<PAGE> 1
As filed with the Securities and Exchange Commission on November 22, 1999
Registration No. 333-____________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
Under
The Securities Act of 1933
QUEST SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0231678
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
8001 IRVINE CENTER DRIVE
IRVINE, CA 92618
(Address of principal executive offices) (Zip Code)
------------
1999 STOCK INCENTIVE PLAN
1999 EMPLOYEE STOCK PURCHASE PLAN
INTERNATIONAL EMPLOYEE STOCK PURCHASE PLAN
(Full title of the Plan)
------------
VINCENT C. SMITH
CHIEF EXECUTIVE OFFICER
QUEST SOFTWARE, INC.
8001 IRVINE CENTER DRIVE
IRVINE, CA 92618
(Name and address of agent for service)
(949) 754-8100
(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 7,493,400 shares $65.75 $492,691,050 $136,968.12
International Employee Stock Purchase Plan
Common Stock 100,000 shares $65.75 $6,575,000 $1,827.85
1999 Employee Stock Purchase Plan
Common Stock 500,000 shares $65.75 $32,875,000 $9,139.25
==========================================================================================================================
Aggregate Registration Fee: $147,935.22
==========================================================================================================================
</TABLE>
(1) This Registration Statement shall also cover any additional shares of
Common Stock which become issuable under the 1999 Stock Incentive Plan,
1999 Employee Stock Purchase Plan or International 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, (the "1933 Act") on the basis
of the average of the high and low selling prices of Registrant's
Common Stock on November 15, 1999 as reported by the Nasdaq National
Market.
<PAGE> 2
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference
Quest Software, 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. 333-80543 on Form
S-1 filed with the Commission on June 11, 1999, as amended on
Forms S-1/A filed with the Commission on June 30, 1999, July
22, 1999, August 6, 1999 and August 11, 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. 333-80543, in which
there is set forth the audited financial statements for the
Registrant's fiscal year ended December 31, 1998; and
(c) The Registrant's Registration Statement No. 000-26937 on Form
8-A filed with the Commission on August 4, 1999 pursuant to
Section 12(b) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), in which there is described the
terms, rights and provisions applicable to the Registrant's
outstanding Common Stock.
All reports and definitive proxy or information statements filed
pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act after the date of
this Registration Statement and prior to the filing of a post-effective
amendment which indicates that all securities offered hereby have been sold or
which 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
The Registrant's Amended and Restated Articles of Incorporation limit
the personal liability of its directors for monetary damages to the fullest
extent permitted by the California General Corporation Law. Under California
law, a director's liability to a company or its shareholders may not be limited:
o for acts or omissions that involve intentional misconduct or a knowing
and culpable violation of law;
o for acts or omissions that a director believes to be contrary to the
best interests of the company or its shareholders or that involve the
absence of good faith on the part of the director;
o for any transaction from which a director derived an improper personal
benefit;
o for acts or omissions that show a reckless disregard for the
director's duty to the company or its shareholders in circumstances in
which the director was aware, or should have been aware, in the
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ordinary course of performing the director's duties, of a risk of
serious injury to the company or its shareholders;
o for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to
the company or its shareholders;
o under Section 310 of the California General Corporation Law concerning
contacts or transactions between the company and a director; or
o under Section 316 of the California General Corporation Law concerning
directors' liability for improper dividends, loans and guarantees.
The limitation of liability does not affect the availability of injunctions and
other equitable remedies available to the Registrant's shareholders for any
violation by a director of the director's fiduciary duty to the Registrant or
its shareholders.
The Registrant's Articles of Incorporation also include an
authorization for it to indemnify its "agents" (as defined in Section 317 of the
California General Corporation Law) through bylaw provisions, by agreement or
otherwise, to the fullest extent permitted by law. Pursuant to this provision,
the Registrant's Amended and Restated Bylaws provide for indemnification of its
directors, officers and employees. In addition, the Registrant may, at its
discretion, provide indemnification to persons whom the Registrant is not
obligated to indemnify. The Amended and Restated Bylaws also allow the
Registrant to enter into indemnity agreements with individual directors,
officers, employees and other agents. Indemnity agreements have been entered
into with all directors and certain executive officers and provide the maximum
indemnification permitted by law. The Registrant also currently maintains
directors' and officers' liability insurance. These agreements, together with
the Registrant's Amended and Restated Bylaws and Amended and Restated Articles
of Incorporation, may require the Registrant, among other things, to indemnify
its directors and executive officers, other than for liability resulting from
willful misconduct of a culpable nature, and to advance expenses to them as they
are incurred, provided that they undertake to repay the amount advanced if it is
ultimately determined by a court that they are not entitled to indemnification.
Section 317 of the California General Corporation Law and the Registrant's
Amended and Restated Bylaws and its indemnification agreements make provision
for the indemnification of officers, directors and other corporate agents in
terms sufficiently broad to indemnify such persons, under certain circumstances,
for liabilities, including reimbursement of expenses incurred, arising under the
1933 Act.
Item 7. Exemption from Registration Claimed
Not Applicable.
Item 8. Exhibits
Exhibit Number Exhibit
4 Instruments Defining the Rights of Shareholders. Reference is
made to the Registrant's Registration Statement No. 000-26937 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 Deloitte & Touche 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 1999 Employee Stock Purchase Plan.
99.3 International Employee Stock Purchase Plan.
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<PAGE> 4
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, 1999 Employee Stock Purchase Plan or International
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.
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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 Newport Beach, State of California on this 22nd
day of November, 1999.
QUEST SOFTWARE, INC.
By: /s/ David M. Doyle
-------------------------------------
David M. Doyle
President and Secretary
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned officers and directors of Quest Software, Inc., a
California corporation, do hereby constitute and appoint David M. Doyle and John
J. Laskey, 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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Vincent C. Smith Chief Executive Officer (Principal November 22, 1999
- ---------------------------------------------- Executive Officer) and Chairman of
Vincent C. Smith the Board
/s/ David M. Doyle President, Secretary and Director November 22, 1999
- ---------------------------------------------
David M. Doyle
/s/ John J. Laskey Chief Financial Officer November 22, 1999
- --------------------------------------------- (Principal Financial and Accounting
John J. Laskey Officer) and Vice President, Finance
</TABLE>
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<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
Director
- -------------------------------------------
Doran G. Machin
/s/ Jerry Murdock, Jr. Director November 22, 1999
- ------------------------------------------
Jerry Murdock, Jr.
</TABLE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM S-8
UNDER
SECURITIES ACT OF 1933
QUEST SOFTWARE, INC.
<PAGE> 8
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Exhibit
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<S> <C>
4 Instruments Defining the Rights of Shareholders. Reference
is made to the Registrant's Registration Statement No.
000-26937 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 Deloitte & Touche 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 1999 Employee Stock Purchase Plan.
99.3 International Employee Stock Purchase Plan.
</TABLE>
<PAGE> 1
EXHIBIT 5
OPINION AND CONSENT OF BROBECK, PHLEGER & HARRISON LLP
November 22, 1999
Quest Software, Inc.
8001 Irvine Center Drive
Irvine, CA 92618
Re: Quest Software, Inc. - Registration Statement for Offering
of an Aggregate of 8,093,400 Shares of Common Stock
Dear Ladies and Gentlemen:
We have acted as counsel to Quest Software, Inc. a California
corporation (the "Company"), in connection with the registration on Form S-8
(the "Registration Statement") under the Securities Act of 1933, as amended, of
8,093,400 shares of common stock for issuance (the "Shares") under the Company's
1999 Stock Incentive Plan, 1999 Employee Stock Purchase Plan and International
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 or International 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,
BROBECK, PHLEGER & HARRISON LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF DELOITTE & TOUCHE LLP, INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration
Statement of Quest Software, Inc. on Form S-8 of our reports dated June 9, 1999
and August 11, 1999 appearing in Registration Statement No. 333-80543 on Form
S-1 of Quest Software, Inc.
