Brobeck, Phleger & Harrison LLP.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of Brobeck, Phleger & Harrison LLP is contained in Exhibit 5.
24 Power of Attorney. Reference is made to page II-4 of this
Registration Statement.
99.1 1999 Stock Incentive Plan.
99.2 Form of Notice of Grant of Stock Option.
99.3 Form of Stock Option Agreement.
99.4 Form of Addendum to Stock Option Agreement (Involuntary Termination
Following Corporate Transaction/Change in Control).
99.5 Form of Addendum to Stock Option Agreement (Limited Stock
Appreciation Right)
99.6 Form of Stock Issuance Agreement.
99.7 Form Addendum to Stock Issuance Agreement (Involuntary Termination
Following Corporate Transaction/Change in Control).
99.8 Form Automatic Stock Option Agreement.
99.9 Form Notice of Grant of Non-Employee Director - Automatic Stock
Option - Initial.
99.10 Form Notice of Grant of Non-Employee Director - Automatic Stock
Option - Annual.
99.11 1999 Employee Stock Purchase Plan.
99.12 Form of Enrollment/Change Form.
99.13 Form of Stock Purchase Agreement.
II-2
<PAGE>
Item 9. Undertakings
------------
A. The undersigned Registrant hereby undertakes: (1) to file, during
any period in which offers or sales are being made, a post-effective amendment
to this Registration Statement: (i) to include any prospectus required by
Section 10(a)(3) of the 1933 Act, (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 clauses (1)(i) and (1)(ii) shall
not apply if the information required to be included in a post-effective
amendment by those clauses is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the 1934 Act that are
incorporated by reference into this Registration Statement; (2) that for the
purpose of determining any liability under the 1933 Act each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof; and (3) to remove
from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the Registrant's 1999
Stock Incentive Plan or 1999 Employee Stock Purchase Plan.
B. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the 1933 Act, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the 1934 Act that is
incorporated by reference into this Registration Statement shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
C. Insofar as indemnification for liabilities arising under the 1933
Act may be permitted to directors, officers or controlling persons of the
Registrant pursuant to the indemnification provisions summarized in Item 6 or
otherwise, the Registrant has been advised that, in the opinion of the
Commission, such indemnification is against public policy as expressed in the
1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-8, and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of San Francisco, State of California on this 28th
day of June, 1999.
Digital Island, Inc.
By: /s/ Ruann Ernst
-------------------------------------
Ruann Ernst
Chief Executive Officer and President
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned officers and directors of Digital Island, Inc., a
Delaware corporation, do hereby constitute and appoint Ruann Ernst, and T.L.
Thompson, and each of them, the lawful attorneys-in-fact and agents with full
power and authority to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, and any one of them, determine may
be necessary or advisable or required to enable said corporation to comply with
the Securities Act of 1933, as amended, and any rules or regulations or
requirements of the Securities and Exchange Commission in connection with this
Registration Statement. Without limiting the generality of the foregoing power
and authority, the powers granted include the power and authority to sign the
names of the undersigned officers and directors in the capacities indicated
below to this Registration Statement, to any and all amendments, both pre-
effective and post-effective, and supplements to this Registration Statement,
and to any and all instruments or documents filed as part of or in conjunction
with this Registration Statement or amendments or supplements thereof, and each
of the undersigned hereby ratifies and confirms that all said attorneys and
agents, or any one of them, shall do or cause to be done by virtue hereof. This
Power of Attorney may be signed in several counterparts.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Ron Higgins Chairman of the Board of Directors June 28, 1999
- -----------------------
Ron Higgins
/s/ Ruann Ernst Chief Executive Officer, June 28, 1999
- ----------------------- President and Director
Ruann Ernst (Principal Executive Officer)
II-4
<PAGE>
/s/ T.L. Thompson Chief Financial Officer June 28, 1999
- ----------------------- (Principal Financial and
T.L. Thompson Accounting Officer)
/s/ Charlie Bass Director June 28, 1999
- -----------------------
Charlie Bass
/s/ Christos Cotsakos Director June 28, 1999
- -----------------------
Christos Cotsakos
/s/ Marcelo A. Gumucio Director June 28, 1999
- -----------------------
Marcelo A. Gumucio
/s/ Cliff Higgerson Director June 28, 1999
- -----------------------
Cliff Higgerson
/s/ David Spreng Director June 28, 1999
- -----------------------
David Spreng
/s/ Shahan Soghikian Director June 28, 1999
- -----------------------
Shahan Soghikian
II-5
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit
- ------- -------
4 Instruments Defining the Rights of Stockholders. Reference
is made to Registrant's Registration Statement No. 000-26283 on
Form 8-A, together with any exhibits thereto, which are
incorporated herein by reference pursuant to Item 3(c) to this
Registration Statement.
5 Opinion and consent of Brobeck, Phleger & Harrison LLP.
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
23.2 Consent of Brobeck, Phleger & Harrison LLP is contained in
Exhibit 5.
24 Power of Attorney. Reference is made to page II-4 of this
Registration Statement.
99.1 1999 Stock Incentive Plan.
99.2 Form of Notice of Grant of Stock Option.
99.3 Form of Stock Option Agreement.
99.4 Form of Addendum to Stock Option Agreement (Involuntary
Termination Following Corporate Transaction/Change in Control).
99.5 Form of Addendum to Stock Option Agreement (Limited Stock
Appreciation Right).
99.6 Form of Stock Issuance Agreement.
99.7 Form Addendum to Stock Issuance Agreement (Involuntary
Termination Following Corporate Transaction/Change in Control).
99.8 Form Automatic Stock Option Agreement.
99.9 Form Notice of Grant of Non-Employee Director Automatic Stock
Option - Initial.
99.10 Form Notice of Grant of Non-Employee Director Automatic Stock
Option - Annual.
99.11 1999 Employee Stock Purchase Plan.
99.12 Form of Enrollment/Change Form.
99.13 Form of Stock Purchase Agreement.
<PAGE>
EXHIBIT 5
OPINION AND CONSENT OF BROBECK, PHLEGER & HARRISON LLP
June 28, 1999
Digital Island, Inc.
353 Sacramento Street, Suite 1520
San Francisco, CA 94111
Re: Digital Island, Inc.-Registration Statement for Offering of an
Aggregate of 7,844,000 Shares of Common Stock
Dear Ladies and Gentlemen:
We have acted as counsel to Digital Island, Inc. a Delaware corporation
(the "Company"), in connection with the registration on Form S-8 (the
"Registration Statement") under the Securities Act of 1933, as amended, of
7,844,000 shares of common stock for issuance (the "Shares") under the Company's
1999 Stock Incentive Plan and 1999 Employee Stock Purchase Plan (the "Plans").
This opinion is being furnished in accordance with the requirements of
Item 8 of Form S-8 and Item 601(b)(5)(i) of Regulation S-K.
We have reviewed the Company's charter documents and the corporate
proceedings taken by the Company in connection with the establishment of the
Plans. Based on such review, we are of the opinion that, if, as and when the
Shares have been issued and sold (and the consideration therefor received)
pursuant to (a) the provisions of stock option agreements duly authorized under
the 1999 Stock Incentive Plan and in accordance with the Registration Statement,
or (b) duly authorized direct stock issuances in accordance with the 1999 Stock
Incentive Plan and in accordance with the Registration Statement or (c) the
provisions of duly authorized stock purchase rights issued in accordance with
the 1999 Employee Stock Purchase Plan and in accordance with the Registration
Statement, such Shares will be duly authorized, legally issued, fully paid and
nonassessable.
We consent to the filing of this opinion letter as Exhibit 5 to the
Registration Statement.
This opinion letter is rendered as of the date first written above and
we disclaim any obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company, the
Plans or the Shares.
Very truly yours,
/s/ Brobeck, Phleger & Harrison LLP
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF PRICEWATERHOUSESCOOPERS LLP, INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8, of our report dated June 23, 1999, relating to the
financial statements and financial statements schedules, which appears in
Digital Island, Inc.'s Registration Statement on Form S-1 for the three years
ended September 30, 1998. We also consent to the references to us under the
headings "Experts" and "Selected Financial Data" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
San Francisco, California
June 28, 1999
<PAGE>
Exhibit 99.1
DIGITAL ISLAND, INC.
1999 STOCK INCENTIVE PLAN
-------------------------
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
This 1999 Stock Incentive Plan is intended to promote the interests of
Digital Island, Inc., a Delaware corporation, by providing eligible persons in
the Corporation's service with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Corporation
as an incentive for them to remain in such service.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity programs:
- the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock,
- the Salary Investment Option Grant Program under which eligible
employees may elect to have a portion of their base salary invested each year
in special option grants,
- the Stock Issuance Program under which eligible persons may,
at the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus
for services rendered the Corporation (or any Parent or Subsidiary),
- the Automatic Option Grant Program under which eligible non-
employee Board members shall automatically receive option grants at designated
intervals over their period of continued Board service, and
- the Director Fee Option Grant Program under which non-employee
Board members may elect to have all or any portion of their annual retainer fee
otherwise payable in cash applied to a special stock option grant.
B. The provisions of Articles One and Seven shall apply to all
equity programs under the Plan and shall govern the interests of all persons
under the Plan.
<PAGE>
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority
to administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option
Grant and Stock Issuance Programs with respect to all other persons eligible
to participate in those programs may, at the Board's discretion, be vested in
the Primary Committee or a Secondary Committee, or the Board may retain the
power to administer those programs with respect to all such persons. However,
any discretionary option grants or stock issuances for members of the Primary
Committee must be authorized by a disinterested majority of the Board.
B. Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and may be
removed by the Board at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.
C. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority
(subject to the provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for proper administration of the
Discretionary Option Grant and Stock Issuance Programs and to make such
determinations under, and issue such interpretations of, the provisions of
those programs and any outstanding options or stock issuances thereunder as it
may deem necessary or advisable. Decisions of the Plan Administrator within
the scope of its administrative functions under the Plan shall be final and
binding on all parties who have an interest in the Discretionary Option Grant
and Stock Issuance Programs under its jurisdiction or any option or stock
issuance thereunder.
D. The Primary Committee shall have the sole and exclusive
authority to determine which Section 16 Insiders and other highly compensated
Employees shall be eligible for participation in the Salary Investment Option
Grant Program for one or more calendar years. However, all option grants under
the Salary Investment Option Grant Program shall be made in accordance with
the express terms of that program, and the Primary Committee shall not
exercise any discretionary functions with respect to the option grants made
under that program.
E. Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such committee
shall accordingly be entitled to full indemnification and reimbursement as
Board members for their service on such committee. No member of the Primary
Committee or the Secondary Committee shall be liable for any act or omission
made in good faith with respect to the Plan or any option grants or stock
issuances under the Plan.
F. Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
those programs, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under
those programs.
2
<PAGE>
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of directors
of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive such grants, the time or times
when those grants are to be made, the number of shares to be covered by each
such grant, the status of the granted option as either an Incentive Option or
a Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive such issuances, the time or times when the issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the
consideration for such shares.
D. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or
to effect stock issuances in accordance with the Stock Issuance Program.
E. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals who
first become non-employee Board members on or after the Underwriting Date,
whether through appointment by the Board or election by the Corporation's
stockholders, and (ii) those individuals who continue to serve as non-employee
Board members at one or more Annual Stockholders Meetings held after the
Underwriting Date. A non-employee Board member who has previously been in the
employ of the Corporation (or any Parent or Subsidiary) shall not be eligible
to receive an option grant under the Automatic Option Grant Program at the
time he or she first becomes a non-employee Board member, but shall be
eligible to receive periodic option grants under the Automatic Option Grant
Program while he or she continues to serve as a non-employee Board member.
F. All non-employee Board members shall be eligible to participate
in the Director Fee Option Grant Program.
3
<PAGE>
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The number of shares of Common Stock initially
reserved for issuance over the term of the Plan shall not exceed 7,544,000
shares. Such reserve shall consist of (i) the number of shares estimated to
remain available for issuance, as of the Plan Effective Date, under the
Predecessor Plan as last approved by the Corporation's stockholders, including
the shares subject to outstanding options under that Predecessor Plan, (ii)
plus an additional increase of approximately 2,500,000 shares to be approved
by the Corporation's stockholders prior to the Underwriting Date.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of January each
calendar year during the term of the Plan, beginning with calendar year 2000,
by an amount equal to four percent (4%) of the total number of shares of
Common Stock outstanding on the last trading day in December of the
immediately preceding calendar year, but in no event shall any such annual
increase exceed 2,000,000 shares.
C. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances
for more than 750,000 shares of Common Stock in the aggregate per calendar
year.
D. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent (i) those
options expire or terminate for any reason prior to exercise in full or (ii)
the options are cancelled in accordance with the cancellation-regrant
provisions of Article Two. Unvested shares issued under the Plan and
subsequently cancelled or repurchased by the Corporation at the original issue
price paid per share, pursuant to the Corporation's repurchase rights under
the Plan shall be added back to the number of shares of Common Stock reserved
for issuance under the Plan and shall accordingly be available for reissuance
through one or more subsequent option grants or direct stock issuances under
the Plan. However, should the exercise price of an option under the Plan be
paid with shares of Common Stock or should shares of Common Stock otherwise
issuable under the Plan be withheld by the Corporation in satisfaction of the
withholding taxes incurred in connection with the exercise of an option or the
vesting of a stock issuance under the Plan, then the number of shares of
Common Stock available for issuance under the Plan shall be reduced by the
gross number of shares for which the option is exercised or which vest under
the stock issuance, and not by the net number of shares of Common Stock issued
to the holder of such option or stock issuance. Shares of Common Stock
underlying one or more stock appreciation rights exercised under Section IV of
Article Two, Section III of Article Three, Section II of Article Five or
Section III of Article Six of the Plan shall not be available for subsequent
issuance under the Plan.
4
<PAGE>
E. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made by the Plan Administrator to (i) the maximum number and/or class
of securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under the
Plan per calendar year, (iii) the number and/or class of securities for which
grants are subsequently to be made under the Automatic Option Grant Program to
new and continuing non-employee Board members, (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option under the Plan, (v) the number and/or class of securities and price per
share in effect under each outstanding option incorporated into this Plan from
the Predecessor Plan and (vi) the maximum number and/or class of securities by
which the share reserve is to increase automatically each calendar year
pursuant to the provisions of Section V.B of this Article One. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
5
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
--------------
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section I of Article
Seven and the documents evidencing the option, be payable in one or more of
the forms specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date,
or
(iii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to which
the Optionee shall concurrently provide irrevocable instructions to (a) a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable
----------------------------
at such time or times, during such period and for such number of shares as
shall be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the option grant date.
6
<PAGE>
C. Effect of Termination of Service.
--------------------------------
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option, but
no such option shall be exercisable after the expiration of the option
term.
(ii) Any option held by the Optionee at the time of death
and exercisable in whole or in part at that time may be subsequently
exercised by the personal representative of the Optionee's estate or by
the person or persons to whom the option is transferred pursuant to the
Optionee's will or the laws of inheritance or by the Optionee's
designated beneficiary or beneficiaries of that option.
(iii) Should the Optionee's Service be terminated for
Misconduct or should Option othewise engage in Misconduct while one or
more of his or her options are outstanding, then all outstanding options
held by the Optionee shall terminate immediately and cease to be
outstanding.
(iv) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of' Service, terminate
and cease to be outstanding to the extent the option is not otherwise at
that time exercisable for vested shares.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service from the
limited exercise period otherwise in effect for that option to such
greater period of time as the Plan Administrator shall deem appropriate,
but in no event beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more additional installments in which the Optionee
would have vested had the Optionee continued in Service.
7
<PAGE>
D. Stockholder Rights. The holder of an option shall have no
------------------
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the
-----------------
discretion to grant which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such
repurchase right shall be exercisable (including the period and procedure for
exercise and the appropriate vesting schedule for the purchased shares) shall
be established by the Plan Administrator and set forth in the document
evidencing such repurchase right.
F. Limited Transferability of Options. During the lifetime of the
----------------------------------
Optionee, Incentive Options shall be exercisable only by the Optionee and
shall not be assignable or transferable other than by will or by the laws of
descent and distribution following the Optionee's death. However, a Non-
Statutory Option may, in connection with the Optionee's estate plan, be
assigned in whole or in part during the Optionee's lifetime to one or more
members of the Optionee's immediate family or to a trust established
exclusively for one or more such family members. The assigned portion may only
be exercised by the person or persons who acquire a proprietary interest in
the option pursuant to the assignment. The terms applicable to the assigned
portion shall be the same as those in effect for the option immediately prior
to such assignment and shall be set forth in such documents issued to the
assignee as the Plan Administrator may deem appropriate. Notwithstanding the
foregoing, the Optionee may also designate one or more persons as the
beneficiary or beneficiaries of his or her outstanding options under this
Article Two, and those options shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee's death while holding those options. Such beneficiary or
beneficiaries shall take the transferred options subject to all the terms and
conditions of the applicable agreement evidencing each such transferred
option, including (without limitation) the limited time period during which
the option may be exercised following the Optionee's death.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section 11, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options. Options which are specifically designated as Nonstatutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to Employees.
-----------
B. Dollar Limitation. The aggregate Fair Market Value of the shares
-----------------
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000).
8
<PAGE>
To the extent the Employee holds two (2) or more such options which
become exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
C. 10% Stockholder. If any Employee to whom an Incentive Option is
---------------
granted is a I 0% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (II 0%) of the Fair Market Value per share
of Common Stock on the option grant date, and the option term shall not exceed
five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for the total number of shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully vested shares of Common Stock. However, an outstanding option shall not
become exercisable on such an accelerated basis if and to the extent: (i) such
option is, in connection with the Corporate Transaction, to be assumed by the
successor corporation (or parent thereof) or (ii) such option is to be
replaced with a cash incentive program of the successor corporation which
preserves the spread existing at the time of the Corporate Transaction on any
shares for which the option is not otherwise at that time exercisable and
provides for subsequent payout in accordance with the same exercise/vesting
schedule applicable to those option shares or (iii) the acceleration of such
option is subject to other limitations imposed by the Plan Administrator at
the time of the option grant.
