<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 1999
REGISTRATION NO. 333-80543
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
QUEST SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
CALIFORNIA 7372 33-0231678
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
610 NEWPORT CENTER DRIVE
NEWPORT BEACH, CA 92660
(949) 720-1434
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MR. VINCENT C. SMITH
CHIEF EXECUTIVE OFFICER
QUEST SOFTWARE, INC.
610 NEWPORT CENTER DRIVE
NEWPORT BEACH, CA 92660
(949) 720-1434
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
GREG T. WILLIAMS, ESQ. ALAN K. AUSTIN, ESQ.
CHRISTINE P. LE, ESQ. BRIAN C. ERB, ESQ.
PATTY H. LE, ESQ. BRIAN MCDANIEL, ESQ.
BROBECK, PHLEGER & HARRISON LLP WILSON SONSINI GOODRICH & ROSATI
38 TECHNOLOGY DRIVE PROFESSIONAL CORPORATION
IRVINE, CALIFORNIA 92618 650 PAGE MILL ROAD
(949) 790-6300 PALO ALTO, CALIFORNIA 94304
(650) 493-9300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------
If the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fees.
<TABLE>
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SEC Registration Fee........................................ $ 16,680
NASD Filing Fee............................................. 6,500
Nasdaq National Market Listing Fee.......................... *
Printing and Engraving Expenses............................. *
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Blue Sky Fees and Expenses.................................. *
Transfer Agent Fees......................................... *
Miscellaneous............................................... *
--------
Total............................................. $ *
========
</TABLE>
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* To be filed by amendment
ITEM 14. 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 (the "California Law").
Under the California Law, a director's liability to a company or its
shareholders may not be limited (1) for acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law, (2) for acts
or omissions that a director believes to be contrary to the best interest of the
Registrant or its shareholders or that involve the absence of good faith on the
part of the director, (3) for any transaction from which a director derived an
improper personal benefit, (4) for acts or omissions that show a reckless
disregard for the director's duty to the Registrant or its shareholders in
circumstances in which the director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of a serious injury
to the Registrant or its shareholders, (5) for acts or omissions that constitute
an unexcused pattern of inattention that amounts to an abdication of the
director's duty to the Registrant or its shareholders, (6) under Section 310 of
the California Law concerning contacts or transactions between the Registrant
and a director, or (7) under Section 316 of the California 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 the Registrant to indemnify its "agents" (as defined in Section 317 of the
California Law), through bylaw provisions, by agreement or otherwise, to the
fullest extent permitted by law. Pursuant to this provision, the Registrant's
Bylaws provide for indemnification of the Registrant's directors, officers and
employees. In addition, the Registrant, at its discretion, may provide
indemnification to persons whom the Registrant is not obligated to indemnify.
The Bylaws also allow the Registrant to enter into indemnity agreements with
individual directors, officers, employees and other agents. These indemnity
agreements have been entered into with all directors and executive officers and
provide the maximum indemnification permitted by law. These agreements, together
with the Registrant's Bylaws and Articles of Incorporation, may require the
Registrant, among other things, to indemnify these directors or executive
officers (other than for liability resulting from willful misconduct of a
culpable nature), to advance expenses to them as they are incurred,
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<PAGE> 3
provided that they undertake to repay the amount advanced if it is ultimately
determined by a court that they are not entitled to indemnification, and to
obtain directors' and officers' insurance if available on reasonable terms.
Section 317 of the California Law and the Registrant's Bylaws 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 expense incurred) arising under the
Securities Act. The Registrant currently maintains directors' and officers'
liability insurance.
There is no pending litigation or proceeding involving any director,
officer, employee or agent of the Registrant in which indemnification will be
required or permitted. Moreover, the Registrant is not aware of any threatened
litigation or proceeding that might result in a claim for such indemnification.
The Registrant believes that the foregoing indemnification provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers. The Underwriting Agreement (the form of which is filed
as Exhibit 1.1 hereto) provides for indemnification by the Underwriters of the
Registrant and its officers and directors, and by the Registrant of the
Underwriters, for certain liabilities arising under the Securities Act or
otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Registrant has issued unregistered
securities to a limited number of persons as described below:
1. In March 1996, the Registrant issued 1,950,000 shares of common stock
to Eyal M. Aronoff in connection with the Registrant's purchase of
R*Tech Systems, Inc.
2. In May 1997, the Registrant issued 663,000 shares of common stock to
the former shareholders of Common Sense Computing Pty. Ltd. in
connection with the Registrant's acquisition of Common Sense Computing.
3. In October 1997, the Registrant sold to Vincent C. Smith, the
Registrant's Chief Executive Officer, 3,900,000 shares of common stock
for aggregate consideration of $2,200,000. Mr. Smith executed a
promissory note for the purchase price. This note has a term of five
years and bears interest at 6.2%. This note is also secured, in part,
by the 3,900,000 shares of common stock purchased from the Registrant.
4. In April 1998, the Registrant sold an aggregate of 975,000 shares of
common stock for an aggregate purchase price of $750,000, for which Mr.
Aronoff executed a promissory note and agreed to cancel an option to
purchase up to 2.5% of the outstanding capital stock of the Registrant.
The note has a term of four years, bears interest at the rate of 5.7%
per annum, and up to 25% of the original principal amount of the note
may be prepaid in each year of the four-year term.
5. In April 1999, the Registrant sold an aggregate of 888,889 shares of
its Series A Preferred Stock at a price of $5.625 per share to InSight
Capital Partners II, L.P. and InSight Capital Partners (Cayman) II,
L.P. Each share of Series A Preferred Stock will convert into one and
one-half shares of common stock upon the closing of this offering.
6. In April 1999, the Registrant sold an aggregate of 800,000 shares of
its Series A Preferred Stock at a price of $5.625 per share to WI
Software Investors LLC. Each share of Series A Preferred Stock will
convert into one and one-half shares of common stock upon the closing
of this offering.
7. In April 1999, the Registrant sold an aggregate of 977,778 shares of
its Series A Preferred Stock and 1,777,778 shares of its Series B
Redeemable Preferred Stock, each at a price of $5.625 per share, to UBS
Capital LLC. Each share of Series A Preferred Stock will convert into
one and one-half shares of common stock and each share of Series B
Preferred Stock will be redeemed upon the closing of this offering.
II-2
<PAGE> 4
8. Since June, 1998, the Registrant has granted stock options to purchase
common stock under individual stock option agreements and the 1998
Stock Option/Stock Issuance Plan to eligible officers, directors,
consultants and employees of the Registrant as described in the
prospectus.
None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and the Registrant believes
that each transaction was exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof, Regulation D promulgated
thereunder or Rule 701 pursuant to compensatory benefit plans and contracts
relating to compensation as provided under such Rule 701. The recipients in such
transaction represented their intention to acquire the securities for investment
only and not with a view to or for sale in connection with any distribution
thereof, and appropriate legends were affixed to the share certificates and
instruments issued in such transactions. All recipients had adequate access,
through their relationships with the Registrant, to information about the
Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
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<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation, as amended.
3.2 Second Amended and Restated Articles of Incorporation, to be
filed with the California Secretary of State upon
consummation of this offering.
3.3 Amended and Restated Bylaws.
3.4 Second Amended and Restated Bylaws.
4.1* Form of Registrant's Specimen Common Stock Certificate.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Registrant's 1998 Stock Option/Stock Issuance Plan.
10.2 Registrant's 1999 Stock Incentive Plan.
10.3 Registrant's 1999 Employee Stock Purchase Plan.
10.4** Form of Directors' and Officers' Indemnification Agreement.
10.5** Securities Purchase Agreement, dated as of April 21, 1999,
by and among Quest Software, Inc. and InSight Capital
Partners II, L.P., InSight Capital Partners (Cayman) II,
L.P., UBS Capital LLC, and WI Software Investors LLC.
10.6** Investors' Rights Agreement dated as of April 21, 1999 among
Quest Software, Inc. and InSight Capital Partners II, L.P.,
InSight Capital Partners (Cayman) II, L.P., UBS Capital LLC,
and WI Software Investors LLC.
10.7+ Agreement, dated February 19, 1999, between Quest Software,
Inc. and INSO Chicago Corporation, dba INSO Corporation.
10.8+ OEM Agreement, dated March 3, 1998, by and between Quest
Software, Inc. and Artifex Software Inc.
21.1** Subsidiaries of the Registrant.
23.1** Consent of Deloitte & Touche LLP.
23.2* Consent of Brobeck, Phleger & Harrison LLP (Included in
Exhibit 5.1 hereto).
24.1** Power of Attorney (Included on signature pages hereto).
27.1** Financial Data Schedule (In EDGAR format only).
</TABLE>
II-3
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- -------------------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment is being sought with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
(B) FINANCIAL STATEMENT SCHEDULE
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNT
<TABLE>
<CAPTION>
BALANCE AT CHARGES, BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts and sales
returns......................................... $129 $ 417 $ -- $ 546
Year ended December 31, 1997:
Allowance for doubtful accounts and sales
returns......................................... $546 $ 584 $(347) $ 783
Year ended December 31, 1998:
Allowance for doubtful accounts and sales
returns......................................... $783 $1,116 $(847) $1,052
</TABLE>
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the California General Corporation Law, the Amended and
Restated Articles of Incorporation or the Amended and Restated Bylaws of the
Registrant, Indemnification Agreements entered into between the Registrant and
its officers and directors, the Underwriting Agreement, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities 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 of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective;
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus 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.
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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
the requirements for filing on Form S-1 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 29th day
of June, 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 each person whose signature
appears below constitutes and appoints, jointly and severally, Vincent C. Smith,
David M. Doyle and John J. Laskey, and each one of them, his true and lawful
attorneys-in-fact and agents, each with full power of substitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, as amended, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming that each of said attorneys-in-fact and agents or any of them, or his
or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
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 by the persons whose signatures
appear below, which persons have signed such Registration Statement in the
capacities and on the dates indicated:
<TABLE>
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SIGNATURE TITLE DATE
- --------- ----- ----
<C> <S> <C>
* Chief Executive Officer (principal June 29, 1999
- --------------------------------------------------- executive officer) and Chairman
Vincent C. Smith of the Board
/s/ DAVID M. DOYLE President, Secretary and Director June 29, 1999
- ---------------------------------------------------
David M. Doyle
* Chief Financial Officer (principal June 29, 1999
- --------------------------------------------------- financial and accounting officer)
John J. Laskey and Vice President, Finance
* Director June 29, 1999
- ---------------------------------------------------
Doran G. Machin
</TABLE>
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<TABLE>
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SIGNATURE TITLE DATE
- --------- ----- ----
<C> <S> <C>
* Director June 29, 1999
- ---------------------------------------------------
Jerry Murdock, Jr.
* Director June 29, 1999
- ---------------------------------------------------
Raymond J. Lane
</TABLE>
*By: /s/ DAVID M. DOYLE
---------------------------------
David M. Doyle
(Attorney-in-fact)
<PAGE> 8
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
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<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation, as amended.
3.2 Second Amended and Restated Articles of Incorporation, to be
filed with the California Secretary of State upon
consummation of this offering.
3.3 Amended and Restated Bylaws.
3.4 Second Amended and Restated Bylaws.
4.1* Form of Registrant's Specimen Common Stock Certificate.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Registrant's 1998 Stock Option/Stock Issuance Plan.
10.2 Registrant's 1999 Stock Incentive Plan.
10.3 Registrant's 1999 Employee Stock Purchase Plan.
10.4** Form of Directors' and Officers' Indemnification Agreement.
10.5** Securities Purchase Agreement, dated as of April 21, 1999,
by and among Quest Software, Inc. and InSight Capital
Partners II, L.P., InSight Capital Partners (Cayman) II,
L.P., UBS Capital LLC, and WI Software Investors LLC.
10.6** Investors' Rights Agreement dated as of April 21, 1999 among
Quest Software, Inc. and InSight Capital Partners II, L.P.,
InSight Capital Partners (Cayman) II, L.P., UBS Capital LLC,
and WI Software Investors LLC.
10.7+ Agreement, dated February 19, 1999, between Quest Software,
Inc. and INSO Chicago Corporation, dba INSO Corporation.
10.8+ OEM Agreement, dated March 3, 1998, by and between Quest
Software, Inc. and Artifex Software Inc.
21.1** Subsidiaries of the Registrant.
23.1** Consent of Deloitte & Touche LLP.
23.2* Consent of Brobeck, Phleger & Harrison LLP (Included in
Exhibit 5.1 hereto).
24.1** Power of Attorney (Included on signature pages hereto).
27.1** Financial Data Schedule (In EDGAR format only).
</TABLE>
- -------------------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment is being sought with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
QUEST SOFTWARE, INC.
David Doyle and John Laskey hereby certify that:
ONE: They are the duly elected and acting President and Chief
Financial Officer, respectively, of Quest Software, Inc., a California
corporation (the "Corporation").
TWO: The Articles of Incorporation of the Corporation are hereby
amended and restated to read in their entirety as follows:
I.
The name of the Corporation is Quest Software, Inc.
II.
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
III.
A. Classes of Stock. This Corporation is authorized to issue two
classes of shares to be designated respectively Preferred Stock ("Preferred
Stock") and Common Stock ("Common Stock"). The total number of shares of capital
stock that the Corporation is authorized to issue is Fifty-Six Million Three
Hundred Thousand (56,300,000). The total number of shares of Preferred Stock
this Corporation shall have authority to issue is Six Million Three Hundred
Thousand (6,300,000). The total number of shares of Common Stock this
Corporation shall have authority to issue is Fifty Million (50,000,000). The
Preferred Stock shall have no par value and the Common Stock shall have no par
value.
B. Rights, Preferences and Restrictions of Series A Preferred
Stock. Four Million Five Hundred Thousand (4,500,000) shares of the Preferred
Stock authorized by these Amended and Restated Articles of Incorporation shall
be designated as "Series A Preferred Stock." The rights, preferences,
privileges, and restrictions granted to and imposed on the Series A Preferred
Stock are as follows:
1. Dividends. The holders of shares of Series A Preferred
Stock will be entitled to receive, if, when and as declared by the Board of
Directors, out of any funds legally available therefor, subject to the rights of
the holders of the Series B Redeemable Preferred Stock of the Corporation to
receive the Series B Dividends (as defined below), cumulative dividends at the
rate of 8% of the Series A Base Liquidation Preference Amount (as defined below)
per share per annum (appropriately adjusted for stock splits and combinations)
for each share of Series A
<PAGE> 2
Preferred Stock then held by them commencing on the date the Series A Preferred
Stock is first issued (the "Series A Preferred Stock Issue Date"). All dividends
shall be cumulative without interest (except as provided in Section B.3(C)),
whether or not earned or declared, on a daily basis from the Series A Preferred
Stock Issue Date, and shall be payable semi-annually in arrears on June 30 and
December 31 (each a "Dividend Payment Date") of each year, commencing on the
first Dividend Payment Date after the Series A Preferred Stock Issue Date. Each
dividend on the Series A Preferred Stock, if declared, shall be payable to the
holders of record as they appear on the stock register of the Corporation on
such record date as may be fixed by the Board of Directors, which record date
shall not be less than ten (10) nor more than sixty (60) days prior to the
applicable Dividend Payment Date.
2. Liquidation Preference.
(a) Without limiting the rights of holders to redeem
or convert the Series A Preferred Stock under Sections 3 and 4 hereof, and in
the time periods specified therein, in the event of any liquidation, dissolution
or winding up of the Corporation, either voluntary or involuntary (a
"Liquidation Event"), the holders of Series A Preferred Stock shall be entitled
to receive, subject to the rights of the holders of the Series B Redeemable
Preferred Stock of the Corporation to receive the Series B Liquidation
Preference Amount (as defined below) but prior and in preference to any
distribution of any of the assets of the Corporation to the holders of Common
Stock or any other stock ranking on liquidation, dissolution or winding up of
the Corporation junior to the Series A Preferred Stock, an amount per share
equal to the sum of (i) $5.625 per share of Series A Preferred Stock (subject to
adjustment for stock splits, combinations, stock dividends or recapitalizations)
(the "Series A Base Liquidation Preference Amount"), and (ii) accrued but unpaid
dividends with respect to such shares plus an amount equal to a prorated
dividend from the last Dividend Payment Date to the date fixed for liquidation,
dissolution or winding up (the sum of the foregoing being referred to herein as
the "Series A Liquidation Preference Amount"). If upon the occurrence of such
event and after payment of the Series B Liquidation Preference Amount to the
holders of the Series B Redeemable Preferred Stock of the Corporation the assets
and funds to be distributed among the holders of the Series A Preferred Stock
shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amount, then the entire assets and funds of the
Corporation legally available for distribution after payment of the Series B
Liquidation Preference Amount shall be distributed ratably among the holders of
the Series A Preferred Stock in proportion to the aggregate full aforesaid
preferential amounts to which such holder would otherwise been entitled to
receive.
(b) After the distributions described in subsection
(a) above have been paid, the remaining assets of the Corporation available for
distribution to shareholders shall be distributed among the holders of Common
Stock pro rata based on the number of shares of Common Stock held by each.
(c) For purposes of this Section B.2, a
"liquidation, dissolution or winding up" of the Corporation shall be deemed to
be occasioned by, or to include, (A) the acquisition of the Corporation by
another entity by means of any transaction or series of related transactions
(including, without limitation, any reorganization, merger or consolidation, but
excluding any merger effected exclusively for the purpose of changing the
domicile of the
2
<PAGE> 3
Corporation), unless the Corporation's shareholders of record as constituted
immediately prior to such acquisition or sale will, immediately after such
acquisition, hold at least 50% of the voting power of the surviving or acquiring
entity; or (B) a sale of all or substantially all of the assets of the
Corporation.
(d) In any Liquidation Event, if the consideration
distributed on account of such Liquidation Event is other than cash, its value
will be deemed its fair market value, which shall be valued as follows:
(i) Securities not subject to investment
letter or other similar restrictions on free marketability covered by (ii)
below:
(A) If traded on a national
securities exchange, the value shall be deemed to be the average of the closing
prices of the securities on such exchange over the ten (10) day period ending
three (3) days prior to the closing;
(B) If traded over-the Nasdaq
National Market System, the value shall be deemed to be the average of the
closing bid or sale prices (whichever is applicable) over the ten (10) day
period ending three (3) days prior to the closing; and
(C) If there is no trading of such
consideration in accordance with the preceding paragraphs (A) and (B), the value
shall be the fair market value thereof, as mutually determined in good faith by
the Board of Directors of the Corporation and the holders of at least a majority
in interest of the Series A Preferred Stock.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (i) (A), (B) or (C) to reflect the approximate fair
market value thereof, as mutually determined in good faith by the Board of
Directors of the Corporation and the holders of at least a majority in interest
of the Series A Preferred Stock.
(e) The Corporation shall give each holder of record of
Series A Preferred Stock written notice of any impending transaction which may
result in a Liquidation Event not later than fifteen (15) days prior to the
shareholders' meeting called to approve such transaction, or fifteen (15) days
prior to the closing of such transaction, whichever is earlier; provided,
however, that such periods may be shortened or waived upon the written consent
of a majority in interest of the holders of Series A Preferred Stock that are
entitled to such notice rights or similar notice rights.
3. Redemption.
(a) Redemption Events.
(i) The holder or holders of not less than a
majority in voting power of the outstanding Series A Preferred Stock may require
the Corporation to redeem for cash the outstanding Series A Preferred Stock in
two equal installments, with the first such installment for fifty percent (50%)
of the then-outstanding shares of Series A
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Preferred Stock being due and payable on April 30, 2006 in an amount equal to
the then applicable Series A Liquidation Amount and the second such installment
for fifty percent (50%) of the then-outstanding shares of Series A Preferred
Stock being due and payable on April 30, 2007 in an amount equal to the then
applicable Series A Liquidation Amount.
(ii) An election pursuant to subparagraph (i) of this
Section B.3(a) shall be made by such holders of not less than a majority in
interest of the Series A Preferred Stock giving the Corporation and each other
holder of Series A Preferred Stock not less than ninety (90) days written notice
prior to April 30, 2006.
(b) Redemption Date; Redemption Price. Upon the election of
the holders of at least a majority of the voting power of the outstanding Series
A Preferred Stock to cause the Corporation to redeem the Series A Preferred
Stock pursuant to Section B.3(a)(i), all holders of Series A Preferred Stock
shall be deemed to have elected to cause all of the Series A Preferred Stock to
be so redeemed. Any date upon which a redemption shall occur in accordance with
Section B.3(a) shall be referred to as "Series A Preferred Redemption Date." The
redemption price for each share of Series A Preferred Stock redeemed pursuant to
Section B.3 shall be an amount in cash equal to the Series A Liquidation
Preference Amount applicable as of the date of such redemption (the "Series A
Preferred Redemption Price"). Subject to the rights of the holders of the
Redeemable Preferred Stock, the aggregate Series A Preferred Redemption Price
shall be payable in cash in immediately available funds to the respective
holders of the Series A Preferred Stock on the Series A Preferred Redemption
Date, subject to Section B.3(c). Notwithstanding the election to cause the
Corporation to redeem the Series A Preferred Stock as provided above, until the
full Series A Preferred Redemption Price has been paid to the holders of the
Series A Preferred Stock, the holders of at least a majority of the voting power
of the then outstanding Series A Preferred Stock may rescind such election by
providing written notice thereof to the Corporation. Until the aggregate Series
A Preferred Redemption Price has been paid in cash for all shares of Series A
Preferred Stock redeemed as of the applicable Series A Preferred Redemption
Date, (A) no dividend whatsoever shall be paid or declared, and no distribution
shall be made, on any capital stock of the Corporation (other than the Series A
Preferred Stock and the Redeemable Preferred Stock); and (B) no shares of
capital stock of the Corporation (other than the Series A Preferred Stock in
accordance with this Section B.3 and the Redeemable Preferred Stock in
accordance with Section C.4) shall be purchased, redeemed or acquired by the
Corporation and no monies shall be paid into or set aside or made available for
a sinking fund for the purchase, redemption or acquisition thereof.
(c) Redemption Prohibited. If, at a Series A Preferred
Redemption Date, the Corporation is prohibited under the Corporations Code of
the State of California from redeeming all shares of Series A Preferred Stock
for which redemption is required hereunder, then it shall redeem such shares on
a pro-rata basis among the holders of Series A Preferred Stock in proportion to
the full respective redemption amounts to which they are entitled hereunder to
the extent possible and shall redeem the remaining shares to be redeemed, in
whole or in part as permitted under this sentence, as soon as the Corporation is
not prohibited from redeeming some or all of such shares under the Corporations
Code of the State of California. The shares of Series A Preferred Stock not
redeemed shall remain outstanding and entitled to all of the rights and
preferences provided in these Articles. In the event that the Corporation fails
to redeem, for any reason, shares for which redemption is required pursuant to
this Section B.3,
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then during the period from the applicable Series A Preferred Redemption Date
through the date on which such shares are redeemed, the applicable Series A
Preferred Redemption Price of such shares shall continue to accumulate and grow
through accrual of dividends pursuant to Section B.3(d) and shall bear interest
at the per annum rate of four percent (4%), compounded annually; provided,
however, that in no event shall such interest exceed the maximum permitted rate
of interest under applicable law (the "Maximum Permitted Rate"). In the event
that fulfillment of any provision hereof results in such rate of interest being
in excess of the Maximum Permitted Rate, the obligation to be fulfilled shall
automatically be reduced to the extent required to eliminate such excess.
(d) Dividend After Convertible Preferred Redemption Date.
From and after a Series A Preferred Redemption Date, no shares of Series A
Preferred Stock subject to redemption shall be entitled to dividends, if any, as
contemplated by Section B.1; provided, however, that in the event that shares of
Series A Preferred Stock are unable to be redeemed and continue to be
outstanding in accordance with Section B.3(c) or the Corporation shall fail to
redeem such shares for any reason, such shares shall continue to accrue and be
entitled to dividends until the date on which such shares are actually redeemed
by the Corporation.
(e) Surrender of Certificates. The Corporation shall give,
not less than 20 days prior to the Series A Preferred Redemption Date, written
notice (the "Redemption Notice") to all holders of the Series A Preferred Stock,
which shall require each holder submitting shares for redemption to surrender to
the Corporation on or before the Series A Preferred Redemption Date, at the
place designated in the Redemption Notice, such holder's certificate or
certificates representing the shares of Series A Preferred Stock to be redeemed.
On or prior to the Redemption Date, each holder of shares of Series A Preferred
Stock submitted for redemption shall surrender the certificate or certificates
evidencing such shares to the Corporation, at the place designated in the
Redemption Notice, and shall thereupon be entitled to receive payment of the
Series A Preferred Redemption Price by wire transfer of immediately available
funds. In the event the certificate or certificates are lost, stolen or missing,
the holder of Series A Preferred Stock shall deliver an affidavit or agreement
reasonably satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection therewith (an "Affidavit of Loss") with
respect to such certificates at the place set forth in the Redemption Notice.
Each surrendered certificate shall be cancelled and retired; provided, however,
that the holder shall not be required to surrender said certificate(s) to the
Corporation until said holder has received a new stock certificate for any
shares of Series A Preferred Stock not so redeemed.
4. Conversion. The holders of the Series A Preferred Stock shall have
conversion rights as follows:
(a) Right to Convert. Each share of Series A Preferred Stock
shall be convertible, at the option of the holder thereof, without payment of
any additional consideration, at any time after the date of issuance of such
share, at the office of the Corporation or any transfer agent for such stock,
into Common Stock. The number of shares of Common Stock into which a holder of
Series A Preferred Stock shall be entitled upon conversion shall be determined
by dividing $5.625 per share (as adjusted for any stock dividends, combinations
or splits with respect to such shares) (the "Series A Issue Price") by the
Series A Conversion Price per share in effect at the time that the certificate
is surrendered for conversion. The Series A Conversion
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Price per share shall initially be the Series A Issue Price, subject to
adjustment as hereinafter provided (the "Series A Conversion Price").
(b) Automatic Conversion Upon QPO. Each share of Convertible
Preferred Stock shall automatically be converted, without the payment of any
additional consideration, into shares of Common Stock as of, and in all cases
subject to, the closing of the Corporation's first QPO (as defined below in this
Section B.4(b)); provided, that if a closing of a QPO occurs, all outstanding
shares of Series A Preferred Stock shall be deemed to have been converted into
shares of Common Stock as provided herein immediately prior to such closing. Any
such conversion shall be at the Series A Conversion Price in effect upon the
closing of the QPO. "QPO" and "Qualified Public Offering" mean a firm commitment
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, provided, that such registration statement
covers the offer and sale of Common Stock of which the aggregate net proceeds
after deducting underwriting discounts and commissions attributable to sales for
the account of the Corporation exceed $25,000,000 at a per share price to public
(as set forth in the final prospectus in connection with such public offering)
equal to at least $8 (subject to adjustment for stock splits, combinations,
stock dividends or recapitalizations).
(c) Mechanics of Conversion. Before any holder of Series A
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for the
Series A Preferred Stock and shall also give written notice to the Corporation
at its principal corporate office, of the election to convert the same and shall
state therein the name or names in which the certificate or certificates for
shares of Common Stock are to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series A Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the shares of Series A Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date. If the conversion is in
connection with an underwritten offering of securities registered pursuant to
the Securities Act of 1933, as amended, the conversion may, at the option of any
holder tendering Series A Preferred Stock for conversion, be conditioned upon
the closing with the underwriters of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive the Common Stock upon
conversion of the Series A Preferred Stock shall not be deemed to have converted
such Series A Preferred Stock until immediately prior to the closing of such
sale of securities.
(d) Conversion Price Adjustments of Series A Preferred Stock
for Certain Issuances, Splits and Combinations. Upon the issuance of additional
shares of Common Stock as a dividend or other distribution on outstanding Common
Stock, the subdivision of outstanding shares of Common Stock into a greater
number of shares of Common Stock, or the combination of outstanding shares of
Common Stock into a smaller number of shares of Common Stock, the Series A
Conversion Price shall, simultaneously with the happening of such dividend,
subdivision, split or combination, be adjusted by multiplying the then effective
Series A Conversion Price by a fraction, the numerator of which shall be the
number of shares of
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Common Stock outstanding immediately prior to such event and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after such event. In the event that the Corporation shall declare or pay,
without consideration, any dividend on the Common Stock payable in any right to
acquire Common Stock for no consideration, then the Corporation shall be deemed
to have made a dividend payable in Common Stock in an amount of shares equal to
the maximum number of shares issuable upon exercise of such rights to acquire
Common Stock. An adjustment made pursuant to this Section B.4(d) shall be given
effect upon payment of such a dividend or distribution, as of the record date
for the determination of shareholders entitled to receive such dividend or
distribution (on a retroactive basis) and in the case of a subdivision or
combination shall become effective immediately as of the effective date hereof.
(e) Other Adjustments. In the event the Corporation shall
make or issue, or fix a record date for the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in
securities, evidences of indebtedness or other property of the Corporation other
than shares of Common Stock, then and in each such event lawful and adequate
provision shall be made so that the holders of Series A Preferred Stock shall
receive upon conversion thereof in addition to the number of shares of Common
Stock receivable thereupon, the number of securities of the Corporation which
they would have received had their Series A Preferred Stock been converted into
Common Stock on the date of such event and had they thereafter, during the
period from the date of such event to and including the date of conversion,
retained such securities receivable by them as aforesaid during such period.
If the Common Stock issuable upon the conversion of the Series A
Preferred Stock shall be changed into the same or different number of shares of
any class or classes of stock, whether by reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
above, or a reorganization, merger, consolidation or sale of assets provided for
elsewhere in this Section B.4), then and in each such event the holder of each
share of Series A Preferred Stock shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification or other change,
by holders of the number of shares of Common Stock into which such shares of
Series A Preferred Stock might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided herein.
(f) Mergers and Other Reorganizations. If at any time or
from time to time there shall be a capital reorganization of the Common Stock
(other than a subdivision, combination, reclassification or exchange of shares
provided for elsewhere in this Section B.4) or a merger or consolidation of the
Corporation with or into another corporation or the sale of all or substantially
all of the Corporation's properties and assets to any other person, then, as a
part of and as a condition to the reorganization, merger, consolidation or sale,
lawful and adequate provision shall be made so that the holders of the Series A
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series A Preferred Stock the number of shares of stock or other securities or
property of the Corporation or of the successor corporation resulting from such
merger or consolidation or sale, to which a holder of Common Stock deliverable
upon conversion would have been entitled on such capital reorganization, merger,
consolidation, or sale. In any such case, appropriate provisions shall be made
with respect to the rights of the holders of the Series A Preferred Stock after
the reorganization, merger, consolidation or sale to
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the end that the provisions of this Section B.4 (including without limitation
provisions for adjustment of the Series A Conversion Price and the number of
shares purchasable upon conversion of the Series A Preferred Stock) shall
thereafter be applicable, as nearly as may be, with respect to any shares of
stock, securities or assets to be deliverable thereafter upon the conversion of
the Series A Preferred Stock.