/s/ Deloitte & Touche LLP
-----------------------------------------
Deloitte & Touche LLP
Costa Mesa, California
November 22, 1999
<PAGE> 1
EXHIBIT 99.1
QUEST SOFTWARE, 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 Quest Software, Inc., a California corporation, by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity
programs:
(i) the Discretionary Option Grant Program under
which eligible persons may, at the discretion of the Plan Administrator,
be granted options to purchase shares of Common Stock,
(ii) the Salary Investment Option Grant Program under
which eligible employees may elect to have a portion of their base
salary invested each year in special options,
(iii) 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),
(iv) the Automatic Option Grant Program under which
eligible non-employee Board members shall automatically receive options
at periodic intervals to purchase shares of Common Stock; and
(v) the Director Fee Option Grant Program under
which non-employee Board members may elect to have all or any portion of
their annual retainer fee otherwise payable in cash applied to a special
option grant.
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> 2
III. ADMINISTRATION OF THE PLAN
A. Prior to the Section 12 Registration Date, the
Discretionary Option Grant and Stock Issuance Programs shall be administered by
the Board unless otherwise determined by the Board. Beginning with the Section
12 Registration Date, the following provisions shall govern the administration
of the Plan:
(i) The Board shall have the authority to administer
the Discretionary Option Grant and Stock Issuance Programs with respect
to Section 16 Insiders but may delegate such authority in whole or in
part to the Primary Committee.
(ii) 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.
(iii) Administration of the Automatic Option Grant
Program shall be self-executing in accordance with the terms of that
program.
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full power and authority
subject to the provisions of the Plan:
(i) to establish such rules as it may deem
appropriate for proper administration of the Plan, to make all factual
determinations, to construe and interpret the provisions of the Plan and
the awards thereunder and to resolve any and all ambiguities thereunder;
(ii) to determine, with respect to awards made under
the Discretionary Option Grant and Stock Issuance Programs, which
eligible persons are to receive such awards, the time or times when such
awards are to be made, the number of shares to be covered by each such
award, the vesting schedule (if any) applicable to the award, the status
of a granted option as either an Incentive Option or a Non-Statutory
Option and the maximum term for which the option is to remain
outstanding;
(iii) to amend, modify or cancel any outstanding award
with the consent of the holder or accelerate the vesting of such award;
and
(iv) to take such other discretionary actions as
permitted pursuant to the terms of the applicable program.
Decisions of each Plan Administrator within the scope of its administrative
functions under the Plan shall be final and binding on all parties.
C. Members of the Primary Committee or any Secondary
Committee shall serve for such period of time as the Board may determine and may
be removed by the Board at any time. The Board may also at any time terminate
the functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.
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<PAGE> 3
D. 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 options or stock
issuances under the Plan.
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. Only non-employee Board members shall be eligible to
participate in the Automatic Option Grant and Director Fee Option Grant
Programs.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares repurchased
by the Corporation on the open market. The maximum number of shares of Common
Stock initially reserved for issuance over the term of the Plan shall not exceed
Seven Million, Four Hundred Ninety-Three Thousand, Four Hundred (7,493,400)
shares. Such authorized share reserve consists of (i) the number of shares which
remain available for issuance, as of the Section 12 Registration Date, under the
Predecessor Plan, including the shares subject to the outstanding options to be
incorporated into the Plan and the additional shares which would otherwise be
available for future grant, plus (ii) an increase of _____________________
(___________) shares authorized by the Board subject to stockholder approval
prior to the Section 12 Registration Date.
B. No one person participating in the Plan may receive
options, separately exercisable stock appreciation rights and direct stock
issuances for more than Five Hundred Thousand (500,000) shares of Common Stock
in the aggregate per calendar year, beginning with the 1999 calendar year.
C. 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 those options
expire, terminate or are cancelled for any reason prior to exercise in full.
Unvested shares issued under the Plan and subsequently
3
<PAGE> 4
repurchased by the Corporation, at the original exercise or 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 options 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 the Plan shall NOT be available for subsequent issuance.
D. 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 to (i) the maximum number and/or class of securities
issuable under the Plan, (ii) the number and/or class of securities by which the
share reserve is to increase each calendar year pursuant to the automatic share
increase provisions of the Plan, (iii) the number and/or class of securities for
which any one person may be granted options, separately exercisable stock
appreciation rights and direct stock issuances under the Plan per calendar year,
(iv) 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, (v) the number and/or class of securities and the
exercise price per share in effect under each outstanding option under the Plan
and (vi) 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. 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.
4
<PAGE> 5
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 at the time of the option grant; provided, however, with
respect to options granted prior to the Section 12 Registration Date, the
exercise price per share shall not be less than eighty-five percent (85%) 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 II
of Article Seven and the documents evidencing the option, be payable in cash or
check made payable to the Corporation. Should the Common Stock be registered
under Section 12 of the 1934 Act at the time the option is exercised, then the
exercise price may also be paid as follows:
(i) shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date, or
(ii) to the extent the option is exercised
for vested shares, through a special sale and remittance procedure
pursuant to which the Optionee shall concurrently provide irrevocable
instructions to (a) a Corporation-approved 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.
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<PAGE> 6
C. CESSATION OF SERVICE.
1. The following provisions shall govern the
exercise of any options outstanding at the time of the Optionee's 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 exercisable in whole or in
part by the Optionee at the time of death may be subsequently exercised
by his or her Beneficiary.
(iii) During the applicable post-Service
exercise period, the option may not be exercised in the aggregate for
more than the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of Service. Upon the
expiration of the applicable exercise period or (if earlier) upon the
expiration of the option term, the option shall terminate and cease to
be outstanding for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the Optionee's
cessation of Service, terminate and cease to be outstanding to the
extent the option is not otherwise at that time exercisable for vested
shares.
(iv) Should the Optionee's Service be
terminated for Misconduct or should the Optionee engage in Misconduct
while his or her options are outstanding, then all such options shall
terminate immediately and cease to be outstanding.
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:
(i) to extend the period of time for which
the option is to remain exercisable following the Optionee's cessation
of Service to such period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration of the option term,
and/or
(ii) to permit the option to be exercised,
during the applicable post-Service exercise period, for one or more
additional installments in which the Optionee would have vested had the
Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have
no stockholder rights with respect to the shares subject to the option until
such person shall have exercised the option, paid the exercise price and become
a holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to
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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.
Prior to the Section 12 Registration Date, the Plan Administrator may not impose
a vesting schedule upon any option grant or the shares of Common Stock subject
to that option which is more restrictive than twenty percent (20%) per year
vesting, with the initial vesting to occur not later than one (1) year after the
option grant date. However, such limitation shall not be applicable to any
option grants made to individuals who are officers of the Corporation,
non-employee Board members or independent consultants.
F. FIRST REFUSAL RIGHTS. Until the Section 12 Registration
Date, the Corporation shall have the right of first refusal with respect to any
proposed disposition by the Participant (or any successor in interest) of any
shares of Common Stock issued under the Plan. Such right of first refusal shall
be exercisable in accordance with the terms established by the Plan
Administrator and set forth in the document evidencing such right.
G. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime
of the Optionee, Incentive Options shall be exercisable only by the Optionee and
shall not be assignable or transferable other than to a Beneficiary 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 II, all the
provisions of Articles One, Two and Six shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to
Employees.
B. EXERCISE PRICE. The exercise price per share shall not
be less than one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of
the shares of Common Stock (determined as of the respective date or dates of
grant) for which one or more options granted to any Employee under the Plan (or
any other option plan of the Corporation or any Parent or Subsidiary) may for
the first time become exercisable as Incentive Options during any one calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive
Option is granted is a 10% Stockholder, then the exercise price per share shall
not be less than one hundred ten percent (110%) of the Fair Market Value per
share of Common Stock on the option grant date, and the option term shall not
exceed five (5) years measured from the option grant date.