B. All outstanding repurchase rights shall automatically terminate,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction
or (ii) such accelerated vesting is precluded by other limitations imposed by
the Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction
had the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be
made to (i) the exercise price payable per share under each outstanding
option, provided the aggregate exercise price payable for such securities
shall remain the same, (ii) the maximum number and/or class of securities
available for issuance over the remaining term of the Plan and (iii) the
maximum number and/or class of securities for which any one person may be
granted
9
<PAGE>
stock options, separately exercisable stock appreciation rights and direct
stock issuances under the Plan per calendar year and (iv) the maximum number
and/or class of securities by which the share reserve is to increase
automatically each calendar year.
E. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
such Corporate Transaction, become fully exercisable for the total number of
shares of Common Stock at the time subject to those options and may be
exercised for any or all of those shares as fully vested shares of Common
Stock, whether or not those options are to be assumed in the Corporate
Transaction. In addition, the Plan Administrator shall have the discretionary
authority to structure one or more of the Corporation's repurchase rights
under the Discretionary Option Grant Program so that those rights shall not be
assignable in connection with such Corporate Transaction and shall accordingly
terminate upon the consummation of such Corporate Transaction, and the shares
subject to those terminated rights shall thereupon vest in full.
F. The Plan Administrator shall have full power and authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall become fully exercisable for the total
number of shares of Common Stock at the time subject to those options in the
event the Optionee's Service is subsequently terminated by reason of an
Involuntary Termination within a designated period (not to exceed eighteen
(18) months) following the effective date of any Corporate Transaction in
which those options are assumed and do not otherwise accelerate. Any options
so accelerated shall remain exercisable for fully vested shares until the
earlier of (i) the expiration of the option term or (ii) the expiration of the
one (1) year period measured from the effective date of the Involuntary
Termination. In addition, the Plan Administrator may structure one or more of
the Corporation's repurchase rights so that those rights shall immediately
terminate with respect to any shares held by the Optionee at the time of his
or her Involuntary Termination, and the shares subject to those terminated
repurchase rights shall accordingly vest in full at that time.
G. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
a Change in Control, become fully exercisable for the total number of shares of
Common Stock at the time subject to those options and may be exercised for any
or all of those shares as fully vested shares of Common Stock. In addition, the
Plan Administrator shall have the discretionary authority to structure one or
more of the Corporation's repurchase rights under the Discretionary Option Grant
Program so that those rights shall terminate automatically upon the consummation
of such Change in Control, and the shares subject to those terminated rights
shall thereupon vest in full. Alternatively, the Plan Administrator may
condition the automatic acceleration of one or more outstanding options under
the Discretionary Option Grant Program and the termination of one or more of the
Corporation's outstanding repurchase rights under such program upon the
subsequent termination of the Optionee's Service by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of such Change in Control. Each option so
accelerated shall remain exercisable for fully vested shares until the earlier
of (i) the expiration of the option term or (ii) the expiration of the one (1)
year period measured from the effective date of Optionee's cessation of Service.
10
<PAGE>
H. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as
an Incentive Option only to the extent the applicable One Hundred Thousand
Dollar ($ 1 00,000) limitation is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated portion of such option shall be
exercisable as a Nonstatutory Option under the Federal tax laws.
I. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital
or business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right, exercisable
upon such terms as the Plan Administrator may establish, to elect between
the exercise of the underlying option for shares of Common Stock and the
surrender of that option in exchange for a distribution from the
Corporation in an amount equal to the excess of (a) the Fair Market Value
(on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or
surrendered portion thereof) over (b) the aggregate exercise price
payable for such shares.
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator, either at the time of the actual
option surrender or at any earlier time. If the surrender is so approved,
then the distribution to which the Optionee shall be entitled may be made
in shares of Common Stock valued at Fair Market Value on the option
surrender date, in cash, or partly in shares and partly in cash, as the
Plan Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is not approved by the Plan
Administrator, then the Optionee shall retain whatever rights the
Optionee had under the surrendered option (or surrendered portion
thereof) on the option surrender date and may exercise such rights at any
time prior to the later of (a) five (5) business days after the
-----
11
<PAGE>
receipt of the rejection notice or (b) the last day on which the option
is otherwise exercisable in accordance with the terms of the documents
evidencing such option, but in no event may such rights be exercised more
than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited
stock appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each individual
holding one or more options with such a limited stock appreciation right
shall have the unconditional right (exercisable for a thirty (30)-day
period following such Hostile Take-Over) to surrender each such option to
the Corporation. In return for the surrendered option, the Optionee shall
receive a cash distribution from the Corporation in an amount equal to
the excess of (A) the Take-Over Price of the shares of Common Stock at
the time subject to such option (whether or not the Optionee is otherwise
vested in those shares) over (B) the aggregate exercise price payable for
those shares. Such cash distribution shall be paid within five (5) days
following the option surrender date.
(iii) At the time such limited stock appreciation right is
granted, the Plan Administrator shall pre-approve any subsequent exercise of
that right in accordance with the terms of this Paragraph C. Accordingly, no
further approval of the Plan Administrator or the Board shall be required at
the time of the actual option surrender and cash distribution.
12
<PAGE>
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
--------------------------------------
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for such calendar year or years. Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). Each individual who files such a timely
authorization shall automatically be granted an option under the Salary
Investment Grant Program on the first trading day in January of the calendar
year for which the salary reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; provided, however,
that each such document shall comply with the terms specified below.
A. Exercise Price.
--------------
1. The exercise price per share shall be thirty-three and one-
third percent (33-1/3%) of the Fair Market Value per share of Common Stock on
the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock
-----------------------
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the reduction in the Optionee's base
salary for the calendar year to be in effect pursuant to this
program, and
13
<PAGE>
B is the Fair Market Value per share of Common Stock on the
option grant date.
C. Exercise and Term of Options. The option shall become
----------------------------
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Service in the
calendar year for which the salary reduction is in effect. Each option shall
have a maximum term of ten (10) years measured from the option grant date.
D. Effect of Termination of Service. Should the Optionee cease
--------------------------------
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the ten (10)-year option
term or (ii) the expiration of the two (2)-year period measured from the date
of such cessation of Service. Should the Optionee die while holding one or
more options under this Article Three, then each such option may be exercised,
for any or all of the shares for which the option is exercisable at the time
of the Optionee's cessation of Service (less any shares subsequently purchased
by Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant
to the Optionee's will or the laws of inheritance or by the designated
beneficiary or beneficiaries of such option. Such right of exercise shall
lapse, and the option shall terminate, upon the earlier of (i) the expiration
-------
of the ten (10) year option term or (ii) the two (2)-year period measured from
the date of the Optionee's cessation of Service. However, the option shall,
immediately upon the Optionee's cessation of Service for any reason, terminate
and cease to remain outstanding with respect to any and all shares of Common
Stock for which the option is not otherwise at that time exercisable.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the
Corporate Transaction, become fully exercisable for all the shares of Common
Stock at the time subject to such option and may be exercised for any or all
of those shares as fully-vested shares of Common Stock. Each such outstanding
option shall terminate immediately following the Corporate Transaction, except
to the extent assumed by the successor corporation (or parent thereof) in such
Corporate Transaction. Any option so assumed and shall remain exercisable for
the fully-vested shares until the earlier of (i) the expiration of the ten (10)-
year option term or (ii) the expiration of the two (2)-year period measured from
the date of the Optionee's cessation of Service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Change in
Control, become fully exercisable for all the shares of Common Stock at the
time subject to such option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock.
14
<PAGE>
The option shall remain so exercisable until the earliest to occur of
(i) the expiration of the ten (10)-year option term, (ii) the expiration of the
two (2)-year period measured from the date of the Optionee's cessation of
Service, (iii) the termination of the option in connection with a Corporate
Transaction or (iv) the surrender of the option in connection with a Hostile
Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Salary Investment Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the surrendered option
(whether or not the option is otherwise at the time exercisable for those
shares) over (ii) the aggregate exercise price payable for such shares. Such
cash distribution shall be paid within five (5) days following the surrender of
the option to the Corporation. The Primary Committee shall, at the time the
option with such limited stock appreciation right is granted under the Salary
Investment Option Grant Program, pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph C. Accordingly, no further
approval of the Primary Committee or the Board shall be required at the time of
the actual option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction
had the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
E. The grant of options under the Salary Investment Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure
or to merge, consolidate, dissolve, liquidate or sell or transfer all or any
part of its business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under the Salary Investment
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
15
<PAGE>
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
----------------------
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below. Shares of Common Stock may also be
issued under the Stock Issuance Program pursuant to share right awards which
entitle the recipients to receive those shares upon the attainment of designated
performance goals.
A. Purchase Price.
--------------
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Seven,
shares of Common Stock may be issued under the Stock Issuance Program for any
of the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).
B. Vesting Provisions.
------------------
1. Shares of Common Stock issued under the Stock Issuance Program
may, in the discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the
Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program shall be
determined by the Plan Administrator and incorporated into the Stock Issuance
Agreement. Shares of Common Stock may also be issued under the Stock Issuance
Program pursuant to share right awards which entitle the recipients to receive
those shares upon the attainment of designated performance goals.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which
the Participant may have the right to receive with respect to the
Participant's unvested shares of Common Stock by reason of any stock dividend,
stock split, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation's
16
<PAGE>
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the
Stock Issuance Program, whether or not the Participant's interest in those
shares is vested. Accordingly, the Participant shall have the right to vote
such shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase money note of
the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the surrender
and cancellation of one or more unvested shares of Common Stock which would
otherwise occur upon the cessation of the Participant's Service or the non-
attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
6. Outstanding share right awards under the Stock Issuance
Program shall automatically terminate, and no shares of Common Stock shall
actually be issued in satisfaction of those awards, if the performance goals
established for such awards are not attained. The Plan Administrator, however,
shall have the discretionary authority to issue shares of Common Stock under
one or more outstanding share right awards as to which the designated
performance goals have not been attained.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in
full, in the event of any Corporate Transaction, except to the extent (i)
those repurchase rights are to be assigned to the successor corporation (or
parent thereof) in connection with such Corporate Transaction or (ii) such
accelerated vesting is precluded by other limitations imposed in the Stock
Issuance Agreement.
17
<PAGE>
B. The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole
or in part, and the shares of Common Stock subject to those terminated rights
shall immediately vest, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which those repurchase rights are
assigned to the successor corporation (or parent thereof).
C. The Plan Administrator shall also have the discretionary
authority to structure one or more of the Corporation's repurchase rights
under the Stock Issuance Program so that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's
Service should subsequently terminate by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of any Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
18
<PAGE>
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the dates specified
-----------
below:
1. Each individual who is first elected or appointed as a
non-employee Board member at any time on or after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment,
a Non-Statutory Option to purchase 15,000 shares of Common Stock, provided
that individual has not previously been in the employ of the Corporation or
any Parent or Subsidiary.
2. On the date of each Annual Stockholders Meeting held after the
Underwriting Date, each individual who is to continue to serve as an Eligible
Director, whether or not that individual is standing for re-election to the
Board at that particular Annual Meeting, shall automatically be granted a Non-
Statutory Option to purchase 5,000 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 5,000-share option
grants any one Eligible Director may receive over his or her period of Board
service, and non-employee Board members who have previously been in the employ
of the Corporation (or any Parent or Subsidiary) or who have otherwise
received one or more stock option grants from the Corporation prior to the
Underwriting Date shall be eligible to receive one or more such annual option
grants over their period of continued Board service.
B. Exercise Price.
--------------
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the
option grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
C. Option Term. Each option shall have a term of ten (10) years
-----------
measured from the option grant date.
D. Exercise and Vesting of Options. Each option shall be
-------------------------------
immediately exercisable for any or all of the option shares. However, any
unvested shares purchased under the option shall be subject to repurchase by
the Corporation, at the exercise price paid per share, upon the Optionee's
cessation of Board service prior to vesting in those shares. The shares
subject to each initial 15,000-share grant shall vest, and the Corporation's
repurchase right shall
19
<PAGE>
lapse, in a series of six (6) successive equal semi-annual installments upon the
Optionee's completion of each six (6)-month period of service as a Board member
over the thirty-six (36)month period measured from the option grant date. The
shares subject to each annual 5,000-share option grant shall be fully vested as
of the grant date.
E. Limited Transferability of Options. Each option under this
----------------------------------
Article Five may, in connection with the Optionee's estate plan, be assigned
in whole or in part during the Optionee's lifetime to one or more members of
the Optionee's immediate family or to a trust established exclusively for one
or more such family members. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and
shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate. The Optionee may also designate one or
more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Five, and those options shall, in accordance with
such designation, automatically be transferred to such beneficiary or
beneficiaries upon the Optionee's death while holding those options. Such
beneficiary or beneficiaries shall take the transferred options subject to all
the terms and conditions of the applicable agreement evidencing each such
transferred option, including (without limitation) the limited time period
during which the option may be exercised following the Optionee's death.
F. Termination of Board Service. The following provisions shall
----------------------------
govern the exercise of any options held by the Optionee at the time the
Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or persons
to whom the option is transferred pursuant to the Optionee's will or the
laws of inheritance or the designated beneficiary or beneficiaries of such
option) shall have a twelve (12)-month period following the date of such
cessation of Board service in which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares of Common Stock for which the option is exercisable at the
time of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then all shares at the time
subject to the option shall immediately vest so that such option may,
during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for all or any portion of those shares as
fully-vested shares of Common Stock.
(iv) In no event shall the option remain exercisable after
the expiration of the option term. Upon the expiration of the twelve (12)-
month exercise period or (if earlier) upon the expiration of the option
term, the option shall terminate and cease to be outstanding for any
vested shares for which the option has not been exercised.
20
<PAGE>
However, the option shall, immediately upon the Optionee's cessation of
Board service for any reason other than death or Permanent Disability,
terminate and cease to be outstanding to the extent the option is not
otherwise at that time exercisable for vested shares.
G. Special Modification. If the financial accounting treatment for
--------------------
non-employee director stock options proposed in the March 31, 1999 Exposure
Draft of the Financial Accounting Standards Board under APB Opinion No. 25 is
adopted, then the following changes shall be made to the foregoing provisions of
the Automatic Option Grant Program:
. The 15,000-share option grant shall not be made to a newly-
elected or appointed non-employee Board member until the first Annual
Stockholders Meeting held more than twelve (12) months after the date of his
or her initial election or appointment to the Board. At that annual meeting,
the non-employee Board member shall also receive an option grant for an
additional 5,000 shares under the annual grant portion of the Automatic Option
Grant Program.
. One-third of the shares subject to the 15,000-share option
grant shall be immediately vested at the time of the option grant, and the
remaining shares shall vest in a series of four (4) successive equal semi-
annual installments upon the Optionee's completion of each six (6)-month
period of Board service over the twenty-four (24)-month period measured from
the grant date.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of those shares as fully-
vested shares of Common Stock. Immediately following the consummation of the
Corporate Transaction, each automatic option grant shall terminate and cease
to be outstanding, except to the extent assumed by the successor corporation
(or parent thereof).
B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and
may be exercised for all or any portion of those shares as fully-vested shares
of Common Stock. Each such option shall remain exercisable for such fully-
vested option shares until the expiration or sooner termination of the option
term or the surrender of the option in connection with a Hostile Take-Over.
C. All outstanding repurchase rights shall automatically terminate,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction or Change
in Control.
21
<PAGE>
D. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding automatic option grants. The Optionee shall in return
be entitled to a cash distribution from the Corporation in an amount equal to
the excess of (i) the Take-Over Price of the shares of Common Stock at the
time subject to each surrendered option (whether or not the Optionee is
otherwise at the time vested in those shares) over (ii) the aggregate exercise
price payable for such shares. Such cash distribution shall be paid within
five (5) days following the surrender of the option to the Corporation. No
approval or consent of the Board or any Plan Administrator shall be required
at the time of the actual option surrender and cash distribution.
E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction
had the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
F. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
22
<PAGE>
ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
---------------------------------
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years for which the Director Fee Option Grant
Program is to be in effect. For each such calendar year the program is in
effect, each non-employee Board member may elect to apply all or any portion of
the annual retainer fee otherwise payable in cash for his or her service on the
Board for that year to the acquisition of a special option grant under this
Director Fee Option Grant Program. Such election must be filed with the
Corporation's Chief Financial Officer prior to first day of the calendar year
for which the annual retainer fee which is the subject of that election is
otherwise payable. Each non-employee Board member who files such a timely
election shall automatically be granted an option under this Director Fee Option
Grant Program on the first trading day in January in the calendar year for which
the annual retainer fee which is the subject of that election would otherwise be
payable in cash.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms and
conditions specified below.
A. Exercise Price.
--------------
1. The exercise price per share shall be thirty-three and one-
third percent (33-1/3%) of the Fair Market Value per share of Common Stock on
the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock
-----------------------
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject to the non-
employee Board member's election, and
23
<PAGE>
B is the Fair Market Value per share of Common Stock on the
option grant date.
C. Exercise and Term of Options. The option shall become
----------------------------
exercisable in a series of twelve (12) equal monthly installments upon the
Optionee's completion of each calendar month of Board service in the calendar
year for which the director fee election is in effect under this Article Six.
Each option shall have a maximum term of ten (10) years measured from the
option grant date.
D. Limited Transferability of Options. Each option under this
----------------------------------
Article Six may, in connection with the Optionee's estate plan, be assigned in
whole or in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established exclusively for one or
more such family members. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and
shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate. The Optionee may also designate one or
more persons as the beneficiary or beneficiaries of his or her outstanding
options under this Article Six, and those options shall, in accordance with
such designation, automatically be transferred to such beneficiary or
beneficiaries upon the Optionee's death while holding those options. Such
beneficiary or beneficiaries shall take the transferred options subject to all
the terms and conditions of the applicable agreement evidencing each such
transferred option, including (without limitation) the limited time period
during which the option may be exercised following the Optionee's death.