(g) No Impairment. The Corporation will not, by amendment of
its Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the conversion rights of the
holders of the Series A Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Series A Preferred Stock, and the
number of shares of Common Stock to be issued shall be rounded up to the nearest
whole share.
(ii) Upon the occurrence of each adjustment or
readjustment of the Series A Conversion Price pursuant to this Section B.4, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Series A Conversion Price at the time in effect, and (C)
the number of shares of Common Stock and the amount, if any, of other property
which at the time would be received upon the conversion of a share of Series A
Preferred Stock.
(i) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock (including shares of
Series A Preferred Stock issuable upon conversion of the Redeemable Preferred
Stock), such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Series A
Preferred Stock (including shares of Series A Preferred Stock issuable upon
conversion of the Redeemable Preferred Stock); and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series A Preferred Stock,
in addition to such other remedies as shall be available to the holder of such
Series A Preferred Stock, the Corporation will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purposes.
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(j) Notices. Any notice required by the provisions of this
Section B.4 to be given to the holders of shares of Series A Preferred Stock
shall be deemed effectively given upon personal delivery to the party to be
notified or five (5) days following deposit with the United States Post Office,
by registered or certified mail, postage prepaid, and addressed to each holder
of record at his address appearing on the books of the corporation.
5. Voting Rights.
(a) The holder of each share of Series A Preferred Stock
shall have the right to one (1) vote for each share of Common Stock into which
such share of Series A Preferred Stock could then be converted, and with respect
to such vote, such holder shall have full voting rights and powers equal to the
voting rights and powers of the holders of Common Stock, except with respect to
the election of directors as provided in Section 5(b) below, and shall be
entitled, notwithstanding any provision hereof, to notice of any shareholders'
meeting in accordance with the Bylaws of the Corporation, and shall be entitled
to vote, together with holders of Common Stock, with respect to any matter upon
which holders of Common Stock have the right to vote, except as otherwise
provided by law. Fractional votes shall not, however, be permitted and any
fractional voting rights available on an as-converted basis (after aggregating
all shares into which shares of Series A Preferred Stock held by each holder
could be converted) shall be rounded up to the nearest whole number.
(b) Without limiting the generality of the foregoing
paragraph (a), the holders of the Series A Preferred Stock shall be entitled to
elect one (1) director of the Corporation at each annual election of directors,
and the holders of the Common Stock (voting together as a single class without
the Series A Preferred Stock) shall be entitled to elect the remaining number of
directors to be elected at such time.
In the case of any vacancy (other than a vacancy caused by removal) in
the office of a director occurring among the directors elected by the holders of
a class or series of stock pursuant to this Section B.5(b), the remaining
directors so elected by that class or series may by affirmative vote of a
majority thereof (or the remaining director so elected if there be but one, or
if there are no such directors remaining, by the affirmative vote of the holders
of a majority of the shares of that class or series), elect a successor or
successors to hold office for the unexpired term of the director or directors
whose place or places shall be vacant. Any director who shall have been elected
by the holders of a class or series of stock or by any directors so elected as
provided in the immediately preceding sentence hereof may be removed during the
aforesaid term of office, either with or without cause, by, and only by, the
affirmative vote of the holders of the shares of the class or series of stock
entitled to elect such director or directors, given either at a special meeting
of such shareholders duly called for that purpose or pursuant to a written
consent of such shareholders, and any vacancy thereby created may be filled by
the holders of that class or series of stock represented at such meeting or
pursuant to such written consent.
6. Protective Provisions. So long as any shares of Series A
Preferred Stock are outstanding, the Corporation shall not, and shall not allow
any subsidiary to, directly or indirectly, in one or a series of related
transactions, as the case may be, without first obtaining the approval (by vote
or written consent, as provided by law) of the holders of at least a majority of
the then outstanding shares of Series A Preferred Stock:
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(a) alter or change the rights, preferences or privileges of
the shares of Series A Preferred Stock through any amendment of these Articles
of Incorporation or the Corporation's Bylaws;
(b) pay any dividend (other than a stock dividend payable in
Common Stock) on, or repurchase any shares of, Common Stock or other junior
securities (or securities convertible thereinto), except for (i) the repurchase
of up to 9,880,000 shares of Common Stock from a shareholder of the Corporation
(or his affiliate) pursuant to a Repurchase Agreement dated on or about April
30, 1999 between the Corporation and such shareholder; (ii) the redemption or
repurchase of Common Stock valued at a maximum of $100,000 per annum issued
pursuant to the Corporation's Stock Option Plan pursuant to an agreement
containing vesting and/or repurchase provisions approved by the Board of
Directors of the Corporation or a committee thereof; (iii) the repurchase of
Common Stock at a price of up to $750,000 from an employee of the Corporation
pursuant to an agreement between such employee and the Corporation dated April
1, 1998; (iv) the repurchase of shares of Common Stock from a co-founder of the
Corporation in one or a series of transactions with an aggregate value of up to
$10,000,000 at a price per share of not more than $10; or (v) the repurchase of
Common Stock pursuant to, and only to the extent required by, the Shareholders'
Agreement dated on or about April 30, 1999, by and among the Corporation and
certain other persons specified therein.
(c) (i) authorize or issue any shares of capital stock with
rights, preferences or privileges on parity with or senior to the Series A
Preferred Stock except that the Corporation may authorize a new series of
preferred stock with rights with respect to dividends and on liquidation junior
to the Series A Preferred Stock if the proceeds of the sale of such stock is
used to redeem in full the Redeemable Preferred Stock (as defined below) or (ii)
issue any additional shares of Series A Preferred Stock (other than upon
conversion of the Redeemable Preferred Stock) or reissue any shares of the
Series A Preferred Stock or Redeemable Preferred Stock redeemed or otherwise
acquired by the Corporation;
(d) reclassify any outstanding shares into shares having
rights as to dividends or a liquidation preference on parity with or senior to
the Series A Preferred Stock;
(e) effect any Liquidation Event that results in a
distribution to the holders of Series A Preferred Stock of less than the
aggregate Series A Preferred Stock Liquidation Preference Amount, including (i)
any acquisition of the Corporation by another entity by means of any transaction
or series of related transactions (including, without limitation, any
reorganization, merger or consolidation, but excluding any merger effected
exclusively for any purpose of changing the domicile of the Corporation), unless
the Corporation's shareholders of record as constituted immediately prior to
such acquisition or sale (after giving effect to the full conversions of the
Series A Preferred Stock into Common Stock) will, immediately after such
acquisition (by virtue of securities issued as consideration for the
Corporation's acquisition), hold at least 50% of the voting power of the
surviving or acquiring entity, or (ii) a sale of all or substantially all of the
assets of the Corporation;
(f) take any action that decreases or increases the
authorized number of shares of capital stock, other than in connection with a
QPO;
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(g) incur any debt obligations with a term of in excess of
one year ("Long Term Debt") other than: (i) up to $10 million of Long Term Debt
pursuant to a credit agreement to be entered into between the Corporation and a
senior lender on or about April 30, 1999; (ii) up to $10 million of Long Term
Debt to be used solely to redeem the Redeemable Preferred Stock; and (iii) up to
$3.5 million of additional Long Term Debt;
(h) change its outside auditors, other than to a nationally
recognized "Big-Five" firm; or
(i) pledge as collateral any material intellectual property
rights of the Corporation, except and only to the extent required by the
Corporation's senior credit facility to be entered into in April 1999.
C. Redeemable Preferred Stock.
1. Designation; Ranking. A total of One Million Eight
Hundred Thousand (1,800,000) shares of the Corporation's Preferred Stock shall
be designated as Series B Redeemable Preferred Stock, no par value per share
(the "Redeemable Preferred Stock").
2. Dividends. The holders of shares of Redeemable Preferred
Stock will be entitled to receive, out of any funds legally available therefor,
cumulative dividends (the "Series B Dividends") at the rate of 18% of the
Redeemable Base Liquidation Amount (as defined below) per share per annum
(appropriately adjusted for stock splits, combinations and the like) for each
share of Redeemable Preferred Stock then held by them commencing from the date
on which the Redeemable Preferred Stock is first issued (the "Redeemable
Preferred Stock Issue Date"). All dividends shall be cumulative without interest
(except as provided in Section C.4(c)) whether or not earned or declared, on a
daily basis from the Series B Preferred Stock Issue Date, and shall be payable
annually in arrears on each one-year anniversary of the Redeemable Preferred
Stock Issue Date (the "Redeemable Preferred Stock Dividend Date"). Dividends may
be declared and paid upon shares of any series of Preferred Stock and Common
Stock in any fiscal year of the Corporation, only if dividends shall have been
paid to or declared and set apart upon all shares of Redeemable Preferred Stock,
at the rate specified in the foregoing sentence, and all redemptions then due
and payable on such Preferred Stock and the Redeemable Preferred Stock shall
have been paid in full or set apart for payment in full.
3. Liquidation Preference. Without limiting the rights of
holders to redeem or convert the Redeemable Preferred Stock under Sections 4 or
5 hereof, and in the time periods specified therein, upon any Liquidation Event,
each holder of an outstanding share of Redeemable Preferred Stock shall be
entitled to be paid out of the assets of the Corporation available for the
distribution to shareholders, whether such assets are capital, surplus or
earnings, and before any amount shall be paid or distributed to the holders of
Series A Preferred Stock or Common Stock or of any other stock ranking on
liquidation, dissolution or winding up of the Corporation, junior to the
Redeemable Preferred Stock, an amount in cash equal to the sum of (a) $5.625 per
share of Redeemable Preferred Stock held by such holder (adjusted appropriately
for stock splits, stock dividends, recapitalizations and the like with respect
to the Redeemable Preferred Stock) (the "Redeemable Base Liquidation Amount"),
plus (b) any accrued but unpaid dividends in respect of the shares of Redeemable
Preferred Stock plus an amount equal to a
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prorated dividend from the last Redeemable Preferred Stock Dividend Date to the
date fixed for liquidation, dissolution or winding up (the sum of clauses (a)
and (b) being referred to herein as the "Redeemable Liquidation Preference
Amount"); provided, however, that if, upon any Liquidation Event, the amounts
payable with respect to the Redeemable Liquidation Preference Amount are not
paid in full, the holders of the Redeemable Preferred Stock shall share ratably
in any distribution of assets in proportion to the full respective preferential
amounts to which they are entitled.
4. Redemption.
(a) Redemption Events.
(i) Upon Election of Holders. At any time after the
date that is one (1) year following the Redeemable Preferred Stock Issue Date,
or, if earlier, upon consummation of a QPO, upon the election of the holder or
holders of not less than a majority of the outstanding Redeemable Preferred
Stock, the Corporation shall redeem in cash up to all of the outstanding shares
of Redeemable Preferred Stock so elected for redemption. Any holder of
Redeemable Preferred Stock may exercise such holder's right of redemption
pursuant to this Section C.4(a)(i) by such holder giving the Corporation not
less than thirty (30) days prior written notice, except in the case of a QPO, in
which case such holder shall provide not less than fifteen (15) days prior
written notice, which notice shall set forth the date for such redemption and
the number of shares of Redeemable Preferred Stock to be redeemed. If the
redemption is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, as amended, the redemption
may, at the option of the holders, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering.
(ii) Upon Election of Corporation. The Corporation
may elect to redeem in cash up to all of the outstanding shares of Redeemable
Preferred Stock prior to one (1) year following the Redeemable Preferred Stock
Issue Date. The foregoing election shall be made by the Corporation giving each
holder of Redeemable Preferred Stock written notice not less than ten (10) days
prior to the date of such redemption. If the redemption is in connection with an
underwritten offering of securities registered pursuant to the Securities Act of
1933, as amended, the redemption may, at the option of the Company, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering.
(b) Redemption Date, Redemption Price. Any date upon which a
redemption shall actually occur in accordance with Section C.4(a) shall be
referred to as a "Series B Preferred Redemption Date." The redemption price for
each share of Redeemable Preferred Stock redeemed pursuant to this Section C.4
shall be the per share Redeemable Liquidation Preference Amount applicable as of
the date of such redemption (the "Series B Preferred Redemption Price");
provided, however, that if dividends on the Redeemable Preferred Stock have
accrued for less than one month at the time of such redemption, the Series B
Preferred Redemption Price shall include an amount equal to the amount of
dividends that would have accrued over a one-month period. The aggregate Series
B Preferred Redemption Price shall be payable in cash in immediately available
funds on the Series B Preferred Redemption Date. Until the aggregate Series B
Preferred Redemption Price has been paid in cash for all shares of Redeemable
Preferred Stock redeemed as of the applicable Series B Preferred Redemption
Date,
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<PAGE> 13
(A) no dividend whatsoever shall be paid or declared, and no distribution shall
be made, on any capital stock of the Corporation (other than the Redeemable
Preferred Stock); and (B) no shares of capital stock of the Corporation (other
than the Redeemable Preferred Stock in accordance with this Section C.4) shall
be purchased, redeemed or acquired by the Corporation and no monies shall be
paid into or set aside or made available for a sinking fund for the purchase,
redemption or acquisition thereof.
(c) Redemption Prohibited. If, at a Series B Preferred
Redemption Date, the Corporation is prohibited under the Corporations Code of
the State of California from redeeming all shares of Redeemable Preferred Stock
for which redemption is required hereunder, then it shall redeem such shares or
a pro-rata basis among the holders of Redeemable Preferred Stock in proportion
to the full respective redemption amounts to which they are entitled hereunder
to the extent possible and shall redeem the remaining shares to be redeemed, in
whole or in part as permitted under this sentence, as soon as the Corporation is
not prohibited from redeeming some or all of such shares under the Corporations
Code of the State of California. The shares of Redeemable Preferred Stock not
redeemed shall remain outstanding and entitled to all of the rights and
preferences provided in these Articles. In the event that the Corporation fails
to redeem, for any reason, shares for which redemption is required pursuant to
this Section C.4, then during the period from the applicable Series B Preferred
Redemption Date through the date on which such shares are redeemed, the
applicable Series B Preferred Redemption Price of such shares shall continue to
grow through accrual of dividends pursuant to Section C.4(d) and shall bear
interest at the per annum rate of four percent (4%) compounded annually;
provided, however, that in no event shall such interest exceed the Maximum
Permitted Rate. In the event that fulfillment of any provision hereof results in
such rate of interest being in excess of the Maximum Permitted Rate, the
obligation to be fulfilled shall automatically be reduced to the extent required
to eliminate such excess.
(d) Dividend After Redeemable Preferred Redemption Date.
From and after a Series B Redemption Date, no shares of Redeemable Preferred
Stock subject to redemption shall be entitled to dividends, if any, as
contemplated by Section C.1; provided, however, that in the event that shares of
Redeemable Preferred Stock are unable to be redeemed and continue to be
outstanding in accordance with Section C.4(c) or the Corporation shall fail to
redeem such shares for any reason, such shares shall continue to accrue and be
entitled to dividends until the date on which such shares are actually redeemed
by the Corporation.
(e) Surrender of Certificates. The Corporation shall give,
not less than 10 days prior to the Series B Preferred Redemption Date, a
Redemption Notice to all holders of the Redeemable Preferred Stock which shall
require each holder submitting shares or required to submit shares for
redemption to surrender to the Corporation on or before the Series B Redemption
Date, at the place designated in the Redemption Notice, such holder's
certificate or certificates representing the shares of Redeemable Preferred
Stock to be redeemed. On or prior to the Series B Redemption Date, each holder
of shares of Redeemable Preferred Stock submitted for redemption or required to
be submitted for redemption shall surrender the certificate or certificates
evidencing such shares to the Corporation, at the place designated in the
Redemption Notice and shall thereupon be entitled to receive payment of the
appropriate Series B Redemption Price by wire transfer of immediately available
funds. In the event the certificates are lost, stolen or missing, the holder of
Redeemable Preferred Stock shall deliver an
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<PAGE> 14
Affidavit of Loss with respect to such certificates at the place set forth in
the Redemption Notice. Each surrendered certificate shall be canceled and
retired; provided, however, that if the holder has exercised its right pursuant
to Section C.4(a)(i) or the Corporation has exercised its right pursuant to
Section C.4(a)(ii), the holder shall not be required to surrender said
certificate(s) to the Corporation until said holder has received a new stock
certificate for those shares of Redeemable Preferred Stock not so redeemed.
5. Conversion. The holders of the Redeemable Preferred Stock shall
have conversion rights as follows:
(a) Right to Convert. Each share of Redeemable Preferred
Stock shall be convertible, at the option of the holder thereof, without payment
of any additional consideration, at any time following the date that is one (1)
year following the Redeemable Preferred Stock Issue Date and for so long as all
of the then outstanding shares of Series A Preferred Stock have not been
converted to Common Stock pursuant to Section B.4(b), at the office of the
Corporation or any transfer agent for such stock, into Series A Preferred Stock.
The number of shares of Series A Preferred Stock into which a holder of
Redeemable Preferred Stock shall be entitled upon conversion shall be determined
by dividing $5.625 per share (as adjusted for any stock dividends, combinations
or splits with respect to such shares) (the "Redeemable Preferred Stock Issue
Price") by the Series B Conversion Price per share in effect at the time that
the certificate is surrendered for conversion. The Series B Conversion Price per
share shall initially be the Redeemable Preferred Stock Issue Price, subject to
adjustment as hereinafter provided (the "Series B Conversion Price").
(b) Automatic Conversion Upon Notice by the Corporation.
Each share of Redeemable Preferred Stock shall automatically be converted,
without the payment of any additional consideration, for so long as all of the
then outstanding shares of Series A Preferred Stock have not been converted to
Common Stock pursuant to Section B.4(b), into shares of Series A Preferred
Stock, at the Series B Conversion Price, immediately upon written notice
provided to the holders of Redeemable Preferred Stock by the Corporation at any
time prior to the date that is one (1) year following the Redeemable Preferred
Stock Issue Date (a "Mandatory Conversion Notice").
(c) Mechanics of Conversion. Before any holder of Redeemable
Preferred Stock shall be entitled to receive shares of Series A Preferred Stock
upon election to convert such Redeemable Stock, such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Redeemable Preferred Stock and
shall also give written notice to the Corporation at its principal corporate
office, of the election to convert the same and shall state therein the name or
names in which the certificate or certificates for shares of Series A Preferred
Stock are to be issued. The effectiveness of any conversion under this Section
5(c) shall be contingent upon the expiration or earlier termination of any
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the Corporation shall file promptly any required
notification thereunder and pay all filing fees required by it to be paid in
connection therewith. The Corporation shall, as soon as practicable thereafter
or as soon as practicable after delivering a Mandatory Conversion Notice to such
holder, but in any event not later than the fifth (5th) business day following
the effective date of such conversion as hereinafter provided, issue and
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<PAGE> 15
deliver at such office to such holder of Redeemable Preferred Stock, or to the
nominee or nominees of such holder, a certificate or certificates for the number
of shares of Series A Preferred Stock to which such holder shall be entitled as
aforesaid plus any accrued but unpaid dividends on the Redeemable Preferred
Stock on the date of such conversion and, if not paid on such date, continued
accruing dividends on such Redeemable Preferred Stock through the date of
payment (plus interest at a per annum rate of four percent (4%) compounded
annually on the amount of such unpaid dividend from the date of such conversion
through the date of payment), payable in cash by wire transfer of immediately
available funds, provided, however, that if the date of conversion occurs less
than one month after the Redeemable Preferred Stock Issue Date, the amount of
dividends payable upon such conversion shall equal the amount of dividends that
would have accrued over a one-month period. In the event that fulfillment of the
provisions of the foregoing sentence results in a rate of interest being in
excess of the Maximum Permitted Rate, the obligation to be fulfilled thereunder
shall be reduced automatically to the extent required to eliminate such excess.
Until the foregoing dividend amount shall have been paid in cash for all shares
of Redeemable Preferred Stock so converted, (A) no dividend whatsoever shall be
paid or declared, and no distribution shall be made, on any capital stock of the
Corporation (other than the Redeemable Preferred Stock, and the dividend amount
on the Redeemable Preferred Stock so converted); and (B) no shares of capital
stock of the Corporation (other than the Redeemable Preferred Stock in
accordance with Section C.4) shall be purchased, redeemed or acquired by the
Corporation and no monies shall be paid into or set aside or made available for
a sinking fund for the purchase, redemption or acquisition thereof. Such
conversion shall be deemed to have been made immediately prior to the close of
business (i) on the date of such surrender of the shares of Redeemable Preferred
Stock to be converted or (ii) the date the Corporation issues the Mandatory
Conversion Notice, and the person or persons entitled to receive the shares of
Series A Preferred Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Series A Preferred
Stock.
(d) Conversion Price Adjustments of Series A Preferred Stock
for Certain Issuances, Splits and Combinations. Upon the issuance of additional
shares of Series A Preferred Stock as a dividend or other distribution on
outstanding Series A Preferred Stock, the subdivision of outstanding shares of
Series A Preferred Stock into a greater number of shares of Series A Preferred
Stock, or the combination of outstanding shares of Series A Preferred Stock into
a smaller number of shares of Series A Preferred Stock, the Series B Conversion
Price shall, simultaneously with the happening of such dividend, subdivision,
split or combination, be adjusted by multiplying the then effective Series B
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Series A Preferred Stock outstanding immediately prior to such event
and the denominator of which shall be the number of shares of Series A Preferred
Stock outstanding immediately after such event. An adjustment made pursuant to
this Section C.5(d) shall be given effect upon payment of such a dividend or
distribution, as of the record date for the determination of shareholders
entitled to receive such dividend or distribution (on a retroactive basis) and
in the case of a subdivision or combination shall become effective immediately
as of the effective date hereof.
(e) Other Adjustments. In the event the Corporation shall
make or issue, or fix a record date for the determination of holders of Series A
Preferred Stock entitled to receive a dividend or other distribution payable in
securities of the Corporation other than shares of Series A Preferred Stock,
then and in each such event lawful and adequate provision shall be
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<PAGE> 16
made so that the holders of Redeemable Preferred Stock shall receive upon
conversion thereof in addition to the number of shares of Series A Preferred
Stock receivable thereupon, the number of securities of the Corporation which
they would have received had their Redeemable Preferred Stock been converted
into Series A Preferred Stock on the date of such event and had they thereafter,
during the period from the date of such event to and including the date of
conversion, retained such securities receivable by them as aforesaid during such
period.
If the Series A Preferred Stock issuable upon the conversion of the
Redeemable Preferred Stock shall be changed into the same or different number of
shares of any class or classes of stock, whether by reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation or sale of assets
provided for elsewhere in this Section C.5), then and in each such event the
holder of each share of Redeemable Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of stock and
other securities and property receivable upon such reorganization,
reclassification or other change, by holders of the number of shares of Series A
Preferred Stock into which such shares of Redeemable Preferred Stock might have
been converted immediately prior to such reorganization, reclassification or
change, all subject to further adjustment as provided herein.
(f) Mergers and Other Reorganizations. If at any time or
from time to time there shall be a capital reorganization of the Series A
Preferred Stock (other than a subdivision, combination, reclassification or
exchange of shares provided for elsewhere in this Section C.5) or a merger or
consolidation of the Corporation with or into another corporation or the sale of
all or substantially all of the Corporation's properties and assets to any other
person, then, as a part of and as a condition to the reorganization, merger,
consolidation or sale, lawful and adequate provision shall be made so that the
holders of the Redeemable Preferred Stock shall thereafter be entitled to
receive upon conversion of the Redeemable Preferred Stock the number of shares
of stock or other securities or property of the Corporation or of the successor
corporation resulting from such merger or consolidation or sale, to which a
holder of Series A Preferred Stock deliverable upon conversion would have been
entitled on such capital reorganization, merger, consolidation, or sale. In any
such case, appropriate provisions shall be made with respect to the rights of
the holders of the Redeemable Preferred Stock after the reorganization, merger,
consolidation or sale to the end that the provisions of this Section C.5
(including without limitation provisions for adjustment of the Series B
Conversion Price and the number of shares purchasable upon conversion of the
Redeemable Preferred Stock) shall thereafter be applicable, as nearly as may be,
with respect to any shares of stock, securities or assets to be deliverable
thereafter upon the conversion of the Redeemable Preferred Stock.
(g) No Impairment. The Corporation will not, by amendment of
its Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section C.5 and in the taking of all such action as
may be necessary or appropriate in order to protect the conversion rights of the
holders of the Redeemable Preferred Stock against impairment; provided, however,
that the foregoing shall not be construed as
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<PAGE> 17
preventing the conversion of the Series A Preferred Stock into Common Stock
pursuant to Section B.4 hereof.
(h) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon the
conversion of any share or shares of Redeemable Preferred Stock, and the number
of shares of Series A Preferred Stock to be issued shall be rounded up to the
nearest whole share.
(ii) Upon the occurrence of each adjustment or
readjustment of the Series B Conversion Price pursuant to this Section C.5, or
upon the conversion of the Series A Preferred Stock into Common Stock pursuant
to Section B.4 hereof, the Corporation, at its expense, shall promptly compute
such adjustment or readjustment in accordance with the terms hereof and prepare
and furnish to each holder of Redeemable Preferred Stock a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any holder of Redeemable Preferred Stock, furnish
or cause to be furnished to such holder a like certificate setting forth (A)
such adjustment and readjustment, (B) the Series B Conversion Price at the time
in effect, and (C) the number of shares of Redeemable Stock and the amount, if
any, of other property which at the time would be received upon the conversion
of a share of Redeemable Preferred Stock.
(i) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times during which the Redeemable Preferred Stock is
convertible to Series A Preferred Stock, reserve and keep available out of its
authorized but unissued shares of Series A Preferred Stock (and corresponding
shares of Common Stock), solely for the purpose of effecting the conversion of
the shares of Redeemable Preferred Stock, such number of its shares of Series A
Preferred Stock (and corresponding shares of Common Stock) as shall from time to
time be sufficient to effect the conversion of all outstanding shares of
Redeemable Preferred Stock (and corresponding shares of Series A Preferred
Stock); and if at any such time the number of authorized but unissued shares of
Series A Preferred Stock shall not be sufficient to effect the conversion of all
then outstanding shares of Redeemable Preferred Stock, in addition to such other
remedies as shall be available to the holder of such Redeemable Preferred Stock,
the Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Series A
Preferred Stock to such number of shares as shall be sufficient for such
purposes.
(j) Notices. Any notice required by the provisions of this
Section C.5 to be given to the holders of shares of Redeemable Preferred Stock
shall be deemed effectively given upon personal delivery to the party to be
notified or (if first transmitted by telecopier, with confirmation of
transmission having been received by the transmitting party) upon deposit with
the United States Post Office, by registered or certified mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
the corporation.
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6. Voting.
(a) Voting Generally. Except with respect to the election to
redeem the Redeemable Preferred Stock pursuant to Section C.4, the holders of
Redeemable Preferred Stock shall not be entitled to vote on any matters except
to the extent otherwise required under the Corporations Code of the State of
California.
(b) Waiver of Notice. The holder or holders of not less than
a majority in voting power of the outstanding shares of Redeemable Preferred
Stock may, at any time upon written notice to the Corporation, waive any notice
provisions specified herein for the benefit of such holders, and any such waiver
shall be binding upon the holders of all such securities
7. Protective Provisions. So long as any shares of Redeemable
Preferred Stock are outstanding, the Corporation shall not, and shall not allow
any subsidiary to, directly or indirectly, in one or more or a series of related
transactions, as the case may be, without first obtaining the approval (by vote
if written consent, as provided by law) of the holders of at least a majority of
the then outstanding shares of Redeemable Preferred Stock:
(a) alter or change the rights, preferences or privileges of
the shareholders of Redeemable Preferred Stock through any amendment of these
Articles of Incorporation or the Corporation's Bylaws;
(b) pay any dividend (other than a stock dividend payable in
Common Stock) on, or repurchase any shares of, Common Stock or other junior
securities (or securities convertible thereinto), except for (i) the repurchase
of up to 9,880,000 shares of Common Stock from a shareholder of the Corporation
(or his affiliate) pursuant to a Repurchase Agreement dated on or about April
30, 1999, between the Corporation and such shareholder (ii) the redemption or
repurchase of Common Stock valued at a maximum of $100,000 per annum issued
pursuant to the Corporation's Stock Option Plan pursuant to an agreement
containing vesting and/or repurchase provisions approved by the Board of
Directors of the Corporation or a committee thereof; (iii) the repurchase of
Common Stock at a price of up to $750,000 from an employee of the Corporation
pursuant to an agreement between such employee and the Corporation dated April
1, 1998; (iv) the repurchase of shares of Common Stock from a co-founder of the
Corporation (or his affiliates) in one or a series of transactions with an
aggregate value of up to $10,000,000 at a price per share of not more than $10;
or (v) the repurchase of Common Stock pursuant to, and only to the extent
required by, the Shareholders' Agreement dated on or about April 30, 1999, by
and among the Corporation and certain other persons specified therein.
(c) (i) authorize or issue any shares of capital stock with
rights, preferences or privileges on parity with or senior to the Redeemable
Preferred Stock, except that the Corporation may, subject to Section B.6(c),
authorize a new series of preferred stock with rights with respect to dividends
and on liquidation junior to the Redeemable Preferred Stock if the proceeds of
the sale of such stock is used to redeem in full the Redeemable Preferred Stock,
or (ii) issue any additional shares of Series A Preferred Stock or reissue any
shares of the Series A Preferred Stock or Redeemable Preferred Stock redeemed or
otherwise acquired by the Corporation;
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<PAGE> 19
(d) reclassify any outstanding shares into shares having
rights as to dividends or a liquidation preference on parity with or senior to
the Redeemable Preferred Stock; or
(e) effect any Liquidation Event that results in a
distribution to the holders of the Redeemable Preferred Stock of less than the
aggregate Redeemable Liquidation Preference Amount, including (i) any
acquisition of the Corporation by another entity by means of any transaction or
series of related transactions (including, without limitations, any
reorganization, merger or consolidation, but excluding any merger effects
exclusively for any purpose of changing the domicile of the Corporation), unless
the Corporation's shareholders of record as constituted immediately prior to
such acquisition or sale will, immediately after such acquisition (by virtue of
securities issued as consideration for the Corporation's acquisition), hold at
least 50% of the voting power of the surviving or acquiring entity, or (ii) a
sale of all or substantially all of the assets of the Corporation;
(f) take any action that decreases or increases the
authorized number of shares of capital stock, other than in connection with a
QPO;
(g) change its outside auditors, other than to a nationally
recognized "Big-Five" firm;
(h) incur any Long Term Debt that would materially impair
the Corporation's ability to redeem the Redeemable Preferred Stock; or
(i) pledge as collateral any material intellectual property
rights of the Corporation, except and only to the extent required by the
Corporations senior credit facility to be entered into in April 1999.