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<PAGE> 8
III. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. Each option outstanding at the time of a Change in
Control but not otherwise fully-vested shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the Change in
Control, become exercisable for all of the shares of Common Stock at the time
subject to that option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. However, an outstanding option shall not so
accelerate if and to the extent: (i) such option is, in connection with the
Change in Control, assumed or otherwise continued in full force and effect by
the successor corporation (or parent thereof) pursuant to the terms of the
Change in Control, (ii) such option is replaced with a cash incentive program of
the successor corporation which preserves the spread existing at the time of the
Change in Control on the shares of Common Stock for which the option is not
otherwise at that time exercisable and provides for subsequent payout in
accordance with the same 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. Each option outstanding
at the time of the Change in Control shall terminate as provided in Section
III.C. of this Article Two.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Change in Control, except to
the extent: (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) or otherwise continue in full force and effect
pursuant to the terms of the Change in Control 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 Change in
Control, all outstanding options shall terminate and cease to be outstanding,
except to the extent assumed by the successor corporation (or parent thereof) or
otherwise expressly continued in full force and effect pursuant to the terms of
the Change in Control.
D. Each option which is assumed in connection with a Change
in Control shall be appropriately adjusted, immediately after such Change in
Control, to apply to the number and class of securities which would have been
issuable to the Optionee in consummation of such Change in Control had the
option been exercised immediately prior to such Change in Control. Appropriate
adjustments to reflect such Change in Control 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 options, separately
exercisable stock appreciation rights and direct stock issuances under the Plan
per calendar year.
E. The Plan Administrator may at any time provide that one
or more options will automatically accelerate in connection with a Change in
Control, whether or not those options are assumed or otherwise continued in full
force and effect pursuant to the terms of the Change in Control. Any such option
shall accordingly become exercisable, immediately prior to the effective date of
such Change in Control, for all of the shares of Common Stock at the time
subject to that option and may be exercised for any or all of those shares as
fully-vested shares of
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Common Stock. In addition, the Plan Administrator may at any time provide that
one or more of the Corporation's repurchase rights shall not be assignable in
connection with such Change in Control and shall terminate upon the consummation
of such Change in Control.
F. The Plan Administrator may at any time provide that one
or more options will automatically accelerate upon an Involuntary Termination of
the Optionee's Service within a designated period (not to exceed eighteen (18)
months) following the effective date of any Change in Control in which those
options 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 at any time provide that one or more of the Corporation's
repurchase rights shall immediately terminate upon such Involuntary Termination.
G. The Plan Administrator may at any time provide that one
or more options will automatically accelerate in connection with a Hostile
Take-Over. Any such option shall become exercisable, immediately prior to the
effective date of such Hostile Take-Over, for all of the shares of Common Stock
at the time subject to that option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. In addition, the Plan
Administrator may at any time provide that one or more of the Corporation's
repurchase rights shall terminate automatically upon the consummation of such
Hostile Take-Over. Alternatively, the Plan Administrator may condition such
automatic acceleration and termination upon an Involuntary Termination of the
Optionee's Service within a designated period (not to exceed eighteen (18)
months) following the effective date of such Hostile Take-Over. Each option so
accelerated shall remain exercisable for fully-vested shares until the
expiration or sooner termination of the option term.
H. The portion of any Incentive Option accelerated in
connection with a Change in Control or Hostile Take Over shall remain
exercisable as an Incentive Option only to the extent the applicable One Hundred
Thousand Dollar ($100,000) limitation is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated portion of such option shall be
exercisable as a Non-Statutory Option under the Federal tax laws.
IV. STOCK APPRECIATION RIGHTS
The Plan Administrator may, subject to such conditions as it
may determine, grant to selected Optionees stock appreciation rights which will
allow the holders of those rights 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 Option Surrender Value of the number of shares for which the
option is surrendered over (b) the aggregate exercise price payable for such
shares. The distribution 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.
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ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee may implement the Salary Investment
Option Grant Program for one or more calendar years beginning after the
Underwriting Date and select the Section 16 Insiders and other highly
compensated Employees eligible to participate in the Salary Investment Option
Grant Program for each such calendar year. 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 Seventy-Five Thousand Dollars
($75,000.00). The Primary Committee shall have complete discretion to determine
whether to approve the filed authorization in whole or in part. To the extent
the Primary Committee approves the authorization, the individual who filed that
authorization shall be granted an option under the Salary Investment Grant
Program on the first trading day in January for 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 approved reduction in
the Optionee's base salary for the calendar year, and
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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. CESSATION OF SERVICE. Each option outstanding at the
time of the Optionee's cessation of Service 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 option term
or (ii) the expiration of the three (3)-year period following the Optionee's
cessation of Service. To the extent the option is held by the Optionee at the
time of his or her death, the option may be exercised by his or her Beneficiary.
However, the option shall, immediately upon the Optionee's cessation of Service,
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. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Change in Control or Hostile
Take-Over while the Optionee remains in Service, each outstanding option shall
automatically accelerate so that each such option shall, immediately prior to
the effective date of the Change in Control or Hostile Take-Over, become fully
exercisable with respect to the total number of shares of Common Stock at the
time subject to such option and may be exercised for any or all of those shares
as fully-vested shares of Common Stock. Each such option accelerated in
connection with a Change in Control shall terminate upon the Change in Control,
except to the extent assumed by the successor corporation (or parent thereof) or
otherwise continued in full force and effect pursuant to the terms of the Change
in Control. Each such option accelerated in connection with a Hostile Take-Over
shall remain exercisable until the expiration or sooner termination of the
option term.
B. Each option which is assumed in connection with a Change
in Control shall be appropriately adjusted to apply to the number and class of
securities which would have been issuable to the Optionee in consummation of
such Change in Control had the option been exercised immediately prior to such
Change in Control. 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.
C. Upon the occurrence of a Hostile Take-Over, the Optionee
shall have a thirty (30)-day period in which to surrender to the Corporation
each of his or her outstanding options. The Optionee shall in return be entitled
to a cash distribution from the Corporation in an amount equal to the excess of
(i) the Option Surrender Value 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.
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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
options made under the Discretionary Option Grant Program.
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<PAGE> 13
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 options.
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 or Service
requirements. Each such award shall be evidenced by one or more documents which
comply with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share of Common Stock
subject to direct issuance shall be fixed by the Plan Administrator; provided,
however, with respect to stock issuances made prior to the Section 12
Registration Date, the purchase price per share shall not be less than
eighty-five percent (85%) of the Fair Market Value per share of Common Stock on
the issue date and the purchase price per share of Common Stock issued to a 10%
Stockholder shall not be less than one hundred and ten percent (110%) of such
Fair Market Value.
2. Subject to the provisions of Section II 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/ISSUANCE PROVISIONS.
1. The Plan Administrator may issue shares of
Common Stock which are fully and immediately vested upon issuance or which are
to vest in one or more installments over the Participant's period of Service or
upon attainment of specified performance objectives. Alternatively, the Plan
Administrator may issue share right awards which shall entitle the recipient to
receive a specified number of vested shares of Common Stock upon the attainment
of one or more performance goals or Service requirements established by the Plan
Administrator. However, for stock issuances prior to the Section 12 Registration
Date, the Plan Administrator may not impose a vesting schedule upon any stock
issuance effected under the Stock Issuance Program which is more restrictive
than twenty percent (20%) per year vesting, with initial vesting to occur not
later than one (1) year after the issuance date. Such limitation shall not apply
to any Common Stock issuances made to the officers of the Corporation,
non-employee Board members or independent consultants.