E. Termination of Board Service. Should the Optionee cease Board
----------------------------
service for any reason (other than death or Permanent Disability) while
holding one or more options under this Director Fee Option Grant Program, then
each such option shall remain exercisable, for any or all of the shares for
which the option is exercisable at the time of such cessation of Board
service, until the earlier of (i) the expiration of the ten (10)-year option
term or (ii) the expiration of the two (2)-year period measured from the date
of such cessation of Board service. However, each option held by the Optionee
under this Director Fee Option Grant Program at the time of his or her
cessation of Board service shall immediately terminate and cease to remain
outstanding with respect to any and all shares of Common Stock for which the
option is not otherwise at that time exercisable.
F. Death or Permanent Disability. Should the Optionee's service as
-----------------------------
a Board member cease by reason of death or Permanent Disability, then each
option held by such Optionee under this Director Fee Option Grant Program
shall immediately become exercisable for all the shares of Common Stock at the
time subject to that option, and the option may be exercised for any or all of
those shares as fully-vested shares until the earlier of (i) the expiration of
the ten (10)-year option term or (ii) the expiration of the two (2)-year
period measured from the date of such cessation of Board service. In the event
of the Optionee's death while holding such option, the option may be exercised
by the personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's will or
the laws of inheritance or by the designated beneficiary or beneficiaries of
such option.
24
<PAGE>
Should the Optionee die after cessation of Board service but while
holding one or more options under this Director Fee Option Grant Program, then
each such option may be exercised, for any or all of the shares for which the
option is exercisable at the time of the Optionee's cessation of Board service
(less any shares subsequently purchased by Optionee prior to death), by the
personal representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or the laws of
inheritance or by the designated beneficiary or beneficiaries of such option.
Such right of exercise shall lapse, and the option shall terminate, upon the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the two
(2)-year period measured from the date of the Optionee's cessation of Board
service.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains a Board member, each outstanding option held by such Optionee under
this Director Fee Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the
Corporate Transaction, become fully exercisable for the total number of shares
of Common Stock at the time subject to such option and may be exercised for
any or all of those shares as fully-vested shares of Common Stock. Each such
outstanding option shall terminate immediately following the Corporate
Transaction, except to the extent assumed by the successor corporation (or
parent thereof) in such Corporate Transaction. Any option so assumed and shall
remain exercisable for the fully-vested shares until the earlier of (i) the
expiration of the ten (10)-year option term or (ii) the expiration of the two
(2)-year period measured from the date of the Optionee's cessation of Board
service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Director Fee
Option Grant Program shall automatically accelerate so that each such option
shall immediately become fully exercisable for the total number of shares of
Common Stock at the time subject to such option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock. The option
shall remain so exercisable until the earliest to occur of (i) the expiration
of the ten (10)-year option term, (ii) the expiration of the two (2)-year
period measured from the date of the Optionee's cessation of Board service,
(iii) the termination of the option in connection with a Corporate Transaction
or (iv) the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Director Fee Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to each surrendered option
(whether or not the option is otherwise at the time exercisable for those
shares) over (ii) the aggregate exercise price payable for such shares. Such
cash distribution shall be paid within five (5) days following the surrender of
the option to the Corporation. No approval or consent of the Board or any Plan
Administrator shall be required at the time of the actual option surrender and
cash distribution.
25
<PAGE>
D. The grant of options under the Director Fee Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director Fee
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
26
<PAGE>
ARTICLE SEVEN
MISCELLANEOUS
-------------
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering
a full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan
Administrator in its sole discretion. In no event may the maximum credit
available to the Optionee or Participant exceed the sum of (i) the aggregate
option exercise price or purchase price payable for the purchased shares plus
(ii) any Federal, state and local income and employment tax liability incurred
by the Optionee or the Participant in connection with the option exercise or
share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under
the Plan shall be subject to the satisfaction of all applicable Federal, state
and local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant or Director Fee Option Grant Program) with the right to use
shares of Common Stock in satisfaction of all or part of the Withholding Taxes
to which such holders may become subject in connection with the exercise of
their options or the vesting of their shares. Such right may be provided to
any such holder in either or both of the following formats:
Stock Withholding: The election to have the Corporation withhold,
-----------------
from the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Withholding
Taxes (not to exceed one hundred percent (100%)) designated by the holder.
Stock Delivery: The election to deliver to the Corporation, at the
--------------
time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Withholding
Taxes) with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
27
<PAGE>
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately on the Plan
Effective Date. However, the Salary Investment Option Grant Program and the
Director Fee Option Grant Program shall not be implemented until such time as
the Primary Committee may deem appropriate. Options may be granted under the
Discretionary Option Grant at any time on or after the Plan Effective Date,
and the initial option grants under the Automatic Option Grant Program shall
also be made on the Plan Effective Date to any non-employee Board members
eligible for such a grant at that time. However, no options granted under the
Plan may be exercised, and no shares shall be issued under the Plan, until the
Plan is approved by the Corporation's stockholders. If such stockholder
approval is not obtained within twelve (12) months after the Plan Effective
Date, then all options previously granted under this Plan shall terminate and
cease to be outstanding, and no further options shall be granted and no shares
shall be issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Plan Effective Date. All options outstanding under
the Predecessor Plan on the Plan Effective Date shall be incorporated into the
Plan at that time and shall be treated as outstanding options under the Plan.
However, each outstanding option so incorporated shall continue to be governed
solely by the terms of the documents evidencing such option, and no provision
of the Plan shall be deemed to affect or otherwise modify the rights or
obligations of the holders of such incorporated options with respect to their
acquisition of shares of Common Stock.
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated
from the Predecessor Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest to occur of (i) April
15, 2009, (ii) the date on which all shares available for issuance under the
Plan shall have been issued as fully-vested shares or (iii) the termination of
all outstanding options in connection with a Corporate Transaction. Should the
Plan terminate on April 15, 2009, then all option grants and unvested stock
issuances outstanding at that time shall continue to have force and effect in
accordance with the provisions of the documents evidencing such grants or
issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to stock options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
28
<PAGE>
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued under those
programs shall be held in escrow until there is obtained stockholder approval
of an amendment sufficiently increasing the number of shares of Common Stock
available for issuance under the Plan. If such stockholder approval is not
obtained within twelve (12) months after the date the first such excess
issuances are made, then (i) any unexercised options granted on the basis of
such excess shares shall terminate and cease to be outstanding and (ii) the
Corporation shall promptly refund to the Optionees and the Participants the
exercise or purchase price paid for any excess shares issued under the Plan
and held in escrow, together with interest (at the applicable Short Term
Federal Rate) for the period the shares were held in escrow, and such shares
shall thereupon be automatically cancelled and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall
be subject to the Corporation's procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the
stock options granted under it and the shares of Common Stock issued pursuant
to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance
with all applicable requirements of Federal and state securities laws,
including the filing and effectiveness of the Form S-8 registration statement
for the shares of Common Stock issuable under the Plan, and all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
29
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. Automatic Option Grant Program shall mean the automatic option
------------------------------
grant program in effect under Article Five of the Plan.
B. Board shall mean the Corporation's Board of Directors.
-----
C. Change in Control shall mean a change in ownership or control of
-----------------
the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person
or related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than
fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a period
of thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such
period by at least a majority of the Board members described in clause
(A) who were still in office at the time the Board approved such election
or nomination.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
----
E. Common Stock shall mean the Corporation's common stock.
------------
F. Corporate Transaction shall mean either of the following
---------------------
stockholder approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
A-1
<PAGE>
G. Corporation shall mean Digital Island, Inc., a Delaware
-----------
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Digital Island, Inc. which shall by appropriate
action adopt the Plan.
H. Director Fee Option Grant Program shall mean the special stock
---------------------------------
option grant in effect for non-employee Board members under Article Six of the
Plan.
I. Discretionary Option Grant Program shall mean the discretionary
----------------------------------
option grant program in effect under Article Two of the Plan.
J. Eligible Director means a non-employee Board member eligible to
-----------------
participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Articles One and Five.
K. Employee shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed and the
manner and method of performance.
L. Exercise Date shall mean the date on which the Corporation shall
-------------
have received written notice of the option exercise.
M. Fair Market Value per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market. If there is no closing selling price for the Common
Stock on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such quotation
exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which
such quotation exists.
(iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal to
the price per share at which the Common Stock is to be sold in the
initial public offering pursuant to the Underwriting Agreement.
A-2
<PAGE>
N. Hostile Take-Over shall mean the acquisition, directly or
-----------------
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled
by, or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange offer
made directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept.
O. Incentive Option shall mean an option which satisfies the
----------------
requirements of Code Section 422.
P. Involuntary Termination shall mean the termination of the Service
-----------------------
of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her duties and responsibilities or the level of management
to which he or she reports, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and target bonus
under any corporate-performance based bonus or incentive programs) by
more than fifteen percent (15%) or (C) a relocation of such individual's
place of employment by more than fifty (50) miles, provided and only if
such change, reduction or relocation is effected by the Corporation
without the individual's consent.
Q. Misconduct shall mean the commission of any act of fraud,
----------
embezzlement or dishonesty by the Optionee or Participant, any unauthorized
use or disclosure by such person of confidential information or trade secrets
of the Corporation (or any Parent or Subsidiary), or any other intentional
misconduct by such person adversely affecting the business or affairs of the
Corporation (or any Parent or Subsidiary) in a material manner. The foregoing
definition shall not be deemed to be inclusive of all the acts or omissions
which the Corporation (or any Parent or Subsidiary) may consider as grounds
for the dismissal or discharge of any Optionee, Participant or other person in
the Service of the Corporation (or any Parent or Subsidiary).
R. 1934 Act shall mean the Securities Exchange Act of 1934, as
--------
amended.
S. Non-Statutory Option shall mean an option not intended to satisfy
--------------------
the requirements of Code Section 422.
T. Optionee shall mean any person to whom an option is granted under
--------
the Discretionary Option Grant, Salary Investment Option Grant, Automatic
Option Grant or Director Fee Option Grant Program.
A-3
<PAGE>
U. Parent shall mean any corporation (other than the Corporation) in
------
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
V. Participant shall mean any person who is issued shares of Common
-----------
Stock under the Stock Issuance Program.
W. Permanent Disability or Permanently Disabled shall mean the
--------------------------------------------
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of
twelve (12) months or more. However, solely for purposes of the Automatic
Option Grant and Director Fee Option Grant Programs, Permanent Disability or
Permanently Disabled shall mean the inability of the non-employee Board member
to perform his or her usual duties as a Board member by reason of any
medically determinable physical or mental impairment expected to result in
death or to be of continuous duration of twelve (12) months or more.
X. Plan shall mean the Corporation's 1999 Stock Incentive Plan, as
----
set forth in this document.
Y. Plan Administrator shall mean the particular entity, whether the
------------------
Primary Committee, the Board or the Secondary Committee, which is authorized
to administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity
is carrying out its administrative functions under those programs with respect
to the persons under its jurisdiction.
Z. Plan Effective Date shall mean the date the Plan shall become
-------------------
effective and shall be coincident with the Underwriting Date.
AA. Predecessor Plan shall mean the Corporation's 1998 Stock
----------------
Option/Stock Issuance Plan in effect immediately prior to the Plan Effective
Date hereunder.
BB. Primary Committee shall mean the committee of two (2) or more
-----------------
nonemployee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program
solely with respect to the selection of the eligible individuals who may
participate in such program.
CC. Salary Investment Option Grant Program shall mean the salary
--------------------------------------
investment option grant program in effect under Article Three of the Plan.
DD. Secondary Committee shall mean a committee of one or more Board
-------------------
members appointed by the Board to administer the Discretionary Option Grant
and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
A-4
<PAGE>
EE. Section 16 Insider shall mean an officer or director of the
------------------
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
FF. Service shall mean the performance of services for the
-------
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in
the documents evidencing the option grant or stock issuance.
GG. Stock Exchange shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
HH. Stock Issuance Program shall mean the agreement entered into by
----------------------
the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
II. Stock Issuance Program shall mean the stock issuance program in
----------------------
effect under Article Four of the Plan.
JJ. Subsidiary shall mean any corporation (other than the
----------
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in
the unbroken chain owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
KK. Take-Over Price shall mean the greater of (i) the Fair Market
---------------
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest
reported price per share of Common Stock paid by the tender offerer in
effecting such Hostile Take-Over. However, if the surrendered option is an
Incentive Option, the Take-Over Price shall not exceed the clause (i) price
per share.
LL. 10% Stockholder shall mean the owner of stock (as determined
---------------
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any
Parent or Subsidiary).
MM. Underwriting Agreement shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
NN. Underwriting Date shall mean the date on which the Underwriting
-----------------
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.
OO. Withholding Taxes shall mean the Federal, state and local income
-----------------
and employment withholding taxes to which the holder of Non-Statutory Options
or unvested shares of Common Stock may become subject in connection with the
exercise of those options or the vesting of those shares.
A-5
<PAGE>
EXHIBIT 99.2
DIGITAL ISLAND, INC.
NOTICE OF GRANT OF STOCK OPTION
-------------------------------
Notice is hereby given of the following option grant (the "Option")
to purchase shares of the Common Stock of Digital Island, Inc. (the
"Corporation"):
Optionee:
-------- -------------------------------------------------------
Grant Date:
---------- -----------------------------------------------------
Vesting Commencement Date:
------------------------- --------------------------------------
Exercise Price: $ per share
-------------- -------------------------------------
Number of Option Shares: shares
----------------------- ---------------------------------
Expiration Date:
--------------- ------------------------------------------------
Type of Option: Incentive Stock Option
-------------- -----------
Non-Statutory Stock Option
-----------
Exercise Schedule: The Option shall become exercisable for twenty-
-----------------
four percent (24%) of the Option Shares upon Optionee's completion of
one (1) year of Service measured from the Vesting Commencement Date
and shall become exercisable for the balance of the Option Shares in
a series of thirty-eight (38) successive equal monthly installments
upon Optionee's completion of each additional month of Service over
the thirty-eight (38) month period measured from the first
anniversary of the Vesting Commencement Date. In no event shall the
Option become exercisable for any additional Option Shares after
Optionee's cessation of Service.
Optionee understands and agrees that the Option is granted subject to
and in accordance with the terms of the Digital Island, Inc. 1999 Stock
Incentive Plan (the "Plan"). Optionee further agrees to be bound by the terms
of the Plan and the terms of the Option as set forth in the Stock Option
Agreement attached hereto as Exhibit A. Optionee hereby acknowledges the
---------
receipt of a copy of the official prospectus for the Plan in the form attached
hereto as Exhibit B. A copy of the Plan is available upon request made to the
---------
Corporate Secretary at the Corporation's principal offices.
<PAGE>
Employment at Will. Nothing in this Notice or in the attached Stock
------------------
Option Agreement or in the Plan shall confer upon Optionee any right to continue
in Service for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation (or any Parent or Subsidiary
employing or retaining Optionee) or of Optionee, which rights are hereby
expressly reserved by each, to terminate Optionee's Service at any time for any
reason, with or without cause.
Definitions. All capitalized terms in this Notice shall have the
-----------
meaning assigned to them in this Notice or in the attached Stock Option
Agreement.
DATED:_________________________
DIGITAL ISLAND, INC.
By:
----------------------------------------
Title:
-------------------------------------
-------------------------------------------
OPTIONEE
Address:
-----------------------------------
-------------------------------------------
ATTACHMENTS
- -----------
Exhibit A - Stock Option Agreement
Exhibit B - Plan Summary and Prospectus
2
<PAGE>
EXHIBIT A
---------
STOCK OPTION AGREEMENT
----------------------
<PAGE>
EXHIBIT B
---------
PLAN SUMMARY AND PROSPECTUS
---------------------------
<PAGE>
EXHIBIT 99.3
DIGITAL ISLAND
STOCK OPTION AGREEMENT
----------------------
RECITALS
- --------
A. The Board has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or of the
board of directors of any Parent or Subsidiary and consultants and other
independent advisors who provide services to the Corporation (or any Parent or
Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a Parent
or Subsidiary), and this Agreement is executed pursuant to, and is intended to
carry out the purposes of, the Plan in connection with the Corporation's grant
of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning assigned
to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. The Corporation hereby grants to Optionee, as of
---------------
the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from
time to time during the option term specified in Paragraph 2 at the Exercise
Price.
2. Option Term. This option shall have a maximum term of ten (10) years
-----------
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. Limited Transferability.
-----------------------
(a) This option shall be neither transferable nor assignable by
Optionee other than by will or by the laws of inheritance following Optionee's
death and may be exercised, during Optionee's lifetime, only by Optionee.
However, Optionee may designate one or more persons as the beneficiary or
beneficiaries of this option, and this option shall, in accordance with such
designation, automatically be transferred to this beneficiary or beneficiaries
upon the Optionee's death while holding such option. Such beneficiary or
beneficiaries shall take the transferred option subject to all the terms and
conditions of this Agreement, including (without limitation) the limited time
period during which this option may, pursuant to Paragraph 5, be exercised
following Optionee's death.
(b) If this option is designated a Non-Statutory Option in the Grant
Notice, then this option may, in connection with the Optionee's estate plan,
be assigned in whole or in part during Optionee's lifetime to one or more
members of Optionee's immediate family or to a trust established for the
exclusive benefit of one or more such family members. The assigned portion
shall be exercisable only by the person or persons who acquire a proprietary
interest in the option pursuant to such assignment. The terms applicable to
the assigned portion shall be the same as those in effect for this option
immediately prior to such assignment.
<PAGE>
4. Dates of Exercise. This option shall become exercisable for the Option
-----------------
Shares in one or more installments as specified in the Grant Notice. As the
option becomes exercisable for such installments, those installments shall
accumulate and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.