D. The Common Stock.
1. Dividend Rights. Subject to the prior rights of the
holders of all classes of stock at the time outstanding having prior rights as
to dividends, the holders of the Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets or the Corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation shall be
distributed as provided in Section B.2 and C.3 of this Article III.
3. Voting Rights. The holder of each share of Common Stock
shall have the right to one vote, and shall be entitled to notice of any
shareholders' meeting in accordance with the Bylaws of this Corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.
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Section 1. The liability of the directors of this
Corporation for monetary damages shall be eliminated to the fullest extent
permissible under California law.
Section 2. This Corporation is authorized to provide
indemnification of agents (as defined in Section 317 of the California
Corporations Code) through bylaw provisions, agreements with the agents, votes
of shareholders or disinterested directors, or otherwise in excess of the
indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject only to applicable California Corporations Code with
respect to actions for breach of duty to the corporation and its shareholders.
THREE: The foregoing Amended and Restated Articles of
Incorporation have been duly approved by the Board of Directors of this
Corporation.
FOUR: The foregoing Amended and Restated Articles of
Incorporation have been duly approved by the required vote of shareholders in
accordance with the Articles of Incorporation of this Corporation and Section
902 and Section 903 of the California Corporations Code. The Corporation has one
class of stock outstanding and entitled to vote with respect to the attached
Amended and Restated Articles of Incorporation. The number of outstanding shares
of the Corporation is 29,042,000 shares of Common Stock. The number of shares of
Common Stock voting in favor of the Amended and Restated Articles of
Incorporation equaled or exceeded the vote required.
(SIGNATURE PAGE FOLLOWS)
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IN WITNESS WHEREOF, the undersigned have executed this
certificate on April 13, 1999.
/s/ David Doyle
----------------------------------------
David Doyle
President
/s/ John Laskey
----------------------------------------
John Laskey
Chief Financial Officer
The undersigned further declare under penalty of perjury under
the laws of the State of California that they have read the foregoing Amended
and Restated Articles of Incorporation and know the contents thereof and that
the statements therein are true.
Executed at Newport Beach, California on April 13, 1999.
/s/ David Doyle
----------------------------------------
David Doyle
President
/s/ John Laskey
----------------------------------------
John Laskey
Chief Financial Officer
21
<PAGE> 22
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
QUEST SOFTWARE, INC.
(A CALIFORNIA CORPORATION)
The undersigned Vincent C. Smith and John J. Laskey hereby
certify that:
1. They are the duly elected and acting Chief Executive
Officer and Secretary, respectively, of Quest Software, Inc., a California
corporation (the "Corporation").
2. Paragraph A of Article III of the Amended and Restated
Articles of Incorporation of the Corporation, as amended through the date of
this filing (the "Articles"), shall be amended and restated to read in full as
follows:
A. Classes of Stock. The Corporation is authorized to
issue two classes of shares to be designated respectively
Preferred Stock ("Preferred Stock") and Common Stock ("Common
Stock"). The total number of shares of capital stock that the
Corporation is authorized to issue is Eighty-One Million Three
Hundred Thousand (81,300,000). The total number of shares of
Preferred Stock this Corporation shall have authority to issue
is Six Million Three Hundred Thousand (6,300,000). The total
number of shares of Common Stock this Corporation shall have
authority to issue is Seventy-Five Million (75,000,000). The
Preferred Stock shall have no par value and the Common Stock
shall have no par value. Effective immediately upon the filing
of this Certificate of Amendment, every two (2) outstanding
shares of Common Stock shall be split and automatically
converted, without any further action on the part of the holder
thereof, into three (3) shares of Common Stock. No fractional
shares shall be issued in connection with the stock split.
3. The foregoing amendment of the Articles has been duly
approved by the Board of Directors of the Corporation.
4. The foregoing amendment of the Articles has been duly
approved by the required vote of shareholders in accordance with the Articles
and Sections 902 and 903 of the California Corporations Code. The total number
of outstanding shares entitled to vote with respect to the foregoing amendment
was 24,257,045 shares of capital stock, 2,666,667 shares of Series A Preferred
Stock and 1,777,778 shares of Series B Redeemable Preferred Stock. The number of
shares of capital stock voting in favor of the foregoing amendment equaled or
exceeded the vote required. The percentage vote required was a majority of the
outstanding shares of capital stock of the Corporation, a majority of the
outstanding shares of Series A Preferred Stock of the Corporation, and a
majority of the outstanding shares of Series B Redeemable Preferred Stock of the
Corporation.
<PAGE> 23
We further declare under penalty of perjury under the laws of
the State of California that we have read this Certificate and that the matters
set forth herein are true and correct of our own knowledge.
Executed at Newport Beach, California on May 21, 1999.
/s/ Vincent C. Smith
----------------------------------------
Vincent C. Smith
Chief Executive Officer
/s/ John J. Laskey
----------------------------------------
John J. Laskey
Secretary
2
<PAGE> 1
EXHIBIT 3.2
SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
QUEST SOFTWARE, INC.,
a California Corporation
The undersigned Vincent C. Smith and David M. Doyle hereby
certify that:
ONE: They are the duly elected and acting Chief Executive
Officer and Secretary, respectively, of said corporation.
TWO: The Amended and Restated Articles of Incorporation (the
"Articles") of said corporation shall be amended and restated to read in full as
follows:
ARTICLE I
The name of this corporation is Quest Software, Inc.
ARTICLE II
The purpose of this corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust company
business or the practice of a profession permitted to be incorporated by the
California Corporations Code.
ARTICLE III
A. Classes of Stock. This corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares of stock which the corporation is authorized
to issue is Eighty Million (80,000,000) shares. Seventy-Five Million
(75,000,000) shares shall be Common Stock, no par value per share, and Five
Million (5,000,000) shares shall be Preferred Stock, no par value per share.
B. Preferred Stock. The Preferred Stock authorized by these Second
Amended and Restated Articles of Incorporation may be issued from time to time
in one or more series. The Board of Directors is hereby authorized, within the
limitations and restrictions stated in these Second Amended and Restated
Articles of Incorporation, to determine or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock and the number of shares constituting any such series
and the designation thereof, or any of them. The Board of Directors is also
authorized to increase or decrease the number of shares of any series, prior or
subsequent to the issue of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be so decreased, the shares constituting such decrease shall resume the status
that they had prior to the adoption of the resolution originally fixing the
number of shares of such series.
<PAGE> 2
ARTICLE IV
Cumulative Voting. Shareholders shall not be entitled to cumulate their
votes for the election of directors of the corporation. This Article IV shall
become effective only when the corporation becomes, and only for so long as the
corporation remains, a listed corporation within the meaning of Section 301.5 of
the California Corporations Code.
ARTICLE V
A. Limitation of Directors' Liability. The liability of the
directors of this corporation for monetary damages shall be eliminated to the
fullest extent permissible under California law.
B. Indemnification of Agents. This corporation is authorized to
provide indemnification of agents (as defined in Section 317 of the California
Corporations Code) through bylaw provisions, agreements with the agents, vote of
shareholders or disinterested directors, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject only to applicable limits set forth in Section 204 of
the California Corporations Code with respect to actions for breach of duty to
the corporation and its shareholders.
C. Repeal or Modification. Any repeal or modification of the
foregoing provisions of this Article V shall not adversely affect any right or
protection of a director, officer or other "agent" of the corporation existing
at the time of such repeal or modification.
THREE: The foregoing amendment has been approved by the Board of
Directors of said corporation.
FOUR: The foregoing amendment and restatement of the Articles
has been duly approved by the required vote of shareholders in accordance with
the Articles and Sections 902 and 903 of the California Corporations Code. The
total number of outstanding shares entitled to vote with respect to the
foregoing amendment was 24,257,045 shares of capital stock, 2,666,667 shares of
Series A Preferred Stock and 1,777,778 shares of Series B Redeemable Preferred
Stock. The number of shares of capital stock voting in favor of the foregoing
amendment equaled or exceeded the vote required. The percentage vote required
was a majority of the outstanding shares of capital stock of the Corporation, a
majority of the outstanding shares of Series A Preferred Stock of the
Corporation, and a majority of the outstanding shares of Series B Redeemable
Preferred Stock of the Corporation.
The undersigned further declare under penalty of perjury under
the laws of the State of California that they have read these Second Amended and
Restated Articles of Incorporation and that the matters set forth in this
document are true and correct of their own knowledge.
2
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have executed these Second
Amended and Restated Articles of Incorporation at Newport Beach, California on
July ____, 1999.
----------------------------------------
VINCENT C. SMITH
----------------------------------------
DAVID M. DOYLE
3
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED BYLAWS
OF
QUEST SOFTWARE, INC.
Article I - OFFICES
Section 1. The principal executive office of Quest Software,
Inc. (the "Corporation") shall be at such place inside or outside the State of
California as the Board of Directors may determine from time to time.
Section 2. The Corporation may also have offices at such other
places as the Board of Directors may from time to time designate, or as the
business of the Corporation may require.
Article II - SHAREHOLDERS' MEETINGS
Section 1. Annual Meetings. The annual meeting of the
shareholders of the Corporation for the election of directors to succeed those
whose terms expire and for the transaction of such other business as may
properly come before the meeting shall be held at such place and at such time as
may be fixed from time to time by the Board of Directors and stated in the
notice of the meeting. If the annual meeting of the shareholders be not held as
herein prescribed, the election of directors may be held at any meeting
thereafter called pursuant to these Bylaws.
Section 2. Special Meetings. Special meetings of the
shareholders, for any purpose whatsoever, unless otherwise prescribed by
statute, may be called at any time by the Chairman of the Board, the President,
or by the Board of Directors, or by one or more shareholders holding not less
than ten percent of the voting power of the Corporation.
Section 3. Place. All meetings of the shareholders shall be at
any place within or without the State of California designated by the Board of
Directors or by written consent of all the persons entitled to vote thereat,
given either before or after the meeting. In the absence of any such
designation, shareholders' meetings shall be held at the principal executive
office of the Corporation.
Section 4. Notice. Notice of meetings of the shareholders of the
Corporation shall be given in writing to each shareholder entitled to vote,
either personally or by first-class mail (unless the Corporation has 500 or more
shareholders determined as provided by the California Corporations Code on the
record date for the meeting, in which case notice may be sent by third-class
mail) or other means of written communication, charges prepaid, addressed to the
shareholder at his address appearing on the books of the Corporation or given by
the shareholder to the Corporation for the purpose of notice. Notice of any such
meeting of shareholders shall be sent to each shareholder entitled thereto not
less than ten (or, if sent by
<PAGE> 2
third-class mail, thirty) nor more than sixty days before the meeting. Said
notice shall state the place, date and hour of the meeting and, (1) in the case
of special meetings, the general nature of the business to be transacted, and no
other business may be transacted, or (2) in the case of annual meetings, those
matters which the Board of Directors, at the time of the mailing of the notice,
intends to present for action by the shareholders, but subject to Section 601(f)
of the California Corporations Code any proper matter may be presented at the
meeting for shareholder action, and (3) in the case of any meeting at which
directors are to be elected, the names of the nominees intended at the time of
the mailing of the notice to be presented by management for election.
Section 5. Adjourned Meetings. Any shareholders' meeting may be
adjourned from time to time by the vote of the holders of a majority of the
voting shares present at the meeting either in person or by proxy. Notice of any
adjourned meeting need not be given unless a meeting is adjourned for forty-five
days or more from the date set for the original meeting.
Section 6. Quorum. The presence in person or by proxy of the
persons entitled to vote a majority of the shares entitled to vote at any
meeting constitutes a quorum for the transaction of business. The shareholders
present at a duly called or held meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
In the absence of a quorum, any meeting of shareholders may be
adjourned from time to time by the vote of a majority of the shares, the holders
of which are either present in person or represented by proxy thereat, but no
other business may be transacted, except as provided above.
Shareholder Action by Written Consent. Any action which may be
taken at any meeting of shareholders may be taken without a meeting and without
prior notice, if a consent in writing, setting forth the action so taken, shall
be signed by the holders of outstanding shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted;
provided, however, that (1) unless the consents of all shareholders entitled to
vote have been solicited in writing, notice of any shareholder approval without
a meeting by less than unanimous written consent shall be given as required by
the California Corporations Code, and (2) directors may not be elected by
written consent except by unanimous written consent of all shares entitled to
vote for the election of directors. Any written consent may be revoked by a
writing received by the Secretary of the Corporation prior to the time that
written consents of the number of shares required to authorize the proposed
action have been filed with the Secretary.
Section 7. Waiver of Notice. The transactions of any meeting of
shareholders, however called and noticed, and whenever held, shall be as valid
as though had at a meeting duly held after regular call and notice, if a quorum
be present either in person or by proxy, and if, either before or after the
meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice, or a consent to the holding of the
meeting, or an approval of the minutes thereof. All such waivers, consents, or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
2.
<PAGE> 3
Section 8. Voting. The voting at all meetings of shareholders
need not be by ballot, but any qualified shareholder before the voting begins
may demand a stock vote whereupon such stock vote shall be taken by ballot, each
of which shall state the name of the shareholder voting and the number of shares
voted by such shareholder, and if such ballot be cast by a proxy, it shall also
state the name of such proxy.
At any meeting of the shareholders, every shareholder having the
right to vote shall be entitled to vote in person, or by proxy appointed in a
writing subscribed by such shareholder and bearing a date not more than eleven
months prior to said meeting, unless the writing states that it is irrevocable
and satisfies Section 705(e) of the California Corporations Code, in which event
it is irrevocable for the period specified in said writing and said Section
705(e).
Section 9. Record Dates. In the event the Board of Directors
fixes a day for the determination of shareholders of record entitled to vote as
provided in Section 1 of Article V of these Bylaws, then, subject to the
provisions of the General Corporation Law of the State of California, only
persons in whose name shares entitled to vote stand on the stock records of the
Corporation at the close of business on such day shall be entitled to vote.
If no record date is fixed:
The record date for determining shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the close of business on
the business day next preceding the day notice is given or, if notice is waived,
at the close of business on the business day next preceding the day on which the
meeting is held;
The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is necessary, shall be the day on which the first
written consent is given; and
The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto, or the 60th day prior to the
date of such other action, whichever is later.
A determination of shareholders of record entitled to notice of
or to vote at a meeting of shareholders shall apply to any adjournment of the
meeting unless the Board of Directors fixes a new record date for the adjourned
meeting, but the Board of Directors shall fix a new record date if the meeting
is adjourned for more than 45 days.
Section 10. Cumulative Voting for Election of Directors.
Provided the candidate's name has been placed in nomination prior to the voting
and one or more shareholders has given notice at the meeting prior to the voting
of the shareholder's intent to cumulate the shareholder's votes, every
shareholder entitled to vote at any election for directors shall have the right
to cumulate such shareholder's votes and give one candidate a number of votes
equal to the number of directors to be elected multiplied by the number of votes
to which the shareholder's shares are normally entitled, or distribute the
shareholder's votes on the same principle among as many candidates as the
shareholder shall think fit. The candidates receiving the highest number
3.
<PAGE> 4
of votes of the shares entitled to be voted for them up to the number of
directors to be elected by such shares are elected.
Article III - BOARD OF DIRECTORS
Section 1. Powers. Subject to any limitations in the Articles of
Incorporation or these Bylaws and to any provision of the California
Corporations Code requiring shareholder authorization or approval for a
particular action, the business and affairs of the Corporation shall be managed
and all corporate powers shall be exercised by, or under the direction of, the
Board of Directors. The Board of Directors may delegate the management of the
day-to-day operation of the business of the Corporation to a management company
or other person provided that the business and affairs of the Corporation shall
be managed and all corporate powers shall be exercised, under the ultimate
direction of the Board of Directors.
Section 2. Number, Tenure and Qualifications. The number of
directors that shall constitute the whole board shall be not more than five nor
fewer than three.
The exact number of directors may be fixed from time to time within such limit
by a duly adopted resolution of the Board of Directors or shareholders. The
exact number of directors presently authorized shall be Five until changed
within the limits specified above by a duly adopted resolution of the Board of
Directors or shareholders. Directors need not be shareholders.
Directors shall hold office until the next annual meeting of
shareholders and until their respective successors are elected. If any such
annual meeting is not held, or the directors are not elected thereat, the
directors may be elected at any special meeting of shareholders held for that
purpose.
Section 3. Regular Meetings. A regular annual meeting of the
Board of Directors shall be held without other notice than this Bylaw
immediately after, and at the same place as, the annual meeting of shareholders.
The Board of Directors may provide for other regular meetings from time to time
by resolution.
Section 4. Special Meetings. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board, or the
President or any Vice President, or the Secretary or any two directors. Written
notice of the time and place of all special meetings of the Board of Directors
shall be delivered personally or by telephone, including a voice messaging
system or other system or technology designed to record and communicate
messages, telegraph, facsimile, electronic mail or other electronic means to
each director at least forty-eight hours before the meeting, or sent to each
director by first-class mail, postage prepaid, at least four days before the
meeting. Such notice need not specify the purpose of the meeting. Notice of any
meeting of the Board of Directors need not be given to any director who signs a
waiver of notice, whether before or after the meeting, or who attends the
meeting without protesting prior thereto or at its commencement, the lack of
notice to such director.
Section 5. Place of Meetings. Meetings of the Board of Directors
may be held at any place within or without the State of California, which has
been designated in the notice, or if
4.
<PAGE> 5
not stated in the notice or there is no notice, the principal executive office
of the Corporation or as designated by the resolution duly adopted by the Board
of Directors.
Section 6. Participation by Telephone. Members of the Board of
Directors may participate in a meeting through use of conference telephone,
electronic video screen communication, or other communications equipment.
Participation in a meeting through use of conference telephone constitutes
presence in person at the meeting as long as all members participating in such
meeting can hear one another. Participation in a meeting through the use of
electronic video screen communication or other communications equipment (other
than conference telephone) constitutes presence in person at that meeting if all
of the following apply: (a) each member participating in the meeting can
communicate with all of the other members concurrently, (b) each member is
provided the means of participating in all matters before the Board of
Directors, including, without limitation, the capacity to propose, or to
interpose an objection to, a specific action to be taken by the Corporation, and
(c) the Corporation adopts and implements some means of verifying that (i) a
person participating in the meeting is a director or other person entitled to
participate in the Board of Directors' meeting, and (ii) all actions of, or
votes by, the Board of Directors are taken or cast only by the directors and not
by persons who are not directors.
Section 7. Quorum. A majority of the Board of Directors shall
constitute a quorum at all meetings. In the absence of a quorum a majority of
the directors present may adjourn any meeting to another time and place. If a
meeting is adjourned for more than 24 hours, notice of any adjournment to
another time or place shall be given prior to the time of the reconvened meeting
to the directors who were not present at the time of adjournment.
Section 8. Action at Meeting. Every act or decision done or made
by a majority of the directors present at a meeting duly held at which a quorum
is present is the act of the Board of Directors. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority
of the required quorum for such meeting.
Section 9. Waiver of Notice. The transactions of any meeting of
the Board of Directors, however called and noticed or wherever held, are as
valid as though had at a meeting duly held after regular call and notice if a
quorum is present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding the
meeting, or an approval of the minutes thereof. All such waivers, consents and
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Section 10. Action Without Meeting. Any action required or
permitted to be taken by the Board of Directors may be taken without a meeting,
if all members of the Board individually or collectively consent in writing to
such action. Such written consent or consents shall be filed with the minutes of
the proceedings of the Board. Such action by written consent shall have the same
force and effect as a unanimous vote of such directors.
Section 11. Removal. The Board of Directors may declare vacant
the office of a director who has been declared of unsound mind by an order of
court or who has been convicted of a felony.
5.
<PAGE> 6
The entire Board of Directors or any individual director may be
removed from office without cause by a vote of shareholders holding a majority
of the outstanding shares entitled to vote at an election of directors;
provided, however, that unless the entire Board is removed, no individual
director may be removed when the votes cast against removal, or not consenting
in writing to such removal, would be sufficient to elect such director if voted
cumulatively at an election at which the same total number of votes cast were
cast (or, if such action is taken by written consent, all shares entitled to
vote were voted) and the entire number of directors authorized at the time of
the director's most recent election were then being elected.
In the event an office of a director is so declared vacant or in
case the Board or any one or more directors be so removed, new directors may be
elected at the same meeting.
Section 12. Resignations. Any director may resign effective upon
giving written notice to the Chairman of the Board, the President, the Secretary
or the Board of Directors of the Corporation, unless the notice specifies a
later time for the effectiveness of such resignation. If the resignation is
effective at a future time, a successor may be elected to take office when the
resignation becomes effective.
Section 13. Vacancies. Except for a vacancy created by the
removal of a director, all vacancies in the Board of Directors, whether caused
by resignation, death or otherwise, may be filled by a majority of the remaining
directors or, if the number of directors then in office is less than a quorum,
by (a) the unanimous written consent of the directors then in office, (b) the
affirmative vote of a majority of the directors then in office at a meeting held
pursuant to notice or waivers of notice complying with California Corporations
Code Section 307, or (c) a sole remaining director, and each director so elected
shall hold office until his successor is elected at an annual, regular or
special meeting of the shareholders. Vacancies created by the removal of a
director may be filled only by approval of the shareholders. The shareholders
may elect a director at any time to fill any vacancy not filled by the
directors. Any such election by written consent requires the consent of a
majority of the outstanding shares entitled to vote.
Section 14. Compensation. No stated salary shall be paid
directors, as such, for their services, but, by resolution of the Board of
Directors, a fixed sum and expenses of attendance, if any, may be allowed for
attendance at each regular or special meeting of such Board; provided that
nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
Section 15. Committees. The Board of Directors may, by
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of two or more directors, to
serve at the pleasure of the Board of Directors. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent member at any meeting of the committee. The appointment of
members or alternate members of a committee requires the vote of a majority of
the authorized number of directors. Any such committee, to the extent provided
in the resolution of the Board of Directors, shall have all the authority of the
Board of Directors in the management of the business and affairs of the
Corporation, except with respect to (a) the approval of any action
6.
<PAGE> 7
requiring shareholders' approval or approval of the outstanding shares, (b) the
filling of vacancies on the Board or any committee, (c) the fixing of
compensation of directors for serving on the Board or any committee, (d) the
adoption, amendment or repeal of Bylaws, (e) the amendment or repeal of any
resolution of the Board which by its express terms is not so amendable or
repealable, (f) a distribution to shareholders, except at a rate or in a
periodic amount or within a price range determined by the Board, and (g) the
appointment of other committees of the Board or the members thereof.
Article IV - OFFICERS
Section 1. Number and Term. The officers of the Corporation
shall be a Chairman of the Board, a President, one or more Vice Presidents, a
Secretary and a Chief Financial Officer, all of which shall be chosen by the
Board of Directors. In addition, the Board of Directors may appoint such other
officers as may be deemed expedient for the proper conduct of the business of
the Corporation, each of whom shall have such authority and perform such duties
as the Board of Directors may from time to time determine. The officers to be
appointed by the Board of Directors shall be chosen annually at the regular
meeting of the Board of Directors held after the annual meeting of shareholders
and shall serve at the pleasure of the Board of Directors. If officers are not
chosen at such meeting of the Board of Directors, they shall be chosen as soon
thereafter as shall be convenient. Each officer shall hold office until his
successor shall have been duly chosen or until his removal or resignation.
Section 2. Inability to Act. In the case of absence or inability
to act of any officer of the Corporation and of any person herein authorized to
act in his place, the Board of Directors may from time to time delegate the
powers or duties of such officer to any other officer, or any director or other
person whom it may select.
Section 3. Removal and Resignation. Any officer chosen by the
Board of Directors may be removed at any time, with or without cause, by the
affirmative vote of a majority of all the members of the Board of Directors.
Any officer chosen by the Board of Directors may resign at any
time by giving written notice of said resignation to the Corporation. Unless a
different time is specified therein, such resignation shall be effective upon
its receipt by the Chairman of the Board, the President, the Secretary or the
Board of Directors.
Section 4. Vacancies. A vacancy in any office because of any
cause may be filled by the Board of Directors for the unexpired portion of the
term.
Section 5. Chairman of the Board. The Chairman of the Board
shall preside at all meetings of the Board.
Section 6. President. The President shall be the chief executive
officer of the Corporation unless such title is assigned to another officer of
the Corporation; in the absence of a Chairman and Vice Chairman of the Board,
the President shall preside as the chairman of meetings of the shareholders and
the Board of Directors; and the President shall have general and active
management of the business of the Corporation and shall see that all orders and
7.
<PAGE> 8
resolutions of the Board of Directors are carried into effect. The President or
any Vice President shall execute bonds, mortgages and other contracts requiring
a seal, under the seal of the Corporation (if the Corporation has adopted a
seal), except where required or permitted by law to be otherwise signed and
executed and except where the signing and execution thereof shall be expressly
delegated by the Board of Directors to some other officer or agent of the
Corporation.
Section 7. Vice President. In the absence of the President, or
in the event of such officer's death, disability or refusal to act, the Vice
President, or in the event there be more than one Vice President, the Vice
Presidents in the order designated at the time of their selection, or in the
absence of such designation, then in the order of their selection, shall perform
the duties of President, and when so acting, shall have all the powers and be
subject to all restrictions upon the President. Each Vice President shall have
such powers and discharge such duties as may be assigned from time to time by
the President or by the Board of Directors.
Section 8. Secretary. The Secretary shall see that notices for
all meetings are given in accordance with the provisions of these Bylaws and as
required by law, shall keep minutes of all meetings, shall have charge of the
seal and the corporate books, and shall make such reports and perform such other
duties as are incident to such office, or as are properly required by the
President or by the Board of Directors.
The Assistant Secretary or the Assistant Secretaries, in the
order of their seniority, shall, in the absence or disability of the Secretary,
or in the event of such officer's refusal to act, perform the duties and
exercise the powers and discharge such duties as may be assigned from time to
time by the President or by the Board of Directors.
Section 9. Chief Financial Officer. The Chief Financial Officer
may also be designated by the alternate title of "Treasurer." The Chief
Financial Officer shall have the custody of all moneys and securities of the
Corporation and shall keep regular books of account. Such officer shall disburse
funds of the Corporation in payment of the just demands against the Corporation,
or as may be ordered by the Board, taking proper vouchers for such
disbursements, and shall render to the Board from time to time as may be
required of such officer, an account of all transactions as Chief Financial
Officer and of the financial condition of the Corporation. Such officer shall
perform all duties incident to such office or that are properly required by the
President or by the Board. If required by the Board of Directors, the Chief
Financial Officer shall give the corporation a bond (which shall be renewed
every six years) in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of such officer's office and for the restoration to the corporation, in
case of such officer's death, resignation, retirement or removal from office, of
all books, papers, vouchers, money and other property of whatever kind in such
officer's possession or control belonging to the corporation.
The Assistant Treasurer or the Assistant Treasurers, in the
order of their seniority, shall, in the absence or disability of the Chief
Financial Officer, or in the event of such officer's refusal to act, perform the
duties and exercise the powers of the Chief Financial Officer, and shall have
such powers and discharge such duties as may be assigned from time to time by
the President or by the Board of Directors.
8.
<PAGE> 9
Section 10. Salaries. The salaries of the officers shall be
fixed from time to time by the Board of Directors and no officer shall be
prevented from receiving such salary by reason of the fact that such officer is
also a director of the Corporation.
Section 11. Officers Holding More Than One Office. Any two or
more offices may be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity.
Section 12. Approval of Loan to Officers. The Corporation may,
upon the approval of the Board of Directors alone, make loans or money or
property to, or guarantee the obligations of, any officer of the Corporation or
its parent or subsidiary, whether or not a director, or adopt an employee
benefit plan or plans authorizing such loans or guaranties provided that (i) the
Board of Directors determines that such a loan or guaranty or plan may
reasonably be expected to benefit the Corporation, (ii) the Corporation has
outstanding shares held of record by 100 or more persons (determined as provided
in Section 605 of the California Corporations Code) on the date of approval by
the Board of Directors, and (iii) the approval of the Board of Directors is by a
vote sufficient without counting the vote of any interested director or
directors.
Article V - MISCELLANEOUS
Section 1. Record Date and Closing of Stock Books. The Board of
Directors may fix a time in the future as a record date for the determination of
the shareholders entitled to notice of and to vote at any meeting of
shareholders or entitled to receive payment of any dividend or distribution, or
any allotment of rights, or to exercise rights in respect to any other lawful
action. The record date so fixed shall not be more than sixty nor less than ten
days prior to the date of the meeting or event for the purposes of which it is
fixed. When a record date is so fixed, only shareholders of record at the close
of business on that date are entitled to notice of and to vote at the meeting or
to receive the dividend, distribution, or allotment of rights, or to exercise
the rights, as the case may be, notwithstanding any transfer of any shares on
the books of the Corporation after the record date.
The Board of Directors may close the books of the Corporation
against transfers of shares during the whole or any part of a period of not more
than sixty days prior to the date of a shareholders' meeting, the date when the
right to any dividend, distribution, or allotment of rights vests, or the
effective date of any change, conversion or exchange of shares.
Section 2. Certificates. Certificates of stock shall be issued
in numerical order and each shareholder shall be entitled to a certificate
signed in the name of the Corporation by the Chairman of the Board or the
President or a Vice President, and the Chief Financial Officer or the Secretary
or an Assistant Secretary, certifying to the number of shares owned by such
shareholder. Any or all of the signatures on the certificate may be facsimile.
Prior to the due presentment for registration of transfer in the stock transfer
book of the Corporation, the registered owner shall be treated as the person
exclusively entitled to vote, to receive notifications and otherwise to exercise
all the rights and powers of an owner, except as expressly provided otherwise by
the laws of the State of California.
9.
<PAGE> 10
Section 3. Representation of Shares in Other Corporations.
Shares of other corporations standing in the name of this Corporation may be
voted or represented and all incidents thereto may be exercised on behalf of the
Corporation by the Chairman of the Board or the President or the Vice President
and the Chief Financial Officer or the Secretary or an Assistant Secretary.
Section 4. Fiscal Year. The fiscal year of the Corporation shall
end on December 31 of each year.
Section 5. Annual Reports. The Annual Report to shareholders,
described in the California Corporations Code, is expressly waived and dispensed
with until such time as the Corporation has more than 100 shareholders.