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<PAGE> 14
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 his or her
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
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 the issued shares of Common Stock, 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, 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 waive the surrender
and cancellation of one or more unvested shares of Common Stock (or other assets
attributable thereto) which would otherwise occur upon the cessation of the
Participant's Service or the non-attainment of the performance objectives
applicable to those shares. Such waiver shall result in the immediate vesting of
the Participant's interest in the shares of Common Stock as to which the waiver
applies. Such waiver may be effected at any time, whether before or after the
Participant's cessation of Service or the attainment or non-attainment of the
applicable performance objectives.
6. Outstanding share right awards shall
automatically terminate, and no shares of Common Stock shall actually be issued
in satisfaction of those awards, if the performance goals or Service
requirements established for such awards are not attained. The Plan
Administrator, however, shall have the authority to issue shares of Common Stock
in satisfaction of one or more outstanding share right awards as to which the
designated performance goals or Service requirements are not attained.
II. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. All of the Corporation's outstanding repurchase rights
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
Change in Control, except to the extent (i) those repurchase rights are assigned
to the successor corporation (or parent thereof) or otherwise
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continue in full force and effect pursuant to the terms of the Change in Control
or (ii) such accelerated vesting is precluded by other limitations imposed by
the Plan Administrator at the time the repurchase right is issued.
B. The Plan Administrator may at any time provide for the
automatic termination of one or more of those outstanding repurchase rights and
the immediate vesting of the shares of Common Stock subject to those terminated
rights upon (i) a Change in Control or Hostile Take-Over or (ii) an Involuntary
Termination of the Participant's Service within a designated period (not to
exceed eighteen (18) months) following the effective date of any Change in
Control or Hostile Take-Over in which those repurchase rights are assigned to
the successor corporation (or parent thereof) or otherwise continue in full
force and effect.
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.
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ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Options 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 after the Underwriting Date
shall automatically be granted, on the date of such initial election or
appointment, a Non-Statutory Option to purchase Twenty-Five Thousand (25,000)
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
beginning with the 2001 Annual Stockholder Meeting, each individual who has
served as a non-employee Board member since the date of the Annual Stockholders
Meeting in the immediately preceding year shall automatically be granted a
Non-Statutory Option to purchase Seven Thousand Five Hundred (7,500) shares of
Common Stock.
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 shares
purchased under the initial 25,000 share option shall be subject to repurchase
by the Corporation, at the exercise price paid per share, upon the Optionee's
cessation of Board service prior to vesting in those shares. Each initial
25,000-share option shall vest, and the Corporation's repurchase right shall
lapse, in a series of four (4) successive equal annual installments over the
Optionee's period of continued service as a Board member, with the first such
installment to vest upon the Optionee's completion of one (1) year of Board
service measured from the option grant date. Each annual 7,500-share option
shall be fully vested at the time of grant.
E. CESSATION OF BOARD SERVICE. The following provisions
shall govern the exercise of any options outstanding at the time of the
Optionee's cessation of Board service:
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<PAGE> 17
(i) Any option outstanding at the time of
the Optionee's cessation of Board service for any reason shall remain
exercisable for a twelve (12)-month period following the date of such
cessation of Board service, but in no event shall such option be
exercisable after the expiration of the option term.
(ii) Any option exercisable in whole or in
part by the Optionee at the time of death may be subsequently exercised
by his or her Beneficiary.
(iii) Following the Optionee's cessation of
Board service, the option may not be exercised in the aggregate for more
than the number of shares for which the option was exercisable on the
date of such cessation of Board 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 Board
service, terminate and cease to be outstanding for any and all shares
for which the option is not otherwise at that time exercisable.
(iv) However, 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.
II. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Change in Control or Hostile
Take-Over, 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 may, immediately prior to the effective date of such Change in
Control or Hostile Take-Over, became fully exercisable for all of the shares of
Common Stock at the time subject to such option and maybe exercised for all or
any of those shares as fully-vested shares of Common Stock. Each such option
accelerated in connection with a Change in Control shall terminate upon the
Change in Control, except to the extent assumed by the successor corporation (or
parent thereof) or otherwise continued in full force and effect pursuant to the
terms of the Change in Control. Each such option accelerated in connection with
a Hostile Take-Over shall remain exercisable until the expiration or sooner
termination of the option term.
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 Change in Control or Hostile
Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee
shall have a thirty (30)-day period in which to surrender to the Corporation
each of his or her outstanding options. The Optionee shall in return be entitled
to a cash distribution from the Corporation in an amount equal to the excess of
(i) the Option Surrender Value 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
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cash distribution shall be paid within five (5) days following the surrender of
the option to the Corporation.
D. Each option which is assumed in connection with a Change
in Control shall be appropriately adjusted to apply to the number and class of
securities which would have been issuable to the Optionee in consummation of
such Change in Control had the option been exercised immediately prior to such
Change in Control. 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.
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 options made
under the Discretionary Option Grant Program.
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ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
The Board may implement the Director Fee Option Grant Program
as of the first day of any calendar year beginning after the Underwriting Date.
Upon such implementation of the Program, each non-employee Board member may
elect to apply all or any portion of the annual retainer fee otherwise payable
in cash for his or her service on the Board to the acquisition of a special
option grant under this Director Fee Option Grant Program. Such election must be
filed with the Corporation's Chief Financial Officer prior to the first day of
the calendar year for which the election is to be in effect. Each non-employee
Board member who files such a timely election with respect to the annul retainer
fee 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
that fee would otherwise be payable.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the
terms and conditions specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be
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
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
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<PAGE> 20
each month of Board service during the calendar year in which the option is
granted. Each option shall have a maximum term of ten (10) years measured from
the option grant date.
D. CESSATION OF BOARD SERVICE. Should the Optionee cease
Board service for any reason (other than death or Permanent Disability) while
holding one or more options, then each such option shall remain exercisable, for
any or all of the shares for which the option is exercisable at the time of such
cessation of Board service, until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service. However, each option
held by the Optionee at the time of such cessation of Board service shall
immediately terminate and cease to remain outstanding with respect to any and
all shares of Common Stock for which the option is not otherwise at that time
exercisable.
E. DEATH OR PERMANENT DISABILITY. Should the Optionee's
service as a Board member cease by reason of death or Permanent Disability, then
each option held by such Optionee shall immediately become exercisable for all
the shares of Common Stock at the time subject to that option, and the option
may be exercised for any or all of those shares as fully-vested shares until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such cessation
of Board service.
Should the Optionee die after cessation of Board service but
while holding one or more options, 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 Optionee's Beneficiary. Such right of exercise
shall lapse, and the option shall terminate, upon the earlier of (i) the
expiration of the ten (10)-year option term or (ii) the three (3)-year period
measured from the date of the Optionee's cessation of Board service.
III. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Change in Control or Hostile
Take-Over while the Optionee remains in Board service, each outstanding option
held by such Optionee shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Change in Control or
Hostile Take-Over, become fully exercisable with respect to the total number of
shares of Common Stock at the time subject to such option and may be exercised
for any or all of those shares as fully-vested shares of Common Stock. Each such
option accelerated in connection with a Change in Control shall terminate upon
the Change in Control, except to the extent assumed by the successor corporation
(or parent thereof) or otherwise expressly continued in full force and effect
pursuant to the terms of the Change in Control. Each such option accelerated in
connection with a Hostile Take-Over shall remain exercisable until the
expiration or sooner termination of the option term.
B. 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 options. The Optionee shall in return be entitled
to a cash distribution from the Corporation in an amount equal to the excess of
(i) the Option Surrender Value of the shares of Common Stock at the time subject
to each surrendered option (whether or not the Optionee is otherwise at the time
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<PAGE> 21
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.
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 options
made under the Discretionary Option Grant Program.