5. Cessation of Service. The option term specified in Paragraph 2 shall
--------------------
terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
(a) Should Optionee cease to remain in Service for any reason (other
than death, Permanent Disability or Misconduct) while holding this option,
then Optionee shall have a period of three (3) months (commencing with the
date of such cessation of Service) during which to exercise this option, but
in no event shall this option be exercisable at any time after the Expiration
Date.
(b) Should Optionee die while holding this option, then the personal
representative of Optionee's estate or the person or persons to whom the
option is transferred pursuant to Optionee's will or in accordance with the
laws of inheritance shall have the right to exercise this option. However, if
Optionee has designated one or more beneficiaries of this option, then those
persons shall have the exclusive right to exercise this option following
Optionee's death. Any such right to exercise this option shall lapse, and this
option shall cease to be outstanding, upon the earlier of (i) the expiration of
-------
the twelve (12)-month period measured from the date of Optionee's death or (ii)
the Expiration Date.
(c) Should Optionee cease Service by reason of Permanent Disability
while holding this option, then Optionee shall have a period of twelve (12)
months (commencing with the date of such cessation of Service) during which to
exercise this option. In no event shall this option be exercisable at any time
after the Expiration Date.
(d) During the limited period of post-Service exercisability, this
option may not be exercised in the aggregate for more than the number of
Option Shares for which the option is exercisable at the time of Optionee's
cessation of Service. Upon the expiration of such limited exercise period or
(if earlier) upon the Expiration Date, this option shall terminate and cease
to be outstanding for any exercisable Option Shares for which the option has
not been exercised. However, this option shall, immediately upon Optionee's
cessation of Service for any reason, terminate and cease to be outstanding
with respect to any Option Shares for which this option is not otherwise at
that time exercisable.
(e) Should Optionee's Service be terminated for Misconduct or should
Optionee otherwise engage in any Misconduct while this option is outstanding,
then this option shall terminate immediately and cease to remain outstanding.
<PAGE>
6. Special Acceleration of Option.
------------------------------
(a) This option, to the extent outstanding at the time of a
Corporate Transaction but not otherwise fully exercisable, shall automatically
accelerate so that this option shall, immediately prior to the effective date
of such Corporate Transaction, become exercisable for all of the Option Shares
at the time subject to this option and may be exercised for any or all of
those Option Shares as fully vested shares of Common Stock. No such
acceleration of this option shall occur, however, if and to the extent: (i)
this option is, in connection with the Corporate Transaction, to be assumed by
the successor corporation (or parent thereof) or (ii) this option is to be
replaced with a cash incentive program of the successor corporation which
preserves the spread existing at the time of the Corporate Transaction on the
Option Shares for which this option is not otherwise at that time exercisable
(the excess of the Fair Market Value of those Option Shares over the aggregate
Exercise Price payable for such shares) and provides for subsequent payout in
accordance with the same option exercise/vesting schedule set forth in the
Grant Notice.
(b) Immediately following the Corporate Transaction, this option
shall terminate and cease to be outstanding, except to the extent assumed by
the successor corporation (or parent thereof) in connection with the Corporate
Transaction.
(c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately
after such Corporate Transaction, to apply to the number and class of
securities which would have been issuable to Optionee in consummation of such
Corporate Transaction had the option been exercised immediately prior to such
Corporate Transaction, and appropriate adjustments shall also be made to the
Exercise Price, provided the aggregate Exercise Price shall remain the same.
--------
(d) This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital
or business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
7. Adjustment in Option Shares. Should any change be made to the Common
---------------------------
Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price
in order to reflect such change and thereby preclude a dilution or enlargement
of benefits hereunder.
8. Stockholder Rights. The holder of this option shall not have any
------------------
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
<PAGE>
9. Manner of Exercising Option.
---------------------------
(a) In order to exercise this option with respect to all or any part
of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(i) Execute and deliver to the Corporation a Notice of Exercise
for the Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the purchased shares
in one or more of the following forms:
(A) cash or check made payable to the Corporation;
(B) a promissory note payable to the Corporation, but only
to the extent authorized by the Plan Administrator in accordance
with Paragraph 13;
(C) shares of Common Stock held by Optionee (or any other
person or persons exercising the option) for the requisite period
necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date; or
(D) through a special sale and remittance procedure
pursuant to which Optionee (or any other person or persons
exercising the option) shall concurrently provide irrevocable
instructions (i) to a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate Exercise Price payable
for the purchased shares plus all applicable Federal, state and
local income and employment taxes required to be withheld by the
Corporation by reason of such exercise and (ii) to the Corporation
to deliver the certificates for the purchased shares directly to
such brokerage firm in order to complete the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Notice of Exercise delivered to the
Corporation in connection with the option exercise.
(iii) Furnish to the Corporation appropriate documentation that
the person or persons exercising the option (if other than Optionee) have
the right to exercise this option.
<PAGE>
(iv) Make appropriate arrangements with the Corporation (or
Parent or Subsidiary employing or retaining Optionee) for the
satisfaction of all Federal, state and local income and employment tax
withholding requirements applicable to the option exercise.
(b) As soon as practical after the Exercise Date, the Corporation
shall issue to or on behalf of Optionee (or any other person or persons
exercising this option) a certificate for the purchased Option Shares, with
the appropriate legends affixed thereto.
(c) In no event may this option be exercised for any fractional
shares.
10. Compliance with Laws and Regulations.
------------------------------------
(a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation
and Optionee with all applicable requirements of law relating thereto and with
all applicable regulations of any stock exchange (or the Nasdaq National
Market, if applicable) on which the Common Stock may be listed for trading at
the time of such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been
obtained. The Corporation, however, shall use its best efforts to obtain all
such approvals.
11. Successors and Assigns. Except to the extent otherwise provided in
----------------------
Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Corporation and its successors and assigns and
Optionee, Optionee's assigns, the legal representatives, heirs and legatees of
Optionee's estate and any beneficiaries of this option designated by Optionee.
12. Notices. Any notice required to be given or delivered to the
-------
Corporation under the terms of this Agreement shall be in writing and
addressed to the Corporation at its principal corporate offices. Any notice
required to be given or delivered to Optionee shall be in writing and
addressed to Optionee at the address indicated below Optionee's signature line
on the Grant Notice. All notices shall be deemed effective upon personal
delivery or upon deposit in the U.S. mail, postage prepaid and properly
addressed to the party to be notified.
13. Financing. The Plan Administrator may, in its absolute discretion and
---------
without any obligation to do so, permit Optionee to pay the Exercise Price for
the purchased Option Shares by delivering a full-recourse promissory note
payable to the Corporation. The terms of any such promissory note (including
the interest rate, the requirements for collateral and the terms of repayment)
shall be established by the Plan Administrator in its sole discretion.
<PAGE>
14. Construction. This Agreement and the option evidenced hereby are
------------
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All decisions of the Plan Administrator with
respect to any question or issue arising under the Plan or this Agreement
shall be conclusive and binding on all persons having an interest in this
option.
15. Governing Law. The interpretation, performance and enforcement of
-------------
this Agreement shall be governed by the laws of the State of California
without resort to that State's conflict-of-laws rules.
16. Excess Shares. If the Option Shares covered by this Agreement
-------------
exceed, as of the Grant Date, the number of shares of Common Stock which may
without stockholder approval be issued under the Plan, then this option shall
be void with respect to those excess shares, unless stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock
issuable under the Plan is obtained in accordance with the provisions of the
Plan.
17. Additional Terms Applicable to an Incentive Option. In the event this
--------------------------------------------------
option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:
(a) This option shall cease to qualify for favorable tax treatment
as an Incentive Option if (and to the extent) this option is exercised for one
or more Option Shares: (A) more than three (3) months after the date Optionee
ceases to be an Employee for any reason other than death or Permanent
Disability or (B) more than twelve (12) months after the date Optionee ceases
to be an Employee by reason of Permanent Disability.
(b) No installment under this option shall qualify for favorable
tax treatment as an Incentive Option if (and to the extent) the aggregate Fair
Market Value (determined at the Grant Date) of the Common Stock for which such
installment first becomes exercisable hereunder would, when added to the
aggregate value (determined as of the respective date or dates of grant) of
the Common Stock or other securities for which this option or any other
Incentive Options granted to Optionee prior to the Grant Date (whether under
the Plan or any other option plan of the Corporation or any Parent or
Subsidiary) first become exercisable during the same calendar year, exceed One
Hundred Thousand Dollars ($100,000) in the aggregate. Should such One Hundred
Thousand Dollar ($100,000) limitation be exceeded in any calendar year, this
option shall nevertheless become exercisable for the excess shares in such
calendar year as a Non-Statutory Option.
(c) Should the exercisability of this option be accelerated upon a
Corporate Transaction, then this option shall qualify for favorable tax
treatment as an Incentive Option only to the extent the aggregate Fair Market
Value (determined at the Grant Date) of the Common Stock for which this option
first becomes exercisable in the calendar year in which the Corporate
Transaction occurs does not, when added to the aggregate value (determined as
of the respective date or dates of grant) of the Common Stock or other
securities for which this option
<PAGE>
or one or more other Incentive Options granted to Optionee prior to the Grant
Date (whether under the Plan or any other option plan of the Corporation or
any Parent or Subsidiary) first become exercisable during the same calendar
year, exceed One Hundred Thousand Dollars ($100,000) in the aggregate. Should
the applicable One Hundred Thousand Dollar ($100,000) limitation be exceeded
in the calendar year of such Corporate Transaction, the option may
nevertheless be exercised for the excess shares in such calendar year as a Non-
Statutory Option.
(d) Should Optionee hold, in addition to this option, one or more
other options to purchase Common Stock which become exercisable for the first
time in the same calendar year as this option, then the foregoing limitations
on the exercisability of such options as Incentive Options shall be applied on
the basis of the order in which such options are granted.
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify Digital Island, Inc. (the "Corporation") that I
elect to purchase shares of the Corporation's Common Stock (the
"Purchased Shares") at the option exercise price of $ per share (the
"Exercise Price") pursuant to that certain option (the "Option") granted to me
under the Corporation's 1999 Stock Incentive Plan on , .
Concurrently with the delivery of this Exercise Notice to the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a condition
for exercise. Alternatively, I may utilize the special broker-dealer sale and
remittance procedure specified in my agreement to effect payment of the Exercise
Price.
____________________, ________
Date
________________________________
Optionee
Address:________________________
________________________________
Print name in exact manner it is
to appear on the stock
certificate: ________________________________
Address to which certificate is to
be sent, if different from
address above: ________________________________
________________________________
Social Security Number: ________________________________
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Stock Option Agreement.
---------
B. Board shall mean the Corporation's Board of Directors.
-----
C. Common Stock shall mean shares of the Corporation's common stock.
------------
D. Code shall mean the Internal Revenue Code of 1986, as amended.
----
E. Corporate Transaction shall mean either of the following stockholder-
---------------------
approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of
the Corporation.
F. Corporation shall mean Digital Island, Inc. a Delaware corporation, and
-----------
any successor corporation to all or substantially all of the assets or voting
stock of Digital Island, Inc. which shall by appropriate action adopt the Plan.
G. Employee shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed and the
manner and method of performance.
H. Exercise Date shall mean the date on which the option shall have been
-------------
exercised in accordance with Paragraph 9 of the Agreement.
I. Exercise Price shall mean the exercise price per Option Share as
--------------
specified in the Grant Notice.
J. Expiration Date shall mean the date on which the option expires as
---------------
specified in the Grant Notice.
K. Fair Market Value per share of Common Stock on any relevant date shall
-----------------
be determined in accordance with the following provisions:
A-1
<PAGE>
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be deemed equal to the closing
selling price per share of Common Stock on the date in question, as the
price is reported by the National Association of Securities Dealers on
the Nasdaq National Market. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be
the closing selling price on the last preceding date for which such
quotation exists, or
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be deemed equal to the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the composite
tape of transactions on such exchange. If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
L. Grant Date shall mean the date of grant of the option as specified in
----------
the Grant Notice.
M. Grant Notice shall mean the Notice of Grant of Stock Option
------------
accompanying the Agreement, pursuant to which Optionee has been informed of
the basic terms of the option evidenced hereby.
N. Incentive Option shall mean an option which satisfies the requirements
----------------
of Code Section 422.
O. Misconduct shall mean the commission of any act of fraud, embezzlement
----------
or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of
confidential information or trade secrets of the Corporation (or any Parent or
Subsidiary), or any other intentional misconduct by Optionee adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of Optionee or any other individual in the Service of the Corporation (or any
Parent or Subsidiary).
P. Non-Statutory Option shall mean an option not intended to satisfy the
--------------------
requirements of Code Section 422.
Q. Notice of Exercise shall mean the notice of exercise in the form
------------------
attached hereto as Exhibit I.
R. Option Shares shall mean the number of shares of Common Stock subject
-------------
to the option as specified in the Grant Notice.
A-2
<PAGE>
S. Optionee shall mean the person to whom the option is granted as
--------
specified in the Grant Notice.
T. Parent shall mean any corporation (other than the Corporation) in an
------
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
U. Permanent Disability shall mean the inability of Optionee to engage
--------------------
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which is expected to result in death or has
lasted or can be expected to last for a continuous period of twelve (12)
months or more.
V. Plan shall mean the Corporation's 1999 Stock Incentive Plan.
----
W. Plan Administrator shall mean either the Board or a committee of the
------------------
Board acting in its capacity as administrator of the Plan.
X. Service shall mean the Optionee's performance of services for the
-------
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a non-
employee member of the board of directors or a consultant or independent
advisor.
Y. Stock Exchange shall mean the American Stock Exchange or the New York
--------------
Stock Exchange.
Z. Subsidiary shall mean any corporation (other than the Corporation) in
----------
an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
A-3
<PAGE>
EXHIBIT 99.4
ADDENDUM
TO
STOCK OPTION AGREEMENT
The following provisions are hereby incorporated into, and are hereby
made a part of, that certain Stock Option Agreement (the "Option Agreement") by
and between Digital Island, Inc. (the "Corporation") and ______________________
("Optionee") evidencing the stock option (the "Option") granted this day to
Optionee under the terms of the Corporation's 1999 Stock Incentive Plan, and
such provisions are effective immediately. All capitalized terms in this
Addendum, to the extent not otherwise defined herein, shall have the meanings
assigned to them in the Option Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CORPORATE TRANSACTION/CHANGE IN CONTROL
1. To the extent the Option is, in connection with a Corporate
Transaction, to be assumed in accordance with Paragraph 6 of the Option
Agreement, the Option shall not accelerate upon the occurrence of that
Corporate Transaction, and the Option shall accordingly continue, over
Optionee's period of Service after the Corporate Transaction, to become
exercisable for the Option Shares in one or more installments in accordance
with the provisions of the Option Agreement. However, if that Corporate
Transaction is effected more than twelve (12) months after the commencement
date of Optionee's Service, than immediately upon an Involuntary Termination of
Optionee's Service within eighteen (18) months following such Corporate
Transaction, the assumed Option, to the extent outstanding at the time but not
otherwise fully exercisable, shall automatically accelerate so that the Option
shall become immediately exercisable for all the Option Shares at the time
subject to the Option and may be exercised for any or all of those Option
Shares as fully vested shares.
2. The Option shall not accelerate upon the occurrence of a Change
in Control, and the Option shall, over Optionee's period of Service following
such Change in Control, continue to become exercisable for the Option Shares
in one or more installments in accordance with the provisions of the Option
Agreement. However, if that Change in Control is effected more than twelve
months after the commencement date of Optionee's Service, than immediately upon
an Involuntary Termination of Optionee's Service within eighteen (18) months
following such Change in Control, the Option, to the extent outstanding at the
time but not otherwise fully exercisable, shall automatically accelerate so
that the Option shall become immediately exercisable for all the Option Shares
at the time subject to the Option and may be exercised for any or all of those
Option Shares as fully vested shares.
3. The Option as accelerated pursuant to this Addendum shall remain
so exercisable until the earlier of (i) the Expiration Date or (ii) the
-------
expiration of the one (1)-year period measured from the date of the Optionee's
Involuntary Termination.
<PAGE>
4. For purposes of this Addendum the following definitions shall be
in effect:
(i) An Involuntary Termination shall mean the termination of
Optionee's Service by reason of:
(A) Optionee's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(B) Optionee's voluntary resignation within ninety (90)
days following (A) a change in Optionee's position with the Corporation
(or Parent or Subsidiary employing Optionee) which materially reduces
Optionee's duties and responsibilities or the level of management to
which Optionee reports, (B) a reduction in Optionee's level of
compensation (including base salary, fringe benefits and target bonus
under any corporate performance based bonus or incentive programs) by
more than fifteen percent (15%) or (C) a relocation of Optionee's place
of employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected by the Corporation without
Optionee's consent.
(ii) A Change in Control shall be deemed to occur in the event
of a change in ownership or control of the Corporation effected through
either of the following transactions:
(A) the acquisition, directly or indirectly, by any person
or related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended)
of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
stockholders, or
(B) a change in the composition of the Board over a period
of thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (i) have been
Board members continuously since the beginning of such period or (ii)
have been elected or nominated for election as Board members during such
period by at least a majority of the Board members described in clause
(i) who were still in office at the time the Board approved such election
or nomination.
5. The provisions of Paragraph 1 of this Addendum shall govern the
period for which the Option is to remain exercisable following the Involuntary
Termination of Optionee's Service within eighteen (18) months after the
Corporate Transaction or Change in Control and shall supersede any provisions
to the contrary in Paragraph 5 of the Option Agreement.
<PAGE>
IN WITNESS WHEREOF, Digital Island, Inc. has caused this Addendum to
be executed by its duly-authorized officer as of the Effective Date specified
below.
DIGITAL ISLAND, INC.