Section 6. Amendments. Bylaws may be adopted, amended, or
repealed by the vote or the written consent of shareholders entitled to exercise
a majority of the voting power of the Corporation. Subject to the right of
shareholders to adopt, amend, or repeal Bylaws, Bylaws may be adopted, amended,
or repealed by the Board of Directors, except that a Bylaw amendment thereof
changing the authorized number of directors may be adopted by the Board of
Directors only if these Bylaws permit an indefinite number of directors and the
Bylaw or amendment thereof adopted by the Board of Directors changes the
authorized number of directors within the limits specified in these Bylaws.
Section 7. Indemnification of Corporate Agents. The Corporation
shall indemnify each of its agents against expenses, judgments, fines,
settlements and other amounts, actually and reasonably incurred by such person
by reason of such person's having been made or having been threatened to be made
a party to a proceeding to the fullest extent permissible under the California
Corporations Code and the Corporation shall advance the expenses reasonably
expected to be incurred by such agent in defending any such proceeding upon
receipt of the undertaking required by subdivision (f) of Section 317 of the
California Corporations Code. The terms "agent," "proceeding" and "expenses"
made in this Section 7 shall have the same meaning as such terms in said Section
317.
10.
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CERTIFICATE OF CHIEF EXECUTIVE OFFICER OF
QUEST SOFTWARE, INC.
The undersigned, John Lasky, Chief Financial Officer of Quest
Software, Inc. (the "Corporation"), a California corporation, hereby certifies
that the attached document is a true and complete copy of the Amended and
Restated Bylaws of the Corporation as in effect on the date hereof.
IN WITNESS WHEREOF, the undersigned has executed this
certificate as of this 20th day of April, 1999.
----------------------------------------
John Lasky,
Chief Financial Officer
<PAGE> 1
EXHIBIT 3.4
SECOND AMENDED AND RESTATED BYLAWS OF
QUEST SOFTWARE, INC.
ARTICLE I
CORPORATE OFFICES
1.1 Principal Office. The Board of Directors shall fix the location
of the principal executive office of the corporation at any place within or
outside the State of California. If the principal executive office is located
outside California and the corporation has one or more business offices in
California, then the Board of Directors shall fix and designate a principal
business office in California.
1.2 Other Offices. The Board of Directors may at any time establish
branch or subordinate offices at any place or places.
ARTICLE II
MEETINGS OF SHAREHOLDERS
2.1 Place of Meetings. Meetings of shareholders shall be held at any
place within or outside the State of California designated by the Board of
Directors. In the absence of any such designation, shareholders' meetings shall
be held at the principal executive office of the corporation or any place
consented to in writing by all persons entitled to vote at such meeting, given
before or after the meeting and filed with the Secretary of the corporation.
2.2 Annual Meeting. An annual meeting of shareholders shall be held
each year on a date and at a time designated by the Board of Directors. At that
meeting, directors shall be elected. Any other proper business may be transacted
at the annual meeting of shareholders.
2.3 Special Meetings. Special meetings of the shareholders may be
called at any time, subject to the provisions of Sections 2.4 and 2.5 of these
Bylaws, by the Board of Directors, the Chairman of the Board, the President or
the holders of shares entitled to cast not less than twenty percent (20%) of the
votes at that meeting.
If a special meeting is called by anyone other than the Board of
Directors or the President or the Chairman of the Board, then the request shall
be in writing, specifying the time of such meeting and the general nature of the
business proposed to be transacted, and shall be delivered personally or sent by
registered mail or by other written communication to the Chairman of the Board,
the President, any Vice President or the Secretary of the corporation. The
officer receiving the request shall cause notice to be given to the shareholders
entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of
these Bylaws, that a meeting will be held at the time requested by the person or
persons calling the meeting, so long as that time is not less than thirty-five
(35) nor more than sixty (60) days after the receipt of the request. If the
notice is not given within twenty (20) days after receipt of the request, then
the person or persons requesting the meeting may give the notice. Nothing
contained in this paragraph of this Section 2.3 shall be construed as limiting,
fixing or affecting the time when a meeting of shareholders called by action of
the Board of Directors may be held.
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2.4 Notice of Shareholders' meetings. All notices of meetings of
shareholders shall be sent or otherwise given in accordance with Section 2.5 of
these Bylaws not less than ten (10) (or, if sent by third-class mail pursuant to
Section 2.5 of these Bylaws, not less than thirty (30)) nor more than sixty (60)
days before the date of the meeting to each shareholder entitled to vote
thereat. Such notice shall state the place, date, and hour of the meeting and
(i) in the case of a special meeting, the general nature of the business to be
transacted, and no business other than that specified in the notice may be
transacted, or (ii) in the case of the annual meeting, those matters which the
Board of Directors, at the time of the mailing of the notice, intends to present
for action by the shareholders, but, subject to the provisions of the next
paragraph of this Section 2.4, any proper matter may be presented at the meeting
for such action. The notice of any meeting at which directors are to be elected
shall include the names of nominees intended at the time of the notice to be
presented by the Board for election.
If action is proposed to be taken at any meeting for approval of
(i) a contract or transaction in which a director has a direct or indirect
financial interest, pursuant to Section 310 of the California Corporations Code
(the "Code"), (ii) an amendment of the Articles of Incorporation, pursuant to
Section 902 of the Code, (iii) a reorganization of the corporation, pursuant to
Section 1201 of the Code, (iv) a voluntary dissolution of the corporation,
pursuant to Section 1900 of the Code, or (v) a distribution in dissolution other
than in accordance with the rights of any outstanding preferred shares, pursuant
to Section 2007 of the Code, then the notice shall also state the general nature
of that proposal.
2.5 Manner of Giving Notice; Affidavit of Notice. Notice of a
shareholders' meeting shall be given either personally or by first-class mail,
or, if the corporation has outstanding shares held of record by five hundred
(500) or more persons (determined as provided in Section 605 of the Code) on the
record date for the shareholders' meeting, notice may be sent by third-class
mail, or other means of written communication, addressed to the shareholder at
the address of the shareholder appearing on the books of the corporation or
given by the shareholder to the corporation for the purpose of notice; or if no
such address appears or is given, at the place where the principal executive
office of the corporation is located or by publication at least once in a
newspaper of general circulation in the county in which the principal executive
office is located. The notice shall be deemed to have been given at the time
when delivered personally or deposited in the mail or sent by other means of
written communication.
If any notice (or any report referenced in Article VII of these
Bylaws) addressed to a shareholder at the address of such shareholder appearing
on the books of the corporation is returned to the corporation by the United
States Postal Service marked to indicate that the United States Postal Service
is unable to deliver the notice to the shareholder at that address, all future
notices or reports shall be deemed to have been duly given without further
mailing if the same shall be available to the shareholder upon written demand of
the shareholder at the principal executive office of the corporation for a
period of one (1) year from the date of the giving of the notice.
An affidavit of mailing of any notice or report in accordance
with the provisions of this Section 2.5, executed by the Secretary, Assistant
Secretary or any transfer agent, shall be prima facie evidence of the giving of
the notice or report.
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2.6 Quorum. Unless otherwise provided in the Articles of
Incorporation of the corporation, shares entitled to vote and holding a majority
of the voting power, represented in person or by proxy, shall constitute a
quorum at a meeting of shareholders. The shareholders present at a duly called
or held meeting at which a quorum is present may continue to transact business
until adjournment notwithstanding the withdrawal of enough shareholders to leave
less than a quorum, if any action taken (other than adjournment) is approved by
shares holding at least a majority of the voting power required to constitute a
quorum.
In the absence of a quorum, any meeting of shareholders may be
adjourned from time to time by the vote of a majority of the shares represented
either in person or by proxy, but no their business may be transacted, except as
provided in the last sentence of the preceding paragraph.
2.7 Adjourned Meeting Notice. Any shareholders' meeting, annual or
special, whether or not a quorum is present, may be adjourned from time to time
by the shares entitled to vote and holding a majority of the voting power,
represented in person or by proxy, at that meeting.
When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if its time and place are announced at the meeting at which the
adjournment is taken. However, if the adjournment is for more than forty-five
(45) days from the date set for the original meeting or if a new record date for
the adjourned meeting is fixed, a notice of the adjourned meeting shall be given
to each shareholder of record entitled to vote at the adjourned meeting in
accordance with the provisions of Sections 2.4 and 2.5 of these Bylaws. At any
adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting.
2.8 Voting. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of Section
2.11 of these Bylaws, subject to the provisions of Sections 702 through 704 of
the Code (relating to voting shares held by a fiduciary, in the name of a
corporation, or in joint ownership).
Elections for directors and voting on any other matter at a
shareholders' meeting need not be by ballot unless a shareholder demands
election by ballot at the meeting and before the voting begins.
Except as provided in the last paragraph of this Section 2.8, or
as may be otherwise provided in the Articles of Incorporation, each outstanding
share, regardless of class, shall be entitled to one (1) vote on each matter
submitted to a vote of the shareholders. Any holder of shares entitled to vote
on any matter may vote part of the shares in favor of the proposal and refrain
from voting the remaining shares or may vote them against the proposal other
than elections to office, but, if the shareholder fails to specify the number of
shares such shareholder is voting affirmatively, it will be conclusively
presumed that the shareholder's approving vote is with respect to all shares
which the shareholder is entitled to vote.
The affirmative vote of shares holding a majority of the voting
power, represented and voting at a duly held meeting at which a quorum is
present (which shares voting
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affirmatively also constitute at least a majority of the voting power required
to constitute a quorum), shall be the act of the shareholders, unless the vote
of a greater number of voting by classes is required by the Code or by the
Articles of Incorporation.
At a shareholders' meeting at which directors are to be elected,
a shareholder shall be entitled to cumulate votes either (i) by giving one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's shares are
normally entitled or (ii) by distributing the shareholder's votes on the same
principle among as many candidates as the shareholder thinks fit, if the
candidate or candidates' names have been placed in nomination prior to the
voting and the shareholder has given notice prior to the voting of the
shareholder's intention to cumulate the shareholder's votes. If any one
shareholder has given such a notice, then every shareholder entitled to vote may
cumulate votes for candidates in nomination. The candidates receiving the
highest number of affirmative votes, up to the number of directors to be
elected, shall be elected; votes against any candidate and votes withheld shall
have no legal effect. Notwithstanding the foregoing, at such time as the
corporation becomes a listed corporation (as such term is defined in Section
301.5 of the California Corporations Code), shareholders shall no longer be
entitled to cumulate their votes for candidates in an election of directors.
2.9 Validation of Meetings; Waiver of Notice; Consent. The
transactions of any meeting of shareholders, either annual or special, however
called and noticed, and wherever held, are as valid as though they had been
taken at a meeting duly held after regular call and notice, if a quorum be
present either in person or by proxy, and if, either before or after the
meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. Neither the business to be
transacted at nor the purpose of any annual or special meeting of shareholders
need be specified in any written waiver of notice or consent to the holding of
the meeting or approval of the minutes thereof, except that if action is taken
or proposed to be taken for approval of any of those matters specified in the
second paragraph of Section 2.4 of these Bylaws, the waiver of notice or consent
or approval shall state the general nature of the proposal. All such waivers,
consents, and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
Attendance of a person at a meeting shall constitute a waiver of
notice of and presence at that meeting, except when the person objects, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened and except that attendance at a meeting is
not a waiver of any right to object to the consideration of matters required by
the Code to be included in the notice of such meeting but not so included, if
such objection is expressly made at the meeting.
2.10 Shareholder Action By Written Consent Without A Meeting. Any
action which may be taken at any annual or special meeting of shareholders may
be taken without a meeting and without prior notice, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted.
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Directors may not be elected by written consent except by
unanimous written consent of all shares entitled to vote for the election of
directors.
However, a director may be elected at any time to fill any
vacancy on the Board of Directors (so long as such vacancy has not been filled
by the directors) by the written consent of shares holding a majority of the
voting power that are entitled to vote for the election of directors.
All such consents shall be maintained in the corporate records.
Any shareholder giving a written consent, or the shareholder's proxy holders, or
a transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the Secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary.
If the consents of all shareholders entitled to vote have not
been solicited in writing, the Secretary shall give prompt notice of any
corporate action approved by the shareholders without a meeting by less than
unanimous written consent to those shareholders entitled to vote who have not
consented in writing. Such notice shall be given in the manner specified in
Section 2.5 of these Bylaws. In the case of approval of (i) a contract or
transaction ins which a director has a direct or indirect financial interest,
pursuant to Section 310 of the Code, (ii) indemnification of a corporate
"agent," pursuant to Section 317 of the Code, (iii) a reorganization of the
corporation, pursuant to Section 1201 of the Code, and (iv) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares, pursuant to Section 2007 of the Code, the notice shall be given at least
ten (10) days before the consummation of any action authorized by that approval,
unless the consents of all shareholders entitled to vote have been solicited in
writing.
2.11 Record Date For Shareholder Notice; Voting; Given Consents. In
order that the corporation may determine the shareholders entitled to notice of
any meeting or to vote, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) days nor less than ten (10) days
prior to the date of such meeting nor more than sixty (60) days before any other
action. Shareholders at the close of business on the record date are entitled to
notice and to vote, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date, except as
otherwise provided in the Articles of Incorporation or the Code.
A determination of shareholders of record entitled to notice of
or to vote at a meeting of shareholders shall apply to any adjournment of the
meeting unless the Board of Directors fixes a new record date for the adjourned
meeting, but the Board of Directors shall fix a new record date if the meeting
is adjourned for more than forty-five (45) days from the date set for the
original meeting.
If the Board of Directors does not so fix a record date:
(a) The record date for determining shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the close of business on
the business day next preceding the
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day on which notice is given or, if notice is waived, at the close of business
on the business day next preceding the day on which the meeting is held.
(b) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the Board of Directors has been taken, shall be the day on which the
first written consent is given, or (ii) when prior action by the Board of
Directors has been taken, shall be at the close of business on the day on which
the Board of Directors adopts the resolution relating thereto, or the sixtieth
(60th) day prior to the date of such other action, whichever is later.
The record date for any other purpose shall be as provided in
Section 8.1 of these Bylaws.
2.12 Proxies. Every person entitled to vote for directors, or on any
other matter, shall have the right to do so either in person or by one or more
agents authorized by a written proxy signed by the person and filed with the
Secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name or other authorization is placed on the proxy (whether by
manual signature, typewriting, telegraphic or electronic transmission or
otherwise) by the shareholder or the shareholder's attorney-in-fact. A validly
executed proxy which does not state that it is irrevocable shall continue in
full force and effect unless (i) the person who executed the proxy revokes it
prior to the time of voting by delivering a writing to the corporation stating
that the proxy is revoked or by executing a subsequent proxy and presenting it
to the meeting or by attendance at such meeting and voting in person, or (ii)
written notice of the death or incapacity of the maker of that proxy is received
by the corporation before the vote pursuant to that proxy is counted; provided,
however, that no proxy shall be valid after the expiration of eleven (11) months
from the date thereof, unless otherwise provided in the proxy. The dates
contained on the forms of proxy presumptively determine the order of execution,
regardless of the postmark dates on the envelopes in which they are mailed. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Sections 705(e) and 705(f) of the Code.
2.13 Inspectors of Election. In advance of any meeting of
shareholders, the Board of Directors may appoint inspectors of election to act
at the meeting and any adjournment thereof. If inspectors of election are not so
appointed or designed or if any persons so appointed fail to appear or refuse to
act, then the Chairman of the meeting may, and on the request of any shareholder
or a shareholder's proxy shall, appoint inspectors of election (or persons to
replace those who so fail to appear) at the meeting. The number of inspectors
shall be either one (1) or three (3). If appointed at a meeting on the request
of one (1) or more shareholders or proxies, shares holding a majority of the
voting power, represented in person or by proxy, shall determine whether one (1)
or three (3) inspectors are to be appointed.
The inspectors of election shall (a) determine the number of
shares outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum, and the authenticity, validity, and effect
of proxies, (b) receive totes, ballots or consents, (c) bear and determine all
challenges and questions in any way arising in connection with the right to
vote, (d) count and tabulate all votes or consents, (e) determine when the polls
shall close, (f)
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determine the result and (g) do any other acts that may be proper to conduct the
election or vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
3.1 Powers. Subject to the provisions of the Code, any limitations
in the Articles of Incorporation, and these Bylaws, relating to action required
to be approved by the shareholders or by the outstanding shares, the business
and affairs of the corporation shall be managed and all corporate powers shall
be exercised by or under the direction of the Board of Directors. The Board of
Directors may delegate the management of the day-to-day operation of the
business of the corporation to a management company or other person provided
that the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised under the ultimate direction of the Board of
Directors.
3.2 Number of Directors. The authorized number of directors of the
corporation shall be not less than three (3) nor more than seven (7) and the
exact number of directors shall be set by a resolution duly adopted by the Board
of Directors or by the shareholders. The minimum and maximum number of directors
may be changed, or a definite number may be fixed without provision for an
indefinite number, by a duly adopted amendment to the Articles of Incorporation
or by an amendment to this Bylaw duly adopted by vote or written consent of
holders of a majority of the outstanding shares entitled to vote; provided,
however, that an amendment reducing the fixed number or minimum number of
directors to a number less than five (5) cannot be adopted if the votes cast
against its adoption at a meeting, or the shares not consenting in the case of
an action by written consent, are equal to more than sixteen and two-thirds
percent (16-2/3%) of the outstanding shares entitled to vote thereon.
No reduction of the authorized number of directors shall have
the effect of removing any director before that director's term of office
expires.
3.3 Election and Term of Office of Directors. At each annual meeting
of shareholders, directors shall be elected to hold office until the next annual
meeting. Each director, including a director elected to fill a vacancy, shall
hold office until the expiration of the term for which elected and until a
successor has been elected and qualified, except in the case of the death,
resignation, or removal of such a director.
3.4 Resignation and Vacancies. Any director may resign effective
upon giving oral or written notice to the Chairman of the Board, the President,
the Secretary, or the Board of Directors, unless the notice specifies a later
time for the effectiveness of such resignation. If the resignation of a director
is effective at a future time, the Board of Directors may elect a successor to
take office when the resignation becomes effective.
All vacancies on the Board of Directors, whether caused by
removal, resignation, death or otherwise, may be filled by a majority of the
remaining directors or, if the number of directors then in office is less than a
quorum, by (a) the unanimous written consent of the directors then in office,
(b) the affirmative vote of a majority of the directors then in office at a
meeting held pursuant to notice or waivers of notice complying with California
Corporations
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Code Section 307, or (c) a sole remaining director. Each director so elected
shall hold office until his successor is elected at an annual, regular or
special meeting of the shareholders. The shareholders may elect a director at
any time to fill any vacancy not filled by the directors. Any such election by
written consent requires the consent of a majority of the outstanding shares
entitled to vote.
A vacancy or vacancies in the Board of Directors shall be deemed
to exist (i) in the event of the death, resignation or removal of any director,
(ii) if the Board of Directors resolution declares vacant the office of a
director who has been declared of unsound mind by an order of court or who has
been convicted of a felony, (iii) if the authorized number of directors is
increased, or (iv) if the shareholders fail, at any meeting of shareholders at
which any director or directors are elected, to elect the full number of
directors to be elected at that meeting.
The shareholders may elect a director or directors at any time
to fill any vacancy or vacancies not filled by the directors, but any such
election by written consent shall require the consent of shares holding a
majority of the voting power that are entitled to vote thereon.
3.5 Place of Meetings; Meetings By Telephone. Regular meetings of
the Board of Directors may be held at any place within or outside the State of
California that has been designated from time to time by resolution of the Board
of Directors. In the absence of such a designation, regular meetings shall be
held at the principal executive office of the corporation. Special meetings of
the Board of Directors may be held at any place within or outside the State of
California that has been designated in the notice of the meeting or, if not
stated in the notice or if there is no notice, at the principal executive office
of the corporation.
Members of the Board of Directors may participate in a meeting
through use of conference telephone, electronic video screen communication, or
other communications equipment. Participation in a meeting through use of
conference telephone constitutes presence in person at the meeting as long as
all members participating in such meeting can hear one another. Participation in
a meeting through the use of electronic video screen communication or other
communications equipment (other than conference telephone) constitutes presence
in person at that meeting if all of the following apply: (a) each member
participating in the meeting can communicate with all of the other members
concurrently, (b) each member is provided the means of participating in all
matters before the Board of Directors, including, without limitation, the
capacity to propose, or to interpose an objection to, a specific action to be
taken by the corporation, and (c) the corporation adopts and implements some
means of verifying that (i) a person participating in the meeting is a director
or other person entitled to participate in the Board of Directors' meeting, and
(ii) all actions of, or votes by, the Board of Directors are taken or cast only
by the directors and not by persons who are not directors.
3.6 Regular Meetings. Regular meetings of the Board of Directors may
be held without notice if the time and place of such meetings are fixed by the
Board of Directors.
3.7 Special Meetings; Notice. Subject to the provisions of the
following paragraph, special meetings of the Board of Directors for any purpose
or purposes may be called at any time by the Chairman of the Board, the
President, any Vice President, the Secretary or any two (2) directors.
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Notice of the time and place of special meetings shall be
delivered personally or by telephone (including a voice messaging system or
other system or technology designed to record and communicate messages,
telegraph, facsimile, electronic mail or other electronic means) to each
director or sent by first class mail, addressed to each director at the
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone, telecopier, telegram or any electronic
means, it shall be delivered at least forty-eight (48) hours before the time of
the holding of the meeting. An oral notice given personally or by telephone may
be communicated either to the director or to the person at the office of the
director who the person giving the notice has reason to believe will promptly
communicate it to the director. The notice need not specify the purpose of the
meeting.
3.8 Quorum. A majority of the authorized number of directors shall
constitute a quorum of the Board of Directors for the transaction of business,
except to adjourn as provided in Section 3.10 of these Bylaws. Every act or
decision done or made by a majority of the directors present at a meeting duly
held at which a quorum is present is the act of the Board of Directors, subject
to the provisions of Section 310 of the Code (as to the approval of contracts or
transactions in which a director has a direct or indirect material financial
interest), Section 311 of the Code (as to the appointment of committees),
Section 317(e) of the Code (as to the indemnification of directors), the
Articles of Incorporation, and other applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for such
meeting.
3.9 Waiver of Notice. Notice of a meeting need not be given to any
director who signs a waiver of notice or a consent to holding the meeting or an
approval of the minutes thereof, whether before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice to such director. All such waivers, consents, and approvals
shall be filed with the corporate records or be made a part of the minutes of
the meeting. A waiver of notice need not specify the purpose of any regular or
special meeting of the Board of Directors.
3.10 Adjournment. A majority of the directors present, whether or not
a quorum is present, may adjourn any meeting to another time and place.
3.11 Notice of Adjournment. If the meeting is adjourned for more than
twenty-four (24) hours, notice of any adjournment to another time and place
shall be given prior to the time of the adjourned meeting to the directors who
were not present at the time of the adjournment.
3.12 Board Action By Written Consent Without A Meeting. Any action
required or permitted to be taken by the Board of Directors may be taken without
a meeting, if all members of the Board of Directors individually or collectively
consent in writing to such action. Such written consent or consents shall be
filed with the minutes of the proceedings of the Board of Directors. Such action
by written consent shall have the same force and effect as a unanimous vote of
the Board of Directors.
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3.13 Fees and Compensation of Directors. Directors and members of
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
Board of Directors. This Section 3.13 shall not be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation for those services.
3.14 Approval of Loans to Officers. If these Bylaws have been
approved by the corporation's shareholders in accordance with the Code, the
corporation may, upon the approval of the Board of Directors alone, make loans
of money or property to, or guarantee the obligations of, any officer of the
corporation or of its parent, if any, whether or not a director, or adopt an
employee benefit plan or plans authorizing such loans or guaranties provided
that (i) the Board of Directors determines that such a loan or guaranty or plan
may reasonably be expected to benefit the corporation, (ii) the corporation has
outstanding shares held of record by 100 or more persons (determined as provided
in Section 605 of the Code) on the date of approval by the Board of Directors,
and (iii) the approval of the Board of Directors is by a vote sufficient without
counting the vote of any interested director or directors. Notwithstanding the
foregoing, the corporation shall have the power to make loans permitted by the
Code.
ARTICLE IV
COMMITTEES
4.1 Committees of Directors. The Board of Directors may, by
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of two (2) or more directors,
to serve at the pleasure of the Board of Directors. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent member at any meeting of the committee. The appointment of
members or alternate members of a committee requires the vote of a majority of
the authorized number of the directors. Any such committee shall have authority
to act in the manner and to the extent provided in the resolution of the Board
of Directors and may have all the authority of the Board of Directors, except
with respect to:
(a) The approval of any action which, under the Code, also requires
shareholders' approval or approval of the outstanding shares.
(b) The filling of vacancies on the Board of Directors or on any
committee.
(c) The fixing of compensation of the directors for serving on the
Board of Directors or on any committee.
(d) The amendment or repeal of these Bylaws or the adoption of new
Bylaws.
(e) The amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable.
(f) A distribution to the shareholders of the corporation, except at
a rate, in a periodic amount or within a price range set forth in the Articles
of Incorporation or determined by the Board of Directors.
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(g) The appointment of any other committee of the Board of Directors
or the members thereof.
4.2 Meetings and Actions of Committees. Meetings and actions of
committee shall be governed by, and held and taken in accordance with, the
provisions of Article III of these Bylaws, Section 3.5 (place of meetings),
Section 3.6 (regular meetings), Section 3.7 (special meetings and notice),
Section 3.8 (quorum), Section 3.9 (waiver of notice), Section 3.10
(adjournment), Section 3.11 (notice of adjournment), and Section 3.12 (action
without meeting), with such changes in the context of those Bylaws as are
necessary to substitute the committee and its members for the Board of Directors
and its members; provided, however, that the time of regular meetings of
committees may be determined either by resolution of the Board of Directors or
by resolution of the committee, that special meetings of the Committees may also
be called by resolution of the Board of Directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The Board of Directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these Bylaws.
ARTICLE V
OFFICERS
5.1 Officers. The officers of the corporation shall be a President,
a Secretary, and a Chief Financial Officer. The corporation may also have, at
the discretion of the Board of Directors, a Chairman of the Board, one or more
Vice Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 5.3 of these Bylaws. Any number of offices may be held by
the same person.
5.2 Appointment of Officers. The officers of the corporation, except
such officers as may be appointed in accordance with the provisions of Section
5.3 of these Bylaws, shall be chosen by the Board of Directors and serve at the
pleasure of the Board of Directors, subject to the rights, if any, of an officer
under any contract of employment.
5.3 Subordinate Officers. The Board of Directors may appoint, or may
empower the Chairman of the Board or the President to appoint, such other
officers as the business of the corporation may require, each of whom shall hold
office for such period, have such authority, and perform such duties as are
provided in these Bylaws or as the Board of Directors may from time to time
determine.
5.4 Removal or Resignation of Officers. Subject to the rights, if
any, of an officer under any contract of employment, all officers serve at the
pleasure of the Board of Directors and any officer may be removed, either with
or without cause, by the Board of Directors at any regular or special meeting of
the Board of Directors or, except in case of an officer chosen by the Board of
Directors, by any officer upon whom such power of removal may be conferred by
the Board of Directors.
Any officer may resign at any time by giving written notice to
the corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time
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specified in that notice; and, unless otherwise specified in that notice, the
acceptance of the resignation shall not be necessary to make it effective. Any
resignation is without prejudice to the rights, if any, of the corporation under
any contract to which the officer is a party.
5.5 Vacancy In Offices. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed by these Bylaws for regular appointments to that office.
5.6 Chairman of the Board. The Chairman of the Board, if such an
officer be elected, shall, if present, preside at meetings of the Board of
Directors and exercise and perform such other powers and duties as may from time
to time be assigned by the Board of Directors or as may be prescribed by these
Bylaws. If there is no President, then the Chairman of the Board shall also be
the chief executive officer of the corporation and shall have the powers and
duties prescribed in Section 5.7 of these Bylaws.
5.7 President. The President shall be the general manager and chief
executive officer of the corporation unless such title is assigned to another
officer of the corporation; in the absence of a Chairman and Vice Chairman of
the Board, the President shall preside as the chairman of meetings of the
shareholders and the Board of Directors; and the President shall have general
and active management of the business of the corporation and shall see that all
orders and resolutions of the Board of Directors are carried into effect. The
President or any Vice President shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the corporation (if the
corporation has adopted a seal), except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be expressly delegated by the Board of Directors to some other officer or
agent of the corporation. The President shall perform all such other duties as
are incident to such office or are properly required by the Board of Directors.
5.8 Vice Presidents. In the absence or disability of the President,
the Vice Presidents, if any, in order of their rank as fixed by the Board of
Directors or, if not ranked, a Vice President designated by the Board of
Directors, shall perform all the duties of the President and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
President. The Vice Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors, these Bylaws, the President or the Chairman of the Board.
5.9 Secretary. The Secretary shall keep or cause to be kept, at the
principal executive office of the corporation or other such place as the Board
of Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors and shareholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
shareholders' meetings, and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the Board of
Directors, a share register, or a duplicate share register, showing the
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names of all shareholders and their addresses, the number and classes of shares
held by each, the number and dates of certificates evidencing such shares, and
the number and date of cancellation of every certificate surrendered for
cancellation.
The Secretary shall give, or cause to be given, notice of all
meetings of shareholders and of the Board of Directors required to be given by
law or by these Bylaws. The Secretary shall keep the seal of the corporation, if
one be adopted, in safe custody and shall have such other powers and perform
other such duties as may be prescribed by the Board of Directors or by these
Bylaws.
5.10 Chief Financial Officer. The Chief Financial Officer shall keep
and maintain, or cause to be kept and maintained, adequate and correct books and
records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings, and shares. The books
of account shall at all reasonable times be open to inspection by any director.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
6.1 Indemnification of Directors. The corporation shall, to the
maximum extent and in the manner permitted by the Code, indemnify each of its
directors against expenses (as defined in Section 317(a) of the Code), judgment,
fines, settlements, and other amounts actually and reasonably incurred in
connection with any proceeding (as defined in Section 317(a) of the Code),
arising by reason of the fact that such person is or was a director of the
corporation. For purposes of this Article VI, a "director" of the corporation
includes any person (i) who is or was a director of the corporation, (ii) who is
or was serving at the request of the corporation as a director of another
foreign or domestic corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was a director of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation.