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<PAGE> 22
ARTICLE SEVEN
MISCELLANEOUS
I. NO IMPAIRMENT OF AUTHORITY
Outstanding awards 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.
II. 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.
III. 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 with the right to use shares of Common Stock in satisfaction of
all or part of the Withholding Taxes incurred by such holders in connection with
the exercise of their options or the vesting of their shares. Such right may be
provided to any such holder in either or both of the following formats:
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 Taxes (not to exceed one hundred percent (100%)) designated by
the holder.
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<PAGE> 23
IV. FINANCIAL REPORTS
The Corporation shall deliver a balance sheet and an income
statement at least annually to each individual holding an outstanding option
under the Plan, unless such individual is a key Employee whose duties in
connection with the Corporation (or any Parent or Subsidiary) assure such
individual access to equivalent information.
V. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately upon the
Plan Effective Date. However, the Salary Investment Option Grant and Director
Fee Option Grant Programs shall not be implemented until such time as the
Primary Committee or the Board may deem appropriate. Options may be granted
under the Discretionary Option Grant Program at any time on or after the Plan
Effective Date. However, no options granted under the Plan may be exercised, and
no shares shall be issued under the Plan, until the Plan is approved by the
Corporation's stockholders. If such stockholder approval is not obtained within
twelve (12) months after the Plan Effective Date, then all options previously
granted under this Plan shall terminate and cease to be outstanding, and no
further options shall be granted and no shares shall be issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor
Plan, and no further options or direct stock issuances shall be made under the
Predecessor Plan after the Section 12 Registration Date. All options outstanding
under the Predecessor Plan on the Section 12 Registration 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 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 of (i) June
8, 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 Change in Control. Upon such plan
termination, all outstanding options and unvested stock issuances shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing such grants or issuances.
VI. 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
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<PAGE> 24
to such amendment or modification. In addition, certain amendments may require
stockholder approval pursuant to applicable laws or regulations.
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.
VII. 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.
VIII. 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.
IX. 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.
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<PAGE> 25
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic
option grant program in effect under the Plan.
B. BENEFICIARY shall mean, in the event the Plan
Administrator implements a beneficiary designation procedure, the person
designated by an Optionee or Participant, pursuant to such procedure, to succeed
to such person's rights under any outstanding awards held by him or her at the
time of death. In the absence of such designation or procedure, the Beneficiary
shall be the personal representative of the estate of the Optionee or
Participant or the person or persons to whom the award is transferred by will or
the laws of descent and distribution.
C. BOARD shall mean the Corporation's Board of Directors.
D. CHANGE IN CONTROL shall mean a change in ownership or
control of the Corporation effected through any of the following transactions:
(i) a merger, consolidation or reorganization
approved by the Corporation's stockholders, unless securities
representing more than fifty percent (50%) of the total combined voting
power of the voting securities of the successor corporation are
immediately thereafter beneficially owned, directly or indirectly and in
substantially the same proportion, by the persons who beneficially owned
the Corporation's outstanding voting securities immediately prior to
such transaction,
(ii) any stockholder-approved transfer or other
disposition of all or substantially all of the Corporation's assets, or
(iii) 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 recommends such stockholders accept.
E. CODE shall mean the Internal Revenue Code of 1986, as
amended.
F. COMMON STOCK shall mean the Corporation's common stock.
G. CORPORATION shall mean Quest Software, Inc., a
California corporation, and any corporate successor to all or substantially all
of the assets or voting stock of Quest Software, Inc. which shall by appropriate
action adopt the Plan.
H. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the
director fee option grant program in effect under the Plan.
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I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under the Plan.
J. 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.
K. EXERCISE DATE shall mean the date on which the
Corporation shall have received written notice of the option exercise.
L. 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 on the Nasdaq National Market or any successor system.
If there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price
on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) For purposes of 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.
(iv) For purposes of any options made prior to the
Underwriting Date, the Fair Market Value shall be determined by the Plan
Administrator, after taking into account such factors as it deems
appropriate.
M. HOSTILE TAKE-OVER shall mean:
(i) the acquisition, directly or indirectly, by any
person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a tender
or exchange offer made directly to the Corporation's stockholders which
the Board does not recommend such stockholders to accept, or
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(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.
N. INCENTIVE OPTION shall mean an option which satisfies
the requirements of Code Section 422.
O. 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 or
Parent or Subsidiary employing the individual 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 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.
P. 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
intentional wrongdoing by such person, whether by omission or commission, which
adversely affects the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. This shall not limit the grounds for the
dismissal or discharge of any person in the Service of the Corporation (or any
Parent or Subsidiary).
Q. 1934 ACT shall mean the Securities Exchange Act of 1934,
as amended.
R. NON-STATUTORY OPTION shall mean an option not intended
to satisfy the requirements of Code Section 422.
S. OPTION SURRENDER VALUE shall mean the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation or, in the event of a Hostile Take-Over, effected through a tender
offer, the highest reported price per share of Common Stock paid by the tender
offeror in effecting such Hostile Take-Over, if greater. However, if the
surrendered option is an Incentive Option, the Option Surrender Value shall not
exceed the Fair Market Value per share.
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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.
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, Salary Investment
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. However, the Primary Committee shall have the plenary authority to
make all factual determinations and to construe and interpret any and all
ambiguities under the Plan to the extent such authority is not otherwise
expressly delegated to any other Plan Administrator.
Z. PLAN EFFECTIVE DATE shall mean June 9, 1999, the date on
which the Plan was adopted by the Board.
AA. PREDECESSOR PLAN shall mean the Corporation's
pre-existing 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 non-employee 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 with
respect to all eligible individuals.
CC. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the
salary investment grant program in effect under the Plan.
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DD. SECONDARY COMMITTEE shall mean a committee of one (1) 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.
EE. SECTION 12 REGISTRATION DATE shall mean the date on
which the Common Stock is first registered under Section 12(g) of the 1934 Act.
FF. 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.
GG. 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.
HH. STOCK EXCHANGE shall mean either the American Stock
Exchange or the New York Stock Exchange.
II. STOCK ISSUANCE PROGRAM shall mean the stock issuance
program in effect under 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. 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).
LL. UNDERWRITING AGREEMENT shall mean the agreement between
the Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
MM. 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.
NN. WITHHOLDING TAXES shall mean the Federal, state and
local income and employment withholding tax liabilities 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> 1
EXHIBIT 99.2
QUEST SOFTWARE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the
interests of Quest Software, Inc., a California 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 maximum number of shares of Common Stock
which may be issued in the aggregate under the Plan and the International Plan
shall not exceed Six Hundred Thousand (600,000) shares.
B. Should any change be made to the Common Stock by reason
of any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and class of securities
issuable under the Plan, (ii) the maximum number and class of securities
purchasable per Participant on any one Purchase Date and (iii) the number and
class of securities and the price per share in effect under each outstanding
purchase right in order to prevent the dilution or enlargement of benefits
thereunder.
IV. PURCHASE PERIODS
A. Shares of Common Stock shall be offered for purchase
under the Plan through a series of successive purchase periods until such time
as (i) the maximum number of shares of Common Stock
<PAGE> 2
available for issuance under the Plan shall have been purchased or (ii) the Plan
shall have been sooner terminated.
B. Each purchase period shall have a duration of six (6)
months. Purchase periods shall run from the first business day in February to
the last business day in July each year and from the first business day in
August to the last business day in January of the following year. However, the
first purchase period shall commence at the Effective Time and terminate on the
last business day in January 2000.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start
date of any purchase period under the Plan may enter that purchase period on
such start date.