By:
---------------------------------
Title:
------------------------------
EFFECTIVE DATE:
----------------------------
<PAGE>
EXHIBIT 99.5
ADDENDUM
TO
STOCK OPTION AGREEMENT
The following provisions are hereby incorporated into, and are hereby
made a part of, that certain Stock Option Agreement (the "Option Agreement") by
and between Digital Island, Inc. (the "Corporation") and
_____________________________ ("Optionee") evidencing the stock option (the
"Option") granted this day to Optionee under the terms of the Corporation's
1999 Stock Incentive Plan, and such provisions are effective immediately. All
capitalized terms in this Addendum, to the extent not otherwise defined
herein, shall have the meanings assigned to them in the Option Agreement.
LIMITED STOCK APPRECIATION RIGHT
1. Optionee is hereby granted a limited stock appreciation right
exercisable upon the following terms and conditions:
(a) Optionee shall have the unconditional right, exercisable at
any time during the thirty (30)-day period immediately following a
Hostile Take-Over, to surrender the Option to the Corporation. In return
for the surrendered Option, Optionee shall receive a cash distribution
from the Corporation in an amount equal to the excess of (A) the Take-
Over Price of the shares of Common Stock which are the time subject to
the surrendered option (whether or not the Option is otherwise at the
time exercisable for those shares) over (B) the aggregate Exercise Price
payable for such shares.
(b) To exercise this limited stock appreciation right, Optionee
must, during the applicable thirty (30)-day exercise period, provide the
Corporation with written notice of the option surrender in which there is
specified the number of Option Shares as to which the Option is being
surrendered. Such notice must be accompanied by the return of Optionee's
copy of the Option Agreement, together with any written amendments to
such Agreement. The cash distribution shall be paid to Optionee within
five (5) business days following such delivery date. The exercise of the
limited stock appreciation right in accordance with the terms of this
Addendum is hereby pre-approved by the Plan Administrator in advance of
such exercise, and no further approval of the Plan Administrator or the
Board shall be required at the time of the actual option surrender and
cash distribution. Upon receipt of such cash distribution, the Option
shall be cancelled with respect to the Option Shares for which the Option
has been surrendered, and Optionee shall cease to have any further right
to acquire those Option Shares under the Option Agreement. The Option
shall, however, remain outstanding for the balance of the Option Shares
(if any) in accordance with the terms of the Option Agreement, and the
Corporation shall issue a replacement stock option agreement
(substantially in the same form of the surrendered Option Agreement) for
those remaining Option Shares.
<PAGE>
(c) In no event may this limited stock appreciation right be
exercised when there is not a positive spread between the Fair Market
Value of the Option Shares subject to the surrendered option and the
aggregate Exercise Price payable for such shares. This limited stock
appreciation right shall in all events terminate upon the expiration or
sooner termination of the option term and may not be assigned or
transferred by Optionee, except to the extent the Option is transferred
in accordance with the provisions of the Option Agreement.
2. For purposes of this Addendum, the following definitions shall
be in effect:
(a) A Hostile Take-Over shall be deemed to occur upon the
acquisition, directly or indirectly, by any person or related group of
persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with,
the Corporation) of beneficial ownership (within the meaning of Rule 13d-
3 of the Securities Exchange Act of 1934, as amended) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation's stockholders which the
Board does not recommend such stockholders to accept.
(b) The Take-Over Price per share shall be deemed to be equal to
the greater of (A) the Fair Market Value per Option Share on the option
-------
surrender date or (B) the highest reported price per share of Common
Stock paid by the tender offeror in effecting the Hostile Take-Over.
However, if the surrendered Option is designated as an Incentive Option
in the Grant Notice, then the Take-Over Price shall not exceed the clause
(A) price per share.
IN WITNESS WHEREOF, Digital Island, Inc. has caused this Addendum to
be executed by its duly-authorized officer.
DIGITAL ISLAND
By:
-----------------------------------
Title:
--------------------------------
EFFECTIVE DATE:
-------------------------------------
<PAGE>
EXHIBIT 99.6
DIGITAL ISLAND, INC.
STOCK ISSUANCE AGREEMENT
------------------------
AGREEMENT made this _____ day of ___________________________
__________, by and between Digital Island, Inc., a Delaware corporation, and
_____________________________________________________, a Participant in the
Corporation's 1999 Stock Incentive Plan.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
A. PURCHASE OF SHARES
------------------
1. Purchase. Participant hereby purchases _____________ shares
--------
of Common Stock (the "Purchased Shares") pursuant to the provisions
of the Stock Issuance Program at the purchase price of $______ per share (the
"Purchase Price").
2. Payment. Concurrently with the delivery of this Agreement to
-------
the Corporation, Participant shall pay the Purchase Price for the Purchased
Shares in cash or check payable to the Corporation and shall deliver a duly-
executed blank Assignment Separate from Certificate (in the form attached
hereto as Exhibit I) with respect to the Purchased Shares.
3. Stockholder Rights. Until such time as the Corporation
------------------
exercises the Repurchase Right, Participant (or any successor in interest)
shall have all the rights of a stockholder (including voting, dividend and
liquidation rights) with respect to the Purchased Shares, subject, however, to
the transfer restrictions of this Agreement.
4. Escrow. The Corporation shall have the right to hold the
------
Purchased Shares in escrow until those shares have vested in accordance with
the Vesting Schedule.
5. Compliance with Law. Under no circumstances shall shares of
-------------------
Common Stock or other assets be issued or delivered to Participant pursuant to
the provisions of this Agreement unless, in the opinion of counsel for the
Corporation or its successors, there shall have been compliance with all
applicable requirements of Federal and state securities laws, all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock is at the time listed for trading and
all other requirements of law or of any regulatory bodies having jurisdiction
over such issuance and delivery.
B. TRANSFER RESTRICTIONS
---------------------
1. Restriction on Transfer. Except for any Permitted Transfer,
-----------------------
Participant shall not transfer, assign, encumber or otherwise dispose of any
of the Purchased Shares which are subject to the Repurchase Right.
<PAGE>
2. Restrictive Legend. The stock certificate for the Purchased
------------------
Shares shall be endorsed with the following restrictive legend:
"The shares represented by this certificate are unvested and
subject to certain repurchase rights granted to the Corporation and
accordingly may not be sold, assigned, transferred, encumbered, or in any
manner disposed of except in conformity with the terms of a written
agreement dated ____________, ______ between the Corporation and the
registered holder of the shares (or the predecessor in interest to the
shares). A copy of such agreement is maintained at the Corporation's
principal corporate offices."
3. Transferee Obligations. Each person (other than the
----------------------
Corporation) to whom the Purchased Shares are transferred by means of a
Permitted Transfer must, as a condition precedent to the validity of such
transfer, acknowledge in writing to the Corporation that such person is bound
by the provisions of this Agreement and that the transferred shares are
subject to the Repurchase Right to the same extent such shares would be so
subject if retained by Participant.
C. REPURCHASE RIGHT
----------------
1. Grant. The Corporation is hereby granted the right (the
-----
"Repurchase Right"), exercisable at any time during the ninety (90)-day period
following the date Participant ceases for any reason to remain in Service, to
repurchase at the Purchase Price all or any portion of the Purchased Shares in
which Participant is not, at the time of his or her cessation of Service,
vested in accordance with the Vesting Schedule set forth in Paragraph C.3 of
this Agreement or the special vesting acceleration provisions of Paragraph C.5
of this Agreement (such shares to be hereinafter referred to as the "Unvested
Shares").
2. Exercise of the Repurchase Right. The Repurchase Right shall be
--------------------------------
exercisable by written notice delivered to each Owner of the Unvested Shares
prior to the expiration of the ninety (90)-day exercise period. The notice
shall indicate the number of Unvested Shares to be repurchased and the date on
which the repurchase is to be effected, such date to be not more than thirty
(30) days after the date of such notice. The certificates representing the
Unvested Shares to be repurchased shall be delivered to the Corporation on
the closing date specified for the repurchase. Concurrently with the receipt
of such stock certificates, the Corporation shall pay to Owner, in cash or
cash equivalent (including the cancellation of any purchase-money
indebtedness), an amount equal to the Purchase Price previously paid for the
Unvested Shares to be repurchased from Owner.
3. Termination of the Repurchase Right. The Repurchase Right shall
-----------------------------------
terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph C.2. In addition, the Repurchase Right shall
terminate and cease to be exercisable with respect to any and all Purchased
Shares in which Participant vests in accordance with the following Vesting
Schedule:
2
<PAGE>
(i) Upon Participant's completion of one (1) year of Service
measured from ______________, _______, Participant shall acquire a vested
interest in, and the Repurchase Right shall lapse with respect to, twenty-
four percent (24%) of the Purchased Shares.
(ii) Participant shall acquire a vested interest in, and the
Repurchase Right shall lapse with respect to, the remaining Purchased
Shares in a series of thirty eight (38) successive equal monthly
installments upon Participant's completion of each additional month of
Service over the thirty-eight (38)-month period measured from the initial
vesting date under subparagraph (i) above.
4. Recapitalization. Any new, substituted or additional securities
or other property (including cash paid other than as a regular cash dividend)
which is by reason of any Recapitalization distributed with respect to the
Purchased Shares shall be immediately subject to the Repurchase Right and any
escrow requirements hereunder, but only to the extent the Purchased Shares are
at the time covered by such right or escrow requirements. Appropriate
adjustments to reflect such distribution shall be made to the number and/or
class of securities subject to this Agreement and to the price per share to be
paid upon the exercise of the Repurchase Right in order to reflect the effect
of any such Recapitalization upon the Corporation's capital structure;
provided, however, that the aggregate purchase price shall remain the same.
- --------
5. Corporate Transaction.
---------------------
(a) Immediately prior to the consummation of any Corporate
Transaction, the Repurchase Right shall automatically lapse in its entirety
and the Purchased Shares shall vest in full, except to the extent the
Repurchase Right is to be assigned to the successor corporation (or parent
thereof) in connection with the Corporate Transaction.
(b) To the extent the Repurchase Right remains in effect
following a Corporate Transaction, such right shall apply to the new capital
stock or other property (including any cash payments) received in exchange for
the Purchased Shares in consummation of the Corporate Transaction, but only to
the extent the Purchased Shares are at the time covered by such right.
Appropriate adjustments shall be made to the price per share payable upon
exercise of the Repurchase Right to reflect the effect of the Corporate
Transaction upon the Corporation's capital structure; provided, however,
--------
that the aggregate purchase price shall remain the same. The new securities or
other property (including cash payments) issued or distributed with respect to
the Purchased Shares in consummation of the Corporate Transaction shall
immediately be deposited in escrow with the Corporation (or the successor
entity) and shall not be released from escrow until Participant vests in such
securities or other property in accordance with the same Vesting Schedule in
effect for the Purchased Shares.
3
<PAGE>
D. SPECIAL TAX ELECTION
--------------------
1. Section 83(b) Election. Under Code Section 83, the excess of
----------------------
the fair market value of the Purchased Shares on the date any forfeiture
restrictions applicable to such shares lapse over the Purchase Price paid for
such shares will be reportable as ordinary income on the lapse date. For this
purpose, the term "forfeiture restrictions" includes the right of the
Corporation to repurchase the Purchased Shares pursuant to the Repurchase
Right. Participant may elect under Code Section 83(b) to be taxed at the time
the Purchased Shares are acquired, rather than when and as such Purchased
Shares cease to be subject to such forfeiture restrictions. Such election must
be filed with the Internal Revenue Service within thirty (30) days after the
date of this Agreement. Even if the fair market value of the Purchased Shares
on the date of this Agreement equals the Purchase Price paid (and thus no tax
is payable), the election must be made to avoid adverse tax consequences in
the future. THE FORM FOR MAKING THIS ELECTION IS ATTACHED AS EXHIBIT II
HERETO. PARTICIPANT UNDERSTANDS THAT FAILURE TO MAKE THIS FILING WITHIN THE
APPLICABLE THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY
INCOME AS THE FORFEITURE RESTRICTIONS LAPSE.
2. FILING RESPONSIBILITY. PARTICIPANT ACKNOWLEDGES THAT IT IS
---------------------
PARTICIPANT'S SOLE RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY
ELECTION UNDER CODE SECTION 83(b), EVEN IF PARTICIPANT REQUESTS THE
CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF.
E. GENERAL PROVISIONS
------------------
1. Assignment. The Corporation may assign the Repurchase Right to
any person or entity selected by the Board, including (without limitation) one
or more stockholders of the Corporation.
2. At Will Employment. Nothing in this Agreement or in the Plan
------------------
shall confer upon Participant any right to continue in Service for any period
of specific duration or interfere with or otherwise restrict in any way the
rights of the Corporation (or any Parent or Subsidiary employing or retaining
Participant) or of Participant, which rights are hereby expressly reserved by
each, to terminate Participant's Service at any time for any reason, with or
without cause.
3. Notices. Any notice required to be given under this Agreement
-------
shall be in writing and shall be deemed effective upon personal delivery or
upon deposit in the U.S. mail, registered or certified, postage prepaid and
properly addressed to the party entitled to such notice at the address
indicated below such party's signature line on this Agreement or at such other
address as such party may designate by ten (10) days advance written notice
under this paragraph to all other parties to this Agreement.
4
<PAGE>
4. No Waiver. The failure of the Corporation in any instance to
---------
exercise the Repurchase Right shall not constitute a waiver of any other
repurchase rights that may subsequently arise under the provisions of this
Agreement or any other agreement between the Corporation and Participant. No
waiver of any breach or condition of this Agreement shall be deemed to be a
waiver of any other or subsequent breach or condition, whether of like or
different nature.
5. Cancellation of Shares. If the Corporation shall make
----------------------
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Purchased Shares to be repurchased in
accordance with the provisions of this Agreement, then from and after such
time, the person from whom such shares are to be repurchased shall no longer
have any rights as a holder of such shares (other than the right to receive
payment of such consideration in accordance with this Agreement). Such shares
shall be deemed purchased in accordance with the applicable provisions hereof,
and the Corporation shall be deemed the owner and holder of such shares,
whether or not the certificates therefor have been delivered as required by
this Agreement.
6. Participant Undertaking. Participant hereby agrees to take
-----------------------
whatever additional action and execute whatever additional documents the
Corporation may deem necessary or advisable in order to carry out or effect
one or more of the obligations or restrictions imposed on either Participant
or the Purchased Shares pursuant to the provisions of this Agreement.
7. Agreement is Entire Contract. This Agreement constitutes the
----------------------------
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and
shall in all respects be construed in conformity with the terms of the Plan.
8. Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of California without
resort to that State's conflict-of-laws rules.
9. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed to be an original, but all of which together
shall constitute one and the same instrument.
10. Successors and Assigns. The provisions of this Agreement shall
----------------------
inure to the benefit of, and be binding upon, the Corporation and its
successors and assigns and upon Participant, Participant's assigns and the
legal representatives, heirs and legatees of Participant's estate, whether or
not any such person shall have become a party to this Agreement and have
agreed in writing to join herein and be bound by the terms hereof.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
DIGITAL ISLAND, INC.
By:
----------------------------------
Title:
-------------------------------
Address:
-----------------------------
-------------------------------------
PARTICIPANT
-------------------------------------
Signature
Address:
-----------------------------
-------------------------------------
6
<PAGE>
SPOUSAL ACKNOWLEDGMENT
The undersigned spouse of the Participant has read and hereby approves
the foregoing Stock Issuance Agreement. In consideration of the Corporation's
granting the Participant the right to acquire the Purchased Shares in accordance
with the terms of such Agreement, the undersigned hereby agrees to be
irrevocably bound by all the terms of such Agreement, including (without
limitation) the right of the Corporation (or its assigns) to purchase any
Purchased Shares in which the Participant is not vested at the time of his or
her termination of Service.
------------------------------------
PARTICIPANT'S SPOUSE
Address:
----------------------------
------------------------------------
<PAGE>
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ______________________ hereby sell(s), assign(s)
and transfer(s) unto Digital Island, Inc. (the "Corporation"),
_______________________________________ (___________) shares of the Common Stock
of the Corporation standing in his or her name on the books of the Corporation
represented by Certificate No. ___________________ herewith and do(es) hereby
irrevocably constitute and appoint ______________________________ Attorney to
transfer the said stock on the books of the Corporation with full power of
substitution in the premises.
Dated: _________________, _____.
Signature
--------------------------------------------
Instruction: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Participant.
<PAGE>
EXHIBIT II
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is
____________ shares of the common stock of Digital Island, Inc.
(3) The property was issued on _________________, _________.
(4) The taxable year in which the election is being made is the calendar year
_________.
(5) The property is subject to a repurchase right pursuant to which the issuer
has the right to acquire the property at the original purchase price if for
any reason taxpayer's service with the issuer terminates. The issuer's
repurchase right will lapse in a series of annual and monthly installments
over a fifty (50)-month period ending on
___________________________________.
(6) The fair market value at the time of transfer (determined without regard to
any restriction other than a restriction which by its terms will never
lapse) is $_____________per share.
(7) The amount paid for such property is $____________ per share.
(8) A copy of this statement was furnished to Digital Island, Inc. for whom
taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed on ________________________, _______.
- -------------------------------------------------------------------------------
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center with
which taxpayer files his or her Federal income tax returns and must be made
within thirty (30) days after the execution date of the Stock Issuance
Agreement. This filing should be made by registered or certified mail, return
receipt requested. Participant must retain two (2) copies of the completed form
for filing with his or her Federal and state tax returns for the current tax
year and an additional copy for his or her records.
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Stock Issuance Agreement.
---------
B. Board shall mean the Corporation's Board of Directors.
-----
C. Common Stock shall mean shares of the Corporation's common stock.
------------
D. Code shall mean the Internal Revenue Code of 1986, as amended.
----
E. Corporate Transaction shall mean either of the following
---------------------
stockholder-approved transactions:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. Corporation shall mean Digital Island, Inc., a Delaware
-----------
corporation, and any successor corporation to all or substantially all of the
assets or voting stock of Digital Island, Inc.