6.2 Indemnification of Others. The corporation shall have the power,
to the extent and in the manner permitted by the Code, to indemnify each of its
employees, officers, and agents (other than directors) against expenses (as
defined in Section 317(a) of the Code), judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with any proceeding (as
defined in Section 317(a) of the Code), arising by reason of the fact that such
person is or was an employee, officer, or agent of the corporation. For purposes
of this Article VI, an "employee" or "officer" or "agent" of the corporation
(other than a director) includes any person (i) who is or was an employee,
officer, or agent of the corporation, (ii) who is or was serving at the request
of the corporation as an employee, officer, or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise, or
(iii) who was an employee, officer, or agent of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.3 Payment of Expenses In Advance. Expenses and attorneys' fees
incurred in defending any civil or criminal action or other proceeding for which
indemnification is required pursuant to Section 6.1, or if otherwise authorized
by the Board of Directors, shall be paid by the
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corporation in advance of the final disposition of such action or proceeding
upon receipt of an undertaking by or on behalf of the indemnified party to repay
such an amount if it shall ultimately be determined that the indemnified party
is not entitled to be indemnified as authorized in this Article VI.
6.4 Indemnity Not Exclusive. The indemnification provided by this
Article VI shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any Bylaw, agreement, vote of
shareholders or directors or otherwise, both as to action in an official
capacity and as to action in another capacity while holding such office. The
rights to indemnity hereunder shall continue as to a person who has ceased to be
a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors, and administrators of the person.
6.5 Insurance Indemnification. The corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation against any liability
asserted against or incurred by such person in such capacity or arising out of
that person's status as such, whether or not the corporation would have the
power to indemnify that person against such liability under the provisions of
this Article VI.
6.6 Conflicts. No indemnification or advance shall be made under
this Article VI, except where such indemnification or advance is mandated by law
or the order, judgment or decree of any court of competent jurisdiction, in any
circumstance where it appears:
(1) that it would be inconsistent with the provisions of the
Articles of Incorporation, these Bylaws, a resolution of the shareholders or an
agreement in effect at the time of the accrual of the alleged cause of the
action asserted in the proceeding in which the expenses were incurred or other
amounts were paid, which prohibits or otherwise limits indemnification; or
(2) that it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
6.7 Right to Bring Suit. If a claim under this Article VI is not
paid in full by the corporation within ninety (90) days after a written claim
has been received by the corporation (either because the claim is denied or
because no determination is made), the claimant may at any time thereafter bring
suit against the corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall also be entitled to be paid
the expenses of prosecuting such claim. The corporation shall be entitled to
raise as a defense to any such action that the claimant has not met the
standards of conduct that make it permissible under the Code for the corporation
to indemnify the claimant for the claim. Neither the failure of the corporation
(including its Board of Directors, independent legal counsel, or its
shareholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is permissible in the circumstances
because he or she has met the applicable standard of conduct, if any, nor an
actual determination by the corporation (including the Board of Directors,
independent legal counsel, or its shareholders) that the claimant has not met
the applicable standard of conduct, shall be a defense to such action or create
a presumption for the purposes of such action that the claimant has not met the
applicable standard of conduct.
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6.8 Indemnity Agreements. The Board of Directors is authorized to
enter into a contract with any director, officer, employee or agent of the
corporation, or any person who is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, or any person who was a director, officer, employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation, providing for
indemnification rights equivalent to or, if the Board of Directors so determines
and to the extent permitted by applicable law, greater than, those provided for
in this Article VI.
6.9 Amendment, Repeal or Modification. Any amendment, repeal or
modification of any provision of this Article VI shall not adversely affect any
right or protection of a director, employee, officer or agent of the corporation
existing at the time of such amendment, repeal or modification.
ARTICLE VII
RECORDS AND REPORTS
7.1 Maintenance and Inspection of Share Register. The corporation
shall keep either at its principal executive office or at the office of its
transfer agent or registrar (if either be appointed), as determined by
resolution of the Board of Directors, a record of its shareholders listing the
names and addresses of all shareholders and the number and class of shares held
by each shareholder.
A shareholder or shareholders of the corporation holding at
least five percent (5%) in the aggregate of the outstanding voting shares of the
corporation who held at least one percent (1%) of such voting shares and have
filed a Schedule 14B with the United States Securities and Exchange Commission
relating to the election of directors, shall have an absolute right to do either
or both of the following (i) inspect and copy the record of shareholders' names,
addresses, and shareholdings during usual business hours upon five (5) days'
prior written demand upon the corporation, or (ii) obtain from the transfer
agent of the corporation, upon written demand and upon the tender of such
transfer agent's usual charges for such list (the amount of which charges shall
be stated to the shareholder by the transfer agent upon request), a list of the
shareholders' names and addresses who are entitled to vote for the election of
the directors, and their shareholdings, as of the most recent record date for
which it has been compiled or as of the date specified by the shareholder
subsequent to the date of demand. The list shall be made available on or before
the later of five (5) business days after the demand is received or the date
specified therein as the date as of which the list is to be compiled.
The record of shareholders shall also be open to inspection or
copying by any shareholder or holder of a voting trust certificate at any time
during usual business hours upon written demand on the corporation, for a
purpose reasonably related to the holder's interests as a shareholder or holder
of a voting trust certificate.
Any inspection and copying under this Section 7.1 may be made in
person or by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
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7.2 Maintenance and Inspection of Bylaws. The corporation shall keep
at its principal executive office or, if its principal executive office is not
in the State of California, at its principal business office in California, the
original or a copy of these Bylaws as amended to date, which shall be open to
inspection by the shareholders at all reasonable times during business hours. If
the principal executive office is outside the State of California and the
corporation has no principal business office in such state, then it shall, upon
the written request of any shareholder, furnish to such shareholder a copy of
these Bylaws as amended to date.
7.3 Maintenance and Inspection of Other Corporate Records. The
accounting books and records and the minutes of proceedings of the shareholders
and the Board of Directors, and committees of the Board of Directors shall be
kept at such place or places as are designated by the Board of Directors or, in
absence of such designation, at the principal executive office of the
corporation. The minutes shall be kept in written form or in any other form
capable of being converted into written form.
The minutes and accounting books and records shall be open to
inspection upon the written demand on the corporation of any shareholder or
holder of a voting trust certificate at any reasonable time during usual
business hours, for a purpose reasonably related to such holder's interests as a
shareholder or as a holder of a voting trust certificate. Such inspection by a
shareholder or a holder of a voting trust certificate may be made in person or
by an agent or attorney and the right of inspection includes the right to copy
and make extracts. Such rights of inspections shall extend to the records of
each subsidiary corporation of the corporation.
7.4 Inspection By Directors. Every director shall have the absolute
right at any reasonable time to inspect and copy all books, records, and
documents of every kind and to inspect the physical properties of the
corporation and each of its subsidiary corporations, domestic or foreign. Such
inspection by a director may be made in person or by an agent or attorney and
the right of inspection includes the right to copy and make extracts.
7.5 Annual Report to Shareholders; Waiver. The Board of Directors
shall cause an annual report to be sent to the shareholders not later than one
hundred twenty (120) days after the close of the fiscal year adopted by the
corporation. Such report shall be sent to the shareholders at least fifteen (15)
(or, if sent by third class mail, thirty-five (35)) days prior to the annual
meeting of shareholders to be held in the next fiscal year and in the manner
specified in Section 2.5 of these Bylaws for giving notice to shareholders of
the corporation.
The annual report shall contain a balance sheet as of the end of
the fiscal year and an income statement and statement of changes in financial
position for the fiscal year, accompanied by any report thereon of independent
accountants or, if there is no such report, the certificate of an authorized
officer of the corporation that the statements were prepared without audit from
the books and records of the corporation.
The foregoing requirement of an annual report shall be waived so
long as the shares of the corporation are held by fewer than one hundred (100)
holders of record.
7.6 Financial Statements. If no annual report for the fiscal year
has been sent to shareholders, then the corporation shall, upon the written
request of any shareholder made more
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than one hundred twenty (120) days after the close of such fiscal year, deliver
or mail to the person making the request, within thirty (30) days thereafter, a
copy of a balance sheet as of the end of such fiscal year and an income
statement and statement of changes in financial position for such fiscal year.
A shareholder or shareholders holding at least five percent (5%)
of the outstanding shares of any class of the corporation may make a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the current fiscal year ended
more than thirty (30) days prior to the date of the request and a balance sheet
of the corporation as of the end of that period. The statements shall be
delivered or mailed to the person making the request within thirty (30) days
thereafter. A copy of the statements shall be kept on file in the principal
office of the corporation for twelve (12) months and it shall be exhibited at
all reasonable times to any shareholder demanding an examination of the
statements or a copy shall be mailed to the shareholder. If the corporation has
not sent to the shareholders its annual report for the last fiscal year, the
statements referred to in the first paragraph of this Section 7.6 shall likewise
be delivered or mailed to the shareholder or shareholders within thirty (30)
days after the request.
The quarterly income statements and balance sheets referred to
in this section shall be accompanied by the report thereon, if any, of any
independent accountants engaged by the corporation or the certificate of an
authorized officer of the corporation that the financial statements were
prepared without audit from the books and records of the corporation.
7.7 Representation of Shares of Other Corporations. The Chairman of
the Board, the President, any Vice President, the Chief Financial Officer, the
Secretary or Assistant Secretary of this corporation, or any other person
authorized by the Board of Directors or the President or a Vice President, is
authorized to vote, represent, and exercise on behalf of this corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority herein granted may be
exercised either by such person directly or by any other person authorized to do
so by proxy or by power of attorney duly executed by such person having the
authority.
ARTICLE VIII
GENERAL MATTERS
8.1 Record Date for Purpose Other Than Notice and Voting. For
purposes of determining the shareholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action (other than with
respect to notice or voting at a shareholders' meeting or action by shareholders
by written consent without a meeting), the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) days prior to
any such action. Only shareholders of record at the close of business on the
record date are entitled to receive the dividend, distribution or allotment of
rights, or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date,
except as otherwise provided for in the Articles of Incorporation or the Code.
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If the Board of Directors does not so fix a record date, then
the record date for determining shareholders for any such purpose shall be at
the close of business on the day on which the Board adopts the resolution
relating thereto or the sixtieth (60th) day prior to the date of that action,
whichever is later.
8.2 Checks; Drafts; Evidence of Indebtedness. From time to time, the
Board of Directors shall determine by resolution which person or persons may
sign or endorse all checks, drafts, other orders for payment of money, notes or
other evidences of indebtedness that are issued in the name of or payable to the
corporation, and only the persons so authorized shall sign or endorse those
instruments.
8.3 Corporate Contracts and Instruments; How Executed. The Board of
Directors, except as otherwise provided in these Bylaws, may authorize any
officer or officers, or agent or agents, to enter into any contract or execute
any instrument in the name of or on behalf of the corporation; such authority
may be general or confined to specific instances. Unless so authorized or
ratified by the Board of Directors or within the agency power of an officer, no
officer, agent or employee shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
8.4 Certificate For Shares. A certificate or certificates for shares
of the corporation shall be issued to each shareholder when any such shares are
fully paid. The Board of Directors may authorize the issuance of certificates
for shares partly paid provided that these certificates shall state the total
amount of the consideration to be paid for them and the amount actually paid.
All certificates shall be signed in the name of the corporation by the Chairman
of the Board or the Vice Chairman of the Board or the President or a Vice
President and by the Chief Financial Officer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, certifying the number of shares and the
class and series of shares owned by the shareholder. Any or all of the
signatures on the certificates may be by facsimile.
In case any officer, transfer agent or registrar has signed or
whose facsimile signature has been placed on a certificate has ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if that person were an
officer, transfer agent or registrar at the date of issue.
8.5 Lost Certificates. Except as provided in this Section 8.5, no
new certificate for shares shall be issued to replace a previously issued
certificate unless the later is surrendered to the corporation or its transfer
agent or registrar and cancelled at the same time. The Board of Directors may,
in case any share certificate or certificate for any other security is lost,
stolen or destroyed (as evidenced by a written affidavit or affirmation of such
fact), authorize the issuance of replacement certificates on such terms and
conditions as the Board of Directors may require; the Board of Directors may
require indemnification of the corporation secured by a bond or other adequate
security sufficient to protect the corporation against any claim that may be
made against it, including any expense or liability, on account of the alleged
loss, theft or destruction of the certificate or the issuance of the replacement
certificate.
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8.6 Construction; Definitions. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in the
Code shall govern the construction of these Bylaws. Without limiting generality
of the provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
ARTICLE IX
AMENDMENTS
9.1 Amendment By Shareholders. New Bylaws may be adopted or these
Bylaws may be amended or repealed by the vote or written consent of holders of a
majority of outstanding shares entitled to vote; provided, however, that if the
Articles of Incorporation of the corporation set forth the number of authorized
directors of the corporation, then the authorized number of directors may be
changed only by an amendment of the Articles of Incorporation.
9.2 Amendment By Directors. Subject to the rights of the
shareholders as provided by Section 9.1 of these Bylaws, Bylaws, other than a
Bylaw or an amendment of a Bylaw changing the authorized number of directors
(except to fix the authorized number of directors pursuant to a Bylaw providing
for a variable number of directors), may be adopted, amended or repealed by the
Board of Directors.
9.3 Record of Amendments. Whenever an amendment or new Bylaw is
adopted, it shall be copied in the book of minutes with the original Bylaws. If
any Bylaw is repealed, the face of repeal, with the date of the meeting at which
the repeal was enacted or written consent was filed, shall be stated in said
book of minutes.
ARTICLE X
INTERPRETATION
Reference in the Bylaws to any provision of the California
Corporations Code shall be deemed to include all amendments thereof.
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EXHIBIT 10.1
QUEST SOFTWARE, INC
1998 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE 1
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1998 Stock Option/Stock Issuance 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 herein shall have the meanings assigned to such terms
in the attached Appendix.
II. STRUCTURE OF THE PLAN
Under the Plan there may be granted Awards in any one or a combination
of (i) stock options, (ii) stock issuances, (iii) performance unit, or (iv)
stock appreciation rights, all as more fully described below in the Plan. The
provisions set forth in Articles One and Five shall apply to all Awards under
the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any or all
administrative functions otherwise exercisable by the Board may be delegated to
the Committee, provided however, that if and as long as the Common Stock is
registered under the 1934 Act, members of the Committee must qualify as
non-employee directors within the meaning of Rule l6b-3 of the 1934 Act. Members
of the Committee shall serve for such period of time as the Board may determine
and shall be subject to removal by the Board at any time. The Board may also at
any time terminate the functions of the Committee and reassume all powers and
authority previously delegated to the Committee.
B. The Plan Administrator shall have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Plan and to make
such determinations under, and issue such interpretations of, the Plan and any
outstanding Awards, thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator shall be final and binding on all parties who have an
interest in the Plan or any Awards thereunder.
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IV. ELIGIBILITY
A. The persons eligible to participate in the Plan are as follows:
(i) Employees,
(ii) non-employee members of the Board or the non-employee
members of 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. The Plan Administrator shall have full authority to determine
the terms and conditions of the Awards, including but not limited to (i)with
respect to the option grants under the Option Grant Program, which eligible
persons are to receive option grants, the time or times when such option grants
are to be made, the number of shares to be covered by each such grant, the
status of the granted option as either an Incentive Option or a Non-Statutory
Option, the time or times at which each option is to become exercisable, the
vesting schedule (if any) applicable to the option shares and the maximum term
for which the option is to remain outstanding, (ii) with respect to stock
issuances under the Stock Issuance Program, which eligible persons are to
receive stock issuances, the time or times when such issuances are to be made,
the number of shares to be issued to each Participant, the vesting schedule (if
any) applicable to the issued shares and the consideration to be paid by the
Participant for such shares and (iii) with respect to stock appreciation rights
or performance units, which eligible persons are to receive such Awards, the
time such Awards are to be made, the number of shares or units to be granted,
the vesting schedule (if any) or duration of performance period and the
consideration for same.
C. The Plan Administrator shall have the absolute discretion to
grant stock options, to effect stock issuances or to grant stock appreciation
rights or performance units.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, provided, however, that until such time
as the Common Stock has been registered under Section 12 of the 1934 Act, the
total number of shares of Common Stock that may be issued under the Plan shall
not exceed 30% of the Company's outstanding shares of Common Stock at the time
of any issuance under the Plan, as calculated in accordance with Section
260.140.45 of the California Corporations Code - Code of Regulations. The
maximum number of shares of Common Stock which may be issued over the term of
the Plan shall not exceed 7,500,000 shares.
B. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) such options
expire or terminate for any reason prior to exercise in full, or (ii) such
options are cancelled in accordance with the cancellation-regrant provisions of
Article Two of the Plan. Unvested shares issued under the Plan
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and subsequently repurchased by the Corporation, pursuant to the Corporation's
repurchase rights under the Plan, shall be added back to the number of shares of
Common Stock reserved and available for issuance under the Plan.
C. If the Corporation shall at any time change the number of shares
of Common Stock outstanding without new consideration to the Corporation (such
as by stock dividend, stock split, recapitalization, reorganization, exchange of
shares, liquidation, combination or other change in corporate structure
affecting the shares of Common Stock) or make a distribution of cash or property
which has a substantial impact on the value of issued shares of Common Stock,
the total number of shares available for Awards under this Plan shall be
appropriately adjusted and the number of shares covered by each outstanding
Award and the reference price or Fair Market Value for each outstanding Award
shall be adjusted so that the aggregate exercise price payable for all such
securities shall remain the same. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive. In no event shall any such
adjustments be made in connection with the conversion of one or more outstanding
shares of the Corporation's preferred stock into shares of Common Stock.
ARTICLE 2
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 Incentive Options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the Plan
Administrator in accordance with the following provisions:
(i) 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.
(ii) Until such time as the Common Stock has been
registered under Section 12 of the 1934 Act, if the person to whom the option is
granted is a 10% Shareholder, 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.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Four and the documents evidencing the option, be payable in cash or
check made payable to the Corporation. Should the
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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) in shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date, or
(ii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable written instructions (A) to a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be withheld by the
Corporation by reason of such exercise and (B) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm in order
to complete the sale.
Except to the extent 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 grant. However, no option shall have a term in excess of
ten (10) years measured from the option grant date.
C. Effect of Termination of Service.
1. The following provisions shall govern the exercise of
any options held by the Optionee at the time of cessation of Service or death to
the extent such options were granted prior to the registration of the underlying
Common Stock under Section 12 of the 1934 Act:
(i) Should the Optionee cease to remain in Service
for any reason other than Disability or death, then the Optionee shall have a
period of three (3) months following the date of such cessation of Service
during which to exercise each outstanding option held by such Optionee.
(ii) Should Optionee's Service terminate by reason of
Disability, then the Optionee shall have a period of twelve (12) months
following the date of such cessation of Service during which to exercise each
outstanding option held by such Optionee.
(iii) If the Optionee dies while holding an
outstanding option, then the personal representative of his or her estate or the
person or persons to whom the option is transferred pursuant to the Optionee's
will or the applicable laws of inheritance shall have a twelve (12)-month period
following the date of the Optionee's death to exercise such option.
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(iv) Under no circumstances, however, shall any such
option be exercisable after the specified expiration of the option term.
(v) 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 with
respect to any and all option shares for which the option is not otherwise at
the time exercisable or in which the Optionee is not otherwise at that time
vested.
2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option
is to remain exercisable following Optionee's cessation of Service or death from
the limited period otherwise in effect for that option to such greater period of
time as the Plan Administrator shall deem appropriate, but in no event beyond
the expiration of the option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the number of
vested shares of Common Stock for which such option is exercisable at the time
of the Optionee's cessation of Service but also with respect to one or more
additional installments in which the Optionee would have vested under the option
had the Optionee continued in Service.
D. Shareholder Rights. The holder of an option shall have no
shareholder rights with respect to the shares of Common Stock 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. Unvested Shares. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, all or (at the discretion of the Corporation and with the consent of the
Optionee) any 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. Until such time as the Common Stock has been registered under
Section 12 of the 1934 Act, the Plan Administrator may not impose a vesting
schedule upon any option grant or any shares of Common Stock subject to the
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.
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F. First Refusal Rights. Until such time as the Common Stock is
first registered under Section 12 of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Optionee (or any successor in interest) of any shares of Common Stock issued
under the Plan. Such right of first refusal shall be exercisable in accordance
with the terms established by the Plan Administrator and set forth in the
document evidencing such right.
G. Limited Transferability of Options. During the lifetime of the
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death.
H. Withholding. The Corporation's obligation to deliver shares of
Common Stock upon the exercise of any options granted under the Plan shall be
subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
the Plan shall be applicable to Incentive Options. Options which are
specifically designated as Non-Statutory Options shall not be subject to the
terms of this Section II.
A. Eligibility. Incentive Options may only be granted to Employees.
B. Exercise Price. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value of the shares
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one (1) calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% Shareholder. If any Employee to whom an Incentive Option is
granted is a 10% Shareholder, then the option term shall not exceed five (5)
years measured from the option grant date.
III. CORPORATE TRANSACTION
A. The shares subject to each option outstanding under the Plan at
the time of a Corporate Transaction shall automatically vest in full so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for all of the
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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,
the shares subject to an outstanding option shall not vest on such an
accelerated basis if and to the extent: (i) such option is assumed by the
successor corporation (or parent thereof) in the Corporate Transaction and the
Corporation's repurchase rights with respect to the unvested option shares are
concurrently assigned to such successor corporation (or parent thereof), or (ii)
such option is to be replaced with a cash incentive program of the successor
corporation which preserves the spread existing on the unvested option shares at
the time of the Corporate Transaction and provides for subsequent payout in
accordance with the same vesting schedule applicable to those unvested option
shares, or (iii) the acceleration of such option is subject to other limitations
imposed by the Plan Administrator at, the time of the option grant.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction,
or (ii) such accelerated vesting is precluded by other limitations imposed by
the Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction, had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction, and (ii) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same.
E. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration (in whole or in part) of
one or more outstanding options (and the automatic termination of one or more
outstanding repurchase rights, with the immediate vesting of the shares of
Common Stock subject to those terminated rights) upon the occurrence of a
Corporate Transaction, whether or not those options are to be assumed or
replaced (or those repurchase rights are to be assigned) in the Corporate
Transaction.
F. The Plan Administrator shall also have full power and authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to structure such option so that the shares subject
to that option will automatically vest on an accelerated basis should the
Optionee's Service terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any
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Corporate Transaction in which the option is assumed and the repurchase rights
applicable to those shares do not otherwise terminate. Any such option shall
remain exercisable for the fully-vested option 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 provide that one or more of the outstanding
repurchase rights with respect to shares held by the Optionee at the time of
such Involuntary Termination shall immediately terminate on an accelerated
basis, and the shares subject to those terminated rights shall accordingly vest.
G. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction shall remain exercisable as an Incentive Option
only to the extent the applicable One Hundred Thousand Dollar ($100,000)
limitation described in Section II.C of Article Two of the Plan 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.
H. The grant of options under the Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution therefor new options covering the same or different number of
shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new option grant date.
ARTICLE 3
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.
A. Purchase Price.
1. The purchase price per share shall be fixed by the Plan
Administrator but (until such time as the Common Stock has been registered under
Section 12 of the 1934 Act), shall not be less than eighty-five percent (85%) of
the Fair Market Value per share of Common Stock on the issue date. However, the
purchase price per share of Common Stock issued to a 10% Shareholder shall not
be less than one hundred and ten percent (110%) of such Fair Market
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Value (until such time as the Common Stock has been registered under Section 12
of the 1934 Act).
2. Subject to the provisions of Section I of Article Four,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation,
or
(ii) past services rendered to the Corporation (or
any Parent or Subsidiary).
B. Vesting Provisions.
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. However, until such time as the Common Stock has been registered
under Section 12 of the 1934 Act, 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.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
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 shareholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further shareholder 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 equivalents (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the
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surrendered shares and shall cancel the unpaid principal balance of any
outstanding purchase-money note of the Participant attributable to such
surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the
non-completion of the vesting schedule applicable to such 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.
C. First Refusal Rights. Until such time as the Common Stock is
first registered under Section 12 of the 1934 Act, 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 Stock Issuance Program. 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.
II. CORPORATE TRANSACTION
A. Upon the occurrence of a Corporate Transaction, all outstanding
repurchase rights under the Stock Issuance Program shall terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, except to the extent: (i) those repurchase
rights are assigned to the successor corporation (or parent thereof) in
connection with such Corporation Transaction, 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 shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights with respect to those shares remain
outstanding, to provide that those rights shall automatically terminate on an
accelerated basis, and the shares of Common Stock subject to those terminated
rights shall immediately vest, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which those repurchase rights are assigned
to the successor corporation (or parent thereof).
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 4
OTHER AWARDS
I. PERFORMANCE UNITS
A. Performance units may be awarded either alone or in addition to
other Awards granted under this Plan and shall consist of the right to receive a
fixed dollar amount, payable in cash or shares of Common Stock or a combination
of both.
B. The performance units awarded pursuant to this Article 4 shall
be subject to the following terms and conditions:
(i) At the expiration of the performance cycle, the
Committee shall determine the extent to which the performance goals have been
achieved, and the percentage of the performance units of each Participant that
have vested.
(ii) Subject to the applicable provisions of the performance
unit Award and this Plan, at the expiration of the performance cycle, cash
and/or share certificates of an equivalent value (as the Committee may
determine) shall be delivered to the participant, or his or her legal
representative, in payment of the vested performance units covered by the
performance unit Award.
(iii) Subject to the applicable provisions of the performance
unit Award and this Plan, upon termination of a participant's employment with
the Company for any reason during the performance cycle for a given performance
unit Award, such performance units will vest or be forfeited in accordance with
the terms and conditions established by the Committee.
II. STOCK APPRECIATION RIGHTS
Stock appreciation rights may be granted to the holders of any stock
options granted hereunder. In addition, stock appreciation rights may be granted
independently of and without relation to options. Each stock appreciation right
shall be subject to such terms and conditions consistent with the Plan as the
Plan Administrator shall impose from time to time, including the following:
A. A stock appreciation right relating to a Non-Statutory Option
may be made part of such option at the time of its grant or at any time
thereafter up to six months prior to its expiration, and a stock appreciation
right relating to an Incentive Option may be made part of such option only at
the time of its grant.
B. Each stock appreciation right will entitle the holder to elect
to receive the appreciation in the Fair Market Value of the shares subject
thereto up to the date the right is exercised. In the case of a right issued in
relation to a stock option, such appreciation shall be measured from not less
than the option price and in the case of a right issued independently of
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any stock option, such appreciation shall be measured from not less than 85% of
the Fair Market Value of the Common Stock on the date the right is granted.
Payment of such appreciation shall be made in cash or in shares of Common Stock,
or a combination thereof, as set forth in the Award, but no stock appreciation
right shall entitle the holder to receive, upon exercise thereof, more than the
number of shares of Common Stock (or cash of equal value) with respect to which
the right is granted.
C. Each stock appreciation right will be exercisable at the times
and to the extent set forth therein, but no stock appreciation right may be
exercisable earlier than six months after the date it was granted or later than
the earlier of (i) the term of the related option, if any, or (ii) ten years
after it was granted. Exercise of a stock appreciation right shall reduce the
number of shares issuable under the Plan (and the related option, if any) by the
number of shares with respect to which the right is exercised.
III. CORPORATE TRANSACTION
A. In the case of any Corporate Transaction, subject to the
provisions of this Plan and any limitation applicable to the Award:
(i) any Participant to whom a stock appreciation right has
been granted shall have the right thereafter and during the term of such right
to receive upon exercise thereof the difference on the exercise date between the
aggregate Fair Market Value of the Corporate Transaction Consideration
receivable upon such transaction by a holder of the number of shares of Common
Stock which are covered by such right and the aggregate reference price of such
right; and
(ii) any Participant to whom performance units have been
awarded shall have the right thereafter and during the term of the Award, upon
fulfillment of the terms of the Award, to receive on the date or dates set forth
in the Award, the Corporate Transaction Consideration receivable upon the
Corporate Transaction by a holder of the number of shares of Common Stock which
are covered by the Award.
B. Notwithstanding any other provision of this Plan, the Committee
may authorize the issuance, continuation or assumption of Awards or provide for
other equitable adjustments after changes in the shares of Common Stock
resulting from any Corporate Transaction upon such terms and conditions as it
may deem equitable and appropriate.
ARTICLE 5
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay the
option exercise price or the purchase price for shares issued to such person
under the Plan by delivering
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a recourse, interest-bearing promissory note payable in one or more installments
and secured by the purchased shares. However, any promissory note delivered by a
consultant must be secured by property in addition to the purchased shares of
Common Stock. In no event shall the maximum credit available to the Optionee or
Participant exceed the sum of (i) the aggregate option exercise price or
purchase price payable for the purchased shares plus, (ii) any Federal, state
and local income and employment tax liability incurred by the Optionee or the
Participant in connection with the option exercise or share purchase.
II. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective when adopted by the Board, but
no Award 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 shareholders. If
such shareholder approval is not obtained within twelve (12) months after the
date of the Board's adoption of the Plan, then all Awards previously granted
under the Plan shall terminate and cease to be outstanding, and no further
Awards shall be granted and no shares shall be issued under the Plan. Subject to
the foregoing limitation, the Plan Administrator may grant Awards under the Plan
at any time after the effective date of the Plan and before the date fixed
herein for termination of the Plan.
B. The Plan shall terminate upon the earliest of (i) the expiration
of the ten (10)-year period measured from the date the Plan is adopted by the
Board, (ii) the date on which all shares available for issuance under the Plan
shall have been issued, or (iii) the termination of all outstanding options in
connection with a Corporate Transaction. All Awards outstanding at that time
under the Plan shall continue to have full force and effect in accordance with
the provisions of the documents evidencing such options or issuances.
III. 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 Awards at the time outstanding under the Plan unless the Optionee or the
Participant consents to such amendment or modification. In addition, certain
amendments may require shareholder approval pursuant to applicable laws and
regulations.
B. Awards may be granted under the Plan which are in excess of the
number of shares of Common Stock 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 shareholder approval of an amendment sufficiently
increasing the number of shares of Common Stock available for issuance under the
Plan. If such shareholder approval is not obtained within twelve (12) months
after the date the first such excess Awards are made, then (i) any Awards
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
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(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.