B. To participate in the Plan for a particular purchase
period, the Eligible Employee must complete the enrollment forms prescribed by
the Plan Administrator (including a stock purchase agreement and a payroll
deduction authorization) and file such forms with the Plan Administrator (or its
designate) on or before the start date of the purchase period.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock under the Plan may be any multiple
of one percent (1%) of the Cash Earnings paid to the Participant during each
purchase period, up to a maximum of fifteen percent (15%). The deduction rate so
authorized shall continue in effect from purchase period to purchase period,
except to the extent changed by the Participant. The Participant may not
increase his or her rate of payroll deduction during a purchase period. However,
the Participant may, at any time during the purchase period, reduce his or her
rate of payroll deduction to become effective as soon as possible after filing
the appropriate form with the Plan Administrator. The Participant may not,
however, effect more than one (1) such reduction per purchase period.
B. Payroll deductions shall begin on the first pay day
following the start date of the purchase period and shall (unless sooner
terminated by the Participant) continue through the pay day ending with or
immediately prior to the last day of the purchase period. The amounts so
collected shall be credited to the Participant's book account under the Plan,
but no interest 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.
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted
a separate purchase right on the start date of each purchase period in which he
or she participates. The purchase right shall provide the Participant with the
right to purchase shares of Common Stock
2
<PAGE> 3
on the Purchase Date upon the terms set forth below. The Participant shall
execute a stock purchase agreement embodying such terms and such other
provisions (not inconsistent with the Plan) as the Plan Administrator may deem
advisable.
Under no circumstances shall purchase rights be granted under
the Plan to any Eligible Employee if such individual would, immediately after
the grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right
shall be automatically exercised on the Purchase Date, and shares of Common
Stock shall accordingly be purchased on behalf of each Participant (other than
Participants whose payroll deductions have previously been refunded pursuant to
the Termination of Purchase Right provisions below) on each such Purchase Date.
The purchase shall be effected by applying the Participant's payroll deductions
for the purchase period ending on such Purchase Date to the purchase of whole
shares of Common Stock at the purchase price in effect for that purchase period.
C. PURCHASE PRICE. The purchase price per share at which
Common Stock will be purchased on the Participant's behalf on each Purchase Date
shall be equal to eighty-five percent (85%) of the lower of (i) the Fair Market
Value per share of Common Stock on the start date of the purchase period or (ii)
the Fair Market Value per share of Common Stock on that Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of
Common Stock purchasable by a Participant on each Purchase Date shall be the
number of whole shares obtained by dividing the amount collected from the
Participant through payroll deductions during the purchase period ending with
that Purchase Date by the purchase price in effect for 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 six hundred (600)
shares.
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not
applied to the purchase of shares of Common Stock on any Purchase Date because
they are not sufficient to purchase a whole share of Common Stock shall be held
for the purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant on the
Purchase Date shall be promptly refunded.
F. TERMINATION OF PURCHASE RIGHT. The following provisions
shall govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the last
day of the purchase period, terminate his or her outstanding purchase
right by filing the appropriate form with the Plan Administrator (or its
designate), and no further payroll deductions shall be collected from
the Participant with respect to the terminated purchase right. Any
payroll deductions collected during the purchase period in which such
termination occurs shall be refunded as soon as possible.
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(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the
purchase period for which the terminated purchase right was granted. In
order to resume participation in any subsequent purchase period, such
individual must re-enroll in the Plan (by making a timely filing of the
prescribed enrollment forms) on or before the start date of the new
purchase period.
(iii) Should the Participant cease to remain an
Eligible Employee for any reason (including death, disability or change
in status) while his or her purchase right remains outstanding, then
that purchase right shall immediately terminate, and all of the
Participant's payroll deductions for the purchase period in which the
purchase right so terminates shall be 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 period
in which such leave commences, to (a) withdraw all of the payroll
deductions collected to date on his or her behalf for that purchase
period 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 shall any
further payroll deductions be collected on the Participant's behalf
during such leave. Upon the Participant's return to active service (i)
within ninety (90) days following the commencement of such leave or,
(ii) prior to the expiration of any longer period for which such
Participant's right to reemployment with the Corporation is guaranteed
by either statute or contract, his or her payroll deductions under the
Plan shall automatically resume at the rate in effect at the time the
leave began. However, should the Participant's leave of absence exceed
ninety (90) days and his or her re-employment rights not be guaranteed
by either statute or contract, then the Participant's status as an
Eligible Employee will be deemed to terminate on the ninety-first (91st)
day of that leave, and such Participant's purchase right for the
purchase period in which that leave began shall thereupon terminate. An
individual who returns to active employment following such a leave shall
be treated as a new Employee for purposes of the Plan and must, in order
to resume participation in the Plan, re-enroll in the Plan (by making a
timely filing of the prescribed enrollment forms) on or before the start
date of the new purchase period.
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 period 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 start date of the purchase 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.
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
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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 (within
the meaning of Code Section 423) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value 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 on the Purchase Date in effect
for the period on which such right is granted.
(ii) No right to acquire Common Stock under any
outstanding purchase right shall accrue to the extent the Participant
has already accrued in the same calendar year the right to acquire
Common Stock under one (1) or more other purchase rights at a rate equal
to Twenty-Five Thousand Dollars ($25,000) worth of Common Stock
(determined on the basis of the Fair Market Value per share on the date
or dates of grant) for each calendar year such rights were at any time
outstanding.
C. If by reason of such accrual limitations, any purchase
right of a Participant does not accrue for a particular purchase period, then
the payroll deductions which the
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Participant made during that purchase period with respect to such purchase right
shall be promptly refunded.
D. In the event there is any conflict between the
provisions of this Article and one or more provisions of the Plan or any
instrument issued thereunder, the provisions of this Article shall be
controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on June 9, 1999 and
shall become effective on the Effective Date, 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 purchase period hereunder shall be
refunded.
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 Corporate
Transaction. No further purchase rights shall be granted or exercised, and no
further payroll deductions shall be collected, under the Plan following such
termination.
X. AMENDMENT/TERMINATION 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 period. 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 recognition of 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 or the maximum number of shares purchasable per Participant on any one
Purchase Date, except for permissible adjustments in the event of certain
changes in the Corporation's capitalization, (ii) alter the purchase price
formula
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<PAGE> 7
so as to reduce the purchase price payable for the shares of Common Stock
purchasable under the Plan or (iii) modify eligibility requirements for
participation in the Plan.
XI. GENERAL PROVISIONS
A. 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.
B. 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.
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.
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SCHEDULE A
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
Quest Software, Inc.
<PAGE> 9
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CASH EARNINGS shall mean the (i) 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 plus (ii) all overtime payments, bonuses, profit-sharing distributions and
other incentive-type payments received during such period. Such Cash Earnings
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. However, Cash Earnings shall NOT include 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).
C. CHANGE IN CONTROL shall mean any of the following
transactions effecting a change in ownership or control of the Corporation:
(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,
(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 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.
D. CODE shall mean the Internal Revenue Code of 1986, as
amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. 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
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G. CORPORATION shall mean Quest Software, Inc., a
California corporation, and any corporate successor to all or substantially all
of the assets or voting stock of Quest Software, 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. 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. FAIR MARKET VALUE per share of Common Stock on any
relevant date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as such
price is reported by the National Association of Securities Dealers on
the Nasdaq National Market or any successor system. If there is no
closing selling price for the Common Stock on the date in question, then
the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
K. INTERNATIONAL PLAN shall mean the Corporation's
International Employee Stock Purchase Plan.
L. 1933 ACT shall mean the Securities Act of 1933, as
amended.
M. 1934 ACT shall mean the Securities Exchange Act of 1934,
as amended.
N. PARTICIPANT shall mean any Eligible Employee of a
Participating Corporation who is actively participating in the Plan.
O. 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.
A-2
<PAGE> 11
P. PLAN shall mean the Corporation's 1999 Employee Stock
Purchase Plan, as set forth in this document.
Q. PLAN ADMINISTRATOR shall mean the committee of two (2)
or more Board members appointed by the Board to administer the Plan.