G. Owner shall mean Participant and all subsequent holders of the
-----
Purchased Shares who derive their chain of ownership through a Permitted
Transfer from Participant.
H. Parent shall mean any corporation (other than the Corporation) in
------
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
I. Participant shall mean the person to whom the Purchased Shares are
-----------
issued under the Stock Issuance Program.
A-1
<PAGE>
J. Permitted Transfer shall mean (i) a gratuitous transfer of the
------------------
Purchased Shares, provided and only if Participant obtains the Corporation's
--------------------
prior written consent to such transfer, (ii) a transfer of title to the
Purchased Shares effected pursuant to Participant's will or the laws of
intestate succession following Participant's death or (iii) a transfer to the
Corporation in pledge as security for any purchase-money indebtedness incurred
by Participant in connection with the acquisition of the Purchased Shares.
K. Plan shall mean the Corporation's 1999 Stock Incentive Plan.
----
L. Plan Administrator shall mean either the Board or a committee of
------------------
the Board acting in its administrative capacity under the Plan.
M. Purchase Price shall have the meaning assigned to such term in
--------------
Paragraph A.1.
N. Purchased Shares shall have the meaning assigned to such term in
----------------
Paragraph A.1.
O. Recapitalization shall mean any stock split, stock dividend,
----------------
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.
P. Repurchase Right shall mean the right granted to the Corporation
----------------
in accordance with Article C.
Q. Service shall mean the Participant's performance of services for
-------
the Corporation (or any Parent or Subsidiary) in the capacity of an employee,
subject to the control and direction of the employer entity as to both the work
to be performed and the manner and method of performance, a non-employee member
of the board of directors or an independent consultant.
R. Stock Issuance Program shall mean the Stock Issuance Program under
----------------------
the Plan.
S. Subsidiary shall mean any corporation (other than the Corporation)
----------
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
T. Vesting Schedule shall mean the vesting schedule specified in
----------------
Paragraph C.3, pursuant to which the Purchased Shares are to vest in a series of
installments over Participant's period of Service.
A-2
<PAGE>
U. Unvested Shares shall have the meaning assigned to such term in
---------------
Paragraph C.1.
A-3
<PAGE>
EXHIBIT 99.7
ADDENDUM
TO
STOCK ISSUANCE AGREEMENT
The following provisions are hereby incorporated into, and are hereby
made a part of, that certain Stock Issuance Agreement (the "Issuance Agreement")
by and between Digital Island, Inc. (the "Corporation") and
______________________________________________________ ("Participant")
evidencing the stock issuance made this day to Participant under the terms of
the Corporation's 1999 Stock Incentive Plan, and such provisions are effective
immediately. All capitalized terms in this Addendum, to the extent not otherwise
defined herein, shall have the meanings assigned to such terms in the Issuance
Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CORPORATE TRANSACTION/CHANGE IN CONTROL
1. To the extent the Repurchase Right is assigned to the successor
corporation (or parent thereof) in connection with a Corporate Transaction, no
accelerated vesting of the Purchased Shares shall occur upon such Corporate
Transaction, and the Repurchase Right shall continue to remain in full force
and effect in accordance with the provisions of the Issuance Agreement. The
Participant shall, over Participant's period of Service following the
Corporate Transaction, continue to vest in the Purchased Shares in one or more
installments in accordance with the provisions of the Issuance Agreement.
2. No accelerated vesting of the Purchased Shares shall occur upon a
Change in Control, and the Repurchase Right shall continue to remain in full
force and effect in accordance with the provisions of the Issuance Agreement
and shall be assigned to any successor entity in the Change in Control
transaction. The Participant shall, over Participant's period of Service
following the Change in Control, continue to vest in the Purchased Shares in
one or more installments in accordance with the provisions of the Issuance
Agreement.
3. If the Corporate Transaction or Change in Control is effected more
than twelve (12) months after the commencement date of Participant's Service,
than immediately upon an Involuntary Termination of Participant's Service
within eighteen (18) months following that Corporate Transaction or Change in
Control, the Repurchase Right shall terminate automatically, and all the
Purchased Shares shall vest in full at that time. Any unvested cash escrow
maintained on the Participant's behalf pursuant to Paragraph C.5 of the
Issuance Agreement shall also vest at the time of such Involuntary Termination
and shall be paid to the Participant promptly thereafter.
4. For purposes of this Addendum, the following definitions shall be in
effect:
An Involuntary Termination shall mean the termination of Participant's
Service by reason of:
(i) Participant's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
<PAGE>
(ii) Participant's voluntary resignation within ninety (90) days
following (A) a change in Participant's position with the Corporation (or
Parent or Subsidiary employing Participant) which materially reduces
Participant's duties and responsibilities or the level of management to
which Participant reports, (B) a reduction in Participant's level of
compensation (including base salary, fringe benefits and target bonus
under any corporate performance based bonus or incentive programs) by
more than fifteen percent (15%) or (C) a relocation of Participant's
place of employment by more than fifty (50) miles, provided and only if
such change, reduction or relocation is effected by the Corporation
without Participant's consent.
A Change in Control shall be deemed to occur in the event of a change
in ownership or control of the Corporation effected through either of the
following transactions:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended)
of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
stockholders, or
(ii) a change in the composition of the Board over a period of thirty-
six (36) consecutive months or less such that a majority of the Board
members ceases, by reason of one or more contested elections for Board
membership, to be comprised of individuals who either (A) have been Board
members continuously since the beginning of such period or (B) have been
elected or nominated for election as Board members during such period by
at least a majority of the Board members described in clause (A) who were
still in office at the time the Board approved such election or
nomination.
Misconduct shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Participant, any unauthorized use or disclosure by the
Participant of confidential information or trade secrets of the Corporation (or
any Parent or Subsidiary), or any other intentional misconduct by the
Participant adversely affecting the business or affairs of the Corporation (or
any Parent or Subsidiary) in a material manner. The foregoing definition shall
not be deemed to be inclusive of all the acts or omissions which the Corporation
(or any Parent or Subsidiary) may consider as grounds for the dismissal or
discharge of the Participant or other person in the Service of the Corporation
(or any Parent or Subsidiary).
2
<PAGE>
IN WITNESS WHEREOF, Digital Island, Inc. has caused this Addendum to
be executed by its duly-authorized officer, effective as of the Effective Date
specified below.
DIGITAL ISLAND, INC.
By:
---------------------------
Title:
------------------------
EFFECTIVE DATE:
----------------------------
3
<PAGE>
EXHIBIT 99.8
DIGITAL ISLAND, INC.
AUTOMATIC STOCK OPTION AGREEMENT
--------------------------------
RECITALS
- --------
A. The Corporation has implemented an automatic option grant program
under the Plan pursuant to which eligible non-employee members of the Board
will automatically receive special option grants at periodic intervals over
their period of Board service in order to provide such individuals with a
meaningful incentive to continue to serve as members of the Board.
B. Optionee is an eligible non-employee Board member, and this Agreement
is executed pursuant to, and is intended to carry out the purposes of, the
Plan in connection with the automatic grant of an option to purchase shares of
Common Stock under the Plan.
C. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. The Corporation hereby grants to Optionee, as of the
---------------
Grant Date, a Non-Statutory Option to purchase up to the number of Option
Shares specified in the Grant Notice. The Option Shares shall be purchasable
from time to time during the option term specified in Paragraph 2 at the
Exercise Price.
2. Option Term. This option shall have a term of ten (10) years measured
-----------
from the Grant Date and shall accordingly expire at the close of business on
the Expiration Date, unless sooner terminated in accordance with Paragraph 5,
6 or 7.
3. Limited Transferability.
-----------------------
(a) This option may, in connection with the Optionee's estate plan,
be assigned in whole or in part during Optionee's lifetime to one or more
members of the Optionee's immediate family or to a trust established for the
exclusive benefit of one or more such family members. The assigned portion
shall be exercisable only by the person or persons who acquire a proprietary
interest in the option pursuant to such assignment. The terms applicable to
the assigned portion shall be the same as those in effect for this option
immediately prior to such assignment.
(b) Should the Optionee die while holding this option, then this
option shall be transferred in accordance with Optionee's will or the laws of
inheritance. However, Optionee may designate one or more persons as the
beneficiary or beneficiaries of this option, and this option shall, in
accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee's death while holding such
option. Such
<PAGE>
beneficiary or beneficiaries shall take the transferred option subject to all
the terms and conditions of this Agreement, including (without limitation) the
limited time period during which this option may, pursuant to Paragraph 5, be
exercised following Optionee's death.
4. Exercisability/Vesting.
----------------------
(a) This option shall be immediately exercisable for any or all of
the Option Shares, whether or not the Option Shares are at the time vested in
accordance with the Vesting Schedule, and shall remain so exercisable until
the Expiration Date or sooner termination of the option term under Paragraph
5, 6 or 7.
(b) Optionee shall, in accordance with the Vesting Schedule set
forth in the Grant Notice, vest in the Option Shares in one or more
installments over his or her period of Board service. Vesting in the Option
Shares may be accelerated pursuant to the provisions of Paragraph 5, 6 or 7.
In no event, however, shall any additional Option Shares vest following
Optionee's cessation of service as a Board member.
5. Cessation of Board Service. Should Optionee's service as a Board
--------------------------
member cease while this option remains outstanding, then the option term
specified in Paragraph 2 shall terminate (and this option shall cease to be
outstanding) prior to the Expiration Date in accordance with the following
provisions:
(a) Should Optionee cease to serve as a Board member for any reason
(other than death or Permanent Disability) while this option is outstanding,
then the period during which this option may be exercised shall be reduced to
a twelve (12)-month period measured from the date of such cessation of Board
service, but in no event shall this option be exercisable at any time after
the Expiration Date. During such limited period of exercisability, this option
may not be exercised in the aggregate for more than the number of Option
Shares (if any) in which Optionee is vested on the date of his or her
cessation of Board service. Upon the earlier of (i) the expiration of such
-------
twelve (12)-month period or (ii) the specified Expiration Date, the option
shall terminate and cease to be exercisable with respect to any vested Option
Shares for which the option has not been exercised.
(b) Should Optionee die during the twelve (12)-month period
following his or her cessation of Board service and hold this option at the
time of his or her death, then the personal representative of Optionee's
estate or the person or persons to whom the option is transferred pursuant to
Optionee's will or the laws of inheritance or the designated beneficiary or
beneficiaries of this option (as the case may be) shall have the right to
exercise this option for any or all of the Option Shares in which Optionee is
vested at the time of Optionee's cessation of Board service (less any Option
Shares purchased by Optionee after such cessation of Board service but prior
to death). Any such right to exercise this option shall terminate, and this
option shall accordingly cease to be exercisable for such vested Option
Shares, upon the earlier of (i) the expiration of the twelve (12)-month period
-------
measured from the date of Optionee's cessation of Board service or (ii) the
specified Expiration Date.
2
<PAGE>
(c) Should Optionee cease service as a Board member by reason of
death or Permanent Disability, then any Option Shares at the time subject to
this option but not otherwise vested shall vest in full so that this option
may be exercised for any or all of the Option Shares as fully vested shares of
Common Stock at any time prior to the earlier of (i) the expiration of the
-------
twelve (12)-month period measured from the date of Optionee's cessation of
Board service or (ii) the specified Expiration Date, whereupon this option
shall terminate and cease to be outstanding.
(d) Upon Optionee's cessation of Board service for any reason other
than death or Permanent Disability, this option shall immediately terminate
and cease to be outstanding with respect to any and all Option Shares in which
Optionee is not otherwise at that time vested in accordance with the normal
Vesting Schedule or the special vesting acceleration provisions of Paragraphs
6 and 7 below.
6. Corporate Transaction.
---------------------
(a) In the event of a Corporate Transaction, any Option Shares
at the time subject to this option but not otherwise vested shall
automatically vest so that this option shall, immediately prior to the
specified effective date for the Corporate Transaction, become exercisable for
all of the Option Shares as fully-vested shares of Common Stock and may be
exercised for all or any portion of those vested shares. Immediately following
the consummation of the Corporate Transaction, this option shall terminate and
cease to be outstanding, except to the extent assumed by the successor
corporation or its parent company.
(b) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately
after such Corporate Transaction, to apply to the number and class of
securities which would have been issuable to Optionee in consummation of such
Corporate Transaction had the option been exercised immediately prior to such
Corporate Transaction, and appropriate adjustments shall also be made to the
Exercise Price, provided the aggregate Exercise Price shall remain the same.
--------
7. Change in Control/Hostile Take-Over.
-----------------------------------
(a) Any Option Shares subject to this option at the time of a
Change in Control but not otherwise vested shall automatically vest so that
this option shall, immediately prior to the effective date of such Change in
Control, become exercisable for all of the Option Shares as fully-vested
shares of Common Stock and may be exercised for all or any portion of those
vested shares. This option shall remain exercisable for such fully-vested
Option Shares until the earliest to occur of (i) the specified Expiration
--------
Date, (ii) the sooner termination of this option in accordance with Paragraph
5 or 6 or (iii) the surrender of this option under Paragraph 7(b).
3
<PAGE>
(b) Optionee shall have an unconditional right, exercisable at the
time during the thirty (30)-day period immediately following the consummation
of a Hostile Take-Over to surrender this option to the Corporation in exchange
for a cash distribution from the Corporation in an amount equal to the excess
of (i) the Take-Over Price of the Option Shares at the time subject to the
surrendered option (whether or not those Option Shares are otherwise at the
time vested) over (ii) the aggregate Exercise Price payable for such shares.
This Paragraph 7(b) limited stock appreciation right shall in all events
terminate upon the expiration or sooner termination of the option term and may
not be assigned or transferred by Optionee, except to the extent the option is
transferred in accordance with the provisions of this Agreement.
(c) To exercise the Paragraph 7(b) limited stock appreciation right,
Optionee must, during the applicable thirty (30)-day exercise period, provide
the Corporation with written notice of the option surrender in which there is
specified the number of Option Shares as to which the option is being
surrendered. Such notice must be accompanied by the return of Optionee's copy
of this Agreement, together with any written amendments to such Agreement. The
cash distribution shall be paid to Optionee within five (5) business days
following such delivery date. The exercise of such limited stock appreciation
right in accordance with the terms of this Paragraph 7 has been pre-approved
pursuant to the express provisions of the Automatic Option Grant Program, and
neither the approval of the Plan Administrator nor the consent of the Board
shall be required at the time of the actual option surrender and cash
distribution. Upon receipt of the cash distribution, this option shall be
cancelled with respect to the Option Shares subject to the surrendered option
(or the surrendered portion), and Optionee shall cease to have any further
right to acquire those Option Shares under this Agreement. The option shall,
however, remain outstanding for the balance of the Option Shares (if any) in
accordance with the terms and provisions of this Agreement, and the
Corporation shall accordingly issue a replacement stock option agreement
(substantially in the same form as this Agreement) for those remaining Option
Shares.
8. Adjustment in Option Shares. Should any change be made to the Common
---------------------------
Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price
in order to reflect such change and thereby preclude a dilution or enlargement
of benefits hereunder.
9. Stockholder Rights. The holder of this option shall not have any
------------------
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of
record of the purchased shares.
10. Manner of Exercising Option.
---------------------------
(a) In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
4
<PAGE>
(i) To the extent the option is exercised for vested Option
Shares, execute and deliver to the Corporation a Notice of Exercise for
the Option Shares for which the option is exercised. To the extent this
option is exercised for unvested Option Shares, execute and deliver to
the Corporation a Purchase Agreement for those unvested Option Shares.
(ii) Pay the aggregate Exercise Price for the purchased shares
in one or more of the following forms:
(A) cash or check made payable to the Corporation,
(B) shares of Common Stock held by Optionee (or any other
person or persons exercising the option) for the requisite period
necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
(C) to the extent the option is exercised for vested
Option Shares, through a special sale and remittance procedure
pursuant to which Optionee (or any other person or persons
exercising the option) shall concurrently provide irrevocable
instructions (I) to a Corporation-designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate Exercise Price payable
for the purchased shares plus all applicable Federal, state and
local income and employment taxes required to be withheld by the
Corporation by reason of such exercise and (II) to the Corporation
to deliver the certificates for the purchased shares directly to
such brokerage firm in order to complete the sale.
(iii) Furnish to the Corporation appropriate documentation
that the person or persons exercising the option (if other than Optionee)
have the right to exercise this option.
(b) Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the Exercise Price
must accompany the Notice of Exercise (or the Purchase Agreement) delivered to
the Corporation in connection with the option exercise.
(c) As soon after the Exercise Date as practical, the Corporation
shall issue to or on behalf of Optionee (or any other person or persons
exercising this option) a certificate for the purchased Option Shares, with
the appropriate legends affixed thereto. To the extent any such Option Shares
are unvested, the certificates for those Option Shares shall be endorsed with
an appropriate legend evidencing the Corporation's repurchase rights and may
be held in escrow with the Corporation until such shares vest.
5
<PAGE>
(d) In no event may this option be exercised for any fractional
shares.
11. No Impairment of Rights. This Agreement shall not in any way affect
-----------------------
the right of the Corporation to adjust, reclassify, reorganize or otherwise
make changes in its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets. In addition, this Agreement shall not in any way be construed or
interpreted so as to affect adversely or otherwise impair the right of the
Corporation or the stockholders to remove Optionee from the Board at any time
in accordance with the provisions of applicable law.
12. Compliance with Laws and Regulations.
------------------------------------
(a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation
and Optionee with all applicable requirements of law relating thereto and with
all applicable regulations of any stock exchange (or the Nasdaq National
Market, if applicable) on which the Common Stock may be listed for trading at
the time of such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any
regulator body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been
obtained. The Corporation, however, shall use its best efforts to obtain all
such approvals.
13. Successors and Assigns. Except to the extent otherwise provided in
----------------------
Paragraph 3 or 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Corporation and its successors and assigns and
Optionee, Optionee's assigns, the legal representatives, heirs and legatees of
Optionee's estate and any beneficiaries of this option designated by Optionee.