IV. CERTAIN OBLIGATIONS
In connection the Participant's Service to the Corporation, the
Corporation will from time to time provide Participant with access to the
Corporation's confidential information, or the opportunity to develop business
goodwill inuring to the benefit of the Corporation, or entrust business
opportunities to Participant. Participant hereby agrees to maintain the
confidentiality of the Corporation's information and to exercise the highest
measure of fidelity and loyalty in the promotion and preservation of the
Corporation's goodwill and business opportunities. As part of the consideration
for the Award to Participant hereunder, to protect the Corporation's
confidential information and the business goodwill that has been and will be in
the future be developed by and through Participant's Service to the Corporation
and the business opportunities that have been and will in the future be
disclosed to Participant by the Corporation, and as additional incentive for the
Corporation and the Participant to enter into an agreement in connection with
the Award, the Corporation and Participant agree that if Participant during the
twelve (12)-month period following the termination of Participant's Service with
the Corporation:
(i) engages in any business competitive with the business
conducted by the Corporation;
(ii) renders advice or services to, or otherwise assists any
other person, association or entity who is engaged, directly or indirectly, in
any business competitive with the business conducted by the Corporation with
respect to such competitive business;
(iii) directly or indirectly solicits or accepts business
competitive with the business conducted by the Corporation from any customers or
prospects by the Corporation; or
(iv) induces any person providing Services to the Corporation
to terminate such Service to the Corporation or hires or assists in the hiring
of any such person by any individual, association, or entity;
then the Corporation shall be entitled to recover from Participant, and the
Participant shall pay to the Corporation, an amount of money equal to any
economic gain, whether or not recognized or realized, inherent in the Award
received under the Plan or any option shares, purchased shares, performance
units or stock appreciation rights associated therewith.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares of
Common Stock under the Plan shall be used for general corporate purposes.
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VI. WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock upon the
exercise of any options or upon the issuance or vesting of any shares issued
under the Plan shall be subject to the satisfaction of all applicable Federal,
state and local income and employment tax withholding requirements.
VII. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options under the
Plan and the issuance of any shares of Common Stock under the Plan shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the options granted
under the Plan and the shares of Common Stock issued pursuant to the Plan.
VIII. NO EMPLOYMENT OR 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.
IX. 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.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. AWARDS shall mean one or a combination of (i) stock options,
(ii) stock issuances, (iii) performance units, or (iv) stock appreciation rights
that may be granted under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMITTEE shall mean a committee of two (2) or more Board
members appointed by the Board to exercise one or more administrative functions
under the Plan.
E. COMMON Stock shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
G. CORPORATION TRANSACTION CONSIDERATION shall mean the kind and
amount of securities, cash or other property or any combination thereof
receivable in respect of one share of Common Stock upon consummation of the
Corporate Transaction.
H. CORPORATION shall mean Quest Software, Inc., a California
corporation.
I. DISABILITY 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 and shall be determined by
the Plan Administrator on the basis of such medical evidence as the Plan
Administrator deems warranted under the circumstances.
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.
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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
Stock 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 Stock Market or any
successor system, or 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 per which such quotation exists.
(ii) If the Common Stock is at the time fisted 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) If the Common Stock is at the time neither fisted on any
Stock Exchange nor traded on the NASDAQ Stock Market, then the Fair Market Value
shall be determined by the Plan Administrator after taking into account such
factors as the Plan Administrator shall deem appropriate.
M. NASDAQ STOCK MARKET shall mean the automated interdealer
quotation system of the National Association of Securities Dealers, Inc.
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 voluntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially reduces his
or her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and target bonuses under
any corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%), or (C) a relocation of such individual's place of
employment by more than fifty (50) miles, provided and only if such change,
reduction or relocation is effected 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
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<PAGE> 18
confidential information or trade secrets of the Corporation (or any Parent or
Subsidiary), or any other intentional misconduct by such person adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
any Optionee, Participant or other person in the Service of the Corporation (or
any Parent or Subsidiary).
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 GRANT PROGRAM shall mean the option grant program in
effect under the Plan.
T. OPTIONEE shall mean any person to whom an option is granted
under the Plan.
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 or granted an
Award under the Plan.
W. PLAN shall mean the Corporation's 1998 Stock Option/Stock
Issuance Plan, as set forth in this document.
X. PLAN ADMINISTRATOR shall mean either the Board or the Committee
acting in its capacity as administrator of the Plan.
Y. SERVICE shall mean the provision of services to the Corporation
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.
Z. STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.
AA. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into
by the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
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BB. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under the Plan.
CC. 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.
DD. 10% SHAREHOLDER 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).
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<PAGE> 1
EXHIBIT 10.2
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. 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) The Primary Committee shall have the sole and
exclusive authority to determine which Section 16 Insiders and other
highly compensated Employees shall be eligible for participation in the
Salary Investment Option Grant Program for one or more calendar years.
However, all option grants under the Salary Investment Option Grant
Program shall be made in accordance with the express terms of that
program, and the Primary Committee shall not exercise any discretionary
functions with respect to the option grants made under that program.
(iv) Administration of the Automatic Option Grant and
Director Fee Option Grant Programs shall be self-executing in accordance
with the terms of those programs.
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.
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<PAGE> 3
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.
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-Eight Thousand, Five Hundred (7,498,500)
shares. Such authorized share reserve consists of (i) the number of shares which
remain available for issuance, as of the Plan Effective Date, under the
Predecessor Plans, 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.
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<PAGE> 4
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 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.
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<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.
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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<PAGE> 7
repurchase, at the exercise price paid per share, any or all of those unvested
shares. The terms upon which such repurchase right shall be exercisable
(including the period and procedure for exercise and the appropriate vesting
schedule for the purchased shares) shall be established by the Plan
Administrator and set forth in the document evidencing such repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime
of the Optionee, Incentive Options shall be exercisable only by the Optionee and
shall not be assignable or transferable other than to a Beneficiary following
the Optionee's death. Non-Statutory Options shall be subject to the same
restrictions, except that a Non-Statutory Option may, to the extent permitted by
the Plan Administrator, be assigned in whole or in part during the Optionee's
lifetime (i) as a gift to one or more members of the Optionee's immediate
family, to a trust in which Optionee and/or one or more such family members hold
more than fifty percent (50%) of the beneficial interest or to an entity in
which more than fifty percent (50%) of the voting interests are owned by one or
more such family members or (ii) pursuant to a domestic relations order. The
terms applicable to the assigned portion shall be the same as those in effect
for the option immediately prior to such assignment and shall be set forth in
such documents issued to the assignee as the Plan Administrator may deem
appropriate.
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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<PAGE> 9
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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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.
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.
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.
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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 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
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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, provided such individual has served as a non-employee Board member
for at least six (6) months.
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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(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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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
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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.
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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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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IV. 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 Plan Section 12 Registration Date. All options
outstanding under the Predecessor Plan on the Plan Effective Date shall be
incorporated into the Plan at that time and shall be treated as outstanding
options under the Plan. However, each outstanding option so incorporated shall
continue to be governed solely by the terms of the documents evidencing such
option, and no provision of the Plan shall be deemed to affect or otherwise
modify the rights or obligations of the holders of such incorporated options
with respect to their acquisition of shares of Common Stock.
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to 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
15, 2009, (ii) the date on which all shares available for issuance under the
Plan shall have been issued as fully-vested shares or (iii) the termination of
all outstanding options in connection with a 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.
V. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with
respect to stock options or unvested stock issuances at the time outstanding
under the Plan unless the Optionee or the Participant consents to such amendment
or modification. In addition, certain amendments may require stockholder
approval pursuant to applicable laws or regulations.
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
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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.
VI. 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.
VII. 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.
VIII. 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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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 __________, 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.
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EXHIBIT 10.3
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 by
which the share reserve will increase each year, (iii) the maximum number and
class of securities purchasable per Participant on any one Purchase Date and
(iv) 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.
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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 throughout the purchase period. The
Participant may not increase his or her rate of payroll deduction during a
purchase period. However, the Participant may, at any time during the purchase
period, reduce his or her rate of payroll deduction to become effective as soon
as possible after filing the appropriate form with the Plan Administrator. The
Participant may not, however, effect more than one (1) such reduction per
purchase period.
B. Payroll deductions shall begin on the first pay day
following the start date of the purchase period 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
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purchase right shall provide the Participant with the right to purchase shares
of Common Stock on the Purchase Date upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.
Under no circumstances shall purchase rights be granted under
the Plan to any Eligible Employee if such individual would, immediately after
the grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right
shall be automatically exercised on the Purchase Date, and shares of Common
Stock shall accordingly be purchased on behalf of each Participant (other than
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
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<PAGE> 4
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. Should the
Participant cease to remain in active service by reason of an approved
unpaid leave of absence all of the Participant's payroll deductions for
the purchase period in which the approved unpaid leave of absence began
shall be immediately refunded. 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.
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The Corporation shall use its best efforts to provide at least
ten (10)-days prior written notice of the occurrence of any Change in Control,
and Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Change in Control.
H. PRORATION OF PURCHASE RIGHTS. Should the total number of
shares of Common Stock to be purchased pursuant to outstanding purchase rights
on any particular date exceed the number of shares then available for issuance
under the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. ASSIGNABILITY. The purchase right shall be exercisable
only by the Participant and shall not be assignable or transferable by the
Participant.
J. STOCKHOLDER RIGHTS. A Participant shall have no
stockholder rights with respect to the shares subject to his or her outstanding
purchase right until the shares are purchased on the Participant's behalf in
accordance with the provisions of the Plan and the Participant has become a
holder of record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to
acquire Common Stock pursuant to any purchase right outstanding under this Plan
if and to the extent such accrual, when aggregated with (i) rights to purchase
Common Stock accrued under any other purchase right granted under this Plan and
(ii) similar rights accrued under other employee stock purchase plans (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.
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C. If by reason of such accrual limitations, any purchase
right of a Participant does not accrue for a particular purchase period, then
the payroll deductions which the Participant made during that purchase period
with respect to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the
provisions of this Article and one or more provisions of the Plan or any
instrument issued thereunder, the provisions of this Article shall be
controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on [ ] 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
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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.
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.
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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. 1933 ACT shall mean the Securities Act of 1933, as
amended.
L. 1934 ACT shall mean the Securities Exchange Act of 1934,
as amended.
M. PARTICIPANT shall mean any Eligible Employee of a
Participating Corporation who is actively participating in the Plan.
N. PARTICIPATING CORPORATION shall mean the Corporation and
such Corporate Affiliate or Affiliates as may be authorized from time to time by
the Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan are listed in attached Schedule A.
O. PLAN shall mean the Corporation's 1999 Employee Stock
Purchase Plan, as set forth in this document.
A-2
<PAGE> 11
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.
A-3
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CONFIDENTIAL QUEST/INSO CHICAGO
02/19/99
EXHIBIT 10.7
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN REDACTED PROVISIONS OF
THIS AGREEMENT. THE REDACTED PROVISIONS ARE IDENTIFIED BY THREE ASTERISKS AND
ENCLOSED BY BRACKETS. THE CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
INSO CORPORATION
LICENSE AGREEMENT
GENERAL TERMS AND CONDITIONS
This Agreement, effective as of the 19th day of February, 1999, is by and
between
<TABLE>
<CAPTION>
<S> <C> <C>
INSO CHICAGO CORPORATION and QUEST SOFTWARE, INC.
d/b/a Inso Corporation a corporation organized under the laws
a corporation organized under the laws of the State of California
of the State of Illinois (the "Licensee")
("Inso") and a wholly-owned subsidiary of
Inso Corporation
</TABLE>
This Agreement includes all Exhibits now or hereafter appended hereto by mutual
agreement of the parties.
WHEREAS, Inso is a developer of certain file-viewing technologies, and
WHEREAS, the Licensee desires rights to integrate and distribute materials
proprietary to Inso in connection with the Licensee's electronic products,
NOW, THEREFORE, the parties agree as follows:
1. Definitions
1.1 The "Component(s)" refer(s) individually and collectively to the object
code, documentation, and any other materials described on Exhibit A
hereto.
1.2 "Delivery" means that the Licensee has received the Components and that
the Components conform to the specifications of Section I of Exhibit A.
1.3 "Documentation" shall mean the users manual generally provided with the
Components and the Licensed Product, as the case may be.
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CONFIDENTIAL QUEST/INSO CHICAGO
02/19/99
1.4 "Confidential Information" means any information, oral or written, that
is not generally known outside of the disclosing party's organization,
including but not limited to information relating to its products,
product development, research, business operation, e.g., business
direction or marketing plans, customer lists, and pricing methods, and
that is identified in writing as confidential prior to its disclosure
to the receiving party. Notwithstanding the foregoing, the parties
agree that the following elements of the Components shall be considered
Inso Confidential Information whether or not identified as such: (a)
software documentation; and (b) Inso's proprietary techniques with
regard to product function, even if supplied to the Licensor solely as
embodied in the Components.
1.5 "Licensed Product" refers to the specific Licensee product or products
identified in Exhibit B; others may only be added by amendment to this
Agreement agreed to in writing by both parties.
1.6 An "Upgrade" is defined as a correction, improvement or other
modification of the file filters included in the Components which Inso
makes generally available to its licensees under maintenance for no
additional fee.
1.7 "Product Description" refers to the description contained in Section 1
of Exhibit A attached to this Agreement.
1.8 "Operating System" refers to a computer software program, routine or
algorithm, or any combination thereof, that controls, manages or
allocates the internal computational resources of a computer and the
functionality and program included therewith.
2. License, Use, Term, Payment
2.1 Inso hereby grants, and the Licensee accepts, a non-exclusive license
to use the Components and Documentation solely to develop, use, and
support Licensed Products in accordance with the terms and conditions
of this Agreement, including the limitations, if any, set forth in
Exhibit A. The right to use the Components and Documentation for that
purpose includes the right to use and reproduce the Components and
Documentation and to distribute Licensed Products worldwide, directly
or indirectly.
2.2 The Licensee's rights to use the Components as provided herein shall
continue only so long as the Licensee:
a. distributes Licensed Products in which the Components are
included solely as executable code;
b. pays Inso pursuant to this Agreement; and
c. is in compliance with all other material terms of this
Agreement.
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CONFIDENTIAL QUEST/INSO CHICAGO
02/19/99
2.3 The Licensee may sublicense Licensed Products only to end-users,
directly or through third party distributors and dealers, and solely on
terms as protective as the Licensee requires for its own proprietary
information and which enable the Licensee to meet its obligations under
this Agreement. Sublicenses to end-users shall provide that end-users
shall be permitted to use the Components only as part of the Licensed
Products. Any other sublicense shall be subject to the prior written
approval of Inso. The Licensee shall provide copies of its standard
software licenses to Inso upon request.
2.4 The Licensee may subcontract the distribution of the Licensed Products
provided that the Licensed Products are distributed and marketed solely
under the name of the Licensee and not of said distributor or any other
third party. The Licensee will, as Inso may reasonably request, give
Inso the names of such subcontractors and other information on its
procedures for protecting the Licensed Products in the reproduction
process. The Licensee shall be responsible for the payment of any
royalties resulting from distribution by any such subcontractor.
2.5 The term of this Agreement is specified in Exhibit B attached hereto,
and the licenses granted herein shall terminate automatically on
expiration without any action by the parties except as provided in
Section 11.5. This Agreement and the licenses granted herein shall be
terminated or suspended prior to such expiration only as provided in
Sections 2.2 and 11.
2.6 In consideration for the licenses granted herein, the Licensee shall
pay Inso royalties as set forth in Exhibit C attached hereto.
2.7 Notwithstanding anything to the contrary in this Agreement, the
Licensee shall not:
a) use the Components to integrate with any file viewing APIs of
the following:
i) the Windows 95 Operating System, or any successor
Operating System shell, including, but not limited
to, IFileViewer;
ii) any existing or future Operating Systems;
iii) mail and messaging client (by way of example, but not
limitation, this shall include products such as Da
Vinci Mail, MS Mail, cc:Mail, Beyond Mail, and Lotus
Notes) software APIs for viewing file attachments; or
iv) common dialog file viewing APIs outside of the
Licensed Product under the Windows 95 operating
environment;
b) distribute, market, or sublicense the Components as a
stand-alone product;
c) allow the Components to be accessed without the presence and
execution of the Licensee's other applications;
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CONFIDENTIAL QUEST/INSO CHICAGO
02/19/99
d) allow end-users to view documents using the Components other
than from within the Licensed Product;
e) expose or publish any Component API to any third-party
including, without limitation, any customer, OEM, or business
partner;
f) use the Components to develop file viewer "plug-ins" for
Internet browser clients (by way of example, but not
limitation, this shall include Netscape's Navigator);
g) use the Components to develop or create ActiveX viewer objects
outside of the Licensed Product;
h) reverse engineer, reverse compile or otherwise disassemble the
Components except where such restriction is prohibited by law;
or
i) write any file viewing, filtering, data, graphic or text
export or conversion function on top of Inso's Component
Specifications.
2.8 Inso shall cause Licensee to become a "FlexSAFE Licensee" under the
FlexSAFE Technology Deposit Agreement between Inso and Data Securities
International, Inc. ("DSI") dated December 8, 1995 (the "Escrow
Agreement"), a copy of which is attached hereto as Exhibit D. Licensee
shall be responsible for completing and returning the FlexSAFE
Beneficiary Enrollment Form (attached as Exhibit T to the Escrow
Agreement) to Inso, upon receipt of which Inso shall submit such form
to DSI. All costs associated with becoming and remaining a "FlexSAFE
Licensee" shall be borne by Inso.
3. Delivery and Acceptance
3.1 Inso has delivered the Components and services, if any, specified in
the Product Description.
3.2 The Components will be deemed accepted upon Agreement execution. Upon
Agreement execution Inso shall be entitled to the minimum royalties as
set out in Exhibit C, whether or not the Licensee subsequently develops
and markets the Licensed Products.
3.3 Any subsequent Components delivered will be deemed accepted upon
Delivery.
4. Proprietary Rights and Notices
4.1 This Agreement does not transfer to the Licensee any title in or
ownership of the Components or any Inso or third party trademarks, nor
(except as provided herein) any right to use Inso or third party
copyrighted material, or Inso Confidential Information embodied therein
except the rights to use the Components in Licensed Products as
expressly permitted by this Agreement. The Components and Inso
Confidential
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CONFIDENTIAL QUEST/INSO CHICAGO
02/19/99
Information embodied therein are and shall at all times remain the
sole and exclusive property of Inso.
4.2 The Licensee may not use trademarks, logos, trade dress, or titles of
Inso Products in any way, except as provided herein or with Inso's
express prior written permission.
4.3 The Licensee shall notify Inso as promptly as reasonably possible of
any suspected unauthorized use or possession of the Components or
Licensed Product. In the event of unauthorized use arising from the
Licensee's or its permitted sublicensees' or distributors' custody of
the Components, the Licensee shall cooperate with Inso in any
appropriate action Inso may take or request to protect its rights in
the Components. Unless such unauthorized use or possession arises from
the Licensee's or such sublicensees' or distributors' negligence or
breach of this Agreement, the cost of such action shall be borne by
Inso.
4.4 The Licensee may at its option, either convert Inso's Documentation to
the Licensee's format or reproduce and distribute Inso's Documentation
with the Licensee's covers. If the Documentation is converted to the
Licensee's format, Licensee shall not change any content (except for
format and grammatical changes by the Licensee's quality assurance
personnel, which shall be provided free of charge to Inso). The
Licensee shall be solely responsible for the results of such
conversion, and Inso's review, or lack thereof, shall not relieve the
Licensee of its responsibility.
4.5 Appropriate copyright and proprietary rights acknowledgment (Outside
In(R) Viewer Technology (C) 1992-1999 Inso Corporation. All rights
reserved.) will be stated on the Licensee's user manuals on the same
page(s) that the Licensee display its own similar notices; and, with
other said acknowledgments, where other credits appear on, or in
connection with the Licensed Products, including but not limited to
startup or "splash" screens and "Help" and "About" boxes. In addition
to acknowledgments in the Licensee's documentation, the Licensee shall,
at a minimum, provide Inso acknowledgment within the "Help" and "About"
boxes for the Licensed Products that are related to a viewer window.
5. Non-Disclosure of Confidential Information
5.1 In performing its obligations under this Agreement, each party may
receive Confidential Information of the other party, and shall take
reasonable steps to protect such Confidential Information, Such steps
shall include, but not be limited to:
a. designating the group responsible for controlling access to
such confidential information;
b. following the procedures the recipient takes to protect its
own confidential information of similar character;
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CONFIDENTIAL QUEST/INSO CHICAGO
02/19/99
c. limiting disclosure to recipient personnel solely on a need to
know basis, informing such personnel, by use of non-disclosure
agreements and display of confidentiality notices and other
instructions, of the restrictions on use, reproduction, and
disclosure; and
d. preventing disclosure to any third party without the
disclosing party's prior written permission in such case,
except that the recipient may disclose Confidential
Information of the disclosing party to a consultant or
subcontractor with a need to know, providing services to the
recipient which directly relate to the rights or obligations
of the parties pursuant to this Agreement, provided that each
such consultant or subcontractor has signed an appropriate
written agreement not to disclose such Confidential
Information or use such Confidential Information for any
purpose other than the performance of such services.
5.2 Neither party shall disclose the terms of this Agreement without the
other party's prior consent or as may be required by law or by order of
court or request of government agency, and in the case of such order or
request, after notice to the other party that such disclosure has been
requested the other party has been given a reasonable opportunity to
seek a protective order.
5.3 The recipient shall be entitled to disclose information received from
the disclosing party in confidence if:
a. such information was, prior to its receipt from the disclosing
party, properly in the recipient's possession or known to the
recipient;
b. such information is developed by or for the recipient
independently of the disclosing party's Confidential
Information received hereunder,
c. such information is or becomes public knowledge without the
fault of the recipient; or
d- such disclosure is required by court or government action.
In the event that disclosure of Inso Confidential Information under the
circumstances described in Section 5.3(d) is required, the Licensee
will use its best efforts to ensure that such information does not
become generally available to the public.
5.4 The provisions of this Section 5 shall survive the termination or
expiration of this Agreement.
6. Warranties
6.1 Inso warrants that it knows of no third party copyright, United States
trademark, trade secret, or United States patent that is infringed by
the Components.
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CONFIDENTIAL QUEST/INSO CHICAGO
02/19/99
6.2 Inso warrants that the Components will perform substantially as
specified in Section 1 of the applicable Product Description.
6.3 Inso shall not be responsible in any way for any portion of software
prepared by or added to the Components by the Licensee or any third
party.
6.4 THE FOREGOING WARRANTIES GIVEN BY INSO ARE IN LIEU OF ALL OTHER
REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR
OTHERWISE, UNDER OR RELATED TO THIS AGREEMENT OR THE COMPONENTS,
INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE,
7. Defense of Legal Claims
7.1 Inso will defend or settle any allegation or claim by a third party
("Claim") against the Licensee that the Components infringe upon any
United States copyright, trade secret, patent, or other proprietary
right of a third party, and shall indemnify the Licensee and hold it
harmless from any and all such Claims and all resulting costs,
expenses, compromises, damages, and attorneys' fees, provided that (i)
Inso is given prompt written notice of the Claim, (ii) Inso is given
the sole authority to defend or settle the Claim, and (iii) the
Licensee does not compromise or settle the Claim without Inso's prior
written consent. The Licensee shall cooperate fully with all reasonable
requests of Inso in connection with any such Claim. In lieu of
defending a Claim, Inso may, at its sole option, procure for the
Licensee the right to continue using the disputed material, or modify
the Components so that they become non-infringing. Any such
modification shall not materially affect the functionality of the
Components. Inso shall have no obligation to defend or indemnify the
Licensee for any Claim based upon the combination, operation, or use of
the Components with elements not supplied by Inso, unless the Licensee
can prove that the infringing portion is supplied by Inso, or upon
modifications to the Components after Delivery, where such Claim would
not exist without such elements or modifications to the Components by
the Licensee.
7.2 The Licensee will defend or settle any Claim against Inso involving
elements of the Licensed Products other than the Components, or where
such Claim would not exist without the Licensee's modification to the
Components, and the Licensee shall indemnify Inso and hold it harmless
from any and all such Claims and all resulting costs, expenses,
compromises, damages, and attorneys fees, provided that (i) the
Licensee is given prompt written notice of the Claim, (ii) the Licensee
is given the sole authority to defend or settle the Claim, and (iii)
Inso does not compromise or settle the Claim without the Licensee's
prior written consent. Inso shall cooperate fully with all reasonable
requests of the Licensee in connection with any Claim described in this
Section 7.2.
8. Limitation of Liability
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CONFIDENTIAL QUEST/INSO CHICAGO
02/19/99
8.1 ANYTHING TO THE CONTRARY HEREIN NOTWITHSTANDING, INSO SHALL NOT BE
LIABLE TO THE LICENSEE OR ANY THIRD PARTY FOR ANY LOSS OF PROFITS, OR
SPECIAL, CONSEQUENTIAL, OR INCIDENTAL DAMAGES ARISING OUT OF OR
RELATING TO THIS AGREEMENT, WHETHER SUCH CLAIM ARISES IN TORT OR
CONTRACT AND EVEN IF ADVISED OF THE POSSIBILITY OF THE SAME AND IN NO
EVENT SHALL INSO'S LIABILITY TO THE LICENSEE FOR DAMAGES OR COSTS
HEREUNDER, IF ANY, EXCEED THE AMOUNTS PAID TO INSO BY THE LICENSEE FOR
LICENSING THE COMPONENTS UNDER THIS AGREEMENT DURING THE 12-MONTH
PERIOD PRECEDING THE DATE SUCH CLAIM IS MADE.
8.2 No action arising out of the licenses granted under this Agreement,
regardless of form, may be brought by any party more than one (1) year
after the cause of action has become known to the party bringing such
action, except that an action for nonpayment may be brought by Inso
within one (1) year of the later of due date of the last payment or
royalty statement.
9. Taxes, Export Regulations
9.1 The Licensee shall pay all import duties, levies or imposts, and all
sales, use, value added or other taxes of any nature (excluding taxes
based on Inso's income), assessed upon or with respect to any products,
programs or services licensed by or purchased from Inso hereunder. If
the Licensee is required by law to make any deduction or to withhold
from any sum payable to Inso by the Licensee hereunder, then the sum
payable by the Licensee on which the deduction or withholding is based
shall be increased to the extent necessary to ensure that after such
deduction or withholding, Inso receives and retains, free from
liability for such deduction or withholding, a net amount equal to the
amount Inso would have received and retained in the absence of such
required deduction or withholding.
9.2 The Licensee shall be responsible for meeting any other requirement of
any government and procuring government approvals, such as export
licenses, restrictions on export of technical data, or other procedures
required to make this Agreement effective and enforceable.
10. Assignment
The Licensee shall not assign or transfer to any third party this
Agreement, nor any of its rights or obligations under this Agreement,
without Inso's prior written permission. A change in ownership or
control of the Licensee shall be deemed to be an assignment of this
Agreement. For purposes of this Section 10, "change" in ownership is
defined as a sale or transfer of shares which entitles a new holder to
voting rights in excess of fifty percent (50%) of any class of the
Licensee's outstanding voting securities or interests. Inso may assign
this Agreement, or any of its rights, obligations or benefits
hereunder, without the consent of the Licensee.
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CONFIDENTIAL QUEST/INSO CHICAGO
02/19/99
11. Default and Termination
11.1 Except as provided in Section 11.2 and 11.3 below, if either party
should breach any material provision of this Agreement, the
non-defaulting party may declare a default, and may terminate this
Agreement in its entirety if the other party should fail to remedy such
default within thirty (30) days after receipt of written notice
thereof.
11.2 If the Licensee should breach the restrictions on disclosure or use of
Inso's confidential information as provided herein, Inso may
immediately terminate this Agreement or seek equitable relief to
protect its proprietary interests, or both, without waiting for any
cure period to elapse.
11.3 If the Licensee should fail to make any of the payments required by
this Agreement, Inso may declare a default, and may terminate the
Agreement in its entirety should the Licensee fail to remedy such
default within thirty (30) days of receipt of written notice thereof.
At such time, all outstanding minimum royalty payments and any other
charges due Inso pursuant to this Agreement shall be deemed to have
accrued and shall immediately be payable in full to Inso
notwithstanding any other provision hereof. The Licensee's obligation
to pay all accrued charges shall survive the expiration or termination
of this Agreement.
11.4 In the event that either party becomes insolvent, or a party to
bankruptcy, receivership, or similar proceedings affecting its
financial condition, or seeks to make a compromise. assignment, or
other arrangement for the benefit of its creditors, or ceases doing
business in the ordinary course, the other may terminate this
Agreement, effective upon receipt of written notice thereof, and take
any steps to protect its proprietary information as may be appropriate.
11.5 Upon termination, the Licensee will immediately cease development,
distribution, and production of Licensed Products utilizing the
Components. The Licensee may permit sublicenses previously granted to
end-users to remain in effect, but shall return or certify destruction
of all copies of the Components and all Inso Confidential Information
not needed to support end-users. Any other permitted sublicenses shall
terminate upon termination of the Agreement between Inso and the
Licensee.
11.6 Termination shall not relieve the Licensee from liability for any
breach occurring prior to such termination. All remedies hereunder and
under applicable law shall be cumulative.
12. General Provisions
12.1 Entire Agreement. This Agreement, together with its Exhibits,
constitutes the entire agreement between the parties with respect to
the Components, and may be modified only in writing, signed by an
authorized representative of each party. This Agreement supersedes all
other representations, proposals, and other communications between the
parties relating hereto with respect to the Components.
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CONFIDENTIAL QUEST/INSO CHICAGO
02/19/99
12.2 Waiver. Any waiver by either party of any requirement of this Agreement
shall not constitute a waiver of any other requirement of this
Agreement, nor of the same requirement on a separate occasion.
12.3 Notice. Any notice required under this Agreement shall be in writing
and shall be given by certified mail, express courier service or
facsimile transmission with a confirming copy sent via certified mail
or express courier service, to the address given in Exhibit B or to
such other address as either party may designate in writing to the
other. Any notice thus given shall be deemed effective upon sending.
12.4 No Agency. This Agreement shall not be construed as creating an agency,
partnership, joint venture, or other relationship between the parties
other than one of independent contractors.
12.5 Force Majeur. Neither party shall incur liability to the other for any
failure or delay in fulfilling its obligations under this Agreement
other than the making of required payments for causes beyond its
reasonable control, including, but without limiting the generality of
the foregoing, labor or industrial disturbances, acts of God, floods,
lightning, utility or communication failures, earthquakes, acts of the
public enemy, riots, insurrection, embargoes, blockages, actions,
restrictions, regulations or orders of any government, agency or
subdivision thereof.
12.6 Interpretation. Whenever possible, each provision of this Agreement
shall be interpreted so as to be effective and valid under applicable
law, but if any portion of any provision should be invalid or
prohibited by applicable law, such portion shall not invalidate the
remaining provisions of this Agreement, All headings are for reference
purposes only and shall not affect the interpretation of this
Agreement.