R. PURCHASE DATE shall mean the last business day of each
purchase period. The initial Purchase Date shall be January 31, 2000.
S. STOCK EXCHANGE shall mean either the American Stock
Exchange or the New York Stock Exchange.
A-3
<PAGE> 1
EXHIBIT 99.3
QUEST SOFTWARE, INC.
INTERNATIONAL EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This International Employee Stock Purchase Plan is intended to
promote the interests of Quest Software, Inc., a California corporation, by
providing eligible employees with the opportunity to acquire a proprietary
interest in the Corporation through the purchase of shares of the Corporation's
Common Stock at periodic intervals.
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. Decisions of the Plan
Administrator shall be final and binding on all parties having an interest in
the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of Common
Stock purchased on the open market. The maximum number of shares of Common Stock
which may be issued in the aggregate under the Plan and the U.S. Plan shall be
limited to Six Hundred Thousand (600,000) shares.
B. Should any change be made to the Common Stock by reason
of any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and class of securities
issuable under the Plan, (ii) the maximum number and class of securities
purchasable per Participant on any one Purchase Date and (iii) the number and
class of securities and the price per share in effect under each outstanding
purchase right in order to prevent the dilution or enlargement of benefits
thereunder.
IV. PURCHASE PERIODS
A. Shares of Common Stock shall be offered for purchase
under the Plan through a series of successive purchase periods until such time
as (i) the maximum number of shares of Common Stock available for issuance under
the Plan shall have been purchased or (ii) the Plan shall have been sooner
terminated.
B. Each purchase period shall have a duration of six (6)
months. Purchase periods shall run from the first business day in February to
the last business day in July each year
<PAGE> 2
and from the first business day in August to the last business day in January of
the following year. However, the first purchase period shall commence at the
Effective Time and terminate on the last business day in January 2000.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start
date of any purchase period under the Plan may enter that purchase period on
such start date.
B. To participate in the Plan for a particular purchase
period, the Eligible Employee must complete the enrollment forms prescribed by
the Plan Administrator (including a stock purchase agreement and a payroll
deduction authorization) and file such forms with the Plan Administrator (or its
designate) on or before the start date of the purchase period.
VI. PAYROLL DEDUCTIONS
A. Except to the extent otherwise provided in the Plan (or
any addendum thereto) or authorized by the Plan Administrator, the purchase
price for the shares of Common Stock acquired under the Plan shall be paid from
accumulated payroll deductions authorized by the Participant.
B. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock under the Plan may be any multiple
of one percent (1%) of the Cash Earnings paid to the Participant during each
purchase period, up to a maximum of fifteen percent (15%). The payroll deduction
authorized by the Participant shall be collected in the currency in which paid
by the Foreign Subsidiary. The payroll deductions collected during each purchase
period shall be converted into U.S. Dollars on the Purchase Date for that
purchase period on the basis of the exchange rate in effect on that date. The
Plan Administrator shall have the absolute discretion to determine the
applicable exchange rate to be in effect for each Purchase Date by any
reasonable method that may be based on the exchange rate actually available in
the ordinary course of business on such date. Any changes or fluctuations in the
exchange rate at which the payroll deductions collected on the Participant's
behalf are converted into U.S. Dollars on each Purchase Date shall be borne
solely by the Participant.
C. The rate of payroll deduction so authorized by the
Participant shall continue in effect from purchase period to purchase period
except to the extent changed by the Participant. The Participant may not
increase his or her rate of payroll deduction during a purchase period. However,
the Participant may, at any time during the purchase period, reduce his or her
rate of payroll deduction to become effective as soon as possible after filing
the appropriate form with the Plan Administrator. The Participant may not,
however, effect more than one (1) such reduction per purchase period.
D. Payroll deductions shall begin on the first pay day
following the start date of the purchase period and shall (unless sooner
terminated by the Participant) continue through the pay day ending with or
immediately prior to the last day of the purchase period. The amounts so
collected shall be credited to the Participant's book account under the Plan,
initially in the currency in which paid by the Foreign Subsidiary until
converted into U.S. Dollars on the applicable Purchase Date. Except to the
extent otherwise provided by the Plan (including any
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<PAGE> 3
addendum thereto) or by the Plan Administrator, no interest shall be paid on the
balance from time to time outstanding in any book account and 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.
E. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.
F. The Participant's acquisition of Common Stock under the
Plan on any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date.
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted
a separate purchase right on the start date of each purchase period in which he
or she participates. The purchase right shall provide the Participant with the
right to purchase shares of Common Stock on the Purchase Date upon the terms set
forth below. The Participant shall execute such document or documents embodying
such terms and such other provisions (not inconsistent with the Plan) as the
Plan Administrator may deem advisable.
Under no circumstances shall purchase rights be granted under
the Plan to any Eligible Employee if such individual would, immediately after
the grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right
shall be automatically exercised on the Purchase Date, and shares of Common
Stock shall accordingly be purchased on behalf of each Participant (other than
Participants whose payroll deductions have previously been refunded pursuant to
the Termination of Purchase Right provisions below) on each such Purchase Date.
The purchase shall be effected by applying the Participant's payroll deductions
for the purchase period ending on such Purchase Date to the purchase of whole
shares of Common Stock at the purchase price in effect for that purchase period.
C. PURCHASE PRICE. The purchase price per share at which
Common Stock will be purchased on the Participant's behalf on each Purchase Date
shall be equal to eighty-five percent (85%) of the lower of (i) the Fair Market
Value per share of Common Stock on the start date of the purchase period or (ii)
the Fair Market Value per share of Common Stock on that Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of
Common Stock purchasable by a Participant on each Purchase Date shall be the
number of whole shares obtained by dividing the amount collected from the
Participant through payroll deductions as converted into U.S. Dollars during the
purchase period 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 six hundred (600) shares.
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<PAGE> 4
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not
applied to the purchase of shares of Common Stock on any Purchase Date because
they are not sufficient to purchase a whole share of Common Stock shall be held
for the purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant on the
Purchase Date shall be promptly refunded in the currency in which payroll (from
which such deductions were made) was paid to the Participant by the Foreign
Subsidiary.
F. TERMINATION OF PURCHASE RIGHT. The following provisions
shall govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the last
day of the purchase period, terminate his or her outstanding purchase
right by filing the appropriate form with the Plan Administrator (or its
designate), and no further payroll deductions shall be collected from
the Participant with respect to the terminated purchase right. Any
payroll deductions collected during the purchase period in which such
termination occurs shall be refunded as soon as possible.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the
purchase period for which the terminated purchase right was granted. In
order to resume participation in any subsequent purchase period, such
individual must re-enroll in the Plan (by making a timely filing of the
prescribed enrollment forms) on or before the start date of the new
purchase period.
(iii) Should the Participant cease to remain an
Eligible Employee for any reason (including death, disability or change
in status) while his or her purchase right remains outstanding, then
that purchase right shall immediately terminate, and all of the
Participant's payroll deductions for the purchase period in which the
purchase right so terminates shall be immediately refunded in the
currency in which payroll (from which deductions were made) was paid to
the Participant by the Foreign Subsidiary. 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 period in
which such leave commences, to (a) withdraw all of the payroll
deductions collected to date on his or her behalf for that purchase
period 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 shall any
further payroll deductions be collected on the Participant's behalf
during such leave. Upon the Participant's return to active service (i)
within ninety (90) days following the commencement of such leave or,
(ii) prior to the expiration of any longer period for which such
Participant's right to reemployment with the Corporation is guaranteed
by either statute or contract, his or her payroll deductions under the
Plan shall automatically resume at the rate in effect at the time the
leave began. However, should the Participant's leave of absence exceed
ninety (90) days and his or her re-employment rights not be guaranteed
by either statute or contract, then the Participant's status as an
Eligible Employee will be
4
<PAGE> 5
deemed to terminate on the ninety-first (91st) day of that leave, and
such Participant's purchase right for the purchase period in which that
leave began shall thereupon terminate. An individual who returns to
active employment following such a leave shall be treated as a new
Employee for purposes of the Plan and must, in order to resume
participation in the Plan, re-enroll in the Plan (by making a timely
filing of the prescribed enrollment forms) on or before the start date
of the new purchase period.
G. Transfer of Employment. In the event that a Participant
who is an Eligible Employee of a Foreign Subsidiary is transferred and becomes
an Eligible Employee of the Corporation during a purchase period under the Plan,
such individual shall continue to remain a Participant in the Plan and payroll
deductions shall continue to be collected until the next Purchase Date as if the
Participant had remained an Eligible Employee of the Foreign Subsidiary.
In the event that an employee of the Corporation who is a
participant in the U.S. Plan is transferred and becomes an Eligible Employee of
a Foreign Subsidiary during a purchase period in effect under the U.S. Plan,
such individual shall automatically become a Participant under the Plan for the
duration of the purchase period in effect at that time under the Plan and the
balance in such individual's book account maintained under the U.S. Plan shall
be transferred as a balance to a book account opened for such individual under
the Plan. Such balance, together with all other payroll deductions collected
from such individual by the Foreign Subsidiary for the remainder of the purchase
period under the Plan (as converted into U.S. Dollars), shall be applied on the
next Purchase Date to the purchase of Common Stock under the Plan.
H. 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 period in which such Change in Control occurs, as converted into U.S.
Dollars on the basis of the exchange rate in effect as determined by the Plan
Administrator at the time of the Corporate Transaction, 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 start date of the purchase 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.
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.
I. 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 and the U.S. 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
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the aggregate purchase price payable for the Common Stock pro-rated to such
individual, shall be refunded in the currency in which payroll (from which such
deductions were made) was paid to the Participant by the Foreign Subsidiary.
J. ASSIGNABILITY. The purchase right shall be exercisable
only by the Participant and shall not be assignable or transferable by the
Participant.
K. 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 (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 U.S. Dollars (U.S.$25,000) 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 on the Purchase Date in effect
for the period on which such right is granted.
(ii) No right to acquire Common Stock under any
outstanding purchase right shall accrue to the extent the Participant
has already accrued in the same calendar year the right to acquire
Common Stock under one (1) or more other purchase rights at a rate equal
to Twenty-Five Thousand U.S. Dollars (U.S.$25,000) worth of Common Stock
(determined on the basis of the Fair Market Value per share on the date
or dates of grant) for each calendar year such rights were at any time
outstanding.
C. If by reason of such accrual limitations, any purchase
right of a Participant does not accrue for a particular purchase period, then
the payroll deductions which the Participant made during that purchase period
with respect to such purchase right shall be promptly refunded in the currency
in which payroll (from which such deductions were made) was paid to the
Participant by the Foreign Subsidiary.
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.
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<PAGE> 7
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on June 9, 1999 and
shall become effective on the Effective Date, 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 purchase period hereunder shall be
refunded.
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 and the U.S. Plan
shall have been sold pursuant to purchase rights exercised under the Plan and
the U.S. Plan or (iii) the date on which all purchase rights are exercised in
connection with a Corporate Transaction. No further purchase rights shall be
granted or exercised, and no further payroll deductions shall be collected,
under the Plan following such termination.
X. AMENDMENT/TERMINATION 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 period. 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 recognition of 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 or the maximum number of shares purchasable per Participant on any one
Purchase Date, except for permissible adjustments in the event of certain
changes in the Corporation's capitalization, (ii) alter the purchase price
formula so as to reduce the purchase price payable for the shares of Common
Stock purchasable under the Plan or (iii) modify eligibility requirements for
participation in the Plan.
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<PAGE> 8
XI. GENERAL PROVISIONS
A. 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.
B. 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.
C. Except to the extent otherwise provided in any addendum
to the Plan, 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
D. A Foreign Subsidiary or the Plan Administrator, as the
case may be, shall have the right to deduct from any payment to be made under
this Plan, or to otherwise require, prior to the issuance or delivery of any
shares of Common Stock or the payment of any cash, payment by each Participant
of any tax required by applicable law to be withheld.
E. Additional provisions for individual Foreign
Subsidiaries may be incorporated in one or more Addenda to the Plan. Such
Addenda shall have full force and effect with respect to the Foreign
Subsidiaries to which they apply. In the event of a conflict between the
provisions of such an Addendum and one or more other provisions of the Plan, the
provisions of the Addendum shall be controlling.
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<PAGE> 9
SCHEDULE A
CORPORATIONS PARTICIPATING IN
1999 INTERNATIONAL EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
Common Sense Computing Ltd.
Quest Software GmbH
Quest Software Pty Ltd.
Quest Software Company Ltd.
Quest Software Israel Ltd.
Quest Software Foreign Sales Corporation
Quest Software International Ltd.
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CASH EARNINGS shall mean the (i) 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 plus (ii) all overtime payments, bonuses, profit-sharing distributions and
other incentive-type payments received during such period. Such Cash Earnings
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. However, Cash Earnings shall NOT include 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).
C. CHANGE IN CONTROL shall mean any of the following
transactions effecting a change in ownership or control of the Corporation:
(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,
(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
<PAGE> 10
(iii) 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.
D. CODE shall mean the Internal Revenue Code of 1986, as
amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. 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.
G. CORPORATION shall mean Quest Software, Inc., a
California corporation, and any corporate successor to all or substantially all
of the assets or voting stock of Quest Software, 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. Any Foreign Subsidiary 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 Foreign Subsidiary 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. FAIR MARKET VALUE per share of Common Stock on any
relevant date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as such
price is reported by the National Association of Securities Dealers on
the Nasdaq National Market or any successor system. If there is no
closing selling price for the Common Stock on the date in question, then
the Fair Market Value shall be the U.S. Dollar 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 U.S. Dollar
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 U.S. Dollar closing selling price on
the
<PAGE> 11
last preceding date for which such quotation exists.
K. FOREIGN SUBSIDIARY shall mean any non-U.S. 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 Foreign
Subsidiaries in the Plan as of the Effective Date are listed in attached
Schedule A
L. 1933 ACT shall mean the Securities Act of 1933, as
amended.
M. 1934 ACT shall mean the Securities Exchange Act of 1934,
as amended.
N. PARTICIPANT shall mean any Eligible Employee of a
Participating Corporation who is actively participating in the Plan.
O. PLAN shall mean the Corporation's 1999 International
Employee Stock Purchase Plan, as set forth in this document.
P. PLAN ADMINISTRATOR shall mean the committee of two (2)
or more Board members appointed by the Board to administer the Plan.
Q. PURCHASE DATE shall mean the last business day of each
purchase period. The initial Purchase Date shall be January 31, 2000.
R. STOCK EXCHANGE shall mean either the American Stock
Exchange or the New York Stock Exchange.
S. U.S. PLAN shall mean the Corporation's 1999 Employee
Stock Purchase Plan.
<PAGE> 12
QUEST SOFTWARE, INC.
ADDENDUM FOR AUSTRALIAN PARTICIPANTS
The following provisions shall apply with respect to
Participants (the "Australian Participants") who perform services for
________________________.
1. The Corporation or Foreign Subsidiary employing one or
more Australian Participants shall establish a bank account (a "Contributions
Account") in Australia for such Participants. The account shall be maintained
solely for the purpose of depositing payroll deductions authorized by such
Participants under the Plan. Accordingly, all payroll deductions for each
Australian Participant shall be immediately deposited in the Contributions
Account and held in trust for that participant.
2. The provisions of the Plan with respect to Australian
Participants shall be governed by the laws of _________________ without resort
to that State's conflict of laws rules.