14. Notices. Any notice required to be given or delivered to the
-------
Corporation under the terms of this Agreement shall be in writing and
addressed to the Corporation at its principal corporate offices. Any notice
required to be given or delivered to Optionee shall be in writing and
addressed to Optionee at the address indicated below Optionee's signature line
on the Grant Notice. All notices shall be deemed effective upon personal
delivery or upon deposit in the U.S. mail, postage prepaid and properly
addressed to the party to be notified.
15. Construction. This Agreement and the option evidenced hereby are
------------
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan.
16. Governing Law. The interpretation, performance and enforcement of
-------------
this Agreement shall be governed by the laws of the State of California
without resort to that State's conflict-of-laws rules.
6
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify Digital Island, Inc. (the "Corporation") that I elect
to purchase _____________ shares of the Corporation's Common Stock (the
"Purchased Shares") at the option exercise price of $________________ per share
(the "Exercise Price") pursuant to that certain option (the "Option") granted to
me under the Corporation's 1999 Stock Incentive Plan on _________________,
________.
Concurrently with the delivery of this Exercise Notice to the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a condition
for exercise. Alternatively, I may utilize the special broker-dealer sale and
remittance procedure specified in my agreement to effect payment of the Exercise
Price for any Purchased Shares in which I am vested at the time of exercise of
the Option.
- -------------------------, --------
Date
----------------------------------
Optionee
----------------------------------
Address:
-------------------------
----------------------------------
Print name in exact manner
it is to appear on the
stock certificate: ----------------------------------
Address to which certificate
is to be sent, if different
from address above: ----------------------------------
----------------------------------
Social Security Number: ----------------------------------
----------------------------------
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Automatic Stock Option Agreement.
---------
B. Board shall mean the Corporation's Board of Directors.
-----
C. Change in Control shall mean a change in ownership or control of
-----------------
the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly
to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A) who
were still in office at the time the Board approved such election or
nomination.
D. Common Stock shall mean shares of the Corporation's common stock.
------------
E. Code shall mean the Internal Revenue Code of 1986, as amended.
----
F. Corporate Transaction shall mean either of the following
---------------------
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
A-1
<PAGE>
G. Corporation shall mean Digital Island, Inc., a Delaware
-----------
corporation, and any successor corporation to all or substantially all of the
assets or voting stock of Digital Island, Inc. which shall by appropriate
action adopt the Plan.
H. Exercise Date shall mean the date on which the option shall have
-------------
been exercised in accordance with Paragraph 10 of the Agreement.
I. Exercise Price shall mean the exercise price per share as
--------------
specified in the Grant Notice.
J. Expiration Date shall mean the date on which the option expires as
---------------
specified in the Grant Notice.
K. Fair Market Value per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as the price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange which
serves as the primary market for the Common Stock, as such price is
officially quoted in the composite tape of transactions on such exchange.
If there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation exists.
L. Grant Date shall mean the date of grant of the option as specified
----------
in the Grant Notice.
M. Grant Notice shall mean the Notice of Grant of Automatic Stock
------------
Option accompanying the Agreement, pursuant to which Optionee has been informed
of the basic terms of the option evidenced hereby.
N. Hostile Takeover shall mean the acquisition, directly or
----------------
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
A-2
<PAGE>
O. 1934 Act shall mean the Securities Exchange Act of 1934, as
--------
amended.
P. Non-Statutory Option shall mean an option not intended to satisfy
--------------------
the requirements of Code Section 422.
Q. Notice of Exercise shall mean the notice of exercise in the form
------------------
of Exhibit I.
R. Option Shares shall mean the number of shares of Common Stock
-------------
subject to the option.
S. Optionee shall mean the person to whom the option is granted as
--------
specified in the Grant Notice.
T. Permanent Disability shall mean the inability of Optionee to
--------------------
perform his or her usual duties as a member of the Board by reason of any
medically determinable physical or mental impairment which is expected to result
in death or has lasted or can be expected to last for a continuous period of
twelve (12) months or more.
U. Plan shall mean the Corporation's 1999 Stock Incentive Plan.
----
V. Purchase Agreement shall mean the stock purchase agreement (in
------------------
form and substance satisfactory to the Corporation) which grants the Corporation
the right to repurchase, at the Exercise Price, any and all unvested Option
Shares held by Optionee at the time of Optionee's cessation of Board service and
which precludes the sale, transfer or other disposition of any purchased Option
Shares while those shares are unvested and subject to such repurchase right.
W. Stock Exchange shall mean the American Stock Exchange or the New
--------------
York Stock Exchange.
X. Take-Over Price shall mean the greater of (i) the Fair Market
--------------- -------
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting the
Hostile Take-Over.
Y. Vesting Schedule shall mean the vesting schedule specified in the
----------------
Grant Notice, pursuant to which the Option Shares will vest in one or more
installments over the Optionee's period of Board service, subject to
acceleration in accordance with the provisions of the Agreement.
A-3
<PAGE>
EXHIBIT 99.9
INITIAL GRANT
DIGITAL ISLAND, INC.
NOTICE OF GRANT OF NON-EMPLOYEE DIRECTOR
----------------------------------------
AUTOMATIC STOCK OPTION
----------------------
Notice is hereby given of the following option grant (the "Option") to
purchase shares of the Common Stock of Digital Island, Inc. (the "Corporation"):
Optionee:___________________________________________________________
--------
Grant Date:_________________________________________________________
----------
Exercise Price: $_________________________________________ per share
--------------
Number of Option Shares: 15,000 shares of Common Stock
-----------------------
Expiration Date:____________________________________________________
---------------
Type of Option: Non-Statutory Stock Option
--------------
Date Exercisable: Immediately Exercisable
----------------
Vesting Schedule: The Option Shares shall initially be unvested and
----------------
subject to repurchase by the Corporation at the Exercise Price paid
per share. Optionee shall acquire a vested interest in, and the
Corporation's repurchase right shall accordingly lapse with respect
to, the Option Shares in a series of six (6) successive equal semi-
annual installments upon Optionee's completion of each six (6)-month
period of service as a member of the Corporation's Board of Directors
(the "Board") over the thirty-six (36) month period measured from the
Grant Date. In no event shall any additional Option Shares vest after
Optionee's cessation of Board service.
Optionee understands and agrees that the Option is granted subject to
and in accordance with the terms of the automatic option grant program under the
Digital Island, Inc. 1999 Stock Incentive Plan (the "Plan"). Optionee further
agrees to be bound by the terms of the Plan and the terms of the Option as set
forth in the Automatic Stock Option Agreement attached hereto as Exhibit A.
---------
Optionee hereby acknowledges receipt of a copy of the official prospectus for
the Plan in the form attached hereto as Exhibit B. A copy of the Plan is
---------
available upon request made to the Corporate Secretary at the Corporation's
principal offices.
REPURCHASE RIGHT. OPTIONEE HEREBY AGREES THAT ALL UNVESTED OPTION
----------------
SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO A REPURCHASE
RIGHT EXERCISABLE BY THE CORPORATION AND ITS ASSIGNS. THE TERMS OF SUCH RIGHT
SHALL BE SPECIFIED IN A STOCK PURCHASE AGREEMENT, IN FORM AND SUBSTANCE
SATISFACTORY TO THE CORPORATION, EXECUTED BY OPTIONEE AT THE TIME OF THE OPTION
EXERCISE.
<PAGE>
No Impairment of Rights. Nothing in this Notice or the attached
-----------------------
Automatic Stock Option Agreement or in the Plan shall interfere with or
otherwise restrict in any way the rights of the Corporation and the
Corporation's stockholders to remove Optionee from the Board at any time in
accordance with the provisions of applicable law.
Definitions. All capitalized terms in this Notice shall have the
-----------
meaning assigned to them in this Notice or in the attached Automatic Stock
Option Agreement.
DATED: _________________, _______
DIGITAL ISLAND, INC.
By:_____________________________
Title:__________________________
________________________________
OPTIONEE
Address:________________________
________________________________
ATTACHMENTS
- -----------
Exhibit A - Automatic Stock Option Agreement
Exhibit B - Plan Summary and Prospectus
2
<PAGE>
EXHIBIT A
---------
AUTOMATIC STOCK OPTION AGREEMENT
--------------------------------
<PAGE>
EXHIBIT B
---------
PLAN SUMMARY AND PROSPECTUS
---------------------------
<PAGE>
EXHIBIT 99.10
ANNUAL GRANT
DIGITAL ISLAND, INC.
NOTICE OF GRANT OF NON-EMPLOYEE DIRECTOR
----------------------------------------
AUTOMATIC STOCK OPTION
----------------------
Notice is hereby given of the following option grant (the "Option") to
purchase shares of the Common Stock of Digital Island, Inc. (the "Corporation"):
Optionee:___________________________________________________________
--------
Grant Date:_________________________________________________________
----------
Exercise Price: $_________________________________________ per share
--------------
Number of Option Shares: 5,000 shares of Common Stock
-----------------------
Expiration Date:____________________________________________________
---------------
Type of Option: Non-Statutory Stock Option
--------------
Date Exercisable: Immediately Exercisable
----------------
Vesting Schedule: The Option Shares shall be fully vested as of the
----------------
Grant Date.
Optionee understands and agrees that the Option is granted subject to
and in accordance with the terms of the automatic option grant program under the
Digital Island 1999 Stock Incentive Plan (the "Plan"). Optionee further agrees
to be bound by the terms of the Plan and the terms of the Option as set forth in
the Automatic Stock Option Agreement attached hereto as Exhibit A. Optionee
---------
hereby acknowledges receipt of a copy of the official prospectus for the Plan in
the form attached hereto as Exhibit B. A copy of the Plan is available upon
---------
request made to the Corporate Secretary at the Corporation's principal offices.
No Impairment of Rights. Nothing in this Notice or the attached
-----------------------
Automatic Stock Option Agreement or in the Plan shall interfere with or
otherwise restrict in any way the rights of the Corporation and the
Corporation's stockholders to remove Optionee from the Board at any time in
accordance with the provisions of applicable law.
<PAGE>
Definitions. All capitalized terms in this Notice shall have the
-----------
meaning assigned to them in this Notice or in the attached Automatic Stock
Option Agreement.
DATED: _________________, _______
DIGITAL ISLAND, INC.
By:_______________________________
Title:____________________________
__________________________________
OPTIONEE
Address:__________________________
__________________________________
ATTACHMENTS
- -----------
Exhibit A - Automatic Stock Option Agreement
Exhibit B - Plan Summary and Prospectus
2
<PAGE>
EXHIBIT A
---------
AUTOMATIC STOCK OPTION AGREEMENT
--------------------------------
<PAGE>
EXHIBIT B
---------
PLAN SUMMARY AND PROSPECTUS
---------------------------
<PAGE>
EXHIBIT 99.11
DIGITAL ISLAND, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests
of Digital Island, Inc., a Delaware corporation, by providing eligible employees
with the opportunity to acquire a proprietary interest in the Corporation
through participation in a payroll deduction based employee stock purchase plan
designed to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of Common
Stock purchased on the open market. The number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall be limited to
three hundred thousand (300,000) shares.
B. The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day of
January each calendar year during the term of the Plan, beginning with
calendar year 2000, by an amount equal to one percent (1%) of the total number
of shares of Common Stock outstanding on the last trading day in December of
the immediately preceding calendar year, but in no event shall any such annual
increase exceed five hundred thousand (500,000) shares.
C. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date, (iii) the maximum number and class of
securities purchasable by all Participants in the aggregate on any one
Purchase Date, (iv) the maximum
<PAGE>
number and/or class of securities by which the share reserve is to increase
automatically each calendar year pursuant to the provisions of Section III.B
of' this Article One and (v) the number and class of securities and the price
per share in effect under each outstanding purchase right in order to prevent
the dilution or enlargement of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive offering periods until such time as (i)
the maximum number of shares of Common Stock available for issuance under the
Plan shall have been purchased or (ii) the Plan shall have been sooner
terminated.
B. Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date of such offering period. However, the initial offering period shall
commence at the Effective Time and terminate on the last business day in July
2001. The next offering period shall commence on the first business day in
August 2001, and subsequent offering periods shall commence as designated by
the Plan Administrator.
C. Each offering period shall be comprised of a series of one or
more successive Purchase Intervals. Purchase Intervals shall run from the
first business day in February to the last business day in July each year and
from the first business day in August each year to the last business day in
January in the following year. However, the first Purchase Interval in effect
under the initial offering period shall commence at the Effective Time and
terminate on the last business day in January 2000.
D. Should the Fair Market Value per share of Common Stock on any
Purchase Date within an offering period be less than the Fair Market Value per
share of Common Stock on the start date of that offering period, then that
offering period shall automatically terminate immediately after the purchase
of shares of Common Stock on such Purchase Date, and a new offering period
shall commence on the next business day following such Purchase Date. The new
offering period shall have a duration of twenty (24) months, unless a shorter
duration is established by the Plan Administrator within five (5) business
days following the start date of that offering period.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start date of
any offering period under the Plan may enter that offering period on such
start date or on any subsequent Semi-Annual Entry Date within that offering
period, provided he or she remains an Eligible Employee.
B. Each individual who first becomes an Eligible Employee after the
start date of an offering period may enter that offering period on any
subsequent Semi-Annual Entry Date within that offering period on which he or
she is an Eligible Employee.
2
<PAGE>
C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.
D. To participate in the Plan for a particular offering period, the
Eligible [employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes
of acquiring shares of Common Stock during an offering period may be any
multiple of one percent (1%) of the Base Salary paid to the Participant during
each Purchase Interval within that offering period, up to a maximum of fifteen
percent (15%). The deduction rate so authorized shall continue in effect
throughout the offering period, except to the extent such rate is changed in
accordance with the following guidelines:
(i) The Participant may, at any time during the offering
period, reduce his or her rate of payroll deduction to become effective
as soon as possible after filing the appropriate form with the Plan
Administrator. The Participant may not, however, effect more than one (1)
such reduction per Purchase Interval.
(ii) The Participant may, prior to the commencement of any new
Purchase Interval within the offering period, increase the rate of his or
her payroll deduction by filing the appropriate form with the Plan
Administrator. The new rate (which may not exceed the fifteen percent
(15%) maximum) shall become effective on the start date of the first
Purchase Interval following the filing of such form.
B. Payroll deductions shall begin on the first pay day
administratively feasible following the Participant's Entry Date into the
offering period and shall (unless sooner terminated by the Participant)
continue through the pay day ending with or immediately prior to the last day
of that offering period. The amounts so collected shall be credited to the
Participant's book account under the Plan, but no interest shall be paid on
the balance from time to time outstanding in such account. The amounts
collected from the Participant shall not be required to be held in any
segregated account or trust fund and may be commingled with the general assets
of the Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.
D. The Participant's acquisition of Common Stock under the Plan on
any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date, whether within
the same or a different offering period.
3
<PAGE>
VII. PURCHASE RIGHTS
A. Grant of Purchase Rights. A Participant shall be granted a
------------------------
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the right
to purchase shares of Common Stock, in a series of successive installments
over the remainder of such offering period, upon the terms set forth below.
The Participant shall execute a stock purchase agreement embodying such terms
and such other provisions (not inconsistent with the Plan) as the Plan
Administrator may deem advisable.
Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)) or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Corporation
or any Corporate Affiliate.
B. Exercise of the Purchase Right. Each purchase right shall be
------------------------------
automatically exercised in installments on each successive Purchase Date
within the offering period, and shares of Common Stock shall accordingly be
purchased on behalf of each Participant on each such Purchase Date. The
purchase shall be effected by applying the Participant's payroll deductions
for the Purchase Interval ending on such Purchase Date to the purchase of
whole shares of Common Stock at the purchase price in effect for the
Participant for that Purchase Date.
C. Purchase Price. The purchase price per share at which Common
--------------
Stock will be purchased on the Participant's behalf on each Purchase Date
within the offering period shall be equal to eighty-five percent (85%) of the
lower of (i) the Fair Market Value per share of Common Stock on the
Participant's Entry Date into that offering period or (ii) the Fair Market
Value per share of Common Stock on that Purchase Date.
D. Number of Purchasable Shares. The number of shares of Common Stock
----------------------------
purchasable by a Participant on each Purchase Date during the offering period
shall be the number of whole shares obtained by dividing the amount collected
from the Participant through payroll deductions during the Purchase Interval
ending with that Purchase Date by the purchase price in effect for the
Participant for that Purchase Date. However, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed 1,200 shares, subject to periodic adjustments in the event of certain
changes in the Corporation's capitalization. In addition, the maximum
number of shares of Common Stock purchasable in total by all Participants on
any one Purchase Date shall not exceed 200,000 shares, subject to periodic
adjustments in the event of certain changes in the Corporation's
capitalization. However, the Plan Administrator shall have the discretionary
authority, exercisable prior to the start of any offering period under the
Plan, to increase or decrease the limitations to be in effect for the number
of shares purchasable per Participant and in total by all Participants on each
Purchase Date during that offering period.
4
<PAGE>
E. Excess Payroll Deductions. Any payroll deductions not applied
-------------------------
to the purchase of shares of Common Stock on any Purchase Date because they
are not sufficient to purchase a whole share of Common Stock shall be held for
the purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable per Participant or in
total by all Participants on the Purchase Date shall be promptly refunded.
F. Termination of Purchase Right. The following provisions shall
-----------------------------
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next scheduled
Purchase Date in the offering period, terminate his or her outstanding
purchase right by filing the appropriate form with the Plan Administrator
(or its designate), and no further payroll deductions shall be collected
from the Participant with respect to the terminated purchase right. Any
payroll deductions collected during the Purchase Interval in which such
termination occurs shall, at the Participant's election, be immediately
refunded or held for the purchase of shares on the next Purchase Date. If
no such election is made at the time such purchase right is terminated,
then the payroll deductions collected with respect to the terminated
right shall be refunded as soon as possible.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the offering
period for which the terminated purchase right was granted. In order to
resume participation in any subsequent offering period, such individual
must re-enroll in the Plan (by making a timely filing of the prescribed
enrollment forms) on or before his or her scheduled Entry Date into that
offering period.
(iii) Should the Participant cease to remain an Eligible
Employee for any reason (including death, disability or change in status)
while his or her purchase right remains outstanding, then that purchase
right shall immediately terminate, and all of the Participant's payroll
deductions for the Purchase Interval in which the purchase right so
terminates shall be immediately refunded. However, should the Participant
cease to remain in active service by reason of an approved unpaid leave
of absence, then the Participant shall have the right, exercisable up
until the last business day of the Purchase Interval in which such leave
commences, to (a) withdraw all the payroll deductions collected to date
on his or her behalf for that Purchase Interval or (b) have such funds
held for the purchase of shares on his or her behalf on the next
scheduled Purchase Date. In no event, however, shall any further payroll
deductions be collected on the Participant's behalf during such leave.
Upon the Participant's return to active service (x) within ninety (90)
days following the commencement of such leave or (y) prior to the
expiration of any longer period for which such Participant's right to
reemployment with the Corporation is guaranteed by statute or contract,
his or her payroll deductions under the Plan shall automatically resume
at the rate in
5
<PAGE>
effect at the time the leave began, unless the Participant withdraws from
the Plan prior to his or her return. An individual who returns to active
employment following a leave of absence which exceeds in duration the
applicable (x) or (y) time period will be treated as a new Employee for
purposes of subsequent participation in the Plan and must accordingly re-
enroll in the Plan (by making a timely filing of the prescribed
enrollment forms) on or before his or her scheduled Entry Date into the
offering period.
G. Change in Control. Each outstanding purchase right shall
-----------------
automatically be exercised, immediately prior to the effective date of any
Change in Control, by applying the payroll deductions of each Participant for
the Purchase Interval in which such Change in Control occurs to the purchase
of whole shares of Common Stock at a purchase price per share equal to eighty-
five percent (85%) of the lower of (i) the Fair Market Value per share of
Common Stock on the Participant's Entry Date into the offering period in which
such Change in Control occurs or (ii) the Fair Market Value per share of
Common Stock immediately prior to the effective date of such Change in
Control. However, the applicable limitation on the number of shares of Common
Stock purchasable per Participant shall continue to apply to any such
purchase, but not the limitation applicable to the maximum number of shares of
Common Stock purchasable in total by all Participants on any one Purchase
Date.
The Corporation shall use its best efforts to provide at least ten
(10)-days prior written notice of the occurrence of any Change in Control, and
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Change in Control.
H. Proration of Purchase Rights. Should the total number of shares
----------------------------
of Common Stock to be purchased pursuant to outstanding purchase rights on any
particular date exceed the number of shares then available for issuance under
the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual,
shall be refunded.
I. Assignability. The purchase right shall be exercisable only by
-------------
the Participant and shall not be assignable or transferable by the
Participant.
J. Stockholder Rights. A Participant shall have no stockholder
------------------
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such accrual, when aggregated with (i) rights to purchase Common
Stock accrued under any other purchase right granted under this Plan and (ii)
similar rights accrued under other employee stock purchase plans
6
<PAGE>
(within the meaning of Code Section 423)) of the Corporation or any Corporate
Affiliate, would otherwise permit such Participant to purchase more than
Twenty-Five Thousand Dollars ($25,000.00) worth of stock of the Corporation or
any Corporate Affiliate (determined on the basis of the Fair Market Value per
share on the date or dates such rights are granted) for each calendar year
such rights are at any time outstanding.
B. For purposes of applying such accrual limitations to the
purchase rights granted under the Plan, the following provisions shall be in
effect:
(i) The right to acquire Common Stock under each outstanding
purchase right shall accrue in a series of installments on each
successive Purchase Date during the offering period on which such right
remains outstanding.
(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has already
accrued in the same calendar year the right to acquire Common Stock under
one or more other purchase rights at a rate equal to Twenty-Five Thousand
Dollars ($25,000.00) worth of Common Stock (determined on the basis of
the Fair Market Value per share on the date or dates of grant) for each
calendar year such rights were at any time outstanding.
C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Purchase Interval, then the payroll
deductions which the Participant made during that Purchase Interval with respect
to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of
this Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on April 21, 1999 and shall
become effective at the Effective Time, provided no purchase rights granted
under the Plan shall be exercised, and no shares of Common Stock shall be
issued hereunder, until (i) the Plan shall have been approved by the
stockholders of the Corporation and (ii) the Corporation shall have complied
with all applicable requirements of the 1933 Act (including the registration
of the shares of Common Stock issuable under the Plan on a Form S-8
registration statement filed with the Securities and Exchange Commission), all
applicable listing requirements of any stock exchange (or the Nasdaq National
Market, if applicable) on which the Common Stock is listed for trading and all
other applicable requirements established by law or regulation. In the event
such stockholder approval is not obtained, or such compliance is not effected,
within twelve (12) months after the date on which the Plan is adopted by the
Board, the Plan shall terminate and have no further force or effect, and all
sums collected from Participants during the initial offering period hereunder
shall be refunded.
7
<PAGE>
B. Unless sooner terminated by the Board, the Plan shall terminate
upon the earliest of (i) the last business day in July 2009, (ii) the date on
which all shares available for issuance under the Plan shall have been sold
pursuant to purchase rights exercised under the Plan or (iii) the date on
which all purchase rights are exercised in connection with a Change in
Control. No further purchase rights shall be granted or exercised, and no
further payroll deductions shall be collected, under the Plan following such
termination.
X. AMENDMENT OF THE PLAN
A. The Board may alter, amend, suspend or terminate the Plan at any
time to become effective immediately following the close of any Purchase
Interval. However, the Plan may be amended or terminated immediately upon
Board action, if and to the extent necessary to assure that the Corporation
will not recognize, for financial reporting purposes, any compensation expense
in connection with the shares of Common Stock offered for purchase under the
Plan, should the financial accounting rules applicable to the Plan at the
Effective Time be subsequently revised so as to require the Corporation to
reorganize compensation expense in the absence of such amendment or
termination.
B. In no event may the Board effect any of the following amendments
or revisions to the Plan without the approval of the Corporation's
stockholders: (i) increase the number of shares of Common Stock issuable under
the Plan, except for permissible adjustments in the event of certain changes
in the Corporation's capitalization or (ii) alter the purchase price formula so
as to reduce the purchase price payable for the shares of Common Stock
purchasable under the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the
Plan shall be paid by the Corporation; however, each Plan Participant shall
bear all costs and expenses incurred by such individual in the sale or other
disposition of any shares purchased under the Plan.
B. Nothing in the Plan shall confer upon the Participant any right
to continue in the employ of the Corporation or any Corporate Affiliate for
any period of specific duration or interfere with or otherwise restrict in any
way the rights of the Corporation (or any Corporate Affiliate employing such
person) or of the Participant, which rights are hereby expressly reserved by
each, to terminate such person's employment at any time for any reason, with
or without cause.
C. The provisions of the Plan shall be governed by the laws of the
State of California without resort to that State's conflict-of-laws rules.
8
<PAGE>
Schedule A
Corporations Participating in
Employee Stock Purchase Plan
As of the Effective Time
------------------------
Digital Island, Inc.
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. Base Salary shall mean the regular base salary paid to a
-----------
Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan. Base
Salary shall be calculated before deduction of (A) any income or employment tax
withholdings or (B) any and all contributions made by the Participant to any
Code Section 401(k) salary deferral plan or Code Section 125 cafeteria benefit
program now or hereafter established by the Corporation or any Corporate
Affiliate. Base Salary shall not include (i) any overtime payments, bonuses,
commissions, profit-sharing distributions and other incentive-type payments
received during the period of participation in the Plan and (ii) any
contributions made on the Participant's behalf by the Corporation or any
Corporate Affiliate to any employee benefit or welfare plan now or hereafter
established (other than Code Section 401(k) or Code Section 125 contributions
deducted from Base Salary).
B. Board shall mean the Corporation's Board of Directors.
C. Change in Control shall mean a change in ownership of the
Corporation pursuant to any of the following transactions:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation, or
(iii) the acquisition, directly or indirectly, by a person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by or is under common
control with the Corporation) of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made
directly to the Corporation's stockholders.
C. Code shall mean the Internal Revenue Code of 1986, as amended.
----
D. Common Stock shall mean the Corporation's common stock.
------------
E. Corporate Affiliate shall mean any parent or subsidiary
-------------------
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
A-1
<PAGE>
F. Corporation shall mean Digital Island, Inc., a Delaware
-----------
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Digital Island, Inc. which shall by appropriate action
adopt the Plan.
H. Effective Time shall mean the time at which the Underwriting
--------------
Agreement is executed and the Common Stock priced for the initial public
offering of such Common Stock. Any Corporate Affiliate which becomes a
Participating Corporation after such Effective Time shall designate a
subsequent Effective Time with respect to its employee-Participants.
I. Eligible Employee shall mean any person who is employed by a
-----------------
Participating Corporation on a basis under which he or she is regularly expected
to render more than twenty (20) hours of service per week for more than five (5)
months per calendar year for earnings considered wages under Code Section 3401
(a).
J. Entry Date shall mean the date an Eligible Employee first
----------
commences participation in the offering period in effect under the Plan. The
earliest Entry Date under the Plan shall be the Effective Time.
K. Fair Market Value per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(iii) For purposes of the initial offering period which begins
at the Effective Time, the Fair Market Value shall be deemed to be equal to
the price per share at which the Common Stock is sold in the initial public
offering pursuant to the Underwriting Agreement.
L. 1933 Act shall mean the Securities Act of 1933, as amended.
--------
M. Participant shall mean any Eligible Employee of a Participating
-----------
Corporation who is actively participating in the Plan.
A-2
<PAGE>
N. Participating Corporation shall mean the Corporation and such
-------------------------
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan are listed in attached Schedule A.
0. Plan shall mean the Corporation's 1999 Employee Stock Purchase
----
Plan, as set forth in this document.
P. Plan Administrator shall mean the committee of two (2) or more
------------------
Board members appointed by the Board to administer the Plan.
Q. Purchase Date shall mean the last business day of each Purchase
-------------
Interval. The initial Purchase Date shall be January 31, 2000.
R. Purchase Interval shall mean each successive six (6)-month period
-----------------
within the offering period at the end of which there shall be purchased shares
of Common Stock on behalf of each Participant.
S. Semi-Annual Entry Date shall mean the first business day in
----------------------
February and August each year on which an Eligible Employee may first enter an
offering period.
T. Stock Exchange shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
U. Underwriting Agreement shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-3
<PAGE>
EXHIBIT 99.12
DIGITAL ISLAND, INC.
EMPLOYEE STOCK PURCHASE PLAN ("ESPP")
ENROLLMENT/CHANGE FORM
<TABLE>
<CAPTION>
SECTION 1: Action Complete Sections:
- --------- ------ -----------------
<S> <C> <C>
ACTION [_] New Enrollment 2, 3, 7 and sign attached Stock Purchase Agreement
---
[_] Change Payroll Deduction 2, 4, 7
[_] Terminate Payroll Deductions 2, 5, 7
[_] Leave of Absence 2, 6, 7
====================================================================================================================================
SECTION 2: Name
- --------- ----------------------------------------------------------------------------
PERSONNEL Last First MI Dept.
DATA
Home Address
---------------------------------------------------------------
Street
---------------------------------------------------------------
City State Zip Code
Social
Security # - -
--------------------- ---------- --------------------
===================================================================================================================================
SECTION 3: Effective with the Purchase
- --------- Interval Beginning: Payroll Deduction Amount: __________ % of base
salary.*
NEW ENROLLMENT [_] August 1, ______ * Must be a multiple of 1% up to a maximum of
[_] February 1, ______ 15% of base salary.
[_] Initial Offering Period
===================================================================================================================================
SECTION 4:
- --------- I authorize the following new level of
Effective with the payroll deduction:
CHANGE Pay Period Beginning:_______________________________________ ______________% of base salary.*
PAYROLL Month, Day and Year
DEDUCTIONS
* Must be a multiple of 1% up to a maximum
of 15% of base salary.
NOTE: You may reduce your rate of payroll deductions once per 6-month purchase interval to become effective as
---- soon as possible following the filing of the change form. You may also increase your rate of payroll
deductions to become effective as of the start date of the next 6-month purchase interval (first business
day of February or August).
===================================================================================================================================
SECTION 5: Effective with the
- --------- Pay Period Beginning: --------------------------------------- Your election to terminate your payroll
Month, Day and Year deductions for the balance of the offering
TERMINATE period cannot be changed, and you may not
PAYROLL rejoin that offering period at a later date.
DEDUCTIONS You will not be able to resume participation in
the ESPP until the start of a new offering
period.
In connection with my voluntary termination of payroll deductions, I elect
the following action regarding my ESPP payroll deductions to date in the
current six (6)-month purchase interval:
[_] Purchase shares of Digital Island, Inc. at end of the
interval
OR
[_] Refund ESPP payroll deductions collected
NOTE: If your employment terminates for any reason or your
---- eligibility status changes (less than 20 hrs/week or less than
5 months/year), you will immediately cease to participate in
the ESPP, and your ESPP payroll deductions collected in that purchase
interval will automatically be refunded to you.
===================================================================================================================================
SECTION 6: In connection with my unpaid leave of absence, I elect the following action
- --------- with respect to my ESPP payroll deductions to date in the current purchase
interval:
LEAVE OF [_] Purchase shares of Digital Island, Inc. at end of the interval
ABSENCE OR
[_] Refund ESPP payroll deductions collected
NOTE: If you take an unpaid leave of absence, your payroll deductions will
---- immediately cease. Upon your return to active service within 90 days after
the start of your leave, your payroll deductions will automatically resume
at the rate in effect for you when you went on leave.
===================================================================================================================================
SECTION 7:
- ---------
AUTHORIZATION I hereby authorize the specific action or actions indicated above.
- --------------------------------------------- ------------------------------------------------
Date Signature of Employee
</TABLE>
<PAGE>
EXHIBIT 99.13
DIGITAL ISLAND, INC.
STOCK PURCHASE AGREEMENT
------------------------
I hereby elect to participate in the 1999 Employee Stock Purchase Plan
(the "ESPP") for the offering period specified below, and I hereby subscribe to
purchase shares of Common Stock of Digital Island, Inc. (the "Corporation") in
accordance with the provisions of this Agreement and the ESPP. I hereby
authorize payroll deductions from each of my paychecks following my entry into
the ESPP in the 1% multiple of my base salary (not to exceed a maximum of 15%)
specified in my attached Enrollment Form.
The offering period is divided into a series of consecutive purchase
intervals. With the exception of the first purchase interval which will begin
at the time of the initial public offering of the Common Stock and end on
January 31, 2000, those purchase intervals will each be of six months duration
and will run from the first business day of February to the last business day of
July each year and from the first business day of August each year to the last
business day of January in the following year. My participation will
automatically remain in effect from one purchase interval to the next in
accordance with my payroll deduction authorization, unless I withdraw from the
ESPP or change the rate of my payroll deduction or unless my employment status
changes. I may reduce the rate of my payroll deductions on one occasion per
purchase interval, and I may increase my rate of payroll deductions to become
effective at the beginning of any subsequent purchase interval.
My payroll deductions will be accumulated for the purchase of shares
of Common Stock on the last business day of each purchase interval within the
offering period. The purchase price per share will be equal to 85% of the lower
-----
of (i) the fair market value per share of Common Stock on my Entry Date into the
offering period or (ii) the fair market value per share on the purchase date. I
will also be subject to ESPP restrictions (i) limiting the maximum number of
shares which I may purchase per purchase interval, (ii) limiting the maximum
number of shares which may be purchased in total by all participants per
purchase interval and (iii) prohibiting me from purchasing more than $25,000
worth of Common Stock for each calendar year my purchase right remains
outstanding.
I may withdraw from the ESPP at any time prior to the last business
day of the purchase interval and elect either to have the Corporation refund all
my payroll deductions for that interval or to have such payroll deductions
applied to the purchase of Common Stock at the end of such interval. However, I
may not rejoin that particular offering period at any later date. Upon the
termination of my employment for any reason, including death or disability, or
my loss of eligible employee status, my participation in the ESPP will
immediately cease, and all my payroll deductions for the purchase interval in
which my employment terminates or my loss of eligibility occurs will immediately
be refunded.
If I take an unpaid leave of absence, my payroll deductions will
immediately cease, and any payroll deductions for the purchase interval in which
my leave begins will, at my election, either be refunded or applied to the
purchase of shares of Common Stock at the end of that purchase interval. If my
re-employment is guaranteed by either law or contract, or if I return to active
service within ninety (90) days, then upon my return my payroll deductions will
automatically resume at the rate in effect when my leave began.
The Corporation will issue a stock certificate for the shares
purchased on my behalf after the end of each purchase interval. The certificate
will be issued in street name and will be deposited directly in my Corporation-
designated brokerage account. I will notify the Corporation of any disposition
of shares purchased under the ESPP, and I will satisfy all applicable income and
employment tax withholding requirements at the time of such disposition.
The Corporation has the right, exercisable in its sole discretion, to
amend or terminate all outstanding purchase rights under the ESPP at any time,
with such amendment or termination to become effective immediately following the
end of any purchase interval. However, such purchase rights may be amended or
terminated with an immediate effective date to the extent necessary to avoid the
Corporation's recognition of compensation expense for financial reporting
purposes, should the accounting principles applicable to the ESPP change. Upon
any such termination, I will cease to have any further rights to purchase shares
of common stock under this Agreement.
I have read this Agreement and hereby agree to be bound by the terms
of both this Agreement and the ESPP. The effectiveness of this Agreement is
dependent upon my eligibility to participate in the ESPP.
Date:_____________________
Signature of Employee____________________
Printed Name:____________________________
Offering Period: Initial Offering Period ending on July 31, 2001
Entry Date: ___________________