12.7 Governing Law. This Agreement shall be deemed a contract made and
performed in Massachusetts, shall be construed under and governed by
the laws of the Commonwealth of Massachusetts, and shall bind the
parties, their successors, and permitted assigns. The parties stipulate
that the proper forum, venue and court for any legal action arising
from or in connection with this Agreement shall be the state courts of
the Commonwealth of Massachusetts for Suffolk County or the United
States District Court for the District of Massachusetts. The Licensee
agrees that it will not commence any action against Inso except in such
courts.
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CONFIDENTIAL QUEST/INSO CHICAGO
02/19/99
IN WITNESS WHEREOF, the parties execute this Agreement by their duly authorized
representatives, effective as of the date first above written.
QUEST SOFTWARE, INC. INSO CHICAGO CORPORATION
d/b/a INSO CORPORATION
By /s/ David Doyle By /s/ Bruce G. Hill
----------------------- ------------------------
Signature Signature
Name: David Doyle Bruce Hill
Title: President Corporate Secretary
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CONFIDENTIAL QUEST/INSO CHICAGO
02/19/99
INSO CORPORATION
LICENSE AGREEMENT
EXHIBIT A
PRODUCT DESCRIPTION
Outside In(R) Viewer Technology, Version 5.2.1
1.0 Inso will provide the following object code deliverables:
1.1 Inso Components - Version 5.2.1
i) Outside In(R) Viewer Technology Specification Version 5.2.1:
a) viewing,
b) printing on Windows, and
c) printing on UNIX functionality
1.2 Platforms Supported - Version 5.2.1:
i) Microsoft(R) Windows(R) 95/98 for Intel x86
ii) Microsoft(R) Windows NT(R) 3.5 and 4.0 for Intel x86
iii) Sun Solaris 2.4 - 2.6 for SPARC
iv) HP-UX 9.0.5 - 11.0 for HP 9000
v) IBM AIX 4.1.4 - 4.3 for RS6000
2.0 For each twelve-month period for which Licensee pays Inso the Annual
Maintenance Fee as described in Section 2.3 of Exhibit C, Inso will
provide Licensee with all Upgrades for the file formats listed below
which Inso makes available generally for its OEM customers under
maintenance during such period.
3.0 Inso will assist the Licensee with its initial implementation of the
Components and provide information about the Licensee callable
functions, as reasonably requested, without charge to the Licensee for
a period of ninety (90) days from the date Components are shipped to
the Licensee.
4.0 Inso will correct any defects identified by the Licensee during the
first ninety (90) days after the Components are shipped to the
Licensee. A "defect" is defined as a malfunctioning of the Components
that causes the Components not to function in accordance with Section 1
of the applicable Product Description.
5.0 If the Licensee requests that Inso provide consulting services in
addition to those support services specified above, including, for
example, modifications necessary to port the product to any Inso
unwarranted platform, and Inso agrees to provide such services, such
services shall be provided at terms mutually agreed.
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6.0 Any future additions of functionality that require a change to the
Outside In(R) Viewer Technology, Version 5.2.1, is specifically
excluded from this Agreement. Inso reserves sole discretion to
determine which of its offerings require such a change in the Outside
In(R) Viewer Technology Specification.
Licensee may use the Components for the following file formats in the Licensed
Product:
<TABLE>
<CAPTION>
<S> <C>
WORD PROCESSING - GENERIC:
- --------------------------
ANSI Text (7 & 8 bit)...............................................................................All versions
ASCII Text (7 & 8 bit versions available) ..........................................................All versions
HTML ........................................................................................Versions through 3.0
IBM FFT .............................................................................................All versions
IBM Revisable Form Text .............................................................................All versions
Microsoft Rich Text Format (RTF) ....................................................................All versions
Unicode Text ........................................................................................All versions
WORD PROCESSING - DOS:
- ----------------------
DEC WPS Plus (DX) ...........................................................................Versions through 4.0
DEC WIPS Plus (WPL) .........................................................................Versions through 4.1
DisplayWrite 2 & 3 (TXT) ............................................................................All versions
DisplayWrite 4 & 5 ..................................................................Versions through Release 2.0
Enable .................................................................................Versions 3.0, 4.0 and 4.5
First Choice ................................................................................Versions through 3.0
Framework ............................................................................................Version 3.0
IBM Writing Assistant ...............................................................................Version 1.01
Lotus Manuscript ............................................................................Versions through 2.0
MASS 11 .....................................................................................Versions through 8.0
Microsoft Word ..............................................................................Versions through 6.0
Microsoft Works .............................................................................Versions through 2.0
MultiMate ...................................................................................Versions through 4.0
Navy DIF ............................................................................................All versions
Nota Bene ............................................................................................Version 3.0
Office Writer ................................................................................Versions 4.0 to 6.0
PC-File Letter ..............................................................................Versions through 5.0
PC-File+ Letter .............................................................................Versions through 3.0
PFS:Write ...................................................................................Versions A, B, and C
Professional Write ..........................................................................Versions through 2.1
Q&A ..................................................................................................Version 2.0
Samna Word .......................................................................Versions through Samna Word IV+
SmartWare 11 ........................................................................................Version 1.02
Sprint ...............................................................................................Version 1.0
Total Word ...........................................................................................Version 1.2
Volkswriter 3 & 4 ...........................................................................Versions through 1.0
Wang PC (IWP) ...............................................................................Versions through 2.6
WardMARC ..........................................................................Versions through Composer Plus
WordPerfect .................................................................................Versions through 6.1
WordStar ....................................................................................Versions through 7.0
</TABLE>
13
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CONFIDENTIAL QUEST/INSO CHICAGO
02/19/99
<TABLE>
<CAPTION>
<S> <C>
WordStar 2000 ...............................................................................Versions through 3.0
XYWrite ................................................................................Versions through III Plus
WORD PROCESSING - INTERNATIONAL
- -------------------------------
JustSystems Ichitaro .................................................................................Version 8.0
WORD PROCESSING - WINDOWS:
- --------------------------
AMI/AMI Professional ........................................................................Versions through 3.1
Corel WordPerfect for Windows ...............................................................Versions through 8.0
JustWrite ...................................................................................Versions through 3.0
Legacy .....................................................................................Versions through 1. 1
Lotus WordPro (Win16 and Win32/Intel only) ......................................SmartSuite 95, 97 and Millennium
NOTE: THE LOTUS WORDPRO FILTER IS FOR WIN16 AND WIN32 ON THE INTEL
PLATFORMS ONLY, AND IS PROVIDED TO LICENSEE "AS IS", WITHOUT ANY
REPRESENTATIONS OR WARRANTIES.
Microsoft Windows Works .....................................................................Versions through 4.0
Microsoft Windows Write .....................................................................Versions through 3.0
Microsoft Word 97 ........................................................................................Word 97
Microsoft Word 2000 Beta 2 ................................................................................Beta 2
Microsoft Word for Windows ..................................................................Versions through 7.0
Microsoft WordPad ...................................................................................All versions
Novell Perfect Works .................................................................................Version 2.0
Novell WordPerfect for Windows ..............................................................Versions through 7.0
Professional Write Plus ..............................................................................Version 1.0
Q&A Write for Windows ................................................................................Version 3.0
WordStar for Windows .................................................................................Version 1.0
WORD PROCESSING - MACINTOSH:
- ----------------------------
Microsoft Word ..........................................................................Versions 4.0 through 6.0
Microsoft Word 98 ........................................................................................Word 98
WordPerfect ............................................................................Versions 1.02 through 3,0
Microsoft Works .............................................................................Versions through 2.0
MacWrite II ..........................................................................................Version 1.1
SPREADSHEETS FORMATS:
- ---------------------
Enable .................................................................................Versions 3.0, 4.0 and 4.5
First Choice ................................................................................Versions through 3.0
Framework ............................................................................................Version 3.0
Lotus 1-2-3 (DOS & Windows) .................................................................Versions through 5.0
Lotus 1-2-3 for SmartSuite ..........................................................SmartSuite 97 and Millennium
Lotus 1-2-3 Charts (DOS & Windows) ..........................................................Versions through 5.0
Lotus 1-2-3 (OS/2) ..........................................................................Versions through 2.0
Lotus 1-2-3 Charts (OS/2) ...................................................................Versions through 2.0
Lotus Symphony .........................................................................Versions 1.0, 1.1 and 2.0
Microsoft Excel 97 ......................................................................................Excel 97
Microsoft Excel 2000 Beta 2 ...............................................................................Beta 2
Microsoft Excel Macintosh ...........................................................Versions 3.0 through 4.0, 98
Microsoft Excel Windows .................................................................Versions 2.2 through 7.0
Microsoft Excel Charts ..................................................................Versions 2.x through 7.0
</TABLE>
14
<PAGE> 15
CONFIDENTIAL QUEST/INSO CHICAGO
02/19/99
<TABLE>
<CAPTION>
<S> <C>
Microsoft Multiplan ..................................................................................Version 4.0
Microsoft Windows Works .....................................................................Versions through 4.0
Microsoft Works (DOS) .......................................................................Versions through 2.0
Microsoft Works (Mac) .......................................................................Versions through 2.0
Mosaic Twin ..........................................................................................Version 2.5
Novell Perfect Works .................................................................................Version 2.0
QuattroPro for DOS ..........................................................................Versions through 5.0
QuattroPro for Windows ......................................................................Versions through 8.0
PFS:Professional Plan ................................................................................Version 1.0
SuperCalc 5 ..........................................................................................Version 4.0
SmartWare II ........................................................................................Version 1.02
VP Planner 3D ........................................................................................Version 1.0
DATABASES FORMATS:
- ------------------
Access ......................................................................................Versions through 2.0
dBASE .......................................................................................Versions through 5.0
DataEase .............................................................................................Version 4.x
dBXL .................................................................................................Version 1.3
Enable .................................................................................Versions 3.0, 4.0 and 4.5
First Choice ................................................................................Versions through 3.0
FoxBase ..............................................................................................Version 2.1
Framework ............................................................................................Version 3.0
Microsoft Windows Works .....................................................................Versions through 4.0
Microsoft Works (DOS) .......................................................................Versions through 2.0
Microsoft Works (Mac) .......................................................................Versions through 2.0
Paradox (DOS) ...............................................................................Versions through 4.0
Paradox (Windows) ...........................................................................Versions through 1.0
Personal R:BASE ......................................................................................Version 1.0
R:BASE 5000 .................................................................................Versions through 3.1
R:BASE System V ......................................................................................Version 1.0
Reflex ...............................................................................................Version 2.0
Q & A .......................................................................................Versions through 2.0
SmartWare II ........................................................................................Version 1.02
STANDARD GRAPHIC FORMATS:
- -------------------------
Binary Group 3 Fax ..................................................................................All versions
CDR (if TIFF Image is embedded in it) ..............................................Corel Draw versions 2.0 - 5.0
COM - Computer Graphics Metafile ...................................................ANSI, CALS, NIST, Version 3.0
CMX - Corel Clip Art Format .................................................................Versions 5 through 6
DCX (multi-page PCX) ...............................................................................Microsoft Fax
DRW - Micrografx Designer ............................................................................Version 3.1
and Micrografx Draw ................................................................Versions through 4.0
DXF (Binary and ASCII) AutoCAD Drawing Interchange Format ....................................Versions through 14
EMF (Win32 Only) .......................................................................Windows Enhanced Metafile
EPS Encapsulated PostScript ......................................................If TIFF image is embedded in it
FMV - FrameMaker graphics ...........................................Vector and raster format through Version 5.0
FPX ...........................................................................................No specific format
</TABLE>
15
<PAGE> 16
CONFIDENTIAL QUEST/INSO CHICAGO
02/19/99
<TABLE>
<CAPTION>
<S> <C>
GDF - IBM Graphics Data Format .......................................................................Version 1.0
GEM - Graphics Environment Manager Metafile ....................................................Bitmap and Vector
GIF - Graphics Interchange Format .....................................................................Compuserve
GP4 - Group 4 GALS Format .....................................................................Type I and Type II
HPGL - Hewlett Packard Graphics Language .............................................................Version 2.0
IMG - GEM Paint ..............................................................................No specific version
JFIF (JPEG not in TIFF format) ......................................................................All versions
JPEG - Joint Photographic Experts Group format ......................................................All versions
MET - OS/2 PM Metafile ...............................................................................Version 3.0
OS/2 Bitmap .........................................................................................Ail versions
PBM - Portable Bitmap ........................................................................No specific version
PCD - Kodak Photo CD .................................................................................Version 1.0
PCX Bitmap .........................................................................................PC Paintbrush
Perfect Works (Draw) ..........................................................................Novell version 2.0
PGM - Portable Graymap .......................................................................No specific version
PIC - Lotus 1-2-3 Picture File Format ........................................................No specific version
PICT1 & PICT2 (Raster) ........................................................................Macintosh Standard
PIF - IBM Picture Interchange Format .................................................................Version 1.0
PNG - Portable Network Graphics Internet Format ......................................................Version 1.0
PNTG ....................................................................................................MacPaint
PPM - Portable Pixmap .......................................................................No specific, version
PSP - Paintshop Pro (Win16 and Win32/Intel only) .............................................Versions 5.0, 5.0.1
RND - AutoShade Rendering File Format ................................................................Version 2.0
SDW .....................................................................................................Ami Draw
Snapshot (Lotus) ....................................................................................All versions
SIRS - Sun Raster File Format ................................................................No specific version
Targa .................................................................................................Truevision
TIFF ..........................................................................................Versions through 6
TIFF CCITT Group 3 & 4 ...............................................................................Fax Systems
Windows Bitmap ......................................................................................AJI versions
Windows Cursor ......................................................................................All versions
Windows Icon ........................................................................................All versions
WMF..............................................................................................Windows Metafile
WordPerfect Graphics [WPG and WPG2] .........................................................Versions through 2.0
XBM - X-Windows Bitmap ............................................................................x10 compatible
XPM - X-Windows Pixmap ............................................................................x10 compatible
XWD - X-Windows Dump ..............................................................................x10 compatible
HIPH-END GRAPHICS FORMATS:
- --------------------------
INSO AND LICENSEE ACKNOWLEDGE AND AGREE THAT THE FOLLOWING HIGH-END GRAPHICS
FORMATS ARE PROVIDED TO LICENSES "AS IS", WITHOUT ANY REPRESENTATIONS OR
WARRANTIES.
Al - Adobe illustrator File Format ..........................................................Versions through 6.0
CDR - Coral Draw ........................................................................... Versions through 8.0
DSF - Micrografx Designer ................................................................Windows 95, Version 6.0
</TABLE>
16
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CONFIDENTIAL QUEST/INSO CHICAGO
02/19/99
<TABLE>
<CAPTION>
<S> <C>
DWG - AutoCAD Native Drawing Format ...................................................... Versions 12 through 14
IGES - Initial Graphics Exchange Specification........................................................Version 5.1
PDF - Portable Document Format ..........................................................Versions 1.0 through 2.1
PS - Postscript ..........................................................................................Level 2
PSD - Adobe Photoshop File Format ....................................................................Version 4.0
PRESENTATION FORMATS:
- ---------------------
Corel Presentations ..................................................................................Version 8.0
Novel Presentations .........................................................................Versions 3.0 and 7.0
Harvard Graphics for DOS ......................................................................Versions 2.x & 3.x
Harvard Graphics ................................................................................Windows versions
Freelance 96 ........................................................................................Freelance 96
Freelance for Windows 95 ............................................................SmartSuite 97 and Millennium
Freelance for Windows ........................................................................Version 1.0 and 2.0
Freelance for OS/2 ..........................................................................Versions through 2.0
Microsoft PowerPoint for Windows ............................................................Versions through 7.0
Microsoft PowerPoint 97 ............................................................................PowerPoint 97
Microsoft PowerPoint 2000 Beta 2 ..........................................................................Beta 2
Microsoft PowerPoint for Macintosh ...............................................................Version 4.0, 98
COMPRESSED AND ENCODED FORMATS:
- -------------------------------
GZIP .........................................................................................No specific version
LZA Self Extracting Compress .................................................................No specific version
LZH Compress .................................................................................No specific version
Microsoft Binder ..........................................................................Version 7.0, Binder 97
MIME (text mail) .............................................................................No specific version
UUEncode .....................................................................................No specific version
UNIX Compress ................................................................................No specific version
UNIX TAR .....................................................................................No specific version
ZIP ................................................................................PKWARE versions through 2.04g
OTHER:
- ------
Executable (EXE, DLL) ........................................................................No specific version
Executable for Windows NT ....................................................................No specific version
vCard .........................................................................................Versit Version 2.1
</TABLE>
17
<PAGE> 18
CONFIDENTIAL QUEST/INSO CHICAGO
02/19/99
INSO CORPORATION
LICENSE AGREEMENT
EXHIBIT B
ADDITIONAL PROVISIONS
1 Term
1.1 The Effective Date shall be the date set forth at the beginning of this
Agreement.
1.2 The Expiration Date of this Agreement shall be February 10, 2002. Both
parties agree to begin renegotiation discussions 6 months prior to
Agreement expiration.
2. Licensed Product
The Licensed Products as of execution of this Agreement consist of the
following:
i) The Licensee's client entitled Vista Plus TransVue, which is a
report-based information management product that captures
report data in several formats as output from external
Enterprise Resource Planning (ERP) systems, incorporating, as
embedded, the technology and data, Outside In(R) Viewer
Technology,
ii) Platform: UNIX, Windows 95, Windows 98, Windows NT
iii) Media: All
3. Access to Inso Confidential Information
As provided in Section 5 of the Agreement, the Licensee shall restrict
access to Inso Confidential Information to the specific Licensee group
expressly charged with development of Licensed Products under the
direction of Mr. Phil Bonesteele, Director of Software Development,
Output Management Business Unit.
4. Addresses for Purposes of Notices
To Inso: Inso Corporation
330 N. Wabash Avenue, 15th Floor
Chicago, IL 60611
Attention: Rose Ann Brittain
with a copy to: Inso Corporation
31 St. James Ave., 11th Floor
Boston, MA 02116-4104
Attention: Bruce G. Hill
18
<PAGE> 19
CONFIDENTIAL QUEST/INSO CHICAGO
02/19/99
To the Licensee: Quest Software, Inc.
610 Newport Center
Suite 1400
Newport Beach, CA 92660-6465
Attention: Mr. Terry Mullin
Vice President
Output Management
Business Unit
5. Address for Purposes of Technical Intonation
Inso shall send technical information to the Licensee at the following
location:
Quest Software, Inc.
610 Newport Center
Suite 1400
Newport Beach, CA 92660-6465
Attention: W. Phil Bonesteele
Phone: 949.718.2581
Fax: 949.720.0426
Email: [email protected]
19
<PAGE> 20
CONFIDENTIAL QUEST/INSO CHICAGO
02/19/99
INSO CORPORATION
LICENSE AGREEMENT
EXHIBIT C
PAYMENT OF ROYALTIES
1. General Provisions
1.1 The Licensee shall pay Inso the applicable royalty as provided herein
on every transfer of a copy of a Licensed Product;
a. A "transfer" shall be deemed to occur, and the royalty to
accrue to Inso, at the time of sale to the ultimate end
user/customer of each copy of, or grant of right of access to,
a Licensed Product from the Licensee to any third party,
including but not limited to distributors, dealers, end-users,
and affiliated companies.
b. No royalty shall be due, however, on a reasonable number of
copies for internal use by the Licensee, or on a reasonable
number of copies distributed free for promotional use to
promote Licensed Products, the numbers to be approved by Inso
prior to release. In addition, no royalty shall be due on run
time demonstration copies, which are distributed without
charge to the end-user which are programmed to become
inoperable within ninety days of delivery unless the end-user
purchases the Licensed Product. Promotional copies of Licensed
Products must be clearly labeled as not for sale.
c. "Net Receipts" shall be defined as the Licensee's gross
revenue from the Licensed Products, less discounts,
allowances, and any applicable taxes. In the event that the
Licensed Product is licensed together with another product,
Net Receipts for such combined product shall be calculated by
dividing the average selling price over the most recent two
fiscal quarters prior to transfer (the "ASP") for the Licensed
Product by the sum of the ASP for the Licensed Product and the
additional products to be packaged and sold with the Licensed
Product. This quotient shall then be multiplied by the royalty
rate for the combined product to determine the royalty payable
to Inso, where royalties are based on Net Receipts.
1.2 The Licensee shall on each payment date pay Inso the amount necessary
to make the cumulative total of amounts paid to Inso, whether as
prepaid or accrued royalties, equal to whichever of the following is
larger:
a. the cumulative minimum royalty due Inso for such Licensed
Product as scheduled, or
b. the cumulative royalties accrued for transfers of such
Licensed Product.
20
<PAGE> 21
CONFIDENTIAL QUEST/INSO CHICAGO
02/19/99
For each Licensed Product subject to a minimum royalty, any amounts
paid Inso in excess of accrued royalties may be credited toward accrued
royalties for such Licensed Product in subsequent quarters.
1.3 The Licensee at all times shall keep an accurate account of the
transfers subject to this Agreement and shall render to Inso quarterly
statements in a form to be mutually agreed. The statements shall record
the transfers of each Licensed Product and shall not contain any
Licensee customer names.
Statements, together with payments due Inso, shall account for
transfers of Licensed Product(s) during each quarter ending March 31,
June 30, September 30, and December 31, respectively. Royalty
statements shall be sent to:
Controller
Inso Corporation
31 St. James Avenue, 11th Floor
Boston, Massachusetts 02116-4101
All payments shall be made by wire transfer of immediately available funds to
Inso's account at the following bank:
Fleet National Bank
Boston, MA
ABA No. 011-000-138
Name of Account: Inso Corporation
Account No. 0501268998
1.4 The royalty payment dates shall be the thirtieth day after the end of
each quarter. In the event that the Licensee fails to make any payment
on or before the payment date, Inso may require the Licensee to pay
interest at a rate equal to the lesser of (i) 1.5% per month,
compounded monthly, or (ii) the maximum rate permitted by applicable
law. Inso shall be entitled to recover all costs and expenses,
including attorneys' fees, incurred by it in connection with the
enforcement of the terms of this Agreement including without limitation
the collection of any overdue amounts.
1.5 All payments shall be made in United States dollars.
1.6 The Licensee shall maintain records adequate to verify the amounts due
to Inso hereunder. Inso or its representatives shall have the right to
inspect the relevant books and records of the Licensee as reasonably
necessary to verify the correctness of the account or to determine the
sums due Inso thereunder. Such inspection shall be made during normal
business hours, within 15 business days of notice from Inso and no more
than once each year. If errors exceeding 5% of the royalties paid prior
to the start of the audit are found, the expense of examining the
Licensee's records will be borne by the Licensee.
21
<PAGE> 22
CONFIDENTIAL QUEST/INSO CHICAGO
02/19/99
1.7 The Licensee shall, at Inso's request, provide Inso with ten (10)
complimentary copies of each Licensed Product, and with the opportunity
to purchase additional Licensed Products at a favorable discount.
2. Payment Schedule
2.1 The Licensee shall. pay Inso a royalty of [***] of Net Receipts or
[***] per unit or individual user, whichever is greater, for transfers
of the Licensed Products. If the Licensee delivers upgrades to the
Components to Licensed Product customers as part of Licensed Product
Upgrades*, then the Licensee shall pay Inso a royalty of [***] of Net
Receipts or [***] per unit or individual user, whichever is greater,
for transfers of the Licensed Product Upgrades.
*"Licensed Product Upgrades" refers to Licensed Product upgrades
containing the Components and licensed to existing users for a reduced
or discounted price.
2.2 A non-refundable, prepaid, minimum royalty applies for the Licensed
Product(s). Inso is entitled to the minimum royalty whether or not the
Licensee subsequently develops and markets the Licensed Products. The
minimum royalty is [***], due upon Agreement execution and payable
according to the following schedule:
PAYMENT DATE PAYMENT AMOUNT CUMULATIVE MINIMUM ROYALTY
Agreement execution [***] [***]
March 15, 1999 [***] [***]
May 15, 1999 [***] [***]
June 15, 1999 [***] [***]
If the Licensee delivers upgrades to the Components to customers of the
Licensed Product under Annual Maintenance Contracts, then the Licensee
shall pay Inso a royalty rate of [***] of all Net Receipts from annual
Maintenance Revenue".
**"Maintenance Revenue" refers to the gross revenue the Licensee
receives from its customers of the Licensed Product for provision of
support services and upgrades, the fees of which may be in addition to
amounts received for sublicensing the Licensed Product.
2.3 Maintenance (as described in Section 2.0 of Exhibit A) will be provided
annually upon payment of the Annual Maintenance Fee. The Annual
Maintenance Fee for the first twelve-month period of this Agreement is
due and payable upon Agreement execution; thereafter, the Annual
Maintenance Fee is due and payable annually at least thirty (30) days
prior to the anniversary of the Effective Date of this Agreement. The
Annual Maintenance Fee for each twelve-month period hereunder is [***].
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
22
<PAGE> 23
CONFIDENTIAL QUEST/INSO CHICAGO
02/19/99
2.4 Invoices for amounts due in Section 12 above shall be sent to:
Quest Software, Inc.
610 Newport Center
Suite 1400
Newport Beach, CA 92660-6465
Attention: Ms. Maureen Colvin
Controller
Phone: 949.720.1434
Fax: 949.720.0426
Inso's failure to provide invoices for non-refundable, prepaid, minimum
royalties or Licensee's failure to receive such invoices shall not relieve the
Licensee of its obligation to make timely payments pursuant to Section 2.2.
above.
23
<PAGE> 24
INSO CORPORATION
LICENSE AGREEMENT
EXHIBIT D
ESCALATION PROCEDURES
1 Inso will provide timely remedy for defects in the Components as
reported in writing by the Licensee. The following schedule describes
the response times the Licensee may expect from Inso.
Classification Criteria
-------------- --------
X Fatal: errors preventing all useful work from
being done.
A Severe Impact: errors which disable major
functions from being performed.
B Degraded Operations: errors disabling only
certain non-essential functions.
C Minimal impact: All other errors.
Upon Inso's receipt of an error report during Inso's regular business
hours from the Licensee's designated engineering support personnel,
Inso shall take corrective action to remedy the reported error within
the following schedule.
Classification Inso's Remedy
-------------- -------------
Begin Correction Supply Remedy
---------------- -------------
X [***] Commercially reasonable
efforts until remedied,
not later than [***]
A [***] Commercially reasonable
efforts until remedied,
not later than [***]
B [***] [***]
C Inso will remedy on a case by case basis and as
soon as is technically feasible.
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
24
<PAGE> 25
2. The Licensee shall assist Inso in resolving reported defects by
providing Inso with the following information and materials to address
suspected defects:
(a) a full description of the apparent bug, error or defect, delivered
to Inso by the Licensee.
(b) electronic files showing fully where the bug, error or defect
occurred; and
(c) an executable version of the Licensed Product(s) or other
applications in use when the bug, error or defect occurred.
25
<PAGE> 1
EXHIBIT 10.8
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN REDACTED PROVISIONS OF
THIS AGREEMENT. THE REDACTED PROVISIONS ARE IDENTIFIED BY THREE ASTERISKS AND
ENCLOSED BY BRACKETS. THE CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
OEM AGREEMENT
This OEM Agreement ("Agreement") is made and entered into effective as of the
3rd day of March 1998 by and between Artifex Software Inc., a California
corporation with its principal place of business located at San Rafael,
California ("Supplier") and Quest Software, Inc. with its principal place of
business located at 610 Newport Drive, Newport Beach, CA 92660 ("Distributor").
Distributor intends to create and offer licenses for a product to be known as
Vista Plus (the "Product"), a general description of which appears in Exhibit B
hereto. The Product will incorporate certain software licensed by Supplier (the
"Software"), a general description of which appears in Exhibit A hereto, and
associated documentation (the "Documentation", as defined in Section 2.3
hereof). Supplier wishes to grant to Distributor the right to incorporate the
Software in the Product and distribute copies of the Software as incorporated in
the Product, and Distributor wishes to acquire same.
NOW, THEREFORE, the parties hereto agree as follows:
1. General Terms and Conditions.
(a) Grant of License to Distributor. Subject to the terms and
conditions contained in this Agreement, Supplier hereby grants to Distributor
and Distributor hereby accepts for the term of this Agreement the license rights
described below. Such rights shall not be subcontracted, sublicensed, assigned
or otherwise transferred, except with the prior written consent of Supplier, or
as may be otherwise set forth in Section 16 hereof or Section D-1 of Exhibit D
hereto. Supplier grants to Distributor a non-exclusive, nontransferable, license
and right throughout the world to:
(i) modify the source code for the Software to produce such
changes to the source code as may be necessary to ensure compatibility with the
Product;
(ii) reproduce copies of the object code (binary) version of
the Software and the Documentation provided (in whole or in part) as modified
under (i) above (such copies to be referred to collectively herein as "Licensed
Copies"), provided that each unit of any Product incorporating the Software (A)
shall incorporate the Software into the Product in such a way that the Software
shall not be available to the user on a stand-alone or independent basis, (B)
shall comply with Section 1(e) below, and (C) shall comply with either Section
l(f) below (in the case of demonstration copies) or Section D-2 of Exhibit D
hereto (in the case of all other copies) (such copies to be referred to
collectively herein as "Licensed Copies"); and
<PAGE> 2
(iii) market and distribute the Licensed Copies directly and
through Distributor's Third Party Resellers (as defined in subsection (c)
below). No right is granted to distribute the source code for the Software.
(b) Ownership of Modifications. Any modifications, adaptations or
derivative works made from the source code for the Software will be owned as set
forth in this section. For the purposes of this section, a "Bug" is a
reproducible defect in the Software that causes the Software to fail to conform
to its written specifications; a "Bug Fix" is a modification to the source code
of the Software that removes a Bug. All Bug Fixes made by Distributor shall be
reported by Distributor to Supplier and will be owned by Supplier and licensed
to Distributor subject to this Agreement. Distributor agrees to assign, and
hereby does assign and transfer, all right, title and interest in such Bug
Fixes, including all intellectual property rights therein, to Supplier. All
other modifications, adaptations, and derivative works of the source code
licensed under this Agreement made by Distributor shall be owned by Distributor.
Distributor agrees to grant and hereby does grant, Supplier a non-exclusive,
sublicenseable, non-transferable, perpetual and worldwide license to modify,
reproduce, use, market and distribute all such developments. The particular
terms of such license shall be customary for similar agreements of this type,
and may include a reasonable payment to Distributor from Supplier.
(c) Third Party Resellers. Distributor shall have the right to appoint
Third Party Resellers (subject to the conditions hereafter in subsection (e) to
market and distribute the Product, provided that Distributor shall have executed
a written subdistribution agreement with each such Third Party Reseller, which
subdistribution agreement shall contain (i) provisions set forth in Section
D-3.4 of Exhibit D hereto (Records) and Sections 1(d) (Export Control), 1(e)
(End-Users; Notices), 6 (Product Warranty), 7 (Distributor Disclaimer), 9
(Proprietary Rights), 10 (Confidentiality), 12 (Effect of Termination), 14
(Governing Law), and 18.4 (Government Restricted Rights) hereof, (ii) a
provision prohibiting such Third Party Reseller from sublicensing the rights
granted to it in that agreement, and (iii) an express acknowledgment by such
Third Party Resellers that if this Agreement shall terminate for any reason,
then such subdistribution agreements shall automatically terminate without
further action on the part of Distributor or Supplier. End user licenses granted
during the term shall survive any such termination. Distributor shall remain
responsible for all of its obligations under this Agreement notwithstanding any
subdistribution agreement. Distributor will use its best efforts to ensure that
all Third Party Resellers abide by the terms of the subdistribution agreements
between Distributor and such Third Party Resellers, and, upon Supplier's
request, will keep Supplier apprised of its activities to enforce such
provisions with particular Third Party Resellers as they pertain to the
Software. In addition, Distributor shall ensure that Supplier will have the
right to enforce such agreements as a third party beneficiary, and Distributor
agrees that (i) Supplier may join Distributor as a named plaintiff in any suit
brought by Distributor against Third Party Resellers and (ii) Distributor will
take such other actions, give such information and render such aid, as may be
reasonably necessary to allow Supplier to bring and prosecute such suits.
(d) Export Control. Distributor agrees that it and its Third Party
Resellers will comply with all relevant laws regarding export of the Software
and of the immediate product (including processes and services) produced
directly by use of the Software. Distributor will indemnify Supplier and hold it
harmless from any claim that Distributor or its Third Party Resellers have
breached this section.
2
<PAGE> 3
(e) End-Users; Notices. Distributor shall ensure that each end-user of
the Product is bound by a software license agreement that includes provisions
substantially similar to those of Exhibit C hereto and that is applied to both
the Software and the Documentation. Distributor shall use its best efforts to
ensure that all Third Party Resellers also comply with this requirement.
Distributor shall reproduce, on each copy of the Product and any documentation
supplied with the product, wherever a copyright notice including the
Distributor's own name appears, the copyright notice(s) specified in Exhibit A
hereto. Upon Supplier's request, Distributor will keep Supplier apprised of its
activities to enforce such end user license agreements with particular end users
as they pertain to the Software. In addition, Distributor shall ensure that
Supplier will have the right to enforce such agreements as a third party
beneficiary, and Distributor agrees that (i) Supplier may join Distributor as a
named plaintiff in any suit brought by Distributor against end users and (ii)
Distributor will take such other actions, give such information and render such
aid, as may be reasonably necessary to allow Supplier to bring and prosecute
such suits.
(f) Demonstration Copies. Subject to the other terms and conditions
hereof, Distributor shall have the right to provide fully functional
demonstration copies of the Product to end user at a charge covering only
shipping, handling, and media costs. Distributor warrants that all such copies
will cease to function within a fixed period after their first use, such period
not to exceed 60 days. Such copies shall be exempt from the payment provisions
of Section D-3.1(a) of Exhibit D hereto.
2. Deliverables and Shipping.
2.1 Deliverables. Supplier shall provide to Distributor the source code
for the Software and any per-copy identifying information specified in Section
D-2 of Exhibit D hereto. The version of the Software initially provided to
Distributor shall be as identified in Exhibit A hereto, with bug fixes and
enhancements as of the effective date of this Agreement. Distributor shall make
binary copies of the Software from the source code (as modified pursuant to
1(a)(i) above) for incorporation in the Product and shall package the binary
code of the Software indivisibly with the Product, in a manner that complies
with Section D-2 of Exhibit D hereto and with the copyright notice provisions of
Exhibit A hereto.
2.2 Upgrades. Provision of upgrades of the Software by Supplier to.
Distributor, if any, shall be governed by Section E-1 of Exhibit E hereto.
2.3 Documentation. Supplier will provide manual text in either
electronic form or printed hard copy form including artwork if appropriate
(collectively, "Documentation") with which Distributor may create product
manual(s). Supplier reserves the right to review and suggest changes to the
form, content and packaging of such product manuals and Distributor agrees to
consider all reasonable changes requested by Supplier.
2.4 Shipping. Shipment is F.O.B. Supplier.
3. Fees, Payment, Reports, and Records.
3.1 Fees. In consideration for the rights granted hereunder,
Distributor agrees to pay Supplier amounts as specified in Section D-3.1 of
Exhibit D hereto.
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3.2 License Fee Change. Supplier reserves the right to change its
license fees for the Software at its discretion from time to time by giving
Distributor at least thirty (30) days prior written notice of any such change.
Supplier agrees not to make any such change affecting copies of the Software
distributed hereunder for at least one year from the effective date of the
Agreement.
3.3 Price Reference. Distributor agrees not to refer to the Software as
free or imply the Software is included free, or refer to other Supplier product
prices in relation to the Software or make any other similar claims, whether via
advertising or packaging or any other form of communication, printed, verbal or
otherwise, without Supplier's prior written agreement. Distributor's making of
any such claim shall be deemed a material breach of this Agreement.
3.4 Payment. Distributor shall pay Supplier as dcscribed in Section
D-3.2 of Exhibit D hereto. Amounts due shall be considered paid when Supplier is
in receipt of the due amount or upon confirmation of receipt by a bank
designated by Supplier. From and after the date of any default hereunder, until
such default is cured, a late payment fee shall accrue daily on such unpaid
amounts at the rate of one and one-half percent (1.5%) per month or the maximum
rate permitted by law, whichever is lower.
3.5 Reports. Distributor shall provide Supplier with reports as
described in Section D-3.3 of Exhibit D hereto.
3.6 Records. Distributor shall keep records as described in Section
D-3.4 of Exhibit D hereto.
4. Marketing Considerations.
4.1 Reasonable Efforts. Distributor shall use reasonable efforts to
market and distribute the Product through its sales channel(s).
4.2 Co-Marketing. From time to time during the term of this Agreement,
Distributor and Supplier may identify and implement mutually agreed upon
co-marketing programs, including advertisements in trade and other publications.
4.3 Publicity. Distributor and Supplier shall have the right to make
the following public statement regarding the present Agreement:
[Distributor] has licensed [Supplier]'s [Software] product for use in
[Distributor]'s [Product] product.
This shall be the sole exception to the provisions of Section 10 below.
5. Support. Provision of support by Supplier to Distributor hereunder, if any,
shall be governed by Section E-2 of Exhibit E hereto. Supplier shall have no
support obligation to Distributor or any other party except as defined in that
section.
6. Supplier Warranty.
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<PAGE> 5
Supplier warrants that (i) it has the right and authority to enter into this
Agreement and to license the Software to Distributor in accordance with the
terms hereof, and as of the date hereof is not aware of any claim that the
Software infringes any rights of any third party, and (ii) the performance of
the terms of this Agreement and of Supplier's duties to Distributor hereunder
will not breach any separate agreement or arrangement by which Supplier is
bound.
EXCEPT AS SET FORTH IN THIS SECTION 6, THE SOFTWARE AND DOCUMENTATION ARE
PROVIDED TO DISTRIBUTOR "AS IS". SUPPLIER DISCLAIMS ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY WARRANTY OF
NON-INFRINGEMENT OF THIRD PARTY RIGHTS AND THE IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL SUPPLIER
BE LIABLE FOR ANY INDIRECT, CONSEQUENTIAL OR SPECIAL DAMAGES, INCLUDING LOSS OF
PROFITS, INCURRED BY DISTRIBUTOR, DISTRIBUTOR'S SUBLICENSEES, END-USERS OR THIRD
PARTY RESELLERS, OR ANY OTHER PARTY, WHETHER IN AN ACTION IN CONTRACT OR TORT OR
BASED ON A WARRANTY, EVEN IF SUPPLIER HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES.
7. Distributor Disclaimer.
Distributor shall not make, or authorize any of its sublicensees (if permitted
hereunder) or any Third Party Reseller or other person or entity to make, any
misrepresentation or warranty whatsoever with regard to the Software on behalf
of Supplier. Distributor may make such a warranty on its own behalf, but
Supplier shall have no liability with respect to such warranty. Distributor
shall indemnify and hold Supplier harmless from and against any claim based on
any warranty or representation made by or on behalf of Distributor, its
sublicensees and/or Third Party Resellers.
8. Indemnification.
8.1 Proprietary Rights, Supplier will defend Distributor against a
claim that the Software as delivered to Distributor and used within the scope of
this Agreement infringes a United States copyright issued as of the date hereof
or involves misappropriation of trade secrets by Supplier ("Claim"), and
Supplier will indemnify Distributor for any damages finally awarded by a court
of competent jurisdiction based upon a Claim, provided that: (i) Distributor
notifies Supplier in writing within thirty (30) days of any Claim, (ii) Supplier
has sole control of the defense and all related settlement negotiations and
(iii) Distributor provides Supplier with the assistance, information and
authority necessary to perform the above. Reasonable out-of-pocket expenses
incurred by Distributor in providing such assistance will be reimbursed by
Supplier. Supplier shall have no liability for any claim of infringement based
on use of a superseded or altered version of the Software, or based on use of
any part of the Product that was not supplied to Distributor by Supplier, or
based on use of the Software in combination with any software or hardware not
supplied by Supplier if use of the Software alone would not have given rise to
the Claim. This Section states Distributor's exclusive remedy and Supplier's
entire liability for any infringement.
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8.2 Other Indemnity, Distributor shall be responsible for and shall
indemnify and hold Supplier harmless from any and all losses, liability, damages
or expenses, including reasonable attorneys' fees, arising out of, or incurred,
in connection with (i) Distributor's, or any of its sublicensees' or any Third
Party Resellers' or any of Distributor's or such sublicensees' or Third Party
Resellers' end-user's marketing, distribution, use or sublicensing of the
Software, and (ii) any unauthorized representation, warranty or agreement,
express or implied, made by Distributor or any of its sublicensees or Third
Party Resellers or their respective sublicensees (if permitted hereunder) to or
with any other party with respect to the Software.
8.3 Limitation of Liability. Supplier's liability hereunder for any
reason whatsoever, including Section 8.1, shall not exceed the amount actually
paid by Distributor to Supplier.
9. Proprietary Rights.
9.1 Ownership. Distributor acknowledges that as between Distributor and
Supplier, Supplier controls all right, title, and interest in the Software and
Documentation and any other software owned or licensed by Supplier hereunder.
Except as expressly provided herein, Supplier does not grant to Distributor any
other right or license, either express or implied, in the Software,
Documentation, or any other software provided by Supplier hereunder. Distributor
shall not reverse engineer, modify, adapt, translate or create derivative works
based on the Software or knowingly permit any third party to do any of the
foregoing, except as permitted by Section 1(a)(i) hereof.
9.2 Use of Trademarks. Distributor shall not use any acronym,
trademark, trade name, or other marketing name listed in Exhibit A hereto,
unless under a separate arrangement with Supplier. Distributor shall not adopt,
use or register any acronym, trademark, trade name or other marketing name of
Supplier or any confusingly similar work or symbol as part of Distributor's own
name or the name of any of its affiliates or the name of any product it markets.
10. Confidentiality.
(a) Confidential Information. The term "confidential
information" shall refer to any information provided to one party by the other
party marked with a proprietary, confidential or other similar notice or orally
disclosed to one pasty as proprietary by the other party and followed by a
writing within thirty (30) days of such oral disclosure indicating said
information was confidential. Confidential Information shall not include
information which (i) is or becomes generally known or available through no act
or failure to act by the receiving party; (ii) is already known by the receiving
party at the time of receipt as evidenced by its records; (iii) is hereafter
furnished to the receiving party by a third party, as a matter of right and
without restriction on disclosure; (iv) is disclosed by written permission of
the party for whom such information is confidential or (v) is required to be
disclosed by court order or law. Except as provided in Section 4.3 hereof, the
contents of this Agreement shall be deemed Confidential Information.
(b) Limitations on Disclosure. Each party shall keep
confidential and not disclose to any third party or use for its own benefit,
except as expressly permitted herein, or for the benefit of any third party, any
Confidential Information. Supplier shall not unreasonably
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<PAGE> 7
withhold permission for Distributor to disclose the contents of this Agreement
to a third party in connection with a potential acquisition or merger of
Distributor, provided that any such third party shall have previously agreed in
writing to be bound by the provisions of this Section 10.
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<PAGE> 8
11. Term and Termination.
11.1 Term. This Agreement and the licenses granted hereunder shall
remain in effect for so long as any proprietary rights in the Software are
enforceable under the laws of any jurisdiction, unless earlier terminated as set
forth below.
11.2 Termination by Supplier. Supplier may terminate this Agreement and
the licenses granted hereunder upon written notice (i) if Distributor fails to
pay in full any payments hereunder when due and further fails to pay such
outstanding amounts to Supplier within ten (10) days after receipt of written
notice from Supplier specifying such failure to pay in full or (ii) for any
other material breach of this Agreement by Distributor which Distributor fails
to cure within thirty (30) days following written notice from Supplier to
Distributor specifying such breach.
11.3 Termination by Distributor. Distributor may terminate this
Agreement and the license granted hereunder with or without cause at any time
upon thirty (30) days' written notice to Supplier.
12. Effect of Termination.
12.1 Reversion of Rights. Except as set forth below, in the event of
termination of this Agreement for any cause, all rights granted to Distributor
hereunder automatically revert to Supplier.
12.2 Surviving Obligations. The following Sections shall survive
termination of this Agreement for any cause: 1(b), 3, 7, 9, 10, and 12-18.
Termination or expiration of this Agreement shall not affect any other rights of
either party which may have accrued up to the date of such termination or
expiration,
12.3 Required Actions of Distributor. Upon termination or expiration of
this Agreement, Distributor shall: (i) cease, and cause all Third Party
Resellers to cease, marketing and distributing any product incorporating the
Software and refrain thereafter from representing itself as a distributor of the
Software or using any Supplier trademark (if such use had been permitted); (ii)
return to Supplier or immediately destroy all stationery, advertising materials
and other printed material in its or any of its Third Patty Resellers'
possession or under its control containing or bearing any Supplier trademark;
(iii) take all appropriate steps to remove and cancel its listing in telephone
books, directories, public records or elsewhere, which state or indicate that
Distributor or any of its Third Party Resellers is a distributor of the
Software; and (iv) return to Supplier all Confidential Information and other
materials received from Supplier and all copies thereof.
12.4 Retained Copy for Support. Notwithstanding the foregoing,
Distributor may retain one copy of the Software and use such copy solely for the
purpose of providing support to end users of the Product.
12.5 Right to Distribute Stock on Hand. Notwithstanding the foregoing,
upon termination of this Agreement for any cause other than a breach by
Distributor, Distributor shall notify Supplier of the number of units of Product
Distributor has in stock at the time of such termination. Provided that Supplier
receives such notification within ten (10) days after such
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<PAGE> 9
termination, Distributor shall have the right to distribute such stock on hand
for a period of six (6) months, subject to the payment of license fees pursuant
to Section 3 hereof and any other amounts due hereunder. At the end of such six
(6)-month period, or, if Supplier does not receive such notification within ten
(10) days after termination, or, if the Agreement was terminated due to
Distributor's breach, at the end of such ten (10) day period, Distributor shall
destroy all copies of all Products incorporating the Software and all copies of
the Software within its possession or control (except as provided in Section
12.4 hereof) and shall promptly notify Supplier in writing of such destruction.
13. Independent Parties.
The parties are independent contractors. Neither party is an employee, agent
co-venturer or legal representative of the other party for any purpose. Neither
party shall have the authority to enter into any contracts in the name of or on
behalf of the other party.
14. Governing Law.
This Agreement is made in accordance with and shall be governed and construed
under the laws of the State of California, excluding its choice of law rules and
excluding the 1980 United Nations Convention on Contracts for the International
Sale of Goods. In any legal action relating to this Agreement, Distributor
agrees to the exercise of jurisdiction over it by a state or federal court in
the County of Marin, California, and to such venue.
15. Notice,
All notices, including notices of address change, required or permitted to be
given under this Agreement shall be in writing and shall be deemed to have been
received (a) when received if hand delivered, (b) five (5) days after being sent
by first class U.S. mail, (c) two (2) business days after being sent by express
mail or (d) when received if sent by confirmed telecopy, in each case addressed
to the first address first set forth above or such other address as the parties
may designate.
16. Nonassignability; Binding on Successors.
Any attempted assignment of its rights or delegation of its obligations under
this Agreement, whether by operation of law or otherwise, by Distributor shall
be void without the prior written consent of Supplier, which shall not be
unreasonably withheld. A change of ownership of Distributor shall be deemed an
assignment. This Agreement shall be binding upon, and inure to the benefit of,
the successors, executors, heirs, representatives, administrators and permitted
assigns of the parties hereto.
17. Force Majeure.
Neither party shall be liable to the other for its failure to perform any of its
obligations under this Agreement, except for payment obligations, during any
period in which such performance is delayed because rendered impracticable or
impossible due to circumstances beyond its reasonable
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<PAGE> 10
control, including without limitation earthquakes, governmental regulation,
fire, flood, labor difficulties, civil disorder, and all acts of God, provided
that the party experiencing the delay promptly notifies the other party of the
delay.
18. Miscellaneous.
18.1 Severability. In the event any provision of this Agreement is hold
to be invalid or unenforceable, such provision shall be changed and interpreted
so as to best accomplish the objectives of the original provision to the fullest
extent allowed by law and the remaining provisions of this Agreement will remain
in fall force and effect.
18.2 Waiver. Any waiver (express or implied) by either party of any
breach of this Agreement shall not constitute a waiver of any other or
subsequent breach.
18.3 Purchase Order. This Agreement alone sets forth Distributor's
rights with respect to the Software. All different or additional terms or
conditions in any Distributor purchase order or similar document shall be null
and void.
18.4 Government Restricted Rights. For U.S. government users, the
Software and any related documentation are deemed to be "commercial computer
software" and "commercial computer software documentation", respectively,
pursuant to DFAR Section 227.7202 and FAR Section 12.212, as applicable. Any
use, modification, reproduction, release, performing, displaying or disclosing
of the Software and/or any related documentation by the U.S. Government shall be
governed solely by the terms of this Agreement and shall be prohibited except to
the extent expressly permitted by the terms of this Agreement.
18.5 Entire Agreement, Amendment. This Agreement and the Exhibits
attached hereto constitute the final, complete and exclusive agreement between
the panics and supersede all previous or contemporaneous agreements or
representations written or oral, with respect to the subject matter of this
Agreement. This Agreement may not be modified or amended except in a writing
signed by a duly authorized representative of each party,
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be
signed and delivered by its duly authorized officer or representative as of the
date first act forth above.
SUPPLIER DISTRIBUTOR
Artifex Software Inc.
By: /s/ Miles Jones By: /s/ David Doyle
----------------------- -----------------------
Name: Miles Jones Name: David Doyle
Title: President Title: President
Date: 3/26/98 Date: 3/3/98
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Exhibit A
General Description of the Software
- -----------------------------------
The Software licensed under the present agreement includes:
- - An interpreter that is compatible with the PostScript (TM) language;
- - A library of C procedures that implement the graphics capabilities that
appear as primitive operations in the PostScript language;
- - A set of scalable outline fonts in PostScript Type 1 format, compatible in
appearance and metrics with the fonts commonly distributed under the
following names:
Bookman (Demi, Demi Italic, Light, Light Italic)
Courier (plain, Oblique, Bold, Bold Oblique)
Avant Garde (Book, Book Oblique, Demi, Demi Oblique)
Helvetica (plain, Oblique, Bold, Bold Oblique,
Narrow, Narrow Oblique, Narrow Bold, Narrow Bold Oblique)
Palatino (Roman, Italic, Bold, Bold Italic)
New Century Schoolbook (Roman, Italic, Bold, Bold Italic)
Times (Roman, Italic, Bold, Bold Italic)
Symbol
Zapf Chancery Medium Italic
Zapf Dingbats
Except as noted in the detailed documentation accompanying the Software, the
Software is intended to execute properly any source program that conforms to the
definition of the Level 2 PostScript Language as presented in the December 1990
printing of the PostScript Language Reference Manual (Second Edition) published
by Addison-Wesley.
The initial version of the Software delivered to Distributor shall be version
5.10.
Trademarks
- ----------
Supplier has registered the trademark Artifex in connection with its products
and services. Supplier has trademarked the name Artifex RIPSet for the Software.
A non-commercial version of the Software is commonly known under the trade name
Ghostscript or Aladdin Ghostscript; Supplier may also use this name internally
for the Software.
Copyright Notices
- -----------------
Portions Copyright (C) 1988, 1997 Aladdin Enterprises. All rights reserved.
Portions Copyright (c) 1993 Soft Horizons. All rights reserved.
- -------------------------------------------
PostScript is a trademark of Adobe Systems, Incorporated.
<PAGE> 12
Exhibit B
Description of the Product
- --------------------------
The VISTA Plus Postscript Option is a plug-in addition to the standard VISTA
Plus product that allows the capture of files in Postscript (or PDF) format into
Quest Software's VISTA Proprietary Format for online viewing and distribution
from the VISTA Plus Windows or Java Clients. This option will be sold separately
from the main VISTA Plus software described below.
Quest Software's VISTA Plus is a comprehensive report management system that
provides users with electronic access to report information. VISTA Plus
selectively captures reports, indexes and stores them in a secure, centralized
report warehouse. Authorized users can then immediately access the reports from
Windows or JAVA-based VISTA Plus Clients.
<PAGE> 13
Exhibit C
END USER NOTICES
TERMS OF END USER SUBLICENSES
All end user license agreements for the Product will contain at a minimum the
following terms:
(1) Only a personal, nontransferable, and nonexclusive right to use the Product
is granted to such end user,
(2) Artifex Software Inc. retains all title to the Software as incorporated in
the Product, and all copies thereof, and no title to the Software, or any
intellectual property in the Software, is transferred to such end user,
(3) The end user may not copy (i) the Product, except for one (1) copy for
backup or archival purposes only and only as necessary to use the Product; or
(ii) any documentation accompanying the Product. All such copies are the
proprietary information of Distributor and its licensors and suppliers and are
subject to their copyrights;
(4) The end user agrees not to reverse engineer, decompile, or otherwise attempt
to derive source code from the Product;
(5) Artifex Software Inc. is an intended third party beneficiary of the end user
sublicense and is entitled to enforce it in its own name directly against the
end user,
(6) ARTIFEX SOFTWARE INC. WILL NOT BE LIABLE TO THE END USER FOR ANY GENERAL,
SPECIAL, DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, OR OTHER DAMAGES ARISING
OUT OF THE LICENSE OF THE PRODUCT EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES,
(7) Upon termination of the license, the end user will return all copies of the
Product to Distributor;
(8) Use, duplication or disclosure of the Product by the U.S. Government is
subject to "Restricted Rights", as that term is defined in the Department of
Defense ("DOD") Supplement to the Federal Acquisition Regulations ("DFARS") in
paragraph 252.227-7013(o)(1) if to the DOD, or, if the Product is supplied to
any unit or agency of the U.S. Government other than DOD, the Government's
rights in the Product will be as defined in paragraph 52.227-19(o)(2) of the
Federal Acquisition Regulations ("FAR"). Use, duplication or disclosure by any
foreign government is subject to equivalent restrictions as defined in that
country's laws and/or regulations.
(9) Artifex: Software Inc. makes no warranties, express, implied or statutory,
regarding the Product and the Software, including without limitation the implied
warranties of merchantability and fitness for a particular purpose, or their
equivalent under the laws of any jurisdiction.
<PAGE> 14
Artifex Software, Inc., may be referred to as Distributor's licensor or
supplier. The notices in paragraphs (2), (4), (6) and (9), shall be in bold,
capital letters and be conspicuous to end users.
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Exhibit D
D-1. Right to Sublicense.
Distributor may not sublicense the rights granted by this Agreement.
D-2. Marking of Copies.
Subject to Distributor's payment obligations hereunder, no identification of
individual copies is required under this Agreement
D-3. Fees, Payment, Reports, and Records.
D-3.1 Fees.
(a) Per Unit License Fee. For each unit(site license) of the Product
incorporating the Software sold by or on behalf of Distributor or its
sublicensees hereunder, Distributor shall pay to Supplier at Supplier's
principal place of business (without deduction or offset except as authorized by
Supplier) the amount of [***] of Distributor's selling price of the
corresponding unit (site license) of Product, or [***], whichever is greater. In
the case of a Product sold through a Third Party Reseller, the "selling
price(s)" shall be the unit price(s) paid to Distributor or sublicensee by such
Third Party Reseller. Such prices are exclusive of, and Distributor shall pay
for, shipping, any sales, use, property, value added or similar taxes, federal,
state, or local, or other charges imposed on or with respect to the Software or
its delivery, use or possession, except taxes based upon the net income of
Supplier.
(b) Prepaid License Fees. There is no prepaid license fee due under this
Agreement
(c) Major Version Fee, Distributor shall receive now Major Versions without
additional charge.
(d) Continued Support Fee. For each quarter of Continued Support, Distributor
shall pay Supplier the amount of [***]. In the event that Distributor has paid
Supplier in excess of [***] in license fees under Section D-3.1(a) within the
previous two (2) quarters, the Continued Support Fee for the then-current
quarter shall be waived.
(e) Technology Access Fee. Distributor agrees to pay Supplier the amount of
[***] as a technology access fee; this amount shall be due and payable as of the
effective date of the present Agreement.
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 16
D-3.2 Payment.
(a) Fee Due Date. The license fee for a given unit of the Software shall be
incurred when Distributor receives notice that the corresponding unit of the
Product has been sold, or when Distributor receives payment for the
corresponding unit of the Product, whichever is sooner.
(b) Quarterly Payment. Within 30 days after the end of each calendar quarter,
Distributor shall pay Supplier all license fees incurred during that quarter per
subsection (a) immediately above, less credit for any amounts actually paid by
Distributor within that quarter for returned units of the Product, unless
Supplier agrees to other terms in advance in writing.
(c) Payment Currency and Instrument. All payments hereunder shall be in U.S.
dollars, by check drawn on a U.S. bank.
D-3.3. Reports.
Payment of license fees shall be accompanied by a report which sets forth on a
month-by-month basis the total number of units of the Product distributed by
Distributor, its sublicensees, and their Third Party Resellers, during such
quarter by each U.S. postal zip code or as may otherwise be agreed to in writing
between Distributor and Supplier, and all amounts due under Section D-3.1 above,
along with the basis for Distributor's calculation thereof. If the Product is
sold at more than one price, or the price for the Product and hence the amounts
due Supplier, changed during the quarter, the report shall set forth the number
of units to which each different price applies.
D-3.4. Records.
Distributor shall keep accurate books and rewards of all units of the Software
made and distributed hereunder. Upon 2 business days' notice, Supplier shall
have the right to audit and make extracts from such books and records, at
Supplier's expense, at most twice in each 12-month period. In the event that any
audit reveals an underpayment to Supplier of more than 5% of the license fees
payable during the period subject to audit Distributor shall pay the cost of the
audit in addition to the amounts due.
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<PAGE> 17
Exhibit E
(Upgrades and support)
E-1. Upgrades,
(a) Version Numbering. From time to time, Supplier may release new versions
of the Software. Each version shall be identified by three integers A.B.C or two
integers A.B (equivalent to A.B.0). The integer A identifies the "Major Version"
of the Software; the integer B identifies the "Minor Version"; the integer C
identifies the "Incremental Version". Successive Incremental Versions denote bug
fixes or minor improvements with no significant changes in specification;
successive Minor Versions denote significant new features within the framework
of an existing specification; successive Major Versions denote architectural
changes in or additions to the specification.
(b) New Versions. Supplier shall notify Distributor promptly when a new
version becomes available. At Distributor's request, Supplier shall deliver the
new version to Distributor. For new Incremental and Minor versions. Distributor
will have the same rights with respect to the new version as with respect to the
version(s) delivered previously at no additional charge. For new Major Versions,
Distributor may evaluate the new version internally for a period of 60 days at
no charge; after that time, Distributor shall either destroy or return all
copies of the new version to Supplier, or pay Supplier an amount or amounts
specified in Section D-3.1(c) of Exhibit D hereto, in exchange for which
Distributor will have the same rights with respect to the new Major Version as
with respect to the version(s) delivered previously.
E-2. Support and Engineering Services.
(a) Definition of Support. "Support" under this Agreement means Supplier
using its commercially reasonable efforts to fix documented and reproducible
failures of the Software to perform as specified in its written specifications.
Supplier shall have no other support obligation to Distributor in connection
with the Software.
(b) Initial Support Period. During the period starting with the initial
delivery of the source code of the Software to Distributor hereunder and
continuing through the end of the first calendar quarter whose last day is at
least 9 months after the said delivery date (the "Initial Support Period"),
Supplier shall provide Support to Distributor free of charge.
(c) Continued Support. For each calendar quarter after the Initial Support
Period in which Distributor wishes Supplier to provide Support ("Continued
Support"), Distributor shall pay Supplier the Continued Support Fee specified in
Section D-3.1(d) of Exhibit D hereto. This support fee shall be payable at the
end of the quarter before the quarter in which Continued Support is desired.
Supplier shall have no obligation to provide Continued Support until it receives
the Continued Support Fee.
(d) Support for Previous Major Versions. Supplier &hall cease providing
Support for any Major Version of the Software one year after Supplier has
released a subsequent Major Version.
<PAGE> 18
(e) Engineering Services. Supplier shall have no obligation hereunder to
provide Distributor with engineering services other than the Support set forth
above.
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FIRST OEM AMENDMENT
This First Amendment ("Amendment") is made and entered into as of the 4th day of
June 1998 by and between Artifex Software Inc., with its principal place of
business located at San Rafael, California ("Supplier"), and, Quest Software,
Inc. with its principal place of business located at 610 Newport Center, Newport
Beach, CA 92660 ("Distributor").
The text of this Amendment shall consist of the text of the existing OEM
Agreement of March 3, 1998 between Artifex Software Inc. "Supplier" and Quest
Software, Inc. "Distributor", with the following exceptions:
In Exhibit A under "Copyright Notices" please add the following sentence:.
"This software is based in part on the work of the Independent JPEG Group."
All other terms and conditions of the existing OEM Agreement shall apply to the
licensing of Ghostscript(the Software).
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be
signed and delivered by its duly authorized officer or representative as of the
date first set forth above,
SUPPLIER DISTRIBUTOR
Artifex Software Inc.
By: /s/ Miles Jones By: /s/ David Doyle
-------------------------- ------------------------
Name: Miles Jones Name:
Title: President Title:
Date: 6/18/98 Date:
